imxform8k081216_ex10-4.htm


    Exhibit
10.4

     

    SECURITY
AGREEMENT

     

    This
SECURITY AGREEMENT (this
“Agreement”),
dated as of December 10, 2008, among the Grantor(s) listed on the signature
pages hereof and those additional entities that hereafter become parties hereto
by executing the form of Supplement attached hereto as Annex 1
(collectively, jointly and severally, the “Grantors” and each,
individually, a “Grantor”), and DMRJ GROUP, LLC (together with
its successors and assigns, the “Secured
Party”).

     

    W I T N E S S E T
H:

     

    WHEREAS, the Secured Party is
the holder of that certain Senior Secured Convertible Promissory Note bearing
even date herewith in the principal amount of $5,600,000 (together with any and
all promissory notes issued by the Company after the date hereof pursuant to the
Purchase Agreement, collectively and each individually, the “Note”) issued or to
be issued by the Implant Sciences Corporation (“Company”) pursuant to
the terms of the Note and Warrant Purchase Agreement bearing even date herewith
(as may be amended, restated, supplemented, replaced or otherwise modified from
time to time, the “Purchase Agreement”)
by and between the Company and the Secured Party, and

     

    WHEREAS, pursuant to the terms
and conditions of the Purchase Agreement, the Secured Party has agreed to extend
a loan to the Company, repayment of which is evidenced by the Note,
and

     

    WHEREAS, in order to induce
Secured Party to enter into the Purchase Agreement and other Transaction
Documents and to extend the loans pursuant to the Purchase Agreement, each of
C-Acquisition Corp., IMX Acquisition Corp. and Accural Systems International
Corporation (collectively, the “Guarantors”) have
agreed to jointly and severally guaranty the obligations of the Company to the
Secured Party pursuant to that certain Guaranty (as amended, restated,
supplemented or replaced from time to time, the “Guaranty”) dated of
even date herewith executed by the Guarantors in favor of the Secured Party,
and

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1. Defined Terms. All
capitalized terms used herein (including in the preamble and recitals hereof)
without definition shall have the meanings ascribed thereto in the Note, or if
not expressly defined in the Note, then in the Purchase
Agreement.  Any terms used in this Agreement that are defined in the
Code (whether or not capitalized) shall be construed and defined as set forth in
the Code unless otherwise defined herein or in Note or the Purchase Agreement;
provided, however, that if the
Code is used to define any term used herein and if such term is defined
differently in different Articles of the Code, the definition of such term
contained in Article 9 of the Code shall govern. In addition to those terms
defined elsewhere in this Agreement, as used in this Agreement, the following
terms shall have the following meanings:

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (j) “Controlled Foreign
Corporation” shall mean “controlled foreign corporation” as defined in
the IRC.

     

    
      
        
        

      

      
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    (k) “Copyrights” means
copyrights and copyright registrations, and also includes (i) the copyright
registrations and applications listed on Schedule 2 attached
hereto and made a part hereof (as the same may be amended or modified from time
to time), (ii) all extensions or renewals thereof, (iii) all income, royalties,
damage awards and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
thereof, (iv) the right to sue for past, present and future infringements
thereof, and (v) all of each Grantor’s rights corresponding thereto throughout
the world.

     

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

     

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

     

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

     

    (o) “Event of Default” has
the meaning specified therefor in the Note.

     

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

     

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

     

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

     

    
      
        
        

      

      
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    (s)  “Guarantor” has the
meaning specified therefor in the recitals to this Agreement.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (aa) “Obligations” means
all of the liabilities and obligations (primary, secondary, direct, contingent,
sole, joint or several) due or to become due, or that are now or may be
hereafter contracted or acquired, or owing, of any Grantor to the Secured Party
under this Agreement, the Note, the Purchase Agreement, the Guaranty, the other
Transaction Documents, and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith, in each case,
whether now or hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from the Secured Party as a
preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term
“Obligations” shall include, without limitation: (i) principal of, and interest
on, the Note and the loans extended pursuant thereto

     

    
      
        
        

      

