Exhibit 10.4


 


EXHIBIT D


 


NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER
THE SECURITIES ACT.


 


ADDITIONAL INVESTMENT RIGHT


 


To Purchase                     
Shares of Common Stock of


 


Implant
Sciences Corporation


 


THIS ADDITIONAL
INVESTMENT RIGHT (the “Additional Investment Right”) CERTIFIES that, for
value received,                           
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the six month anniversary of the date of the Purchase Agreement (the
“Initial Exercise Date”) and on or prior to the later of (a) the 6 month
anniversary of the Effective Date and (b) the 6 month anniversary of the
Initial Exercise Date, but in no event after the 5 year anniversary of the date
of the Purchase Agreement (the “Termination Date”) but not thereafter,
to subscribe for and purchase from Implant Sciences Corporation, a Massachusetts
corporation (the “Company”), up to                         
shares (the “Additional Investment Right Shares”) of Common Stock, par
value $0.10 per share, of the Company (the “Common Stock”).  The purchase price of one share of Common
Stock (the “Exercise Price”) under this Additional Investment Right
shall be $8.50, subject to adjustment hereunder. 
The Exercise Price and the number of Additional Investment Right Shares
for which the Additional Investment Right is exercisable shall be subject to
adjustment as provided herein. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated March 3, 2005 among the Company and the purchasers signatory
thereto.


 


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1.  Title to Additional Investment Right.  Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Additional
Investment Right, this Additional Investment Right and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the Holder in person or by duly authorized attorney, upon surrender of this Additional
Investment Right together with the Assignment Form annexed hereto properly
endorsed.  The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company.


 


2.  Authorization of Shares.  The Company covenants that all Additional
Investment Right Shares which may be issued upon the exercise of the purchase
rights represented by this Additional Investment Right will, upon exercise of
the purchase rights represented by this Additional Investment Right, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).


 


3.  Exercise of Additional Investment Right.


 


(a)  Exercise of the purchase rights represented
by this Additional Investment Right may be made at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company as
it may designate by notice in writing to the registered Holder at the address
of such Holder appearing on the books of the Company); provided, however, no
issuance of Additional Investment Right Shares shall take place unless, within
5 Trading Days of the date said Notice of Exercise is delivered to the Company,
the Holder shall have surrendered this Additional Investment Right to the
Company and the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier’s check drawn
on a United States bank.  Certificates
for shares purchased hereunder shall be transmitted by the transfer agent of
the Company to the Holder by crediting the account of the Holder’s prime broker
with the Depository Trust Company through its Deposit Withdrawal Agent
Commission (“DWAC”) system within 3 Trading Days from the delivery to
the Company of the Notice of Exercise Form, surrender of this Additional
Investment Right and payment of the aggregate Exercise Price as set forth above
(“Additional Investment Right Share Delivery Date”).  This Additional Investment Right shall be
deemed to have been exercised on the date the Exercise Price is received by the
Company.  The Additional Investment Right
Shares shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Additional
Investment Right has been exercised by surrender of the Additional Investment
Right and payment to the Company of the Exercise Price and all taxes required
to be paid by the Holder, if any, pursuant to Section 5 prior to the
issuance of such shares, have been paid and received by the Company.  If the Company fails to cause its transfer
agent to transmit to the Holder through the DWAC system a certificate or
certificates representing the Additional Investment Right Shares pursuant to
this Section 3(a) by the Additional Investment Right


 


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Share Delivery Date, then the Holder will have the
right to rescind such exercise; provided, however, if the Company
delivers the Additional Investment Right Shares after the Additional Investment
Right Share Delivery Date and prior to a rescission by the Holder, Holder’s
right to rescind shall only be effective if exercised prior to the 2nd
Trading Day after delivery of the Additional Investment Right Shares to the
Holder; provided, further, if the Holder rescinds such exercise
after delivery, the Holder shall promptly return such Additional Investment
Right Shares to the Company.  In addition
to any other rights available to the Holder, if the Company fails to cause its
transfer agent to transmit to the Holder through the DWAC system a certificate
or certificates representing the Additional Investment Right Shares pursuant to
an exercise by the Additional Investment Right Share Delivery Date, and if
after such day the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Additional Investment Right Shares
which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (1) pay in cash to the Holder the amount by which (x)
the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Additional Investment Right Shares that the
Company was required to deliver to the Holder in connection with the exercise
at issue times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Additional Investment Right and equivalent number
of Additional Investment Right Shares for which such exercise was not honored
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its exercise and delivery
obligations hereunder.  For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In, together with applicable confirmations and other evidence reasonably
requested by the Company.  Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Additional Investment Right as required pursuant to the terms
hereof.


