Common Stock Purchase Warrant


    THIS
      WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
      TRANSFERRED EXCEPT IN ACCORDANCE WITH APPLICABLE LAW.

     

    WARRANT
      TO PURCHASE STOCK

     

    
      	 	
              Corporation:

            	
              IMPLANT
                SCIENCES CORPORATION

            


    

    
      	 	
              Number
                of Shares:

            	
              18,939

            


    

    
      	 	
              Class
                of Stock:

            	
              Common
                

            


    

    
      	 	
              Initial
                Exercise Price:

            	
              $2.64

            


    

    
      	 	
              Issue
                Date:

            	
              January
                3, 2007

            


    

    
      	 	
              Expiration
                Date:

            	
              January
                3, 2014

            


    

     

    This
      Warrant Certifies That,
      for good
      and valuable consideration, the receipt of which is hereby acknowledged,
Bridge
      Bank N.A.
      or its
      assignee (“Holder”)
      is
      entitled to purchase the number of fully paid and nonassessable shares of the
      Common Stock (the “Shares”)
      of the
      corporation (the “Company”)
      at the
      initial exercise price per Share (the “Warrant
      Price”)
      all as
      set forth above and as adjusted pursuant to Article 2 of this warrant, subject
      to the provisions and upon the terms and conditions set forth in this warrant.
      

     

    ARTICLE
      1  

     

    


     

    EXERCISE

     

    1.1  Method
      of Exercise.
      Holder
      may exercise this warrant by delivering this warrant and a duly executed Notice
      of Exercise in substantially the form attached as Appendix 1 to the principal
      office of the Company. Unless Holder is exercising the conversion right set
      forth in Section 1.2, Holder shall also deliver to the Company a check for
      the
      aggregate Warrant Price for the Shares being purchased.

     

    1.2  Conversion
      Right.
      In lieu
      of exercising this warrant as specified in Section 1.1, Holder may from time
      to
      time convert this warrant, in whole or in part, into a number of Shares
      determined by dividing (a) the aggregate fair market value of the Shares or
      other securities otherwise issuable upon exercise of this warrant minus the
      aggregate Warrant Price of such Shares by (b) the fair market value of one
      Share. The fair market value of the Shares shall be determined pursuant to
      Section 1.3.

     

    1.3  Fair
      Market Value.
      If the
      Shares are traded regularly in a public market, the fair market value of the
      Shares shall be the closing price of the Shares (or the closing price of the
      Company’s stock into which the Shares are convertible) reported for the business
      day immediately before Holder delivers its Notice of Exercise to the Company.
      If
      the Shares are not regularly traded in a public market, the Board of Directors
      of the Company shall determine fair market value in its reasonable good faith
      judgment. 

     

    1.4  Delivery
      of Certificate and New Warrant.
      Promptly
      after Holder exercises or converts this warrant, the Company shall deliver
      to
      Holder certificates for the Shares acquired and, if this warrant has not been
      fully exercised or converted and has not expired, a new warrant representing
      the
      Shares not so acquired.

     

    1.5  Replacement
      of Warrants.
      On
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this warrant and, in the case of loss, theft or
      destruction, on delivery of an indemnity agreement reasonably satisfactory
      in
      form and amount to the Company or, in the case of mutilation, on surrender
      and
      cancellation of this warrant, the Company at its expense shall execute and
      deliver, in lieu of this warrant, a new warrant of like tenor. 

     

    ARTICLE
      2  

     

    


     

    ADJUSTMENTS
      TO THE SHARES

     

    2.1  Stock
      Dividends, Splits, Etc.
      If the
      Company declares or pays a dividend on its common stock payable in common stock,
      or other securities, or subdivides the outstanding common stock into a greater
      amount of common stock, then upon exercise of this warrant, for each Share
      acquired, Holder shall receive, without cost to Holder, the total number and
      kind of securities to which Holder would have been entitled had Holder owned
      the
      Shares of record as of the date the dividend or subdivision
      occurred.

     

    2.2  Reclassification,
      Exchange or Substitution.
      Upon any
      reclassification, exchange, substitution, or other event that results in a
      change of the number and/or class of the securities issuable upon exercise
      or
      conversion of this warrant, Holder shall be entitled to receive, upon exercise
      or conversion of this warrant, the number and kind of securities and property
      that Holder would have received for the Shares if this warrant had been
      exercised immediately before such reclassification, exchange, substitution,
      or
      other event. The Company or its successor shall promptly issue to Holder a
      new
      warrant for such new securities or other property. The new warrant shall provide
      for adjustments which shall be as nearly equivalent as may be practicable to
      the
      adjustments provided for in this Article 2 including, without limitation,
      adjustments to the Warrant Price and to the number of securities or property
      issuable upon exercise of the new warrant. The provisions of this Section 2.2
      shall similarly apply to successive reclassifications, exchanges, substitutions,
      or other events.