      
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      (including
any interest that accrues after the commencement of an Insolvency Proceeding
regardless of whether allowed or allowable in whole or in part as a claim in
such Insolvency Proceeding); (ii) any and all other fees, legal fees and other
expenses, indemnities, costs, obligations and liabilities of the Grantors from
time to time under or in connection with this Agreement, the Note, the Purchase
Agreement, the Guaranty, the other Transaction Documents, and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith; (iii) payment of the Redemption Price (as
defined in the Warrant) and the Major Transaction Prepayment Price (as defined
in the Note), and (iv) all amounts in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Grantor.  Any
reference in this Agreement or in the Transaction Documents to the Obligations
shall include all or any portion thereof and any extensions, modifications,
renewals or alterations thereof, both prior and subsequent to any Insolvency
Proceeding..

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
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    (hh) “Pledged Interests”
means all of each Grantor’s right, title and interest in and to all of the Stock
now or hereafter owned by such Grantor, regardless of class or designation,
including all substitutions therefor and replacements thereof, all proceeds
thereof and all rights relating thereto, also including any certificates
representing the Stock, the right to receive any certificates representing any
of the Stock, all warrants, options, share appreciation rights and other rights,
contractual or otherwise, in respect thereof, and the right to receive
dividends, distributions of income, profits, surplus, or other compensation by
way of income or liquidating distributions, in cash or in kind, and cash,
instruments, and other property from time to time received, receivable, or
otherwise distributed in respect of or in addition to, in substitution of, on
account of, or in exchange for any or all of the
foregoing.  Notwithstanding anything to the contrary contained herein,
in no event shall the Pledged Interests include more than 65% of the voting
Stock of any Controlled Foreign Corporation if and only for so long as a pledge
of more than 65% of the voting Stock of such Controlled Foreign Corporation
would have adverse United States federal income tax consequences to any
Grantor.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    (tt) “Stock” means all
shares, options, warrants, interests, participations, or other equivalents
(regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other “equity security” (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Commission under the Exchange Act).

     

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

     

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

     

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

     

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

     

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

     

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

     

    (a) all of
such Grantor’s Accounts;

     

    
      
        
        

      

      
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    (b) all of
such Grantor’s Books;

     

    (c) all of
such Grantor’s Chattel Paper;

     

    (d) all of
such Grantor’s Deposit Accounts;

     

    (e) all of
such Grantor’s Equipment and fixtures;

     

    (f) all of
such Grantor’s General Intangibles;

     

    (g) all of
such Grantor’s Inventory;

     

    (h) all of
such Grantor’s Investment Related Property;

     

    (i) all of
such Grantor’s Negotiable Collateral;

     

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

     

    (k) all of
such Grantor’s Commercial Tort Claims;

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
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      is
necessary in connection with the operation of such Grantor’s business, except
for those Copyrights identified on Schedule 2 attached
hereto which have been registered with the United States Copyright
Office.

    

     

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

     

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

     

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

     

    (g) The
execution, delivery and performance of this Agreement and the other Transaction
Documents to which it is a party by each Grantor do not (i) violate any of the
provisions of the Organizational Documents of any Grantor or any judgment,
decree, order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to any Grantor or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing such Grantor’s debt or otherwise) or other understanding to which
any Grantor is a party or by which any property or asset of any Grantor is bound
or affected, except, in all cases, for such conflicts, defaults,

     

    
      
        
        

      

      
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      terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. If any, all
required consents (including, without limitation, from stockholders or creditors
of the Grantor) necessary for the Grantor to enter into and perform its
obligations hereunder have been obtained.

    

     

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

     

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

     

    
      
        
        

      

      
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      securities
disclosure, or similar laws of any jurisdiction to which such issuance or
transfer may be subject.

    

     

    (j) No
consent, approval, authorization, or other order or other action by, and no
notice to or filing with, any Governmental Authority or any other Person is
required (i) for the grant of a Security Interest by such Grantor in and to the
Collateral pursuant to this Agreement or for the execution, delivery, or
performance of this Agreement and the other Transaction Documents to which it is
a party by such Grantor, or (ii) for the exercise by Secured Party of the voting
or other rights provided for in this Agreement or any other Transaction Document
with respect to the Investment Related Property or the remedies in respect of
the Collateral pursuant to this Agreement or any other Transaction Document,
except as may be required in connection with such disposition of Investment
Related Property by laws affecting the offering and sale of securities
generally.