 


(b)  If this Additional
Investment Right shall have been exercised in part, the Company shall, at the
time of delivery of the certificate or certificates representing Additional
Investment Right Shares, deliver to Holder a new Additional Investment Right
evidencing the rights of Holder to purchase the unpurchased Additional Investment
Right Shares called for by this Additional Investment Right, which new Additional
Investment Right shall in all other respects be identical with this Additional
Investment Right.


 


(c)  The Holder
shall not have the right to exercise any portion of this Additional Investment
Right, pursuant to Section 3(a) or otherwise, to the extent that after
giving effect to such issuance after exercise, the Holder (together with the
Holder’s


 


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affiliates), as set forth on the applicable Notice of Exercise, would
beneficially own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such issuance.  For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Additional Investment
Right with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, nonexercised portion of this Additional
Investment Right beneficially owned by the Holder or any of its affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other Additional
Investment Rights) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Holder or any of
its affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section 3(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act, it being acknowledged
by Holder that the Company is not representing to Holder that such calculation
is in compliance with Section 13(d) of the Exchange Act and Holder is
solely responsible for any schedules required to be filed in accordance
therewith.  To the extent that the
limitation contained in this Section 3(c) applies, the determination of
whether this Additional Investment Right is exercisable (in relation to other
securities owned by the Holder) and of which a portion of this Additional
Investment Right is exercisable shall be in the sole discretion of such Holder,
and the submission of a Notice of Exercise shall be deemed to be such Holder’s
determination of whether this Additional Investment Right is exercisable (in
relation to other securities owned by such Holder) and of which portion of this
Additional Investment Right is exercisable, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination.  For purposes of this Section 3(c), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x)
the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s Transfer Agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of the Holder,
the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Additional Investment Right, by the Holder or its affiliates
since the date as of which such number of outstanding shares of Common Stock
was reported.


 


(d)  If at any
time after one year from the date of issuance of this Additional Investment
Right there is no effective Registration Statement registering the resale of
the Additional Investment Right Shares by the Holder, then this Additional
Investment Right may also be exercised at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for
the number of Additional Investment Right Shares equal to the quotient obtained
by dividing [(A-B) (X)] by (A), where:


 


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(A) = the Closing Price on
the Trading Day immediately preceding the date of such election;


 


(B) =  the Exercise Price of this Additional
Investment Right, as adjusted; and


 


(X) = the number of
Additional Investment Right Shares issuable upon exercise of this Additional
Investment Right in accordance with the terms of this Additional Investment
Right by means of a cash exercise rather than a cashless exercise.


  (e)   .


 


4.  No Fractional Shares or Scrip.  No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Additional
Investment Right.  As to any fraction of
a share which Holder would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.


 


5.  Charges, Taxes and Expenses.  Issuance of certificates for Additional
Investment Right Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of
such certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such name
or names as may be directed by the Holder; provided, however,
that in the event certificates for Additional Investment Right Shares are to be
issued in a name other than the name of the Holder, this Additional Investment
Right when surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.


 


6.  Closing of Books.  The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this Additional
Investment Right, pursuant to the terms hereof.


 


7.  Transfer, Division and Combination.


 


(a)  Subject to
compliance with any applicable securities laws and the conditions set forth in
Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the
Purchase Agreement, this Additional Investment Right and all rights hereunder
are transferable, in whole or in part, upon surrender of this Additional
Investment Right at the principal office of the Company, together with a
written assignment of this Additional Investment Right substantially in the
form attached hereto duly executed by the Holder or its agent or attorney and
funds sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Additional
Investment Right or Additional Investment Rights in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Additional Investment
Right evidencing the portion of this Additional Investment Right not so
assigned, and this Additional Investment Right shall promptly be cancelled.


 


5





















 


A Additional Investment Right, if
properly assigned, may be exercised by a new holder for the purchase of Additional
Investment Right Shares without having a new Additional Investment Right
issued.


 


(b)  This Additional
Investment Right may be divided or combined with other Additional Investment
Rights upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Additional Investment Rights are to be issued, signed by the Holder or its
agent or attorney.  Subject to compliance
with Section 7(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Additional
Investment Right or Additional Investment Rights in exchange for the Additional
Investment Right or Additional Investment Rights to be divided or combined in
accordance with such notice.


 


(c)  The Company
shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Additional Investment Right or Additional
Investment Rights under this Section 7.


 


(d)  The Company
agrees to maintain, at its aforesaid office, books for the registration and the
registration of transfer of the Additional Investment Rights.


 


(e)  If, at the time of the surrender of this
Additional Investment Right in connection with any transfer of this Additional
Investment Right, the transfer of this Additional Investment Right shall not be
registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer (i) that the Holder or
transferee of this Additional Investment Right, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without registration
under the Securities Act and under applicable state securities or blue sky
laws, (ii) that the holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a
qualified institutional buyer as defined in Rule 144A(a) under the Securities
Act.