     

    2.3  Adjustments
      for Mergers, Combinations, Etc.
      If the
      outstanding Shares are combined or consolidated, by reclassification or
      otherwise, into a lesser number of shares, the Warrant Price shall be
      proportionately increased. If the outstanding Shares are combined or
      consolidated, by reclassification or otherwise, into a greater number of shares,
      the Warrant Price shall be proportionately decreased. Upon the closing of any
      acquisition of all or substantially all of Holder’s assets or capital stock, the
      successor entity shall assume the obligations of this warrant, then this warrant
      shall be exercisable for the same securities, cash, and property as would be
      payable for the Shares issuable upon exercise of the unexercised portion of
      this
      warrant as if such Shares were outstanding on the record date for the
      acquisition and subsequent closing. The Warrant Price shall be adjusted
      accordingly.

     

    2.4  No
      Impairment.
      The
      Company shall not, by amendment of its Certificate of Incorporation or through
      a
      reorganization, transfer of assets, consolidation, merger, dissolution, issue,
      or sale of securities or any other voluntary action, avoid or seek to avoid
      the
      observance or performance of any of the terms to be observed or performed under
      this warrant by the Company, but shall at all times in good faith assist in
      carrying out all the provisions of this Article 2 and in taking all such action
      as may be necessary or appropriate to protect Holder’s rights under this Article
      against impairment. 

     

    2.5  Certificate
      as to Adjustments.
      Upon
      each adjustment of the Warrant Price, the Company at its expense shall promptly
      compute such adjustment, and furnish Holder with a certificate of its Chief
      Financial Officer setting forth such adjustment and the facts upon which such
      adjustment is based. The Company shall, upon written request, furnish Holder
      a
      certificate setting forth the Warrant Price in effect upon the date thereof
      and
      the series of adjustments leading to such Warrant Price.

     

    2.6  Fractional
      Shares.
      No
      fractional Shares shall be issuable upon exercise or conversion of the Warrant
      and the Number of Shares to be issued shall be rounded down to the nearest
      whole
      Share. If a fractional share interest arises upon any exercise or conversion
      of
      the Warrant, the Company shall eliminate such fractional share interest by
      paying Holder amount computed by multiplying the fractional interest by the
      fair
      market value of a full Share.

     

    ARTICLE
      3  

     

    


     

    REPRESENTATIONS
      AND COVENANTS OF THE COMPANY

     

    3.1  Representations
      and Warranties.
      The
      Company hereby represents and warrants to the Holder as follows:

     

    (a)  All
      Shares which may be issued upon the exercise of the purchase right represented
      by this warrant shall, upon issuance, be duly authorized, validly issued, fully
      paid and nonassessable, and free of any liens and encumbrances except for
      restrictions on transfer provided for herein or under applicable federal and
      state securities laws.

     

    (b)  The
      Company’s capitalization table attached to this warrant is true and complete as
      of the Issue Date.

     

    3.2  Notice
      of Certain Events.
      If the
      Company proposes at any time (a) to declare any dividend or distribution upon
      its common stock, whether in cash, property, stock, or other securities and
      whether or not a regular cash dividend; (b) to offer for subscription pro rata
      to the holders of any class or series of its stock any additional shares of
      stock of any class or series or other rights; (c) to effect any reclassification
      or recapitalization of common stock; or (d) to merge or consolidate with or
      into
      any other corporation, or sell, lease, license, or convey all or substantially
      all of its assets, or to liquidate, dissolve or wind up, then, in connection
      with each such event, the Company shall give Holder (1) at least 20 days prior
      written notice of the date on which a record will be taken for such dividend,
      distribution, or subscription rights (and specifying the date on which the
      holders of common stock will be entitled thereto) or for determining rights
      to
      vote, if any, in respect of the matters referred to in (a) and (b) above; and
      (2) in the case of the matters referred to in (c) and (d) above at least 20
      days
      prior written notice of the date when the same will take place (and specifying
      the date on which the holders of common stock will be entitled to exchange
      their
      common stock for securities or other property deliverable upon the occurrence
      of
      such event), provided that the failure to give such notice shall not be a reason
      to void such transaction.

     

    3.3  Information
      Rights.
      At any
      time that the Company is not subject to the Securities Exchange Act of 1934,
      so
      long as the Holder holds this warrant and/or any of the Shares, the Company
      shall deliver to the Holder (a) promptly after mailing, copies of all
      communiques to the shareholders of the Company, (b) within ninety (90) days
      after the end of each fiscal year of the Company, the annual audited financial
      statements of the Company certified by independent public accountants of
      recognized standing and (c) within forty-five (45) days after the end of each
      of
      the first three quarters of each fiscal year, the Company’s quarterly, unaudited
      financial statements.