     

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

     

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

     

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

     

    (b) Chattel
Paper.

     

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

     

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

     

    
      
        
        

      

      
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    (c) Control
Agreements.

     

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

     

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

     

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

     

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

     

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

     

    (g) Intellectual
Property.

     

    (i) Upon
request of Secured Party, in order to facilitate filings with the United States
Patent and Trademark Office and the United States Copyright Office, each Grantor
shall execute and deliver to Secured Party one or more Copyright Security
Agreements, Trademark Security Agreements, or Patent Security Agreements to
further evidence Secured

     

    
      
        
        

      

      
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      Party’s
Liens on such Grantor’s Patents, Trademarks, or Copyrights, and the General
Intangibles of such Grantor relating thereto or represented
thereby;

    

     

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

     

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

     

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

     

    (h) Investment Related
Property.

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

     

    (j) Transfers and Other
Liens.  Except as otherwise expressly permitted hereby or by
the Purchase Agreement, Grantors shall not (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to, any
of the Collateral, or

     

    
      
        
        

      

      
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    (ii)
create or permit to exist any Lien upon or with respect to any of the Collateral
of any of Grantors, except for Permitted Encumbrances.  The inclusion
of Proceeds in the Collateral shall not be deemed to constitute Secured Party’s
consent to any sale or other disposition of any of the Collateral except as
expressly permitted in this Agreement, the Purchase Agreement or the other
Transaction Documents;

     

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

     

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

     

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

     

    
      
        
        

      

      
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      promptly
paid over to Secured Party (for application to the Obligations) unless otherwise
directed in writing by Secured Party.  Copies of such policies or the
related certificates, in each case, naming Secured Party as lender loss payee
and additional insured shall be delivered to Secured Party at least annually and
at the time any new policy of insurance is issued

    

     

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

     

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

     

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

     

    (b) Note. In the event of
any conflict between any provision in this Agreement and a provision in the
Note, such provision of the Note shall control.

     

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

     

    8. Further
Assurances.

     

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

     

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

     

    (c) Each
Grantor authorizes Secured Party at any time and from time to time to file,
transmit, or communicate, as applicable, financing statements and amendments (i)
describing the Collateral as “all personal property of debtor” or “all assets of
debtor” or words of

     

    
      
        
        

      

      
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      similar
effect, (ii) describing the Collateral as being of equal or lesser scope or with
greater detail, or (iii) that contain any information required by part 5 of
Article 9 of the Code for the sufficiency or filing office
acceptance.  Each Grantor also hereby ratifies any and all financing
statements or amendments previously filed by Secured Party in any
jurisdiction.

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

    (f) to use
any labels, Patents, Trademarks, trade names, URLs, domain names, industrial
designs, Copyrights, advertising matter or other industrial or intellectual
property rights, in advertising for sale and selling Inventory and other
Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor; and

     

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

     

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

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

     

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

     

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

     

    14. Disposition of Pledged
Interests by Secured Party.  None of the Pledged Interests
existing as of the date of this Agreement are, and none of the Pledged Interests
hereafter acquired on the date of acquisition thereof will be, registered or
qualified under the various federal or state securities laws of the United
States and disposition thereof after an Event of Default may be restricted to
one or more private (instead of public) sales in view of the lack of such
registration.

