Amended and Restated Loan and Security Agreement


     

    IMPLANT
      SCIENCES CORPORATION

    ACCUREL
      SYSTEMS INTERNATIONAL CORPORATION

    C
      ACQUISITION CORP.

    


    BRIDGE
      BANK, N.A.

     

    AMENDED
      AND RESTATED

    LOAN
      AND SECURITY AGREEMENT

    


    



    This
      Amended
      and Restated Loan And Security Agreement
      is
      entered into as of January 3, 2007, by and between Bridge
      Bank, N.A.
      (“Bank”)
      and Implant
      Sciences Corporation,
      a
      Massachusetts corporation (“Implant”), Accurel
      Systems International Corporation,
      a
      California corporation (“Accurel”), and C
      Acquisition Corp.
      a
      Delaware corporation (“Acquisition”) (each of Implant, Accurel and Acquisition
      are individually referred to herein as a “Borrower” and collectively, the
“Borrowers”).

     

    Recitals

     

    Borrowers
      wish to obtain credit from time to time from Bank, and Bank desires to extend
      credit to Borrowers. 

     

    Bank,
      Implant and Acquisition are parties to that Business Financing Agreement dated
      as of June 1, 2005 as amended from time to time (the “Original Agreement”). The
      parties wish to amend and restate the terms of the Original Agreement. This
      Agreement sets forth the terms on which Bank will advance credit to Borrowers,
      and Borrowers will repay the amounts owing to Bank.

     

    Agreement

     

    The
      parties agree as follows:

     

    1.  Definitions
      and Construction.

     

    1.1  Definitions.
      As used
      in this Agreement, the following terms shall have the following
      definitions:

     

    “Accounts”
      means all presently existing and hereafter arising accounts, contract rights,
      payment intangibles, and all other forms of obligations owing to a Borrower
      arising out of the sale or lease of goods (including, without limitation, the
      licensing of software and other technology) or the rendering of services by
      a
      Borrower, whether or not earned by performance, and any and all credit
      insurance, guaranties, and other security therefor, as well as all merchandise
      returned to or reclaimed by a Borrower and Borrower’s Books relating to any of
      the foregoing.

     

    “Advance”
      or “Advances” means a cash advance or cash advances under the Revolving
      Facility.

     

    “Affiliate”
      means, with respect to any Person, any Person that owns or controls directly
      or
      indirectly such Person, any Person that controls or is controlled by or is
      under
      common control with such Person, and each of such Person’s senior executive
      officers, directors, and partners.

     

    “Bank
      Expenses” means all: reasonable costs or expenses (including reasonable
      attorneys’ fees and expenses) incurred in connection with the preparation,
      negotiation, administration, and enforcement of the Loan Documents; reasonable
      Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses
      incurred in amending, enforcing or defending the Loan Documents (including
      fees
      and expenses of appeal), incurred before, during and after an Insolvency
      Proceeding, whether or not suit is brought.

     

    “Borrower’s
      Books” means all of Borrowers’ books and records including: ledgers; records
      concerning a Borrower’s assets or liabilities, the Collateral, business
      operations or financial condition; and all computer programs, or tape files,
      and
      the equipment, containing such information.

     

    “Borrowing
      Base” means an amount equal to eighty percent (80%) of Eligible Accounts
plus,
      an
      amount equal to the lesser of $1,000,000 or forty percent (40%) of Eligible
      Inventory (valued at the lower of cost or wholesale fair market value), as
      determined by Bank with reference to the most recent Borrowing Base Certificate
      delivered by Borrowers. 

     

    “Business
      Day” means any day that is not a Saturday, Sunday, or other day on which banks
      in the State of California are authorized or required to close.

     

    “Change
      in Control” shall mean a transaction in which any “person” or “group” (within
      the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
      1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
      Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
      of shares of all classes of stock then outstanding of a Borrower ordinarily
      entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of a Borrower, who did not
      have such power before such transaction.

     

    “Closing
      Date” means the date of this Agreement.

     

    “Code”
      means the California Uniform Commercial Code, as amended or supplemented from
      time to time.

     

    “Collateral”
      means all personal property of Borrower whether presently existing or hereafter
      created or acquired, and wherever located, including, but not limited
      to:

     

    (a)
       all
      accounts (including health-care-insurance receivables), chattel paper (including
      tangible and electronic chattel paper), deposit accounts, documents (including
      negotiable documents), equipment (including all accessions and additions
      thereto), general intangibles (including payment intangibles and software),
      intellectual property, copyrights, trademarks, patents, goodwill, goods
      (including fixtures), instruments (including promissory notes), inventory
      (including all goods held for sale or lease or to be furnished under a contract
      of service, and including returns and repossessions), investment property
      (including securities and securities entitlements), letter of credit rights,
      money, and all of Borrower’s books and records with respect to any of the
      foregoing, and the computers and equipment containing said books and records;
      and

     

    (b)
       any
      and
      all cash proceeds and/or noncash proceeds of any of the foregoing, including,
      without limitation, insurance proceeds, and all supporting obligations and
      the
      security therefor or for any right to payment. All terms above have the meanings
      given to them in the Code.

     

    “Contingent
      Obligation” means, as applied to any Person, any direct or indirect liability,
      contingent or otherwise, of that Person with respect to (i) any
      indebtedness, lease, dividend, letter of credit or other obligation of another;
      (ii) any obligations with respect to undrawn letters of credit, corporate
      credit cards, or merchant services issued or provided for the account of that
      Person; and (iii) all obligations arising under any agreement or
      arrangement designed to protect such Person against fluctuation in interest
      rates, currency exchange rates or commodity prices; provided, however, that
      the
      term “Contingent Obligation” shall not include endorsements for collection or
      deposit in the ordinary course of business. The amount of any Contingent
      Obligation shall be deemed to be an amount equal to the stated or determined
      amount of the primary obligation in respect of which such Contingent Obligation
      is made or, if not stated or determinable, the maximum reasonably anticipated
      liability in respect thereof as determined by Bank in good faith; provided,
      however, that such amount shall not in any event exceed the maximum amount
      of
      the obligations under the guarantee or other support arrangement.

     

    “Copyrights”
      means any and all copyright rights, copyright applications, copyright
      registrations and like protections in each work or authorship and derivative
      work thereof.

     

    “Credit
      Extension” means each Advance, Term Loan, Letter of Credit, or any other
      extension of credit by Bank for the benefit of a Borrower
      hereunder.

     

    “Current
      Assets” means, as of any applicable date, all amounts that should, in accordance
      with GAAP, be included as current assets on the consolidated balance sheet
      of
      Borrowers and its Subsidiaries as at such date.

     

    “Current
      Liabilities” means, as of any applicable date, all amounts that should, in
      accordance with GAAP, be included as current liabilities on the consolidated
      balance sheet of Borrowers and its Subsidiaries, as at such date, plus, to
      the
      extent not already included therein, all outstanding Credit Extensions made
      under this Agreement.

     

    “Daily
      Balance” means the amount of the Obligations owed at the end of a given
      day.

     

    “Eligible
      Accounts” means those Accounts that arise in the ordinary course of a Borrower’s
      business that comply with all of Borrowers’ representations and warranties to
      Bank set forth in Section 5.4;
      provided, that standards of eligibility may be fixed and revised from time
      to
      time by Bank in Bank’s reasonable judgment and upon notification thereof to
      Borrowers in accordance with the provisions hereof. Unless otherwise agreed
      to
      by Bank, Eligible Accounts shall not include the following:

     

    (a)  Accounts
      that the account debtor has failed to pay within ninety (90) days of invoice
      date;

     

    (b)  Accounts
      with respect to an account debtor, thirty-five percent (35%) of whose Accounts
      the account debtor has failed to pay within ninety (90) days of invoice
      date;

     

    (c)  Accounts
      with respect to which the account debtor is an officer, employee, or agent
      of a
      Borrower;

     

    (d)  Accounts
      with respect to which goods are placed on consignment, guaranteed sale, sale
      or
      return, sale on approval, bill and hold, or other terms by reason of which
      the
      payment by the account debtor may be conditional;

     

    (e)  Accounts
      with respect to which the account debtor is an Affiliate of a
      Borrower;

     

    (f)  Accounts
      with respect to which the account debtor does not have its principal place
      of
      business in the United States, except for Eligible Foreign
      Accounts;

     

    (g)  Accounts
      with respect to which the account debtor is the United States or any department,
      agency, or instrumentality of the United States, to the extent such Accounts
      in
      the aggregate exceed $500,000;

     

    (h)  Accounts
      with respect to which a Borrower is liable to the account debtor for goods
      sold
      or services rendered by the account debtor to such Borrower or for deposits
      or
      other property of the account debtor held by such Borrower, but only to the
      extent of any amounts owing to the account debtor against amounts owed to such
      Borrower;

     

    (i)  Accounts
      with respect to an account debtor, including Subsidiaries and Affiliates, whose
      total obligations to Borrowers exceed thirty percent (30%) of all Accounts,
      to
      the extent such obligations exceed the aforementioned percentage, except as
      approved in writing by Bank;

     

    (j)  Accounts
      with respect to which the account debtor disputes liability or makes any claim
      with respect thereto as to which Bank believes, in its sole discretion, that
      there may be a basis for dispute (but only to the extent of the amount subject
      to such dispute or claim), or is subject to any Insolvency Proceeding, or
      becomes insolvent, or goes out of business; and

     

    (k)  Accounts
      the collection of which Bank reasonably determines to be doubtful.

     

    “Eligible
      Foreign Accounts” means Accounts with respect to which the account debtor does
      not have its principal place of business in the United States and that
      (i) are supported by one or more letters of credit in an amount and of a
      tenor, and issued by a financial institution, acceptable to Bank, or
      (ii) that Bank reasonably approves on a case-by-case basis.

     

    “Eligible
      Inventory” means raw materials and finished goods Inventory approved by Bank
      from time to time, measured at Borrowers’ cost. Unless otherwise agreed to by
      Bank, the following shall not be Eligible Inventory:

     

    (a) Perishable
      goods;

     

    (b) Consigned
      Inventory;

     

    (c) Obsolete
      goods;

     

    (d) Inventory
      affected by a Borrower’s non-compliance with the Fair Labor Standards
      Act;

     

    (e) Supplies,
      packaging, customized Inventory with narrow distribution channels;

     

    (f) Work
      in
      progress;

     

    (g) Inventory
      related to industries that Bank determines upon notice to Borrowers from time
      to
      time to be undesirable; and

     

    (h) Other
      Inventory that Bank reasonably determines from time to time to be
      ineligible.

     

    “Equipment”
      means all present and future machinery, equipment, tenant improvements,
      furniture, fixtures, vehicles, tools, parts and attachments in which a Borrower
      has any interest.

     

    “ERISA”
      means the Employee Retirement Income Security Act of 1974, as amended, and
      the
      regulations thereunder.

     

    “Event
      of
      Default” has the meaning assigned in Article 8.

     

    “GAAP”
      means generally accepted accounting principles as in effect from time to
      time.

     

    “Indebtedness”
      means (a) all indebtedness for borrowed money or the deferred purchase
      price of property or services, including without limitation reimbursement and
      other obligations with respect to surety bonds and letters of credit,
      (b) all obligations evidenced by notes, bonds, debentures or similar
      instruments, (c) all capital lease obligations and (d) all Contingent
      Obligations.

     

    “Insolvency
      Proceeding” means any proceeding commenced by or against any person or entity
      under any provision of the United States Bankruptcy Code, as amended, or under
      any other bankruptcy or insolvency law, including assignments for the benefit
      of
      creditors, formal or informal moratoria, compositions, extension generally
      with
      its creditors, or proceedings seeking reorganization, arrangement, or other
      relief.

     

    “Intellectual
      Property Collateral” means all of each Borrower’s right, title, and interest in
      and to the following:

     

    (a)  Copyrights,
      Trademarks and Patents;

     

    (b)  Any
      and
      all trade secrets, and any and all intellectual property rights in computer
      software and computer software products now or hereafter existing, created,
      acquired or held;

     

    (c)  Any
      and
      all design rights which may be available to Borrowers now or hereafter existing,
      created, acquired or held;

     

    (d)  Any
      and
      all claims for damages by way of past, present and future infringement of any
      of
      the rights included above, with the right, but not the obligation, to sue for
      and collect such damages for said use or infringement of the intellectual
      property rights identified above;

     

    (e)  All
      licenses or other rights to use any of the Copyrights, Patents or Trademarks,
      and all license fees and royalties arising from such use to the extent permitted
      by such license or rights; 

     

    (f)  All
      amendments, renewals and extensions of any of the Copyrights, Trademarks or
      Patents; and

     

    (g)  All
      proceeds and products of the foregoing, including without limitation all
      payments under insurance or any indemnity or warranty payable in respect of
      any
      of the foregoing. 

     

    “Inventory”
      means all inventory in which Borrowers have or acquire any interest, including
      work in process and finished products intended for sale or lease or to be
      furnished under a contract of service, of every kind and description now or
      at
      any time hereafter owned by or in the custody or possession, actual or
      constructive, of a Borrower, including such inventory as is temporarily out
      of
      its custody or possession or in transit and including any returns upon any
      accounts or other proceeds, including insurance proceeds, resulting from the
      sale or disposition of any of the foregoing and any documents of title
      representing any of the above, and Borrower’s Books relating to any of the
      foregoing.

     

    “Investment”
      means any beneficial ownership of (including stock, partnership interest or
      other securities) any Person, or any loan, advance or capital contribution
      to
      any Person.

     

    “IRC”
      means the Internal Revenue Code of 1986, as amended, and the regulations
      thereunder.

     

    “Lien”
      means any mortgage, lien, deed of trust, charge, pledge, security interest
      or
      other encumbrance.

     

    “Loan
      Documents” means, collectively, this Agreement, any note or notes executed by
      Borrowers, and any other agreement entered into in connection with this
      Agreement, all as amended or extended from time to time.

     

    “Material
      Adverse Effect” means a material adverse effect on (i) the business,
      operations, condition (financial or otherwise) or prospects of Borrowers and
      their Subsidiaries taken as a whole or (ii) the ability of Borrowers to
      repay the Obligations or otherwise perform its obligations under the Loan
      Documents or (iii) the value or priority of Bank’s security interests in
      the Collateral.