     

    3.4  Piggy-Back
      Registration.
      Whenever the Company proposes to register any of its Common Stock under the
      Securities Act of 1933, as amended (the “Securities Act”) for a public offering
      for cash, whether as a secondary offering or pursuant to registration rights
      granted to holders of other securities of the Company (other than a registration
      on Form S-8 or S-4 relating to employee benefit plans or to a transaction under
      Rule 145 of the Securities Act) or a merger or acquisition, the Company shall
      give the Holder advance written notice thereof as soon as practicable but in
      no
      event later than twenty (20) business days before the anticipate initial filing
      date. Upon the written request of any Holder within twenty (20 ) days after
      the
      Holder’s receipt of such notice, the Company shall use its best efforts to cause
      to be included in such registration all of the Registrable Securities which
      the
      Holder requests to be registered. For the purposes of this Section 3.4, the
      term
“Registrable Securities” shall mean the Common Stock (and Other Securities)
      transferable upon exercise of the Warrant (when and if transferred in accordance
      therewith). The Company need not include the Holder’s shares if the holders of
      other shares included in the Registration Statement have a contractual right
      to
      exclude all or a portion of the Holder’s shares from inclusion in such
      Registration Statement.

     

    ARTICLE
      4  

     

    


     

    MISCELLANEOUS

     

    4.1  Term:
      Exercise Upon Expiration.
      This
      warrant is exercisable in whole or in part, at any time and from time to time
      on
      or before the Expiration Date set forth above. If this warrant has not been
      exercised prior to the Expiration Date, this warrant shall be deemed to have
      been automatically exercised on the Expiration Date by “cashless” conversion
      pursuant to Section 1.2.

     

    4.2  Legends.
      This
      warrant and the Shares shall be imprinted with a legend in substantially the
      following form:

     

    THIS
      SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE
      WITH
      APPLICABLE LAW.

     

    4.3  Compliance
      with Securities Laws on Transfer.
      This
      warrant and the Shares issuable upon exercise of this warrant may not be
      transferred or assigned in whole or in part without compliance with applicable
      federal and state securities laws by the transferor and the
      transferee.

     

    4.4  Transfer
      Procedure.
      Subject
      to the provisions of Section 4.3, Holder may transfer all or part of this
      warrant or the Shares issuable upon exercise of this warrant by giving the
      Company notice of the portion of the warrant being transferred setting forth
      the
      name, address and taxpayer identification number of the transferee and
      surrendering this warrant to the Company for reissuance to the transferee(s)
      (and Holder, if applicable).

     

    4.5  Notices.
      All
      notices and other communications from the Company to the Holder, or vice versa,
      shall be deemed delivered and effective when given personally or mailed by
      first-class registered or certified mail, postage prepaid, at such address
      as
      may have been furnished to the Company or the Holder, as the case may be, in
      writing by the Company or such Holder from time to time. All notices to the
      Holder shall be addressed as follows:

     

    Bridge
      Bank N.A.

    55
      Almaden Blvd..

    San
      Jose,
      CA 95113

    Attn:
      Mike Lederman

     

    4.6  Amendments.
      This
      warrant and any term hereof may be changed, waived, discharged or terminated
      only by an instrument in writing signed by the party against which enforcement
      of such change, waiver, discharge or termination is sought.

     

    4.7  Attorneys’
      Fees.
      In the
      event of any dispute between the parties concerning the terms and provisions
      of
      this warrant, the party prevailing in such dispute shall be entitled to collect
      from the other party all costs incurred in such dispute, including reasonable
      attorneys’ fees.

     

    4.8  Governing
      Law.
      This
      warrant shall be governed by and construed in accordance with the laws of the
      State of California, without giving effect to its principles regarding conflicts
      of law.

     

    IMPLANT
      SCIENCES CORPORATION

     

    By: /s/
      A.J. Armini

     

    Name:
      A.J. Armini

     

    Title:
      President and CEO

     

    


     


    
      
        
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    Appendix
      1

     

    NOTICE
      OF EXERCISE

     

    1. The
      undersigned hereby elects to purchase ______________ shares of the
      ______________ stock of IMPLANT
      SCIENCES CORPORATION
      pursuant
      to the terms of the attached warrant, and tenders herewith payment of the
      purchase price of such shares in full.

     

    2. The
      undersigned hereby elects to convert the attached warrant into shares in the
      manner specified in the warrant. This conversion is exercised with respect
      to
      ______________ of the shares covered by the warrant.

     

    [Strike
      paragraph that does not apply.]

     

    3. Please
      issue a certificate or certificates representing said shares in the name of
      the
      undersigned or in such other name as is specified below:

     

    Bridge
      Bank N.A.

    


     

    4. The
      undersigned represents it is acquiring the shares solely for its own account
      and
      not as a nominee for any other party and not with a view toward the resale
      or
      distribution thereof except in compliance with applicable securities
      laws.

     

    Bridge
      Bank N.A. or
      Registered Assignee

     

     

    (Signature)

     

     

    (Date)