     

    
      
        
        

      

      
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      Each
Grantor understands that in connection with such disposition, Secured Party may
approach only a restricted number of potential purchasers and further
understands that a sale under such circumstances may yield a lower price for the
Pledged Interests than if the Pledged Interests were registered and qualified
pursuant to federal and state securities laws and sold on the open
market.  Each Grantor, therefore, agrees that:  (a) if
Secured Party shall, pursuant to the terms of this Agreement, sell or cause the
Pledged Interests or any portion thereof to be sold at a private sale, Secured
Party shall have the right to rely upon the advice and opinion of any nationally
recognized brokerage or investment firm (but shall not be obligated to seek such
advice and the failure to do so shall not be considered in determining the
commercial reasonableness of such action) as to the best manner in which to
offer the Pledged Interest or any portion thereof for sale and as to the best
price reasonably obtainable at the private sale thereof; and (b) such reliance
shall be conclusive evidence that Secured Party has handled the disposition in a
commercially reasonable manner.

    

     

    15. Voting
Rights.

     

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

     

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

     

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

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    19. Indemnity and
Expenses.

     

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

     

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

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

       

      enforcement
of any of the rights of Secured Party hereunder or (iv) the failure by any of
Grantors to perform or observe any of the provisions hereof.

    

     

    20. Merger, Amendments;
Etc.  THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.  No waiver of any provision of this Agreement, and no consent
to any departure by any of Grantors herefrom, shall in any event be effective
unless the same shall be in writing and signed by Secured Party, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.  No amendment of any provision of
this Agreement shall be effective unless the same shall be in writing and signed
by Secured Party and each of Grantors to which such amendment
applies.

     

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

     

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

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

       

      exercise
of any such right or remedy which Secured Party would otherwise have had on any
other occasion.

    

     

    23. Governing
Law.

     

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

     

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

     

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

     

    24. New
Subsidiaries.  Without impairing the limitations and
restrictions of Section 3.20 of the
Purchase Agreement, any new direct or indirect Subsidiary (whether by
acquisition or creation) of Grantor is required to enter into this Agreement by
executing and delivering in favor

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

       

      of
Secured Party a supplement to this Agreement in the form of Annex 1 attached
hereto.  Upon the execution and delivery of Annex 1 by such new
Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force
and effect as if originally named as a Grantor herein.  The execution
and delivery of any instrument adding an additional Grantor as a party to this
Agreement shall not require the consent of any Grantor hereunder.  The
rights and obligations of each Grantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Grantor
hereunder.

    

     

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

     

    26. Miscellaneous.

     

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

     

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

     

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

     

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

     

    (e) Unless
the context of this Agreement or any other Transaction Document clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the terms “includes” and  “including” are
not limiting, and the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or.”  The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Transaction Document refer to this Agreement or such other
Transaction Document, as the case may be, as a whole and not to any particular
provision of this Agreement or such other Transaction Document, as the case may
be.  Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified.  Any
reference in this

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

       

      Agreement
or in any other Transaction Document to any agreement, instrument, or document
shall include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein or in the other
Transaction Documents).  Any reference herein or in any other
Transaction Document to the satisfaction or repayment in full of the Obligations
shall mean the repayment in full in cash (or cash collateralization in
accordance with the terms hereof) of all Obligations other than unasserted
contingent indemnification Obligations.  Any reference herein to any
Person shall be construed to include such Person’s successors and
assigns.  Any requirement of a writing contained herein or in any
other Transaction Document shall be satisfied by the transmission of a Record
and any Record so transmitted shall constitute a representation and warranty as
to the accuracy and completeness of the information contained
therein.

    

     

    [SIGNATURE
PAGE FOLLOWS]


    
      
        
          


           

        

         


      

      
        26

        
          

        

      

      
         


      

    


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

    


    
      	
              GRANTORS:

            	
              IMPLANT
      SCIENCES CORPORATION

               

              By:  /s/ Phillip C.
      Thomas

              Name:  Phillip C. Thomas

              Title:  President                                                                           

               

            
	 
      	
              C-ACQUISITION
      CORP.