     

    “Negotiable
      Collateral” means all of each Borrower’s letters of credit of which such
      Borrower is a beneficiary, notes, drafts, instruments, securities, documents
      of
      title, and chattel paper, and each Borrower’s Books relating to any of the
      foregoing.

     

    “Obligations”
      means all debt, principal, interest, Bank Expenses and other amounts owed to
      Bank by Borrowers pursuant to this Agreement or any other agreement, whether
      absolute or contingent, due or to become due, now existing or hereafter arising,
      including any interest that accrues after the commencement of an Insolvency
      Proceeding and including any debt, liability, or obligation owing from Borrowers
      to others that Bank may have obtained by assignment or otherwise.

     

    “Patents”
      means all patents, patent applications and like protections including without
      limitation improvements, divisions, continuations, renewals, reissues,
      extensions and continuations-in-part of the same.

     

    “Periodic
      Payments” means all installments or similar recurring payments that Borrowers
      may now or hereafter become obligated to pay to Bank pursuant to the terms
      and
      provisions of any instrument, or agreement now or hereafter in existence between
      Borrowers and Bank.

     

    “Permitted
      Indebtedness” means:

     

    (a)  Indebtedness
      of Borrowers in favor of Bank arising under this Agreement or any other Loan
      Document;

     

    (b)  Indebtedness
      existing on the Closing Date and disclosed in the Schedule;

     

    (c)  Indebtedness
      secured by a lien described in clause (c)
      of the
      defined term “Permitted Liens,” provided (i) such Indebtedness does not
      exceed the lesser of the cost or fair market value of the equipment financed
      with such Indebtedness and (ii) such Indebtedness does not exceed $100,000
      in the aggregate at any given time; 

     

    (d)  Indebtedness
      owing to Laurus Master Fund; and 

     

    (e)  Subordinated
      Debt.

     

    “Permitted
      Investment” means:

     

    (a)  Investments
      existing on the Closing Date disclosed in the Schedule; and

     

    (b)  (i) marketable
      direct obligations issued or unconditionally guaranteed by the United States
      of
      America or any agency or any State thereof maturing within one (1) year from
      the
      date of acquisition thereof, (ii) commercial paper maturing no more than
      one (1) year from the date of creation thereof and currently having rating
      of at
      least A-2 or P-2 from either Standard & Poor’s Corporation or
      Moody’s Investors Service, (iii) certificates of deposit maturing no more
      than one (1) year from the date of investment therein issued by Bank and
      (iv) Bank’s money market accounts.

     

    “Permitted
      Liens” means the following:

     

    (a)  Any
      Liens
      existing on the Closing Date and disclosed in the Schedule or arising under
      this
      Agreement or the other Loan Documents;

     

    (b)  Liens
      for
      taxes, fees, assessments or other governmental charges or levies, either not
      delinquent or being contested in good faith by appropriate proceedings, provided
      the same have no priority over any of Bank’s security interests;

     

    (c)  Liens
      (i) upon or in any equipment which was not financed by Bank acquired or
      held by Borrowers or any of their Subsidiaries to secure the purchase price
      of
      such equipment or indebtedness incurred solely for the purpose of financing
      or
      leasing the acquisition of such equipment, or (ii) existing on such
      equipment at the time of its acquisition, provided that the Lien is confined
      solely to the property so acquired and improvements thereon, and the proceeds
      of
      such equipment; 

     

    (d)  Liens
      upon or in any equipment acquired by or leased by Accurel from FEI Company
      in an
      aggregate amount not to exceed $2,000,000; and 

     

    (e)  Liens
      incurred in connection with the extension, renewal or refinancing of the
      indebtedness secured by Liens of the type described in clauses (a) through
      (c)
      above, provided that any extension, renewal or replacement Lien shall be limited
      to the property encumbered by the existing Lien and the principal amount of
      the
      indebtedness being extended, renewed or refinanced does not
      increase.

     

    “Person”
      means any individual, sole proprietorship, partnership, limited liability
      company, joint venture, trust, unincorporated organization, association,
      corporation, institution, public benefit corporation, firm, joint stock company,
      estate, entity or governmental agency.

     

    “Prime
      Rate” means the variable rate of interest, per annum, that appears in The Wall
      Street Journal on the date of measurement whether or not such rate is the lowest
      rate available from Bank.

     

    “Responsible
      Officer” means each of the Chief Executive Officer and the Chief Financial
      Officer of each Borrower.

     

    “Revolving
      Facility” means the facility under which Borrowers may request Bank to issue
      Advances, as specified in Section 2.1(a)
      hereof.

     

    “Revolving
      Line” means a credit extension of up to Five Million Dollars
      ($5,000,000).

     

    “Revolving
      Maturity Date” means January 3, 2009. 

     

    “Schedule”
      means the schedule of exceptions attached hereto and approved by Bank, if
      any.

     

    “Subordinated
      Debt” means any debt incurred by a Borrower that is subordinated to the debt
      owing by Borrowers to Bank on terms acceptable to Bank (and identified as being
      such by Borrowers and Bank).

     

    “Subsidiary”
      means any corporation, company or partnership in which (i) any general
      partnership interest or (ii) more than 50% of the stock or other units of
      ownership which by the terms thereof has the ordinary voting power to elect
      the
      Board of Directors, managers or trustees of the entity, at the time as of which
      any determination is being made, is owned by Borrower, either directly or
      through an Affiliate.

     

    “Tangible
      Net Worth” means at any date as of which the amount thereof shall be determined,
      the sum of the capital stock and additional paid-in capital plus retained
      earnings (or minus accumulated deficit) of Borrowers and their Subsidiaries
      minus intangible assets, plus Subordinated Debt, on a consolidated basis
      determined in accordance with GAAP.

     

    “Trademarks”
      means any trademark and servicemark rights, whether registered or not,
      applications to register and registrations of the same and like protections,
      and
      the entire goodwill of the business of Borrowers connected with and symbolized
      by such trademarks.

     

    1.2  Accounting
      Terms.
      All
      accounting terms not specifically defined herein shall be construed in
      accordance with GAAP and all calculations made hereunder shall be made in
      accordance with GAAP. When used herein, the terms “financial statements” shall
      include the notes and schedules thereto.

     

    2.  Loan
      and Terms Of Payment.

     

    2.1  Credit
      Extensions.

     

    Borrowers
      promise to pay to the order of Bank, in lawful money of the United States of
      America, the aggregate unpaid principal amount of all Credit Extensions made
      by
      Bank to Borrowers hereunder. Borrowers shall also pay interest on the unpaid
      principal amount of such Credit Extensions at rates in accordance with the
      terms
      hereof.

     

    (a)  Revolving
      Advances.

     

    (i)  Subject
      to and upon the terms and conditions of this Agreement, a Borrower may request
      Advances in an aggregate outstanding amount not to exceed the lesser of
      (i) the Revolving Line or (ii) the Borrowing Base, minus,
      in each
      case, the Term Loan, the
      aggregate face amount of all outstanding Letters of Credit and
      the
      Credit Card Exposure. Subject to the terms and conditions of this Agreement,
      amounts borrowed pursuant to this Section 2.1(a)
      may be
      repaid and reborrowed at any time prior to the Revolving Maturity Date, at
      which
      time all Advances under this Section 2.1(a)
      shall be
      immediately due and payable. Borrowers may prepay any Advances without penalty
      or premium.

     

    (ii)  Whenever
      a Borrower desires an Advance, a Borrower will notify Bank by facsimile
      transmission or telephone no later than 3:00 p.m. Pacific time, on the
      Business Day that the Advance is to be made. Each such notification shall be
      promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit A
      hereto.
      Bank is authorized to make Advances under this Agreement, based upon
      instructions received from a Responsible Officer or a designee of a Responsible
      Officer, or without instructions if in Bank’s discretion such Advances are
      necessary to meet Obligations which have become due and remain unpaid. Bank
      shall be entitled to rely on any telephonic notice given by a person who Bank
      reasonably believes to be a Responsible Officer or a designee thereof, and
      Borrowers shall indemnify and hold Bank harmless for any damages or loss
      suffered by Bank as a result of such reliance. Bank will credit the amount
      of
      Advances made under this Section 2.1(a)
      to
      Borrower’s deposit account.

     

    (b)  Term
      Loan.

     

    (i)  Subject
      to and upon the terms and conditions of this Agreement, Bank agrees to make
      a
      Term Loan to Borrowers on the Closing Date in the amount up to the lesser of
      (i)
      $2,500,000 or (ii) the Borrowing Base (the “Term Loan”). The Term Loan includes
      a refinancing of a principal amount of $1,000,000 that Bank advanced under
      the
      Original Agreement.

     

    (ii)  The
      Term
      Loan shall be payable in thirty (30) equal monthly installments of principal,
      plus all accrued interest, beginning on January 10, 2007, and continuing on
      the
      same day of each month thereafter through June 10, 2009, at which time all
      amounts owing under this Section 2.1(b)
      and any
      other amounts owing under this Agreement shall be immediately due and payable.
      

     

    (c)  Letters
      of Credit.
      Subject
      to the terms and conditions of this Agreement, at any time prior to the
      Revolving Maturity Date, Bank agrees to issue letters of credit for the account
      of a Borrower (each, a “Letter of Credit” and collectively, the “Letters of
      Credit”) in an aggregate outstanding face amount not to exceed the lesser of the
      Revolving Line or the Borrowing Base minus,
      in each
      case, the Term Loan and the aggregate amount of the outstanding Advances,
      provided that the aggregate face amount of all outstanding Letters of Credit
      shall not exceed $500,000. All Letters of Credit shall be, in form and
      substance, acceptable to Bank in its sole discretion and shall be subject to
      the
      terms and conditions of Bank’s form of standard application and letter of credit
      agreement (the “Application”), which Borrowers hereby agree to execute. On any
      drawn but unreimbursed Letter of Credit, the unreimbursed amount shall be deemed
      an Advance under Section 2.1(a), but shall bear interest at a floating rate
      equal to the Prime Rate plus 2.0%. At any time, and in any case by the Revolving
      Maturity Date, Borrower shall secure in cash all obligations under any
      outstanding Letters of Credit in an amount equal to 110% of the face amount
      of
      the Letters of Credit, on terms acceptable to Bank, in which case the
      cash-secured Letter of Credit shall be excluded from outstanding Credit
      Extensions in the calculation of availability under Section 2.1. The obligation
      of Borrowers to reimburse Bank for drawings made under Letters of Credit shall
      be absolute, unconditional and irrevocable, and shall be performed strictly
      in
      accordance with the terms of this Agreement, the Application, and such Letters
      of Credit, under all circumstances whatsoever. Borrowers shall indemnify,
      defend, protect, and hold Bank harmless from any loss, cost, expense or
      liability, including, without limitation, reasonable attorneys’ fees, arising
      out of or in connection with any Letters of Credit, except for expenses caused
      by Bank’s gross negligence or willful misconduct.

     

    2.2  Overadvances.
      If the
      aggregate amount of the outstanding Advances and Term Loan plus
      the
      aggregate face amount of all outstanding Letters of Credit and the Credit Card
      Exposure exceeds the lesser of the Revolving Line or the Borrowing Base at
      any
      time, Borrowers shall immediately pay to Bank, in cash, the amount of such
      excess.

     

    2.3  Interest
      Rates, Payments, and Calculations.

     

    (a)  Interest
      Rates.

     

    (i)  Advances.
      Except
      as set forth in Section 2.3(b),
      the
      Advances shall bear interest, on the outstanding Daily Balance thereof, at
      a
      rate equal to one-half of one percent (0.50%) above the Prime Rate.

     

    (ii)  Term
      Loan.
      Except
      as set forth in Section  2.3(b),
      the
      Term Loan shall bear interest, on the outstanding Daily Balance thereof, at
      a
      rate equal to one percent (1.0%) above the Prime Rate.

     

    (b)  Late
      Fee; Default Rate.
      If any
      payment is not made on the date such payment is due, Borrowers shall pay Bank
      a
      late fee equal to the lesser of (i) five percent (5%) of the amount of such
      unpaid amount or (ii) the maximum amount permitted to be charged under
      applicable law. All Obligations shall bear interest, from and after the
      occurrence and during the continuance of an Event of Default, at a rate equal
      to
      five (5) percentage points above the interest rate applicable immediately prior
      to the occurrence of the Event of Default.

     

    (c)  Payments.
      Interest hereunder shall be due and payable on the tenth calendar day of each
      month during the term hereof. Bank shall, at its option, charge such interest,
      all Bank Expenses, and all Periodic Payments against any of Borrowers’ deposit
      accounts or against the Revolving Line, in which case those amounts shall
      thereafter accrue interest at the rate then applicable hereunder. Any interest
      not paid when due shall be compounded by becoming a part of the Obligations,
      and
      such interest shall thereafter accrue interest at the rate then applicable
      hereunder. All payments shall be free and clear of any taxes, withholdings,
      duties, impositions or other charges, to the end that Bank will receive the
      entire amount of any Obligations payable hereunder, regardless of source of
      payment.

     

    (d)  Computation.
      In the
      event the Prime Rate is changed from time to time hereafter, the applicable
      rate
      of interest hereunder shall be increased or decreased, effective as of the
      day
      the Prime Rate is changed, by an amount equal to such change in the Prime Rate.
      All interest chargeable under the Loan Documents shall be computed on the basis
      of a three hundred sixty (360) day year for the actual number of days
      elapsed.

     

    2.4  Crediting
      Payments.
      Prior
      to the occurrence of an Event of Default, Bank shall credit a wire transfer
      of
      funds, check or other item of payment to such deposit account or Obligation
      as
      Borrowers specify. After the occurrence of an Event of Default, the receipt
      by
      Bank of any wire transfer of funds, check, or other item of payment shall be
      immediately applied to conditionally reduce Obligations, but shall not be
      considered a payment on account unless such payment is of immediately available
      federal funds or unless and until such check or other item of payment is honored
      when presented for payment. Notwithstanding anything to the contrary contained
      herein, any wire transfer or payment received by Bank after 12:00 noon
      Pacific time shall be deemed to have been received by Bank as of the opening
      of
      business on the immediately following Business Day. Whenever any payment to
      Bank
      under the Loan Documents would otherwise be due (except by reason of
      acceleration) on a date that is not a Business Day, such payment shall instead
      be due on the next Business Day, and additional fees or interest, as the case
      may be, shall accrue and be payable for the period of such
      extension.