 


8.  No Rights as Shareholder until Exercise.  This Additional Investment Right does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. 
Upon the surrender of this Additional Investment Right and the payment
of the aggregate Exercise Price (or by means of a cashless exercise), the Additional
Investment Right Shares so purchased shall be and be deemed to be issued to
such Holder as the record owner of such shares as of the close of business on
the later of the date of such surrender or payment.


 


9.  Loss, Theft, Destruction or Mutilation of Additional
Investment Right.  The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Additional
Investment Right or any stock


 


6





















 


certificate relating to
the Additional Investment Right Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Additional Investment Right, shall not include the posting of
any bond), and upon surrender and cancellation of such Additional Investment
Right or stock certificate, if mutilated, the Company will make and deliver a
new Additional Investment Right or stock certificate of like tenor and dated as
of such cancellation, in lieu of such Additional Investment Right or stock
certificate.


 


10.  Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall
be a Saturday, Sunday or a legal holiday, then such action may be taken or such
right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.


 


11.  Adjustments of Exercise Price and
Number of Additional Investment Right Shares; Stock Splits, etc.  The number and kind of securities purchasable
upon the exercise of this Additional Investment Right and the Exercise Price
shall be subject to adjustment from time to time upon the happening of any of
the following.  In case the Company shall
(i) pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Additional Investment
Right Shares purchasable upon exercise of this Additional Investment Right
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Additional Investment Right Shares
or other securities of the Company which it would have owned or have been
entitled to receive had such Additional Investment Right been exercised in
advance thereof.  Upon each such
adjustment of the kind and number of Additional Investment Right Shares or
other securities of the Company which are purchasable hereunder, the Holder
shall thereafter be entitled to purchase the number of Additional Investment
Right Shares or other securities resulting from such adjustment at an Exercise
Price per Additional Investment Right Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Additional Investment Right Shares purchasable pursuant hereto immediately
prior to such adjustment and dividing by the number of Additional Investment
Right Shares or other securities of the Company that are purchasable pursuant
hereto immediately after such adjustment. 
An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record date,
if any, for such event.


 


12.  Reorganization, Reclassification,
Merger, Consolidation or Disposition of Assets.  In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into
another corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation (“Other Property”), are to be
received by or distributed to the holders of Common Stock of the Company, then
the Holder shall have the right thereafter to


 


7





















 


receive,
at the option of the Holder, upon exercise of this Additional Investment Right,
the number of shares of Common Stock of the successor or acquiring corporation
or of the Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets by a Holder of the number of
shares of Common Stock for which this Additional Investment Right is
exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company) and,
if an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock of the Company are
entitled to receive as a result of such consolidation, merger or sale or
conveyance, shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Additional Investment Right to be performed and observed by the Company
and all the obligations and liabilities hereunder, subject to such modifications
as may be deemed appropriate (as determined in good faith by resolution of the
Board of Directors of the Company) in order to provide for adjustments of Additional
Investment Right Shares for which this Additional Investment Right is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 12.  For purposes of this Section 12, “common
stock of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for or purchase any such stock.  The
foregoing provisions of this Section 12 shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations or
disposition of assets.


 


13.  Voluntary Adjustment by the Company.  The Company may at any time during the term
of this Additional Investment Right reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.


 


14.  Notice of Adjustment.  Whenever the number of Additional Investment
Right Shares or number or kind of securities or other property purchasable upon
the exercise of this Additional Investment Right or the Exercise Price is
adjusted, as herein provided, the Company shall give notice thereof to the
Holder, which notice shall state the number of Additional Investment Right
Shares (and other securities or property) purchasable upon the exercise of this
Additional Investment Right and the Exercise Price of such Additional
Investment Right Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.


 


15.  Notice of Corporate Action.  If at any time:


 


(a)                                  the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive any other
right, or


 


8





















 


(b)                                 there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all
or substantially all the property, assets or business of the Company to,
another corporation or,


 


(c)                                  there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;


 


then, in any one or more of such cases, the Company shall use its best
efforts to give to Holder (i) at least 20 days’ prior written notice of the
date on which a record date shall be selected for such dividend, distribution
or right or for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
liquidation or winding up, and (ii) in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, at least 20 days’ prior written notice
of the date when the same shall take place. 
Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Additional Investment Right Shares for securities or
other property deliverable upon such disposition, dissolution, liquidation or
winding up.  Each such written notice
shall be sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in accordance with Section 17(d).  In no case shall lack of notice under the
terms of this provision invalidate any action taken by the Company.