               

              By:  /s/ Phillip C.
      Thomas

              Name:  Phillip C. Thomas

              Title:  President                                                                           

               

            
	 
      	
              ACCUREL
      SYSTEMS INTERNATIONAL CORPORATION

               

              By:  /s/ Phillip C.
      Thomas

              Name:  Phillip C. Thomas

              Title:  President                                                                           

               

            
	 
      	
              IMX
      ACQUISITION CORPORATION

               

              By:  /s/ Phillip C.
      Thomas

              Name:  Phillip C. Thomas

              Title:  President                                                                           

               

            
	
              SECURED
      PARTY:

            	
              DMRJ
      GROUP, LLC

               

              By:  D. I.
      Small                                                                           

              Name:  Daniel Small

              Title:  MC                                                                           

               

            


    

    



    
      
        
          [SIGNATURE
PAGE TO SECURITY AGREEMENT]

           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
1

    


    ORGANIZATIONAL
INFORMATION

    



    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
2

    


    COPYRIGHT
REGISTRATIONS AND APPLICATIONS


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
3

    


    INTELLECTUAL
PROPERTY LICENSES

    



    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
4

    


    PATENTS
AND PATENT APPLICATIONS


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
5

    PLEDGED
COMPANIES

    


     

    
      	
              Name
      of Pledgor

            	
              Name
      of Pledged Company

            	
              Number
      of Shares/Units

            	
              Class
      of Interests

            	
              Percentage
      of Class Owned

            	
              Certificate
      Nos.

            
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      


    

    


    



    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
6

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


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
7

    OWNED OR
LEASED REAL PROPERTY


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
8

    


    LIST OF
UNIFORM COMMERCIAL CODE FILING JURISDICTIONS

    


    Grantor                                                      Jurisdictions


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
9

    MOTOR
VEHICLES

    



    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
10

    


    COMMERCIAL
TORT CLAIMS

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


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    ANNEX 1
TO SECURITY AGREEMENT

    FORM OF
SUPPLEMENT

    Supplement
No. ____ (this “Supplement”) dated as
of _______________, to the Security Agreement dated as of __________, 2008 (as
amended, restated, supplemented or otherwise modified from time to time, the
“Security
Agreement”) by each of the parties listed on the signature pages thereto
and those additional entities that thereafter become parties thereto
(collectively, jointly and severally, “Grantors” and each individually “Grantor”) and DMRJ
GROUP, LLC in its capacity as Secured Party (together with the successors,
“Secured
Party”).

    W I T N E
S S E T H:

     

    WHEREAS, the Secured Party is
the holder of that certain Senior Secured Convertible Promissory Note dated as
of __________, 2008 in the principal amount of $5,600,000 (together with any and
all promissory notes issued by the Company after the date thereof pursuant to
the Purchase Agreement, collectively and each individually, the “Note”) issued or to
be issued by the Implant Sciences Corporation (“Company”) pursuant to
the terms of the Note and Warrant Purchase Agreement dated as of December 10,
2008 (as may be amended, restated, supplemented, replaced or otherwise modified
from time to time, the “Purchase Agreement”)
by and between the Company and the Secured Party, and

     

    WHEREAS, pursuant to the terms
and conditions of the Purchase Agreement, the Secured Party has agreed to extend
a loan to the Company, repayment of which is evidenced by the Note,
and

     

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

     

    WHEREAS, Grantors have entered
into the Security Agreement in order to induce the Secured Party to make certain
financial accommodations to the Company; and

     

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

     

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

     

    1. In
accordance with Section 24 of the
Security Agreement, each New Grantor, by its signature below, becomes a
“Grantor” under the Security Agreement with the same force and effect as if
originally named therein as a “Grantor” and each New Grantor hereby (a) agrees
to all of the terms and provisions of the Security Agreement applicable to it as
a “Grantor” thereunder and (b) represents and warrants that the representations
and warranties made by it as a

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

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

    

     

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

     

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

     

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

     

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

     

    [REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]

     


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


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

     

    NEW
GRANTORS:                                                                           [Name
of New Grantor]

     

    


    


    By:                                                                

    Name:                                                                

    Title:                                                                

    


    [Name
of New Grantor]

     

    


    


    By:                                                                

    Name:                                                                

    Title:                                                                

    


    
      	
              SECURED
      PARTY:

            	
              DMRJ
      GROUP, LLC

            


    

     

    


    By:                                                                

    Name:                                                                

    Title:                                                                

    



    
      