     

    2.5  Fees.
      Borrowers shall pay to Bank the following:

     

    (a)  Facility
      Fee.
      On the
      Closing Date, a Facility Fee equal to $37,500, which shall be nonrefundable;
      and

     

    (b)  Bank
      Expenses.
      On the
      Closing Date, all Bank Expenses incurred through the Closing Date, including
      reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank
      Expenses, including reasonable attorneys’ fees and expenses, as and when they
      are incurred by Bank.

     

    2.6  Term.
      This
      Agreement shall become effective on the Closing Date and, subject to
      Section 12.7,
      shall
      continue in full force and effect for so long as any Obligations remain
      outstanding or Bank has any obligation to make Credit Extensions under this
      Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate
      its obligation to make Credit Extensions under this Agreement immediately and
      without notice upon the occurrence and during the continuance of an Event of
      Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain
      in effect for so long as any Obligations are outstanding.

     

    3.  Conditions
      of Loans.

     

    3.1  Conditions
      Precedent to Initial Credit Extension.
      The
      obligation of Bank to make the initial Credit Extension is subject to the
      condition precedent that Bank shall have received, in form and substance
      satisfactory to Bank, the following:

     

    (a)  this
      Agreement;

     

    (b)  a
      certificate of the Secretary of each Borrower with respect to incumbency and
      resolutions authorizing the execution and delivery of this
      Agreement;

     

    (c)  an
      intellectual property security agreement from each Borrower;

     

    (d)  a
      warrant
      to purchase stock issued by Implant;

     

    (e)  an
      affirmation of subordination (Laurus Master Fund):

     

    (f)  subordination
      agreement (Laurus Master Fund);

     

    (g)  blank
      stock powers representing Borrowers’ interest in CardioTech International, Inc.
      and CorNova;

     

    (h)  agreement
      to provide insurance;

     

    (i)  instrument
      of assignment;

     

    (j)  payment
      of the fees and Bank Expenses then due specified in Section 2.5
      hereof;

     

    (k)  current
      financial statements of each Borrower;

     

    (l)  an
      audit
      of the Collateral, the results of which shall be satisfactory to Bank;
      and

     

    (m)  such
      other documents, and completion of such other matters, as Bank may reasonably
      deem necessary or appropriate.

     

    3.2  Conditions
      Precedent to all Credit Extensions.
      The
      obligation of Bank to make each Credit Extension, including the initial Credit
      Extension, is further subject to the following conditions:

     

    (a)  timely
      receipt by Bank of the Payment/Advance Form as provided in
      Section 2.1;
      and

     

    (b)  the
      representations and warranties contained in Section 5
      shall be
      true and correct in all material respects on and as of the date of such
      Payment/Advance Form and on the effective date of each Credit Extension as
      though made at and as of each such date, and no Event of Default shall have
      occurred and be continuing, or would exist after giving effect to such Credit
      Extension. The making of each Credit Extension shall be deemed to be a
      representation and warranty by Borrower on the date of such Credit Extension
      as
      to the accuracy of the facts referred to in this Section 3.2.

     

    4.  Creation
      of Security Interest.

     

    4.1  Grant
      of Security Interest.
      Each
      Borrower grants and pledges to Bank a continuing security interest in all
      presently existing and hereafter acquired or arising Collateral in order to
      secure prompt repayment of any and all Obligations and in order to secure prompt
      performance by Borrowers of each of its covenants and duties under the Loan
      Documents. Except as set forth in the Schedule, such security interest
      constitutes a valid, first priority security interest in the presently existing
      Collateral, and will constitute a valid, first priority security interest in
      Collateral acquired after the date hereof.

     

    4.2  Delivery
      of Additional Documentation Required.
      Each
      Borrower shall from time to time execute and deliver to Bank, at the request
      of
      Bank, all Negotiable Collateral, all financing statements and other documents
      that Bank may reasonably request, in form satisfactory to Bank, to perfect
      and
      continue the perfection of Bank’s security interests in the Collateral and in
      order to fully consummate all of the transactions contemplated under the Loan
      Documents.
      Borrowers from time to time may deposit with Bank specific time deposit accounts
      to secure specific Obligations. Borrowers authorize Bank to hold such balances
      in pledge and to decline to honor any drafts thereon or any request by a
      Borrower or any other Person to pay or otherwise transfer any part of such
      balances for so long as the Obligations are outstanding.

     

    4.3  Right
      to Inspect.
      Bank
      (through any of its officers, employees, or agents) shall have the right, upon
      reasonable prior notice, from time to time during Borrowers’ usual business
      hours but no more than twice a year (unless an Event of Default has occurred
      and
      is continuing), to inspect Borrowers’ Books and to make copies thereof and to
      check, test, and appraise the Collateral in order to verify Borrowers’ financial
      condition or the amount, condition of, or any other matter relating to, the
      Collateral.

     

    5.  Representations
      and Warranties.

     

    Each
      Borrower represents and warrants as follows:

     

    5.1  Due
      Organization and Qualification.
      Borrower and each Subsidiary is a corporation duly existing under the laws
      of
      its state of incorporation and qualified and licensed to do business in any
      state in which the conduct of its business or its ownership of property requires
      that it be so qualified.

     

    5.2  Due
      Authorization; No Conflict.
      The
      execution, delivery, and performance of the Loan Documents are within Borrower’s
      powers, have been duly authorized, and are not in conflict with nor constitute
      a
      breach of any provision contained in Borrower’s Articles of Incorporation or
      Bylaws, nor will they constitute an event of default under any material
      agreement to which Borrower is a party or by which Borrower is bound. Borrower
      is not in default under any material agreement to which it is a party or by
      which it is bound.

     

    5.3  No
      Prior Encumbrances.
      Borrower has good and marketable title to its property, free and clear of Liens,
      except for Permitted Liens.

     

    5.4  Bona
      Fide Eligible Accounts.
      The
      Eligible Accounts are bona fide existing obligations. The property and services
      giving rise to such Eligible Accounts has been delivered or rendered to the
      account debtor or to the account debtor’s agent for immediate and unconditional
      acceptance by the account debtor. Borrower has not received notice of actual
      or
      imminent Insolvency Proceeding of any account debtor that is included in any
      Borrowing Base Certificate as an Eligible Account.

     

    5.5  Merchantable
      Inventory.
      All
      Inventory is in all material respects of good and marketable quality, free
      from
      all material defects, except for Inventory for which adequate reserves have
      been
      made.

     

    5.6  Intellectual
      Property Collateral.
      Borrower is the sole owner of the Intellectual Property Collateral, except
      for
      non-exclusive licenses granted by Borrower to its customers in the ordinary
      course of business. Each of the Patents is valid and enforceable, and no part
      of
      the Intellectual Property Collateral has been judged invalid or unenforceable,
      in whole or in part, and no claim has been made that any part of the
      Intellectual Property Collateral violates the rights of any third party. Except
      as set forth in the Schedule, Borrower’s rights as a licensee of intellectual
      property do not give rise to more than five percent (5%) of its gross revenue
      in
      any given month, including without limitation revenue derived from the sale,
      licensing, rendering or disposition of any product or service. Except as set
      forth in the Schedule, Borrower is not a party to, or bound by, any agreement
      that restricts the grant by Borrower of a security interest in Borrower’s rights
      under such agreement.

     

    5.7  Name;
      Location of Chief Executive Office.
      Except
      as disclosed in the Schedule, Borrower has not done business under any name
      other than that specified on the signature page hereof. The chief executive
      office of Borrower is located at the address indicated in
      Section 10
      hereof.
      All
      Borrower’s Inventory and Equipment is located only at the location set forth in
      Section 10 hereof and at Borrower’s premises in Sunnyvale,
      California.

     

    5.8  Litigation.
      Except
      as set forth in the Schedule, there are no actions or proceedings pending by
      or
      against Borrower or any Subsidiary before any court or administrative agency
      in
      which an adverse decision could have a Material Adverse Effect, or a material
      adverse effect on Borrower’s interest or Bank’s security interest in the
      Collateral.

     

    5.9  No
      Material Adverse Change in Financial Statements.
      All
      consolidated and consolidating financial statements related to Borrower and
      any
      Subsidiary that Bank has received from Borrower fairly present in all material
      respects Borrower’s financial condition as of the date thereof and Borrower’s
      consolidated and consolidating results of operations for the period then ended.
      There has not been a material adverse change in the consolidated or the
      consolidating financial condition of Borrower since the date of the most recent
      of such financial statements submitted to Bank. 

     

    5.10  Solvency,
      Payment of Debts.
      Borrower is solvent and able to pay its debts (including trade debts) as they
      mature.

     

    5.11  Regulatory
      Compliance.
      Borrower and each Subsidiary have met the minimum funding requirements of ERISA
      with respect to any employee benefit plans subject to ERISA, and no event has
      occurred resulting from Borrower’s failure to comply with ERISA that could
      result in Borrower’s incurring any material liability. Borrower is not an
“investment company” or a company “controlled” by an “investment company” within
      the meaning of the Investment Company Act of 1940. Borrower is not engaged
      principally, or as one of the important activities, in the business of extending
      credit for the purpose of purchasing or carrying margin stock (within the
      meaning of Regulations T and U of the Board of Governors of the Federal
      Reserve System). Borrower has complied with all the provisions of the Federal
      Fair Labor Standards Act. Borrower has not violated any statutes, laws,
      ordinances or rules applicable to it, violation of which could have a Material
      Adverse Effect.

     

    5.12  Environmental
      Condition.
      Except
      as disclosed in the Schedule, none of Borrower’s or any Subsidiary’s properties
      or assets has ever been used by Borrower or any Subsidiary or, to the best
      of
      Borrower’s knowledge, by previous owners or operators, in the disposal of, or to
      produce, store, handle, treat, release, or transport, any hazardous waste or
      hazardous substance other than in accordance with applicable law; to the best
      of
      Borrower’s knowledge, none of Borrower’s properties or assets has ever been
      designated or identified in any manner pursuant to any environmental protection
      statute as a hazardous waste or hazardous substance disposal site, or a
      candidate for closure pursuant to any environmental protection statute; no
      lien
      arising under any environmental protection statute has attached to any revenues
      or to any real or personal property owned by Borrower or any Subsidiary; and
      neither Borrower nor any Subsidiary has received a summons, citation, notice,
      or
      directive from the Environmental Protection Agency or any other federal, state
      or other governmental agency concerning any action or omission by Borrower
      or
      any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
      waste or hazardous substances into the environment.

     

    5.13  Taxes.
      Borrower and each Subsidiary have filed or caused to be filed all tax returns
      required to be filed, and have paid, or have made adequate provision for the
      payment of, all taxes reflected therein.

     

    5.14  Subsidiaries.
      Borrower does not own any stock, partnership interest or other equity securities
      of any Person, except for Permitted Investments set forth on the
      Schedule.

     

    5.15  Government
      Consents.
      Borrower and each Subsidiary have obtained all material consents, approvals
      and
      authorizations of, made all declarations or filings with, and given all notices
      to, all governmental authorities that are necessary for the continued operation
      of Borrower’s business as currently conducted.

     

    5.16  Deposit
      and Investment Accounts.
      Except
      as disclosed on the Schedule, none of Borrower’s nor any Subsidiary’s Investment
      Property is maintained or invested with a Person other than Bank.

     

    5.17  Full
      Disclosure.
      No
      representation, warranty or other statement made by Borrower in any certificate
      or written statement furnished to Bank contains any untrue statement of a
      material fact or omits to state a material fact necessary in order to make
      the
      statements contained in such certificates or statements not
      misleading.

     

    6.  Affirmative
      Covenants.

     

    Each
      Borrower shall do all of the following:

     

    6.1  Good
      Standing.
      Borrower shall maintain its and each of its Subsidiaries’ corporate existence
      and good standing in its jurisdiction of incorporation and maintain
      qualification in each jurisdiction in which it is required under applicable
      law.
      Borrower shall maintain, and shall cause each of its Subsidiaries to maintain,
      in force all licenses, approvals and agreements, the loss of which could have
      a
      Material Adverse Effect.

     

    6.2  Government
      Compliance.
      Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
      funding requirements of ERISA with respect to any employee benefit plans subject
      to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply,
      with
      all statutes, laws, ordinances and government rules and regulations to which
      it
      is subject, noncompliance with which could have a Material Adverse
      Effect.

     

    6.3  Financial
      Statements, Reports, Certificates.
      Borrower shall deliver the following to Bank: (a) as soon as available, but
      in any event within thirty (30) days after the end of each calendar month,
      a
      company prepared consolidated balance sheet, income, and cash flow statement
      covering Borrower’s consolidated operations during such period, prepared in
      accordance with GAAP, consistently applied, in a form acceptable to Bank and
      certified by a Responsible Officer; (b) as soon as available, but in any
      event within one hundred eighty (180) days after the end of Borrower’s fiscal
      year, audited consolidated financial statements of Borrower prepared in
      accordance with GAAP, consistently applied, together with an unqualified opinion
      on such financial statements of an independent certified public accounting
      firm
      reasonably acceptable to Bank; (c) copies of all statements, reports and notices
      sent or made available generally by Borrower to its security holders or to
      any
      holders of Subordinated Debt and, if applicable, all reports on Forms 10-K
      and 10-Q filed with the Securities and Exchange Commission; (d) promptly
      upon receipt of notice thereof, a report of any legal actions pending or
      threatened against Borrower or any Subsidiary that could result in damages
      or
      costs to Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000) or
      more;
      (e) as soon as available, but in any event within thirty (30) days prior to
      fiscal year end, annual forecasts approved by the Borrower’s Board of Directors;
      (f) such budgets, sales projections, operating plans or other financial
      information as Bank may reasonably request from time to time;
      and (g)
      within ten (10) Business Days after the reasonable request of Bank, a report
      signed by Borrower, in form reasonably acceptable to Bank, listing any
      applications or registrations that Borrower has made or filed in respect of
      any
      Patents, Copyrights or Trademarks and the status of any active or pending
      material United States applications or registrations, as well as any material
      change in Borrower’s Intellectual Property Collateral (other than foreign
      applications and registrations), including but not limited to any subsequent
      ownership right of Borrower in or to any Trademark, Patent or Copyright not
      specified in Exhibits A, B, and C of any Intellectual Property Security
      Agreement delivered to Bank by Borrower in connection with this
      Agreement.