 


16.  Authorized Shares.  The Company covenants that during the period
the Additional Investment Right is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of the Additional Investment Right Shares upon the exercise of
any purchase rights under this Additional Investment Right.  The Company further covenants that its
issuance of this Additional Investment Right shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Additional Investment
Right Shares upon the exercise of the purchase rights under this Additional
Investment Right.  The Company will take
all such reasonable action as may be necessary to assure that such Additional
Investment Right Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Trading Market
upon which the Common Stock may be listed.


 


Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Additional Investment Right, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or


 


9





















 


appropriate to protect the rights
of Holder as set forth in this Additional Investment Right against
impairment.  Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Additional Investment Right Shares above the amount payable therefor upon
such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Additional Investment
Right Shares upon the exercise of this Additional Investment Right, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable the Company to perform its obligations under this Additional
Investment Right.


 


Before taking any action which would result in an
adjustment in the number of Additional Investment Right Shares for which this Additional
Investment Right is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.


 


17.  Miscellaneous.


 


(a)  Jurisdiction.  All questions concerning the construction,
validity, enforcement and interpretation of this Additional Investment Right
shall be determined in accordance with the provisions of the Purchase
Agreement.


 


(b)  Restrictions.  The Holder acknowledges that the Additional
Investment Right Shares acquired upon the exercise of this Additional
Investment Right, if not registered, will have restrictions upon resale imposed
by state and federal securities laws.


 


(c)  Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice Holder’s rights,
powers or remedies, notwithstanding all rights
hereunder terminate on the Termination Date. 
If the Company willfully and knowingly fails to comply with any
provision of this Additional Investment Right, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.


 


(d)  Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.


 


(e)  Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Additional
Investment Right or purchase Additional Investment Right Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to
any liability of Holder for the purchase price of any Common


 


10





















 


Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.


 


(f)   Remedies. 
Holder, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Additional Investment Right.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Additional Investment Right and hereby agrees
to waive the defense in any action for specific performance that a remedy at
law would be adequate.


 


(g)   Successors and Assigns.  Subject to applicable securities laws, this Additional
Investment Right and the rights and obligations evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. 
The provisions of this Additional Investment Right are intended to be
for the benefit of all Holders from time to time of this Additional Investment
Right and shall be enforceable by any such Holder or holder of Additional
Investment Right Shares.


 


(h)   Amendment. 
This Additional Investment Right may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.


 


(i)   Severability.  Wherever possible, each provision of this Additional
Investment Right shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Additional Investment
Right shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Additional Investment Right.


 


(j)   Headings. 
The headings used in this Additional Investment Right are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Additional Investment Right.


 


********************


 


11





















 


IN WITNESS
WHEREOF, the Company has caused this Additional Investment Right to be executed
by its officer thereunto duly authorized.


 


 


Dated:  March 4, 2005


 


 


	
   

  	
  IMPLANT SCIENCES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  A. J. Armini

  
	
   

  	
   

  	
  Title:

  	
  President and CEO

  



 


12





















 


NOTICE OF EXERCISE


 


To:                              Implant
Sciences Corporation


 


(1)  The undersigned hereby elects to purchase                 
Additional Investment Right Shares of the Company pursuant to the terms of the
attached Additional Investment Right (only if exercised in full), and tenders
herewith payment of the exercise price in full, together with all applicable
transfer taxes, if any.


 


(2)  Payment shall take the form of (check
applicable box):


 


[  ] in lawful
money of the United States; or


 


[ ] the cancellation of such number of Additional
Investment Right Shares as is necessary, in accordance with the formula set
forth in subsection 2(c), to exercise this Additional Investment Right
with respect to the maximum number of Additional Investment Right Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection 3(d).


 


(3)  Please issue a certificate or certificates
representing said Additional Investment Right Shares in the name of the
undersigned or in such other name as is specified below:


 


 


 


The Additional Investment Right Shares shall be delivered to the
following:


 


 


 


 


 


 


(4)  Accredited
Investor.  The undersigned is an “accredited
investor” as defined in Regulation D under the Securities Act of 1933, as
amended.


 


	
   

  	
  [PURCHASER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
   

  
						



 





















 


ASSIGNMENT FORM


 


(To assign the foregoing AIR, execute

this form and supply required information. 

Do not use this form to exercise the AIR.)


 


FOR VALUE
RECEIVED, the foregoing Additional Investment Right and all rights evidenced
thereby are hereby assigned to


 


                                                                                              
whose address is                                                                                                                               .


 


Dated:                              ,
              


 


 


	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 


 


	
  Signature Guaranteed:

  	
   

  	
   

  



 


 


NOTE:  The signature to this
Assignment Form must correspond with the name as it appears on the face of the Additional
Investment Right, without alteration or enlargement or any change whatsoever,
and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in
a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Additional Investment Right.