        
          [SIGNATURE
PAGE TO SUPPLEMENT TO PLEDGE AND SECURITY AGREEMENT]

           

           

        

         


      

      
         


        
          

        

      

      
         


      

    


    


     

    EXHIBIT
A

     

     

    COPYRIGHT SECURITY
AGREEMENT

     

     

    This
COPYRIGHT SECURITY AGREEMENT (this “Copyright Security
Agreement”) is made this ___ day of ___________, 20__, among Grantors
listed on the signature pages hereof (collectively, jointly and severally,
“Grantors” and
each individually “Grantor”), and DMRJ GROUP, LLC (together with its successors,
the “Secured
Party”).

    W I T N E S S E T H:

     

    WHEREAS, the Secured Party is
the holder of that certain Senior Secured Convertible Promissory Note bearing
even date herewith in the principal amount of $5,600,000 (together with any and
all promissory notes issued by the Company after the date hereof pursuant to the
Purchase Agreement, collectively and each individually, the “Note”) issued or to
be issued by the Implant Sciences Corporation (“Company”) pursuant to
the terms of the Note and Warrant Purchase Agreement bearing even date herewith
(as may be amended, restated, supplemented, replaced or otherwise modified from
time to time, the “Purchase Agreement”)
by and between the Company and the Secured Party, and

     

    WHEREAS, pursuant to the terms
and conditions of the Purchase Agreement, the Secured Party has agreed to extend
a loan to the Company, repayment of which is evidenced by the Note,
and

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    (b) all
Proceeds of the foregoing.

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    


    [signature
page follows]

     


    
      
        
           

        

         


      

      
        3

        
          

        

      

      
         


      

    


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

    
      	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                                                      

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                                                      

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              ACCEPTED AND ACKNOWLEDGED
      BY:

            
	 
      	 
      
	 
      	
              DMRJ
      GROUP, LLC, as Secured Party

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:           

            
	 
      	 
      
	 
      	 
      


    


    
      
        
          [SIGNATURE
PAGE TO COPYRIGHT SECURITY AGREEMENT]

           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
I

     

    to

     

    COPYRIGHT SECURITY
AGREEMENT

     

    U.S. Copyright Registrations
and Applications

     

    
      	
              Grantor

            	
              Title

            	
              Registration
      / Application No.

            	
              Registration
      / Application Date

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      


    

    


     

    


     

    


     


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    


     

    EXHIBIT
B

     

    PATENT SECURITY
AGREEMENT

     

     

    This
PATENT SECURITY AGREEMENT (this “Patent Security
Agreement”) is made this ___ day of ___________, 20__, among the Grantors
listed on the signature pages hereof (collectively, jointly and severally,
“Grantors” and
each individually “Grantor”), and DMRJ GROUP, LLC (together with its successors,
the “Secured
Party”).

     

    W I T N E S S E T H:

     

    WHEREAS, the Secured Party is
the holder of that certain Senior Secured Convertible Promissory Note bearing
even date herewith in the principal amount of $5,600,000 (together with any and
all promissory notes issued by the Company after the date hereof pursuant to the
Purchase Agreement, collectively and each individually, the “Note”) issued or to
be issued by the Implant Sciences Corporation (“Company”) pursuant to
the terms of the Note and Warrant Purchase Agreement bearing even date herewith
(as may be amended, restated, supplemented, replaced or otherwise modified from
time to time, the “Purchase Agreement”)
by and between the Company and the Secured Party, and

     

    WHEREAS, pursuant to the terms
and conditions of the Purchase Agreement, the Secured Party has agreed to extend
a loan to the Company, repayment of which is evidenced by the Note,
and

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    (b) all
Proceeds of the foregoing.

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    


    [signature
page follows]

     


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


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

     

    
      	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                                                                

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                                                                

            
	 
      	 
      
	 
      	 
      
	 
      	
              ACCEPTED AND ACKNOWLEDGED
      BY:

            
	 
      	
              DMRJ
      GROUP, LLC, as Secured Party

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                      

            


    

    



    
      
        
          [SIGNATURE
PAGE TO PATENT SECURITY AGREEMENT]

           

        

         


      

      
         


        
          

        

      

      
         


      

    


    


     

    SCHEDULE
I

     

     

    to

     

     

    PATENT SECURITY
AGREEMENT

     

    U.S. Patent Registrations
and Applications

     

    
      	
              Grantor

            	
              Title

            	
              Registration
      / Application No.