     

    Within
      thirty (30) days after the last day of each month, Borrower shall deliver to
      Bank a Borrowing Base Certificate signed by a Responsible Officer in
      substantially the form of Exhibit B
      hereto,
      together with aged listings of accounts receivable and accounts
      payable.

     

    Borrower
      shall deliver to Bank with the monthly financial statements a Compliance
      Certificate signed by a Responsible Officer in substantially the form of
Exhibit C
      hereto.

     

    Bank
      shall have a right from time to time hereafter to audit Borrower’s Accounts and
      appraise Collateral at Borrower’s expense, provided that such audits will be
      conducted no more often than every twelve (12) months unless an Event of Default
      has occurred and is continuing.

     

    6.4  Inventory;
      Returns.
      Borrower shall keep all Inventory in good and marketable condition, free from
      all material defects except for Inventory for which adequate reserves have
      been
      made. Returns and allowances, if any, as between Borrower and its account
      debtors shall be on the same basis and in accordance with the usual customary
      practices of Borrower, as they exist at the time of the execution and delivery
      of this Agreement. Borrower shall promptly notify Bank of all returns and
      recoveries and of all disputes and claims, where the return, recovery, dispute
      or claim involves more than One Hundred Thousand Dollars
      ($100,000).

     

    6.5  Taxes.
      Borrower shall make, and shall cause each Subsidiary to make, due and timely
      payment or deposit of all material federal, state, and local taxes, assessments,
      or contributions required of it by law, and will execute and deliver to Bank,
      on
      demand, appropriate certificates attesting to the payment or deposit thereof;
      and Borrower will make, and will cause each Subsidiary to make, timely payment
      or deposit of all material tax payments and withholding taxes required of it
      by
      applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
      F.U.T.A., state disability, and local, state, and federal income taxes, and
      will, upon request, furnish Bank with proof satisfactory to Bank indicating
      that
      Borrower or a Subsidiary has made such payments or deposits; provided that
      Borrower or a Subsidiary need not make any payment if the amount or validity
      of
      such payment is contested in good faith by appropriate proceedings and is
      reserved against (to the extent required by GAAP) by Borrower.

     

    6.6  Insurance.

     

    (a)  Borrower,
      at its expense, shall keep the Collateral insured against loss or damage by
      fire, theft, explosion, sprinklers, and all other hazards and risks, and in
      such
      amounts, as ordinarily insured against by other owners in similar businesses
      conducted in the locations where Borrower’s business is conducted on the date
      hereof. Borrower shall also maintain insurance relating to Borrower’s business,
      ownership and use of the Collateral in amounts and of a type that are customary
      to businesses similar to Borrower’s.

     

    (b)  All
      such
      policies of insurance shall be in such form, with such companies, and in such
      amounts as are reasonably satisfactory to Bank. All such policies of property
      insurance shall contain a lender’s loss payable endorsement, in a form
      satisfactory to Bank, showing Bank as an additional loss payee thereof, and
      all
      liability insurance policies shall show the Bank as an additional insured and
      shall specify that the insurer must give at least twenty (20) days notice to
      Bank before canceling its policy for any reason. Upon Bank’s request, Borrower
      shall deliver to Bank certified copies of such policies of insurance and
      evidence of the payments of all premiums therefor. All proceeds payable under
      any such policy shall, at the option of Bank, be payable to Bank to be applied
      on account of the Obligations.

     

    6.7  Accounts.
      Borrower shall maintain and shall cause each of its Subsidiaries to maintain
      its
      primary depository, operating, and investment accounts with Bank.

     

    6.8  Current
      Ratio.
      Beginning with the month end following the Closing Date, Borrowers shall
      maintain at all times a ratio of Current Assets to Current Liabilities, of
      at
      least 1.25 to 1.00.

     

    6.9  Tangible
      Net Worth.
      As of
      the last day of each fiscal quarter, Borrower shall maintain at all times a
      Tangible Net Worth of not less than Five Million Dollars ($5,000,000).


     

    6.10  Planned
      Revenue.
      Borrower shall maintain quarterly revenue of at least 80% of the projections
      previously provided to Bank on December 14, 2006.

     

    6.11  Registration
      of Intellectual Property Rights. 

     

    (a)  Borrower
      shall register or cause to be registered on an expedited basis (to the extent
      not already registered) with the United States Patent and Trademark Office
      or
      the United States Copyright Office, as the case may be, those registrable
      intellectual property rights now owned or hereafter developed or acquired by
      Borrower, to the extent that Borrower, in its reasonable business judgment,
      deems it appropriate to so protect such intellectual property
      rights.

     

    (b)  Borrower
      shall promptly give Bank written notice of any applications or registrations
      of
      intellectual property rights filed with the United States Patent and Trademark
      Office, including the date of such filing and the registration or application
      numbers, if any.

     

    (c)  Borrower
      shall (i) give Bank not less than 30 days prior written notice of the filing
      of
      any applications or registrations with the United States Copyright Office,
      including the title of such intellectual property rights to be registered,
      as
      such title will appear on such applications or registrations, and the date
      such
      applications or registrations will be filed; (ii) prior to the filing of any
      such applications or registrations, execute such documents as Bank may
      reasonably request for Bank to maintain its perfection in such intellectual
      property rights to be registered by Borrower; (iii) upon the request of Bank,
      either deliver to Bank or file such documents simultaneously with the filing
      of
      any such applications or registrations; (iv) upon filing any such applications
      or registrations, promptly provide Bank with a copy of such applications or
      registrations together with any exhibits, evidence of the filing of any
      documents requested by Bank to be filed for Bank to maintain the perfection
      and
      priority of its security interest in such intellectual property rights, and
      the
      date of such filing. 

     

    (d)  Borrower
      shall execute and deliver such additional instruments and documents from time
      to
      time as Bank shall reasonably request to perfect and maintain the perfection
      and
      priority of Bank’s security interest in the Intellectual Property Collateral.


     

    (e)  Borrower
      shall (i) protect, defend and maintain the validity and enforceability of the
      trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially
      reasonable efforts to detect infringements of the Trademarks, Patents and
      Copyrights and promptly advise Bank in writing of material infringements
      detected and (iii) not allow any material Trademarks, Patents or Copyrights
      to
      be abandoned, forfeited or dedicated to the public without the written consent
      of Bank, which shall not be unreasonably withheld.

     

    (f)  Bank
      may
      audit Borrower’s Intellectual Property Collateral to confirm compliance with
      this Section 6.12, provided such audit may not occur more often than once per
      year, unless an Event of Default has occurred and is continuing. Bank shall
      have
      the right, but not the obligation, to take, at Borrower’s sole expense, any
      actions that Borrower is required under this Section 6.12 to take but which
      Borrower fails to take, after 15 days’ notice to Borrower. Borrower shall
      reimburse and indemnify Bank for all reasonable costs and reasonable expenses
      incurred in the reasonable exercise of its rights under this Section
      6.12.

     

    6.12  Consent
      of Inbound Licensors.
      Other
      than licenses of data in the ordinary course, prior to or within a reasonable
      period of time after entering into or becoming bound by any license or
      agreement, Borrower shall: (i) provide written notice to Bank of the material
      terms of such license or agreement with a description of its likely impact
      on
      Borrower’s business or financial condition; and (ii) in good faith use
      commercially reasonable efforts to obtain the consent of, or waiver by, any
      person whose consent or waiver is necessary for Borrower’s interest in such
      licenses or contract rights to be deemed Collateral and for Bank to have a
      security interest in it that might otherwise be restricted by the terms of
      the
      applicable license or agreement, whether now existing or entered into in the
      future, provided, however, that the failure to obtain any such consent or waiver
      shall not constitute a default under this Agreement. See Schedule for current
      license agreements.

     

    6.13  Further
      Assurances.
      At any
      time and from time to time Borrower shall execute and deliver such further
      instruments and take such further action as may reasonably be requested by
      Bank
      to effect the purposes of this Agreement.

     

    7.  Negative
      Covenants.

     

    Each
      Borrower will not do any of the following:

     

    7.1  Dispositions.
      Convey,
      sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or
      permit any of its Subsidiaries to Transfer, all or any part of its business
      or
      property, other than: (i) Transfers of Inventory in the ordinary course of
      business; (ii) Transfers of non-exclusive licenses and similar arrangements
      for the use of the property of Borrower or its Subsidiaries in the ordinary
      course of business; or (iii) Transfers of worn-out or obsolete Equipment
      which was not financed by Bank.

     

    7.2  Change
      in Business; Change in Control or Executive Office.
      Engage
      in any business, or permit any of its Subsidiaries to engage in any business,
      other than the businesses currently engaged in by Borrower and any business
      substantially similar or related thereto (or incidental thereto); or cease
      to
      conduct business in the manner conducted by Borrower as of the Closing Date;
      or
      suffer or permit a Change in Control; or without thirty (30) days prior written
      notification to Bank, relocate its chief executive office or state of
      incorporation or change its legal name; or without Bank’s prior written consent,
      change the date on which its fiscal year ends.

     

    7.3  Mergers
      or Acquisitions.
      Merge
      or consolidate, or permit any of its Subsidiaries to merge or consolidate,
      with
      or into any other business organization, or acquire, or permit any of its
      Subsidiaries to acquire, all or substantially all of the capital stock or
      property of another Person.

     

    7.4  Indebtedness.
      Create,
      incur, assume or be or remain liable with respect to any Indebtedness, or permit
      any Subsidiary so to do, other than Permitted Indebtedness.

     

    7.5  Encumbrances.
      Create,
      incur, assume or suffer to exist any Lien with respect to any of its property,
      or assign or otherwise convey any right to receive income, including the sale
      of
      any Accounts, or permit any of its Subsidiaries so to do, except for Permitted
      Liens, or agree with any Person other than Bank not to grant a security interest
      in, or otherwise encumber, any of its property, or permit any Subsidiary to
      do
      so.

     

    7.6  Distributions.
      Pay any
      dividends or make any other distribution or payment on account of or in
      redemption, retirement or purchase of any capital stock, or permit any of its
      Subsidiaries to do so, except that (i) Borrower may repurchase the stock of
      former employees pursuant to stock repurchase agreements and (ii) Borrower
      may
      pay dividends to Laurus Master Fund in amounts equal to the regularly scheduled
      payments of Dividends pursuant to Section 3 of the Terms of Series D Cumulative
      Convertible Preferred Stock and regularly scheduled payments of Monthly
      Redemption Amounts pursuant to Section 4(a), in each case as specified in
      Exhibit A to the Certificate of Vote of Directors dated September 30, 2005
      as
      long as an Event of Default does not exist prior to such repurchase or payment,
      or would not exist after giving effect to such repurchase or payment.

     

    7.7  Investments.
      Directly or indirectly acquire or own, or make any Investment in or to any
      Person, or permit any of its Subsidiaries so to do, other than Permitted
      Investments; or maintain or invest any of its property with a Person other
      than
      Bank or permit any of its Subsidiaries to do so unless such Person has entered
      into an account control agreement with Bank in form and substance satisfactory
      to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by,
      an
      agreement that restricts such Subsidiary from paying dividends or otherwise
      distributing property to Borrower.

     

    7.8  Transactions
      with Affiliates.
      Directly or indirectly enter into or permit to exist any material transaction
      with any Affiliate of Borrower except for transactions that are in the ordinary
      course of Borrower’s business, upon fair and reasonable terms that are no less
      favorable to Borrower than would be obtained in an arm’s length transaction with
      a non-affiliated Person.

     

    7.9  Subordinated
      Debt.
      Make
      any payment in respect of any Subordinated Debt, or permit any of its
      Subsidiaries to make any such payment, except in compliance with the terms
      of
      such Subordinated Debt, or amend any provision contained in any documentation
      relating to the Subordinated Debt without Bank’s prior written
      consent.

     

    7.10  Inventory
      and Equipment.
      Store
      the Inventory or the Equipment with a bailee, warehouseman, or other third
      party
      unless the third party has been notified of Bank’s security interest and Bank
      (a) has received an acknowledgment from the third party that it is holding
      or
      will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge
      possession of the warehouse receipt, where negotiable, covering such Inventory
      or Equipment. Store or maintain any Equipment or Inventory at a location other
      than the location set forth in Section 10 of this Agreement.

     

    7.11  Compliance.
      Become
      an “investment company” or be controlled by an “investment company,” within the
      meaning of the Investment Company Act of 1940, or become principally engaged
      in,
      or undertake as one of its important activities, the business of extending
      credit for the purpose of purchasing or carrying margin stock, or use the
      proceeds of any Credit Extension for such purpose. Fail to meet the minimum
      funding requirements of ERISA, permit a Reportable Event or Prohibited
      Transaction, as defined in ERISA, to occur, fail to comply with the Federal
      Fair
      Labor Standards Act or violate any law or regulation, which violation could
      have
      a Material Adverse Effect, or a material adverse effect on the Collateral or
      the
      priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to
      do any of the foregoing.

     

    8.  Events
      of Default.

     

    Any
      one
      or more of the following events shall constitute an Event of Default under
      this
      Agreement:

     

    8.1  Payment
      Default.
      If
      Borrowers fail to pay, when due, any of the Obligations;

     

    8.2  Covenant
      Default.
      

     

    (a)  If
      Borrowers fail to perform any obligation under Article 6 or violates any of
      the
      covenants contained in Article 7 of this Agreement; or 

     

    (b)  If
      Borrowers fail or neglects to perform or observe any other material term,
      provision, condition, covenant contained in this Agreement, in any of the Loan
      Documents, or in any other present or future agreement between a Borrower and
      Bank and as to any default under such other term, provision, condition or
      covenant that can be cured, has failed to cure such default within ten days
      after Borrower receives notice thereof or any officer of a Borrower becomes
      aware thereof; provided, however, that if the default cannot by its nature
      be
      cured within the ten day period or cannot after diligent attempts by Borrower
      be
      cured within such ten day period, and such default is likely to be cured within
      a reasonable time, then Borrower shall have an additional reasonable period
      (which shall not in any case exceed 30 days) to attempt to cure such default,
      and within such reasonable time period the failure to have cured such default
      shall not be deemed an Event of Default but no Credit Extensions will be
      made.

     

    8.3  Material
      Adverse Effect.
      If
      there occurs any circumstance or circumstances that could have a Material
      Adverse Effect;

     

    8.4  Attachment.
      If any
      portion of a Borrower’s assets is attached, seized, subjected to a writ or
      distress warrant, or is levied upon, or comes into the possession of any
      trustee, receiver or person acting in a similar capacity and such attachment,
      seizure, writ or distress warrant or levy has not been removed, discharged
      or
      rescinded within ten (10) days, or if a Borrower is enjoined, restrained, or
      in
      any way prevented by court order from continuing to conduct all or any material
      part of its business affairs, or if a judgment or other claim becomes a lien
      or
      encumbrance upon any material portion of a Borrower’s assets, or if a notice of
      lien, levy, or assessment is filed of record with respect to any of such
      Borrower’s assets by the United States Government, or any department, agency, or
      instrumentality thereof, or by any state, county, municipal, or governmental
      agency, and the same is not paid within ten (10) days after such Borrower
      receives notice thereof, provided that none of the foregoing shall constitute
      an
      Event of Default where such action or event is stayed or an adequate bond has
      been posted pending a good faith contest by Borrowers (provided that no Credit
      Extensions will be required to be made during such cure period);

     

    8.5  Insolvency.
      If a
      Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by
      a
      Borrower, or if an Insolvency Proceeding is commenced against a Borrower and
      is
      not dismissed or stayed within thirty (30) days (provided that no Credit
      Extensions will be made prior to the dismissal of such Insolvency
      Proceeding);

     

    8.6  Other
      Agreements.
      If
      there is a default or other failure to perform in any agreement to which a
      Borrower is a party or by which it is bound resulting in a right by a third
      party or parties, whether or not exercised, to accelerate the maturity of any
      Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or
      which
      could have a Material Adverse Effect;

     

    8.7  Judgments.
      If a
      judgment or judgments for the payment of money in an amount, individually or
      in
      the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered
      against a Borrower and shall remain unsatisfied and unstayed for a period of
      ten
      (10) days (provided that no Credit Extensions will be made prior to the
      satisfaction or stay of such judgment); or

     

    8.8  Misrepresentations.
      If any
      material misrepresentation or material misstatement exists now or hereafter
      in
      any warranty or representation set forth herein or in any certificate delivered
      to Bank by any Responsible Officer pursuant to this Agreement or to induce
      Bank
      to enter into this Agreement or any other Loan Document.

     

    9.  Bank’s
      Rights and Remedies.

     

    9.1  Rights
      and Remedies.
      Upon
      the occurrence and during the continuance of an Event of Default, Bank may,
      at
      its election, without notice of its election and without demand, do any one
      or
      more of the following, all of which are authorized by Borrowers:

     

    (a)  Declare
      all Obligations, whether evidenced by this Agreement, by any of the other Loan
      Documents, or otherwise, immediately due and payable (provided that upon the
      occurrence of an Event of Default described in Section 8.5,
      all
      Obligations shall become immediately due and payable without any action by
      Bank);

     

    (b)  Cease
      advancing money or extending credit to or for the benefit of Borrowers under
      this Agreement or under any other agreement between a Borrower and
      Bank;

     

    (c)  Settle
      or
      adjust disputes and claims directly with account debtors for amounts, upon
      terms
      and in whatever order that Bank reasonably considers advisable;

     

    (d)  Make
      such
      payments and do such acts as Bank considers necessary or reasonable to protect
      its security interest in the Collateral. Borrowers agree to assemble the
      Collateral if Bank so requires, and to make the Collateral available to Bank
      as
      Bank may designate. Borrowers authorize Bank to enter the premises where the
      Collateral is located, to take and maintain possession of the Collateral, or
      any
      part of it, and to pay, purchase, contest, or compromise any encumbrance,
      charge, or lien which in Bank’s determination appears to be prior or superior to
      its security interest and to pay all expenses incurred in connection therewith.
      With respect to any of a Borrower’s owned premises, each Borrower hereby grants
      Bank a license to enter into possession of such premises and to occupy the
      same,
      without charge, in order to exercise any of Bank’s rights or remedies provided
      herein, at law, in equity, or otherwise;

     

    (e)  Set
      off
      and apply to the Obligations any and all (i) balances and deposits of a
      Borrower held by Bank, or (ii) indebtedness at any time owing to or for the
      credit or the account of a Borrower held by Bank;

     

    (f)  Ship,
      reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
      for sale, and sell (in the manner provided for herein) the Collateral. Bank
      is
      hereby granted a license or other right, solely pursuant to the provisions
      of
      this Section 9.1,
      to use,
      without charge, each Borrower’s labels, patents, copyrights, rights of use of
      any name, trade secrets, trade names, trademarks, service marks, and advertising
      matter, or any property of a similar nature, as it pertains to the Collateral,
      in completing production of, advertising for sale, and selling any Collateral
      and, in connection with Bank’s exercise of its rights under this
      Section 9.1,
      each
      Borrower’s rights under all licenses and all franchise agreements shall inure to
      Bank’s benefit;

     

    (g)  Dispose
      of the Collateral by way of one or more contracts or transactions, for cash
      or
      on terms, in such manner and at such places (including each Borrower’s premises)
      as Bank determines is commercially reasonable, and apply any proceeds to the
      Obligations in whatever manner or order Bank deems appropriate;

     

    (h)  Bank
      may
      credit bid and purchase at any public sale; and

     

    (i)  Any
      deficiency that exists after disposition of the Collateral as provided above
      will be paid immediately by Borrowers.

     

    9.2  Power
      of Attorney. Effective
      only upon the occurrence and during the continuance of an Event of Default,
      each
      Borrower irrevocably appoints Bank (and any of Bank’s designated officers, or
      employees) as such Borrower’s true and lawful attorney to: (a) send requests for
      verification of Accounts or notify account debtors of Bank’s security interest
      in the Accounts; (b) endorse such Borrower’s name on any checks or other forms
      of payment or security that may come into Bank’s possession; (c) sign such
      Borrower’s name on any invoice or bill of lading relating to any Account, drafts
      against account debtors, schedules and assignments of Accounts, verifications
      of
      Accounts, and notices to account debtors; (d) dispose of any Collateral; (e)
      make, settle, and adjust all claims under and decisions with respect to such
      Borrower’s policies of insurance; (f) settle and adjust disputes and claims
      respecting the accounts directly with account debtors, for amounts and upon
      terms which Bank determines to be reasonable; and (g) to file, in its sole
      discretion, one or more financing or continuation statements and amendments
      thereto, relative to any of the Collateral. The appointment of Bank as each
      Borrower’s attorney in fact, and each and every one of Bank’s rights and powers,
      being coupled with an interest, is irrevocable until all of the Obligations
      have
      been fully repaid and performed and Bank’s obligation to provide Credit
      Extensions hereunder is terminated.

     

    9.3  Accounts
      Collection.
      At any
      time after the occurrence of an Event of Default, Bank may notify any Person
      owing funds to a Borrower of Bank’s security interest in such funds and verify
      the amount of such Account. Borrowers shall collect all amounts owing to a
      Borrower for Bank, receive in trust all payments as Bank’s trustee, and
      immediately deliver such payments to Bank in their original form as received
      from the account debtor, with proper endorsements for deposit.

     

    9.4  Bank
      Expenses.
      If a
      Borrower fails to pay any amounts or furnish any required proof of payment
      due
      to third persons or entities, as required under the terms of this Agreement,
      then Bank may do any or all of the following after reasonable notice to
      Borrowers: (a) make payment of the same or any part thereof; (b) set
      up such reserves under a loan facility in Section 2.1 as Bank deems necessary
      to
      protect Bank from the exposure created by such failure; or (c) obtain and
      maintain insurance policies of the type discussed in Section 6.6
      of this
      Agreement, and take any action with respect to such policies as Bank deems
      prudent. Any amounts so paid or deposited by Bank shall constitute Bank
      Expenses, shall be immediately due and payable, and shall bear interest at
      the
      then applicable rate hereinabove provided, and shall be secured by the
      Collateral. Any payments made by Bank shall not constitute an agreement by
      Bank
      to make similar payments in the future or a waiver by Bank of any Event of
      Default under this Agreement.

     

    9.5  Bank’s
      Liability for Collateral.
      So long
      as Bank complies with reasonable banking practices, Bank shall not in any way
      or
      manner be liable or responsible for: (a) the safekeeping of the Collateral;
      (b) any loss or damage thereto occurring or arising in any manner or
      fashion from any cause; (c) any diminution in the value thereof; or
      (d) any act or default of any carrier, warehouseman, bailee, forwarding
      agency, or other person whomsoever. All risk of loss, damage or destruction
      of
      the Collateral shall be borne by Borrowers.

     

    9.6  Remedies
      Cumulative.
      Bank’s
      rights and remedies under this Agreement, the Loan Documents, and all other
      agreements shall be cumulative. Bank shall have all other rights and remedies
      not inconsistent herewith as provided under the Code, by law, or in equity.
      No
      exercise by Bank of one right or remedy shall be deemed an election, and no
      waiver by Bank of any Event of Default on a Borrower’s part shall be deemed a
      continuing waiver. No delay by Bank shall constitute a waiver, election, or
      acquiescence by it. No waiver by Bank shall be effective unless made in a
      written document signed on behalf of Bank and then shall be effective only
      in
      the specific instance and for the specific purpose for which it was
      given.

     

    9.7  Demand;
      Protest.
      Each
      Borrower waives demand, protest, notice of protest, notice of default or
      dishonor, notice of payment and nonpayment, notice of any default, nonpayment
      at
      maturity, release, compromise, settlement, extension, or renewal of accounts,
      documents, instruments, chattel paper, and guarantees at any time held by Bank
      on which a Borrower may in any way be liable.

     

    10.  Notices.

     

    Unless
      otherwise provided in this Agreement, all notices or demands by any party
      relating to this Agreement or any other agreement entered into in connection
      herewith shall be in writing and (except for financial statements and other
      informational documents which may be sent by first-class mail, postage prepaid)
      shall be personally delivered or sent by a recognized overnight delivery
      service, certified mail, postage prepaid, return receipt requested, or by
      telefacsimile to a Borrower or to Bank, as the case may be, at its addresses
      set
      forth below:

     

    If
      to a
      Borrower:       
      IMPLANT
      SCIENCES CORPORATION

    107
      Audubon Road, #5

    Wakefield,
      MA 01880

    Attn:
      Diane Ryan, CFO

    FAX:
      (781) 246-3561

     

    


     

    If
      to
      Bank                                              
Bridge
      Bank, N.A.

    55
      Almaden Blvd.

    San
      Jose,
      CA 95113

    Attn:
      Mike Lederman

    FAX:
      (408) 282-1681

     

    The
      parties hereto may change the address at which they are to receive notices
      hereunder, by notice in writing in the foregoing manner given to the
      other.

     

    11.  CHOICE
      OF LAW AND VENUE; JURY TRIAL WAIVER.

     

    This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of California, without regard to principles of conflicts
      of
      law. Each Borrower and Bank hereby submits to the exclusive jurisdiction of
      the
      state and Federal courts located in the County of Santa Clara, State of
      California. EACH BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS
      TO
      A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
      OF
      THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
      CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
      OR
      STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
      CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
      PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
      COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
      FOLLOWING CONSULTATION WITH LEGAL COUNSEL. 

     

    If
      the
      jury waiver set forth in Section is not enforceable, then any dispute,
      controversy or claim arising out of or relating to this Agreement, the Loan
      Documents or any of the transactions contemplated therein shall be settled
      by
      judicial reference pursuant to Code of Civil Procedure Section 638 et seq.
      before a referee sitting without a jury, such referee to be mutually acceptable
      to the parties or, if no agreement is reached, by a referee appointed by the
      Presiding Judge of the California Superior Court for Santa Clara County. This
      Section shall not restrict a party from exercising remedies under the Code
      or
      from exercising pre-judgment remedies under applicable law.

     

    12.  General
      Provisions.

     

    12.1  Successors
      and Assigns.
      This
      Agreement shall bind and inure to the benefit of the respective successors
      and
      permitted assigns of each of the parties; provided, however, that neither this
      Agreement nor any rights hereunder may be assigned by a Borrower without Bank’s
      prior written consent, which consent may be granted or withheld in Bank’s sole
      discretion. Bank shall have the right without the consent of or notice to
      Borrowers to sell, transfer, negotiate, or grant participation in all or any
      part of, or any interest in, Bank’s obligations, rights and benefits
      hereunder.

     

    12.2  Indemnification.
      Each
      Borrower shall defend, indemnify and hold harmless Bank and its officers,
      employees, and agents against: (a) all obligations, demands, claims, and
      liabilities claimed or asserted by any other party in connection with the
      transactions contemplated by this Agreement; and (b) all losses or Bank
      Expenses in any way suffered, incurred, or paid by Bank as a result of or in
      any
      way arising out of, following, or consequential to transactions between Bank
      and
      Borrowers whether under this Agreement, or otherwise (including without
      limitation reasonable attorneys’ fees and expenses), except for losses caused by
      Bank’s gross negligence or willful misconduct.

     

    12.3  Time
      of Essence.
      Time is
      of the essence for the performance of all obligations set forth in this
      Agreement.

     

    12.4  Severability
      of Provisions.
      Each
      provision of this Agreement shall be severable from every other provision of
      this Agreement for the purpose of determining the legal enforceability of any
      specific provision.