            	
              Registration
      / Application Date

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      


    


    
      
        
        

         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
C

    


    Annex
1 to Pledge and Security Agreement

    


    PLEDGED INTERESTS
ADDENDUM

    


    This
Pledged Interests Addendum, dated as of _________ ___, 20___, is delivered
pursuant to Section 6 of the
Security Agreement referred to below.  The undersigned hereby agrees
that this Pledged Interests Addendum may be attached to that certain Security
Agreement, dated as of ____________, 2008 (as amended, restated, supplemented or
otherwise modified from time to time, the “Security Agreement”),
made by the undersigned, together with the other Grantors named therein, to DMRJ
Group, LLC, as Secured Party.  Initially capitalized terms used but
not defined herein shall have the meaning ascribed to such terms in the Security
Agreement or the Note or the Purchase Agreement.  The undersigned
hereby agrees that the additional interests listed on this Pledged Interests
Addendum as set forth below shall be and become part of the Pledged Interests
pledged by the undersigned to the Secured Party in the Security Agreement and
any pledged company set forth on this Pledged Interests Addendum as set forth
below shall be and become a “Pledged Company” under the Security Agreement, each
with the same force and effect as if originally named therein.

     

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

     

     

    [___________________]

     

     

    


     

     

    By:                                                      

     

     

    Name:                                                                

     

     

    Title                                                      

     

    



    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    


     

    
      	
              Name
      of Pledgor

            	
              Name
      of Pledged Company

            	
              Number
      of Shares/Units

            	
              Class
      of Interests

            	
              Percentage
      of Class Owned

            	
              Certificate
      Nos.

            
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      


    


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
D

     

    TRADEMARK SECURITY
AGREEMENT

     

     

    This
TRADEMARK SECURITY AGREEMENT (this “Trademark Security
Agreement”) is made this ___ day of ___________, 20__, among Grantors
listed on the signature pages hereof (collectively, jointly and severally,
“Grantors” and
each individually “Grantor”), and DMRJ GROUP, LLC (together with its successors,
the “Secured
Party”).

     

    W I T N E
S S E T H:

     

    WHEREAS, the Secured Party is
the holder of that certain Senior Secured Convertible Promissory Note bearing
even date herewith in the principal amount of $5,600,000 (together with any and
all promissory notes issued by the Company after the date hereof pursuant to the
Purchase Agreement, collectively and each individually, the “Note”) issued or to
be issued by the Implant Sciences Corporation (“Company”) pursuant to
the terms of the Note and Warrant Purchase Agreement bearing even date herewith
(as may be amended, restated, supplemented, replaced or otherwise modified from
time to time, the “Purchase Agreement”)
by and between the Company and the Secured Party, and

     

    WHEREAS, pursuant to the terms
and conditions of the Purchase Agreement, the Secured Party has agreed to extend
a loan to the Company, repayment of which is evidenced by the Note,
and

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) all
Proceeds of the foregoing.

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

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

    

     

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

     

    


    [signature
page follows]

     


    
      
        
           

        

         


      

      
         


        
          

        

      

      
         


      

    


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

    
      	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                                                                

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                                                                

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              ACCEPTED AND ACKNOWLEDGED
      BY:

            
	 
      	 
      
	 
      	
              DMRJ
      GROUP, LLC, as Secured Party

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:                                                      

            
	 
      	
              Name:                                                                

            
	 
      	
              Title:                      

            
	 
      	 
      
	 
      	 
      


    

    



    
      
        
           

           

        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
I

    to

    TRADEMARK SECURITY
AGREEMENT

    


     

    U.S. Trademark
Registrations/Applications

     

    
      	
              Grantor

            	
              Mark

            	
              Application/
      Registration No.

            	
              App/Reg
      Date