     

    12.5  Original
      Agreements. Amendments in Writing, Integration.
      Bank
      waives Borrower’s failure to comply the minimum quick ratio covenant specified
      in the Original Agreements. This Agreement amends and restates the terms of
      the
      Original Agreements. Neither this Agreement nor the Loan Documents can be
      amended or terminated orally. All prior agreements, understandings,
      representations, warranties, and negotiations between the parties hereto with
      respect to the subject matter of this Agreement and the Loan Documents, if
      any,
      are merged into this Agreement and the Loan Documents, provided any financing
      statements filed in connection with the Original Agreements shall continue
      to
      perfect Bank’s security interest in the Collateral.

     

    12.6  Counterparts.
      This
      Agreement may be executed in any number of counterparts and by different parties
      on separate counterparts, each of which, when executed and delivered, shall
      be
      deemed to be an original, and all of which, when taken together, shall
      constitute but one and the same Agreement.

     

    12.7  Survival.
      All
      covenants, representations and warranties made in this Agreement shall continue
      in full force and effect so long as any Obligations remain outstanding or Bank
      has any obligation to make Credit Extensions to Borrowers. The obligations
      of
      Borrowers to indemnify Bank with respect to the expenses, damages, losses,
      costs
      and liabilities described in Section 12.2
      shall
      survive until all applicable statute of limitations periods with respect to
      actions that may be brought against Bank have run.

     

    12.8  Confidentiality.
      In
      handling any confidential information Bank and all employees and agents of
      Bank,
      including but not limited to accountants, shall exercise the same degree of
      care
      that it exercises with respect to its own proprietary information of the same
      types to maintain the confidentiality of any non-public information thereby
      received or received pursuant to this Agreement except that disclosure of such
      information may be made (i) to the subsidiaries or affiliates of Bank in
      connection with their present or prospective business relations with Borrowers,
      (ii) to prospective transferees or purchasers of any interest in the Loans,
      provided that they have entered into a comparable confidentiality agreement
      in
      favor of Borrowers and have delivered a copy to Borrowers, (iii) as
      required by law, regulations, rule or order, subpoena, judicial order or similar
      order, (iv) as may be required in connection with the examination, audit or
      similar investigation of Bank and (v) as Bank may determine in connection
      with the enforcement of any remedies hereunder. Confidential information
      hereunder shall not include information that either: (a) is in the public
      domain or in the knowledge or possession of Bank when disclosed to Bank, or
      becomes part of the public domain after disclosure to Bank through no fault
      of
      Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
      have actual knowledge that such third party is prohibited from disclosing such
      information.

     

    12.9  Effect
      of Amendment and Restatement.
      This
      Agreement is intended to and does completely amend and restate, without
      novation, the Original Agreement. All security interests granted under the
      Original Agreement are hereby confirmed and ratified and shall continue to
      secure all Obligations under this Agreement.

     

    12.10  Patriot
      Act.
      To help
      the government fight the funding of terrorism and money laundering activities,
      Federal law requires all financial institutions to obtain, verify, and record
      information that identifies each person who opens an account. WHAT THIS MEANS
      FOR YOU: when you open an account, we will ask your name, address, date of
      birth, and other information that will allow us to identify you. We may also
      ask
      to see your driver’s license or other identifying documents.

     

    13.  CO-BORROWER
      PROVISIONS.

     

    13.1  Primary
      Obligation.
      This
      Agreement is a primary and original obligation of each Borrower and shall remain
      in effect notwithstanding future changes in conditions, including any change
      of
      law or any invalidity or irregularity in the creation or acquisition of any
      Obligations or in the execution or delivery of any agreement between Bank and
      any Borrower. Each Borrower shall be liable for existing and future Obligations
      as fully as if all of all Credit Extensions were advanced to such Borrower.
      Bank
      may rely on any certificate or representation made by any Borrower as made
      on
      behalf of, and binding on, all Borrowers, including without limitation
      Disbursement Request Forms, Borrowing Base Certificates and Compliance
      Certificates.

     

    13.2  Enforcement
      of Rights.
      Borrowers are jointly and severally liable for the Obligations and Bank may
      proceed against one or more of the Borrowers to enforce the Obligations without
      waiving its right to proceed against any of the other Borrowers.

     

    13.3  Borrowers
      as Agents.
      Each
      Borrower appoints the other Borrower as its agent with all necessary power
      and
      authority to give and receive notices, certificates or demands for and on behalf
      of both Borrowers, to act as disbursing agent for receipt of any Credit
      Extensions on behalf of each Borrower and to apply to Bank on behalf of each
      Borrower for Credit Extensions, any waivers and any consents. This authorization
      cannot be revoked, and Bank need not inquire as to each Borrower’s authority to
      act for or on behalf of Borrower.

     

    13.4  Subrogation
      and Similar Rights.
      Notwithstanding any other provision of this Agreement or any other Loan
      Document, each Borrower irrevocably waives all rights that it may have at law
      or
      in equity (including, without limitation, any law subrogating the Borrower
      to
      the rights of Bank under the Loan Documents) to seek contribution,
      indemnification, or any other form of reimbursement from any other Borrower,
      or
      any other Person now or hereafter primarily or secondarily liable for any of
      the
      Obligations, for any payment made by the Borrower with respect to the
      Obligations in connection with the Loan Documents or otherwise and all rights
      that it might have to benefit from, or to participate in, any security for
      the
      Obligations as a result of any payment made by the Borrower with respect to
      the
      Obligations in connection with the Loan Documents or otherwise. Any agreement
      providing for indemnification, reimbursement or any other arrangement prohibited
      under this Section 14.4 shall be null and void. If any payment is made to a
      Borrower in contravention of this Section 14.4, such Borrower shall hold such
      payment in trust for Bank and such payment shall be promptly delivered to Bank
      for application to the Obligations, whether matured or unmatured.

     

    13.5  Waivers
      of Notice.
      Except
      as otherwise provided in this Agreement, each Borrower waives notice of
      acceptance hereof; notice of the existence, creation or acquisition of any
      of
      the Obligations; notice of an Event of Default; notice of the amount of the
      Obligations outstanding at any time; notice of intent to accelerate; notice
      of
      acceleration; notice of any adverse change in the financial condition of any
      other Borrower or of any other fact that might increase the Borrower’s risk;
      presentment for payment; demand; protest and notice thereof as to any
      instrument; default; and all other notices and demands to which the Borrower
      would otherwise be entitled. Each Borrower waives any defense arising from
      any
      defense of any other Borrower, or by reason of the cessation from any cause
      whatsoever of the liability of any other Borrower. Bank’s failure at any time to
      require strict performance by any Borrower of any provision of the Loan
      Documents shall not waive, alter or diminish any right of Bank thereafter to
      demand strict compliance and performance therewith. Nothing contained herein
      shall prevent Bank from foreclosing on the Lien of any deed of trust, mortgage
      or other security instrument, or exercising any rights available thereunder,
      and
      the exercise of any such rights shall not constitute a legal or equitable
      discharge of any Borrower. Each Borrower also waives any defense arising from
      any act or omission of Bank that changes the scope of the Borrower’s risks
      hereunder. 

     

    13.6  Subrogation
      Defenses.
      Each
      Borrower hereby waives any defense based on impairment or destruction of its
      subrogation or other rights against any other Borrower and waives all benefits
      which might otherwise be available to it under California Civil Code Sections
      2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California
      Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory
      provisions are now in effect and hereafter amended, and under any other similar
      statutes now and hereafter in effect.

     

    13.7  Right
      to Settle, Release.

     

    (a)  The
      liability of Borrowers hereunder shall not be diminished by (i) any agreement,
      understanding or representation that any of the Obligations is or was to be
      guaranteed by another Person or secured by other property, or (ii) any release
      or unenforceability, whether partial or total, of rights, if any, which Bank
      may
      now or hereafter have against any other Person, including another Borrower,
      or
      property with respect to any of the Obligations.

     

    (b)  Without
      affecting the liability of any Borrower hereunder, Bank may (i) compromise,
      settle, renew, extend the time for payment, change the manner or terms of
      payment, discharge the performance of, decline to enforce, or release all or
      any
      of the Obligations with respect to a Borrower, (ii) grant other indulgences
      to a
      Borrower in respect of the Obligations, (iii) modify in any manner any documents
      relating to the Obligations with respect to a Borrower, (iv) release, surrender
      or exchange any deposits or other property securing the Obligations, whether
      pledged by a Borrower or any other Person, or (v) compromise, settle, renew,
      or
      extend the time for payment, discharge the performance of, decline to enforce,
      or release all or any obligations of any guarantor, endorser or other Person
      who
      is now or may hereafter be liable with respect to any of the
      Obligations.

     

    13.8  Subordination.
      All
      indebtedness of a Borrower now or hereafter arising held by another Borrower
      is
      subordinated to the Obligations and the Borrower holding the indebtedness shall
      take all actions reasonably requested by Lender to effect, to enforce and to
      give notice of such subordination.

     

     

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      as
      of the date first above written.

     

    
      	 	
               

              Implant
                Sciences Corporation

               

              By:
                /s/ A.J. Armini

               

              Title:
                CEO

               

            
	 	
               

              Accurel
                Systems International Corporation

               

              By:
                /s/ A.J. Armini

               

               

              Title:
                CEO

               

            
	 	
               

              C
                Acquisition Corp.

               

              By:
                /s/ A.J. Armini

               

               

              Title:
                CEO

               

            
	 	
               

              Bridge
                Bank, N.A. 

               

              By: 

               

              Title: 

               

            


    

    


     

    


     

    



    
      
        
          611795
            v8/HN .

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    EXHIBIT
      A

     

    LOAN
      PAYMENT/ADVANCE TELEPHONE REQUEST FORM

    DEADLINE
      FOR SAME DAY PROCESSING IS 3:00 P.M., PACIFIC TIME

    TO:BRIDGE
      BANK N.A.DATE:
      _______________

     

    FAX
      #:
      (408) 282-1681TIME:
      _______________

     

    
      	
               

              FROM:
                  Implant
                Sciences Corporation; Accurel Systems International Corporation;
                C
                Acquisition Corp.

            
	
              CLIENT
                NAME (BORROWERS)

            
	
              REQUESTED
                BY: 

            
	
              AUTHORIZED
                SIGNER’S NAME

            
	 
	
              AUTHORIZED
                SIGNATURE: 

            
	 
	
              PHONE
                NUMBER: 

            
	 
	
              FROM
                ACCOUNT # ______________________ TO ACCOUNT # 

            
	 
	 	 
	
              REQUESTED
                TRANSACTION TYPE

            	
              REQUEST
                DOLLAR AMOUNT

            
	 	
              $

            
	
              PRINCIPAL
                INCREASE (ADVANCE)

            	
              $

            
	
              PRINCIPAL
                PAYMENT (ONLY)

            	
              $

            
	
              INTEREST
                PAYMENT (ONLY)

            	
              $

            
	
              PRINCIPAL
                AND INTEREST (PAYMENT)

            	
              $

            
	 
	
              OTHER
                INSTRUCTIONS: 

            
	 
	 
	
              All
                representations and warranties of Borrowers stated in the Loan and
                Security Agreement are true, correct and complete in all material
                respects
                as of the date of the telephone request for an Advance confirmed
                by this
                Borrowing Certificate; provided, however, that those representations
                and
                warranties expressly referring to another date shall be true, correct
                and
                complete in all material respects as of such date. 

               

            
	 
	
              BANK
                USE ONLY

            
	
              TELEPHONE
                REQUEST:

            
	 
	
              The
                following person is authorized to request the loan payment transfer/loan
                advance on the advance designated account and is known to
                me.

            
	 
	 	 
	 	 
	
              Authorized
                Requester

            	
              Phone
                #

            
	 	 
	 	 
	 	 
	
              Received
                By (Bank)

            	
              Phone
                #

            
	 	 
	 
	
              _____________________________________________

            
	
              Authorized
                Signature (Bank)

            
	 


    

    


    


    


    



    
      
        
        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    EXHIBIT
      B

     

    Borrowing
      Base Certificate

     

    
      	
               

              Borrower:
                 IMPLANT
                SCIENCES CORPORATION Lender:
                Bridge Bank, N.A.

              ACCUREL
                SYSTEMS INTERNATIONAL CORPORATION

              C
                ACQUISITION CORP.

               

              Commitment
                Amount: $5,000,000

               

            
	 


    

    


    
      	
              ACCOUNTS
                RECEIVABLE

            	 	 
	
              1. Accounts
                Receivable Book Value as of ___

            	 	
              $___________

            
	
              2. Additions
                (please explain on reverse)

            	 	
              $___________

            
	
              3. TOTAL
                ACCOUNTS RECEIVABLE

            	 	
              $___________

            
	 	 	 
	
              ACCOUNTS
                RECEIVABLE DEDUCTIONS (without duplication)

            	 	 
	
              4. Amounts
                over 90 days due

            	
              $___________

            	 
	
              5. Balance
                of 35% over 90 day accounts

            	
              $___________

            	 
	
              6. Concentration
                Limits

            	 	 
	
              7. Foreign
                Accounts

            	
              $___________

            	 
	
              8. Governmental
                Accounts

            	
              $___________

            	 
	
              9. Contra
                Accounts

            	
              $___________

            	 
	
              10. Demo
                Accounts

            	
              $___________

            	 
	
              11. Intercompany/Employee
                Accounts

            	
              $___________

            	 
	
              12. Other
                (please explain on reverse)

            	
              $___________

            	 
	
              13. TOTAL
                ACCOUNTS RECEIVABLE DEDUCTIONS

            	
              $___________

            	 
	
              14. Eligible
                Accounts (#3 minus #13)

            	 	
              $___________

            
	
              15. LOAN
                VALUE OF ACCOUNTS (80% of #14)

            	 	
              $___________

            
	 	 	 
	
              INVENTORY

            	 	 
	
              16. Total
                Value of Eligible Inventory

            	
              $___________

            	 
	
              17. Lesser
                of 40% of Eligible Inventory or $1,000,000*

            	 	
              $___________

            
	 	 	 
	
              BALANCES

            	 	 
	
              18. Maximum
                Loan Amount

            	 	
              $5,000,000

            
	
              19. Total
                Funds Available [Lesser of #18 or #15 plus #17]

            	 	
              $___________

            
	
              20. Present
                balance owing on Line of Credit

            	 	
              $___________

            
	
              21. Outstanding
                under Term Loan

            	 	
              $2,500,000

            
	
              22. Outstanding
                under Letters of Credit

            	 	 
	
              23. Outstanding
                under Credit Card Exposure

            	 	 
	
              24. RESERVE
                POSITION (#19 minus #20, #21,# 22 and #23)

            	 	
              $___________

            
	 	 	 


    

    *no
      more
      than $1,000,000 of the Borrowing Base shall be supported by Eligible
      Inventory

     

    The
      undersigned represents and warrants that the foregoing is true, complete and
      correct, and that the information reflected in this Borrowing Base Certificate
      complies with the representations and warranties set forth in the Loan and
      Security Agreement between the undersigned and Bridge Bank,
      N.A..

     

    
      	
              IMPLANT
                SCIENCES CORPORATION

            	
              ACCUREL
                SYSTEMS INTERNATIONAL CORPORATION

            
	 	 
	 	 
	
              By:
                

            	
              By:
                

            
	
              Authorized
                Signer

            	
              Authorized
                Signer

            
	 	 
	
              C
                ACQUISITION CORP.

            	 
	 	 
	 	 
	
              By:
                

            	 
	
              Authorized
                Signer

            	 


    

    


     

    
      
        
        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    EXHIBIT
      C

     

    Compliance
      Certificate

     

    TO: BRIDGE
      BANK, N.A.

     

    FROM: IMPLANT
      SCIENCES CORPORATION, ACCUREL SYSTEMS INTERNATIONAL CORPORATION, C ACQUISITION
      CORP.

     

    The
      undersigned authorized officer of IMPLANT SCIENCES CORPORATION, ACCUREL SYSTEMS
      INTERNATIONAL CORPORATION, C ACQUISITION CORP. hereby certifies that in
      accordance with the terms and conditions of the Loan and Security Agreement
      between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
      compliance for the period ending _______________ with all required covenants
      except as noted below and (ii) all representations and warranties of
      Borrower stated in the Agreement are true and correct as of the date hereof.
      Attached herewith are the required documents supporting the above certification.
      The Officer further certifies that these are prepared in accordance with
      Generally Accepted Accounting Principles (GAAP) and are consistently applied
      from one period to the next except as explained in an accompanying letter or
      footnotes.

     

    Please
      indicate compliance status by circling Yes/No under “Complies”
column.

     

    
      	
              Reporting
                Covenant

            	
              Required

            	
              Complies

            
	 	 	 	 
	
              Monthly
                financial statements

            	
              Monthly
                within 30 days

            	
              Yes

            	
              No

            
	
              Annual
                (CPA Audited)

            	
              FYE
                within 180 days

            	
              Yes

            	
              No

            
	
              10K
                and 10Q

            	
              (as
                applicable)

            	
              Yes

            	
              No

            
	
              A/R
                & A/P Agings, Borrowing Base Cert.

            	
              Monthly
                within 30 days

            	
              Yes

            	
              No

            
	
              A/R
                Audit

            	
              Initial
                and Annual

            	
              Yes

            	
              No

            
	
              IP
                Report

            	
              Quarterly
                within 30 days

            	
              Yes

            	
              No

            
	 	 	 	 
	
              Financial
                Covenant

            	
              Required

            	
              Actual

            	
              Complies

            
	 	 	 	 	 
	
              Minimum
                Current Ratio

            	
              1.25:1.00

            	
              _____:1.00

            	
              Yes

            	
              No

            
	
              Minimum
                Tangible Net Worth

            	
              $5,000,000

            	
              $________

            	
              Yes

            	
              No

            
	
              Planned
                Quarterly Revenue

            	
              80%
                of plan

            	
              ___%
                of plan

            	
              Yes

            	
              No

            
	 	 	 	 	 
	 
	 
	
              Comments
                Regarding Exceptions:
                See Attached.

            	
               

              BANK
                USE ONLY

            
	 	 
	 	
              Received
                by: 

            
	
              Sincerely,

            	
              AUTHORIZED
                SIGNER

            
	 	 
	 	
              Date:
                

            
	 	 
	 	
              Verified:
                

            
	
              SIGNATURE

            	
              AUTHORIZED
                SIGNER

            
	 	 
	 	 
	 	
              Date:
                

            
	
              TITLE

            	 
	 	
              Compliance
                Status

            	
              Yes

            	
              No

            
	 	 
	
              DATE

            	 


    

    


    



    
      
        
        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    SCHEDULE
      OF EXCEPTIONS

     

    Permitted
      Indebtedness
      (Section 1.1)

     

    See
      attachment A

     

    Permitted
      Investments
      (Section 1.1)

     

    CorNova 1,500,000
      shares of common stock - private company

    Cardio
      Tech International 100,000
      shares common stock - publicly traded - symbol “CTE”

    Certificates
      of Deposit through
      Bridge Bank

    


    


    Permitted
      Liens
      (Section 1.1)

     

    See
      same
      attachment as in (Permitted Indebtedness)

     

    Security
      Interest (Section 4.1)

     

    Laurus
      Master Fund

     

    Inbound
      Licenses
      (Section
      5.6)

     

    SpecMed
      LLC royalty agreement regarding licensing of Company’s patent application number
      10/997,050 

    


    Prior
      Names
      (Section 5.7)

     

    None

     

    Litigation
      (Section
      5.8)

     

    Rapiscan
      Systems (OSI)

    Arbitration
      with former owners of Accurel Systems 

    


    From
      time
      to time, we are subject to various claims, legal proceedings and investigations
      covering a wide range of matters that arise in the ordinary course of our
      business activities. Each of these matters is subject to various uncertainties.
      

    


    On
      or
      about March 8, 2006, the Company commenced an arbitration under the Rules of
      the
      American Arbitration Association against Respondents Majid Ghafghaichi (“Majid”)
      and Vahe Sarkissisian (“Vahe”), seeking a total of $3,994,000 for
      indemnification of various “Losses,” as defined in, and expressly allowed
      pursuant to, a Stock Purchase Agreement dated March 9, 2005 (the “Agreement”),
      between the Company, as the purchaser, Accurel Systems International Corporation
      (“Accurel), and  Majid and Vahe, as the sellers of 100% of the issued and
      outstanding shares of Accurel stock. 

    


    More
      specifically, there are four claims asserted by the Company against Respondents:
      (1) Damages of $3.4 million resulting from misrepresentations concerning the
      loss of business from a key Accurel customer; (2) unauthorized withdrawals
      in
      the amount of approximately $276,000 from Accurel by the Respondents prior
      to
      the closing; (3) approximately $49,000 of disallowed transaction expenses that
      the Respondents improperly received; and (4) undisclosed net liabilities
      totaling approximately $269,000.    

    


    Respondents
      have asserted counterclaims seeking “an aggregate amount in excess of
      $1,750,000,” based on the allegedly “late payment” to Respondents of Company
      stock and a Secured Promissory Note as part of the consideration for their
      sale
      of Accurel stock.  The Company has filed a detailed denial of all
      counterclaims.

    


    The
      arbitration is now in the discovery phase, and the hearing is scheduled for
      February 2007.

    


    At
      this
      early stage of the proceedings, particularly before the commencement of
      depositions, it is difficult to assess the final outcome of this arbitration.
      However, the Company believes that the counterclaims have no merit, and will
      vigorously defend itself against such counterclaims.

    


    On
      March
      23, 2005, we entered into a Development, Distribution and Manufacturing
      Agreement (the “Rapiscan Agreement”) with Rapiscan Systems, Inc.
      (“Rapiscan”).  Under the terms of this agreement, we gave Rapiscan the
      exclusive worldwide rights to market our Quantum SnifferTM portable
      and benchtop trace detection devices under their private label.  We also
      agreed to give Rapiscan the exclusive worldwide rights to distribute certain
      other new security products which we may develop in the future with their
      funding, as well as rights, in some circumstances, to manufacture certain
      components of the Quantum SnifferTM portable
      and benchtop trace detection devices that they are able to sell. 

    


    On
      March
      24, 2006, the Company brought suit in the United States District Court in the
      District of Massachusetts against Rapiscan and its parent, OSI Systems, Inc.
      (“OSI”). The Company is requesting rescission of the Rapiscan Agreement, for
      lack of performance and other grounds. In the alternative, the Company is
      seeking termination of the Rapiscan Agreement due to material breaches of
      contract and implied covenant of good faith and fair dealing and for damages
      due
      to Rapiscan’s breach of contract and the implied covenant of good faith and fair
      dealing. 

    


    On
      March
      27, 2006, the Company received notice that Rapiscan filed a complaint against
      the Company and its contract manufacturer, Columbia Tech, in the United States
      District Court for the Central District of California, regarding the Rapiscan
      Agreement. Rapiscan’s complaint against the Company is based upon claims of
      breach of contract and breach of warranty and is requesting a decree for
      specific performance, declaratory relief and injunctive relief. Rapiscan’s
      complaint against Columbia Tech is based upon injunctive relief, declaratory
      relief and tortuous interference with contractual relations. On April 12, 2006,
      Rapiscan dismissed all claims against Columbia Tech. 

    


    As
      of
      August 18, 2006, as a result of motions made by both parties, the two lawsuits
      have been consolidated in the United States District Court for the Central
      District of California with the Company as plaintiff. Presently, discovery
      is in
      process. Rapiscan and OSI have filed a motion to dismiss certain of the
      Company’s claims. As of October 30, 2006, the court has ruled that the Company’s
      claim of breach of fiduciary duty was dismissed but OSI’s motion to dismiss all
      other claims was denied. 

     

    Should
      the Company be unsuccessful in prosecuting this matter, it may have a material
      adverse effect on its business and results of operations. No revenue has been
      recorded related to the Rapiscan Agreement.

     

    We
      may,
      from time to time, be involved in other actual or potential proceedings that
      we
      consider to be in the normal course of our business. We do not believe that
      any
      of these proceedings will have a material adverse effect on our
      business.

    


    Environmental
      Conditions
      (Section
      5.12)

     

    N/A

    


    Subsidiaries
      (Section
      5.14)

    


    Other
      stock ownership: see Permitted Investments section 1.1

    Cardio
      Tech International - 100,000 shares common stock - publicly traded - symbol
      “CTE”

    CorNova
      -
      1,500,000 shares common stock - private

    


    Subsidiaries: C-Acquisition
      Corporation (aka Core Systems) - 100% ownership

    Accurel
      Systems - 100% ownership

    


    Accounts
      (Section
      5.16)

    


    Other
      bank accounts:         
Bank
      of
      America (checking) #004602249511

    Citizens
      Bank (checking)  #1130331331

    


    Consent
      of Inbound Licensors
      (Section
      6.12)

     

    See
      Section 5.6 above

    


    


    


    


     

    


     

    


     


    
      
        
          611795
            v8/HN .

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    

     

     

    
      
        
          611795
            v8/HN 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    CORPORATE
      RESOLUTIONS TO BORROW

     

    
      	
               

              Borrower: IMPLANT
                SCIENCES CORPORATION

               

            


    

    


    I,
      the
      undersigned Secretary or Assistant Secretary of IMPLANT SCIENCES CORPORATION
      (the “Corporation”), HEREBY CERTIFY that the Corporation is organized and
      existing under and by virtue of the laws of the Commonwealth of Massachusetts.
      

     

    I
      FURTHER
      CERTIFY that attached hereto as Attachments 1 and 2 are true and complete
      copies of the Articles of Incorporation, as amended, and the Restated Bylaws
      of
      the Corporation, each of which is in full force and effect on the date
      hereof.

     

    I
      FURTHER
      CERTIFY that at a meeting of the Directors of the Corporation, duly called
      and
      held, at which a quorum was present and voting (or by other duly authorized
      corporate action in lieu of a meeting), the following resolutions (the
“Resolutions”) were adopted.

     

    BE
      IT
      RESOLVED, that any one (1) of the following named officers, employees, or agents
      of this Corporation, whose actual signatures are shown below:

     

    
      	
              NAMES

            	
              POSITION

            	
              ACTUAL
                SIGNATURES

            
	 	 	 
	
              Anthony
                J. Armini

            	
              President
                and CEO

            	 
	 	 	 
	
              Diane
                J. Ryan

            	
              Vice
                President and CFO

            	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


    

    acting
      for and on behalf of this Corporation and as its act and deed be, and they
      hereby are, authorized and empowered:

     

    Borrow
      Money.
      To
      borrow from time to time from Bridge Bank, N.A. (“Bank”), on such terms as may
      be agreed upon between the officers, employees, or agents of the Corporation
      and
      Bank, such sum or sums of money as in their judgment should be borrowed, without
      limitation.

     

    Execute
      Loan Documents.
      To
      execute and deliver to Bank that certain Loan and Security Agreement dated
      as of
      January 3, 2007 (the “Loan Agreement”) and any other agreement entered into
      between Corporation and Bank in connection with the Loan Agreement, including
      any amendments, all as amended or extended from time to time (collectively,
      with
      the Loan Agreement, the “Loan Documents”), and also to execute and deliver to
      Bank one or more renewals, extensions, modifications, refinancings,
      consolidations, or substitutions for the Loan Documents, or any portion
      thereof.

     

    Grant
      Security.
      To
      grant a security interest to Bank in the Collateral described in the Loan
      Documents, which security interest shall secure all of the Corporation’s
      Obligations, as described in the Loan Documents.

     

    Negotiate
      Items.
      To
      draw, endorse, and discount with Bank all drafts, trade acceptances, promissory
      notes, or other evidences of indebtedness payable to or belonging to the
      Corporation or in which the Corporation may have an interest, and either to
      receive cash for the same or to cause such proceeds to be credited to the
      account of the Corporation with Bank, or to cause such other disposition of
      the
      proceeds derived therefrom as they may deem advisable.

     

    Warrants.
      To
      issue Bank warrants to purchase the Corporation’s capital stock.

     

    Letters
      of Credit.
      To
      execute letter of credit applications and other related documents pertaining
      to
      Bank’s issuance of letters of credit.

     

    Corporate
      Credit Cards.
      To
      execute corporate credit card applications and agreements and other related
      documents pertaining to Bank’s provision of corporate credit cards.

     

    Further
      Acts.
      In the
      case of lines of credit, to designate additional or alternate individuals as
      being authorized to request advances thereunder, and in all cases, to do and
      perform such other acts and things, to pay any and all fees and costs, and
      to
      execute and deliver such other documents and agreements as they may in their
      discretion deem reasonably necessary or proper in order to carry into effect
      the
      provisions of these Resolutions.

     

    BE
      IT
      FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions
      and performed prior to the passage of these resolutions are hereby ratified
      and
      approved, that these Resolutions shall remain in full force and effect and
      Bank
      may rely on these Resolutions until written notice of their revocation shall
      have been delivered to and received by Bank. Any such notice shall not affect
      any of the Corporation’s agreements or commitments in effect at the time notice
      is given.

     

    I
      FURTHER
      CERTIFY that the officers, employees, and agents named above are duly elected,
      appointed, or employed by or for the Corporation, as the case may be, and occupy
      the positions set forth opposite their respective names; that the foregoing
      Resolutions now stand of record on the books of the Corporation; and that the
      Resolutions are in full force and effect and have not been modified or revoked
      in any manner whatsoever.

     

    IN
      WITNESS WHEREOF, I have hereunto set my hand on January __, 2007 and attest
      that
      the signatures set opposite the names listed above are their genuine
      signatures.

     

    
      	 	 	
              CERTIFIED
                AND ATTESTED BY:

            
	 	 	 
	 	 	 
	 	 	
              X

            
	 	 	 


    

    


    


     


    
      
        
          611795
            v8/HN 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    CORPORATE
      RESOLUTIONS TO BORROW

     

    
      	
               

              Borrower: ACCUREL
                SYSTEMS INTERNATIONAL CORPORATION

               

            


    

    


    I,
      the
      undersigned Secretary or Assistant Secretary of ACCUREL SYSTEMS INTERNATIONAL
      CORPORATION (the “Corporation”), HEREBY CERTIFY that the Corporation is
      organized and existing under and by virtue of the laws of the state of
      California. 

     

    I
      FURTHER
      CERTIFY that attached hereto as Attachments 1 and 2 are true and complete
      copies of the Articles of Incorporation, as amended, and the Restated Bylaws
      of
      the Corporation, each of which is in full force and effect on the date
      hereof.

     

    I
      FURTHER
      CERTIFY that at a meeting of the Directors of the Corporation, duly called
      and
      held, at which a quorum was present and voting (or by other duly authorized
      corporate action in lieu of a meeting), the following resolutions (the
“Resolutions”) were adopted.

     

    BE
      IT
      RESOLVED, that any one (1) of the following named officers, employees, or agents
      of this Corporation, whose actual signatures are shown below:

     

    
      	
              NAMES

            	
              POSITION

            	
              ACTUAL
                SIGNATURES

            
	 	 	 
	
              Anthony
                J. Armini

            	
              President
                and CEO

            	 
	 	 	 
	
              Diane
                J. Ryan

            	
              Secretary
                and Treasurer

            	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


    

    acting
      for and on behalf of this Corporation and as its act and deed be, and they
      hereby are, authorized and empowered:

     

    Borrow
      Money.
      To
      borrow from time to time from Bridge Bank, N.A. (“Bank”), on such terms as may
      be agreed upon between the officers, employees, or agents of the Corporation
      and
      Bank, such sum or sums of money as in their judgment should be borrowed, without
      limitation.

     

    Execute
      Loan Documents.
      To
      execute and deliver to Bank that certain Loan and Security Agreement dated
      as of
      January 3, 2007 (the “Loan Agreement”) and any other agreement entered into
      between Corporation and Bank in connection with the Loan Agreement, including
      any amendments, all as amended or extended from time to time (collectively,
      with
      the Loan Agreement, the “Loan Documents”), and also to execute and deliver to
      Bank one or more renewals, extensions, modifications, refinancings,
      consolidations, or substitutions for the Loan Documents, or any portion
      thereof.

     

    Grant
      Security.
      To
      grant a security interest to Bank in the Collateral described in the Loan
      Documents, which security interest shall secure all of the Corporation’s
      Obligations, as described in the Loan Documents.

     

    Negotiate
      Items.
      To
      draw, endorse, and discount with Bank all drafts, trade acceptances, promissory
      notes, or other evidences of indebtedness payable to or belonging to the
      Corporation or in which the Corporation may have an interest, and either to
      receive cash for the same or to cause such proceeds to be credited to the
      account of the Corporation with Bank, or to cause such other disposition of
      the
      proceeds derived therefrom as they may deem advisable.

     

    Warrants.
      To
      issue Bank warrants to purchase the Corporation’s capital stock.

     

    Letters
      of Credit.
      To
      execute letter of credit applications and other related documents pertaining
      to
      Bank’s issuance of letters of credit.

     

    Corporate
      Credit Cards.
      To
      execute corporate credit card applications and agreements and other related
      documents pertaining to Bank’s provision of corporate credit cards.

     

    Further
      Acts.
      In the
      case of lines of credit, to designate additional or alternate individuals as
      being authorized to request advances thereunder, and in all cases, to do and
      perform such other acts and things, to pay any and all fees and costs, and
      to
      execute and deliver such other documents and agreements as they may in their
      discretion deem reasonably necessary or proper in order to carry into effect
      the
      provisions of these Resolutions.

     

    BE
      IT
      FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions
      and performed prior to the passage of these resolutions are hereby ratified
      and
      approved, that these Resolutions shall remain in full force and effect and
      Bank
      may rely on these Resolutions until written notice of their revocation shall
      have been delivered to and received by Bank. Any such notice shall not affect
      any of the Corporation’s agreements or commitments in effect at the time notice
      is given.

     

    I
      FURTHER
      CERTIFY that the officers, employees, and agents named above are duly elected,
      appointed, or employed by or for the Corporation, as the case may be, and occupy
      the positions set forth opposite their respective names; that the foregoing
      Resolutions now stand of record on the books of the Corporation; and that the
      Resolutions are in full force and effect and have not been modified or revoked
      in any manner whatsoever.

     

    IN
      WITNESS WHEREOF, I have hereunto set my hand on January __, 2007 and attest
      that
      the signatures set opposite the names listed above are their genuine
      signatures.

     

    
      	 	 	
              CERTIFIED
                AND ATTESTED BY:

            
	 	 	 
	 	 	 
	 	 	
              X

            
	 	 	 


    

    


     


    
      
        
          611795
            v8/HN 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    CORPORATE
      RESOLUTIONS TO BORROW

     

    
      	
               

              Borrower: C
                ACQUISITION CORP.

               

            


    

    


    I,
      the
      undersigned Secretary or Assistant Secretary of C ACQUISITION CORP. (the
“Corporation”), HEREBY CERTIFY that the Corporation is organized and existing
      under and by virtue of the laws of the Commonwealth of Massachusetts.


     

    I
      FURTHER
      CERTIFY that attached hereto as Attachments 1 and 2 are true and complete
      copies of the Articles of Incorporation, as amended, and the Restated Bylaws
      of
      the Corporation, each of which is in full force and effect on the date
      hereof.

     

    I
      FURTHER
      CERTIFY that at a meeting of the Directors of the Corporation, duly called
      and
      held, at which a quorum was present and voting (or by other duly authorized
      corporate action in lieu of a meeting), the following resolutions (the
“Resolutions”) were adopted.

     

    BE
      IT
      RESOLVED, that any one (1) of the following named officers, employees, or agents
      of this Corporation, whose actual signatures are shown below:

     

    
      	
              NAMES

            	
              POSITION

            	
              ACTUAL
                SIGNATURES

            
	 	 	 
	
              Anthony
                J. Armini

            	
              President
                and CEO

            	 
	 	 	 
	
              Diane
                J. Ryan

            	
              Vice
                President and CFO

            	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 


    

    acting
      for and on behalf of this Corporation and as its act and deed be, and they
      hereby are, authorized and empowered:

     

    Borrow
      Money.
      To
      borrow from time to time from Bridge Bank, N.A. (“Bank”), on such terms as may
      be agreed upon between the officers, employees, or agents of the Corporation
      and
      Bank, such sum or sums of money as in their judgment should be borrowed, without
      limitation.

     

    Execute
      Loan Documents.
      To
      execute and deliver to Bank that certain Loan and Security Agreement dated
      as of
      January 3, 2007 (the “Loan Agreement”) and any other agreement entered into
      between Corporation and Bank in connection with the Loan Agreement, including
      any amendments, all as amended or extended from time to time (collectively,
      with
      the Loan Agreement, the “Loan Documents”), and also to execute and deliver to
      Bank one or more renewals, extensions, modifications, refinancings,
      consolidations, or substitutions for the Loan Documents, or any portion
      thereof.

     

    Grant
      Security.
      To
      grant a security interest to Bank in the Collateral described in the Loan
      Documents, which security interest shall secure all of the Corporation’s
      Obligations, as described in the Loan Documents.

     

    Negotiate
      Items.
      To
      draw, endorse, and discount with Bank all drafts, trade acceptances, promissory
      notes, or other evidences of indebtedness payable to or belonging to the
      Corporation or in which the Corporation may have an interest, and either to
      receive cash for the same or to cause such proceeds to be credited to the
      account of the Corporation with Bank, or to cause such other disposition of
      the
      proceeds derived therefrom as they may deem advisable.

     

    Warrants.
      To
      issue Bank warrants to purchase the Corporation’s capital stock.

     

    Letters
      of Credit.
      To
      execute letter of credit applications and other related documents pertaining
      to
      Bank’s issuance of letters of credit.

     

    Corporate
      Credit Cards.
      To
      execute corporate credit card applications and agreements and other related
      documents pertaining to Bank’s provision of corporate credit cards.

     

    Further
      Acts.
      In the
      case of lines of credit, to designate additional or alternate individuals as
      being authorized to request advances thereunder, and in all cases, to do and
      perform such other acts and things, to pay any and all fees and costs, and
      to
      execute and deliver such other documents and agreements as they may in their
      discretion deem reasonably necessary or proper in order to carry into effect
      the
      provisions of these Resolutions.

     

    BE
      IT
      FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions
      and performed prior to the passage of these resolutions are hereby ratified
      and
      approved, that these Resolutions shall remain in full force and effect and
      Bank
      may rely on these Resolutions until written notice of their revocation shall
      have been delivered to and received by Bank. Any such notice shall not affect
      any of the Corporation’s agreements or commitments in effect at the time notice
      is given.

     

    I
      FURTHER
      CERTIFY that the officers, employees, and agents named above are duly elected,
      appointed, or employed by or for the Corporation, as the case may be, and occupy
      the positions set forth opposite their respective names; that the foregoing
      Resolutions now stand of record on the books of the Corporation; and that the
      Resolutions are in full force and effect and have not been modified or revoked
      in any manner whatsoever.

     

    IN
      WITNESS WHEREOF, I have hereunto set my hand on January __, 2007 and attest
      that
      the signatures set opposite the names listed above are their genuine
      signatures.

     

    
      	 	 	
              CERTIFIED
                AND ATTESTED BY:

            
	 	 	 
	 	 	 
	 	 	
              X

            
	 	 	 


    

    


     


    
      
        
          611795
            v8/HN 

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    DISBURSEMENT
      REQUEST AND AUTHORIZATION

     

    
      	
              Borrowers:
                Implant Sciences Corporation; Accurel Systems International Corporation;
                C
                Acquisition Corp.

               

            	
              Bank: Bridge
                Bank N.A.

               

            


    

    


    LOAN
      TYPE. This is a Variable Rate, Revolving Line of Credit of a principal amount
      up
      to $5,000,000.

     

    PRIMARY
      PURPOSE OF LOAN. The primary purpose of this loan is for business.

     

    SPECIFIC
      PURPOSE. The specific purpose of this loan is: working capital.

     

    DISBURSEMENT
      INSTRUCTIONS. Borrowers understand that no loan proceeds will be disbursed
      until
      all of Bank’s conditions for making the loan have been satisfied. Please
      disburse the loan proceeds as follows:

     

    
      	 	
              Revolver

            	
              Term
                Loan

            	 
	
              Amount
                paid to Borrowers directly:

            	
              $____________

            	
              $____________

            	 
	
              Undisbursed
                Funds

            	
              $____________

            	
              $____________

            	 
	 	 	 	 
	
              Principal

            	
              $____________

            	
              $____________

            	 
	 
	
              CHARGES
                PAID IN CASH. Borrowers have paid or will pay in cash as agreed the
                following charges:

            
	 	 	 	 
	
              Prepaid
                Finance Charges Paid in Cash:

            	 	 	 
	
              $37,500 Loan
                Fee

            	 	 	 
	
              $____ Accounts
                Receivables Audit

            	 	 	 
	 	 	 	 
	
              Other
                Charges Paid in Cash:

            	 	 	 
	
              $____ UCC
                Search Fees

            	 	 	 
	
              $____ UCC
                Filing Fees

            	 	 	 
	
              $____ Outside
                Counsel Fees and Expenses (Estimate)

            	 	 	 
	 	 	 	 
	
              Total
                Charges Paid in Cash

            	 	 	 
	 	 	 	 


    

    AUTOMATIC
      PAYMENTS. Borrowers hereby authorize Bank automatically to deduct from
      Borrowers’ account numbered ________________ the amount of any loan payment. If
      the funds in the account are insufficient to cover any payment, Bank shall
      not
      be obligated to advance funds to cover the payment.

     

    FINANCIAL
      CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWERS REPRESENT AND WARRANT TO
      BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE
      HAS
      BEEN NO ADVERSE CHANGE IN BORROWER’S FINANCIAL CONDITION AS DISCLOSED IN
      BORROWERS’ MOST RECENT FINANCIAL STATEMENT TO BANK. THIS AUTHORIZATION IS DATED
      AS OF JANUARY 3, 2007.

     

    
      	
              BORROWERS:

            	 	 
	 	 	 
	
              Implant
                Sciences Corporation

            	 	
              Accurel
                Systems International Corporation

            
	 	 	 
	 	 	 
	 	 	 
	
              Authorized
                Officer

            	 	
              Authorized
                Officer

            
	 	 	 
	
              C
                Acquisition Corp.

            	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Authorized
                Officer