Exhibit 10.2


 


EXHIBIT C


 


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.


 


COMMON STOCK PURCHASE WARRANT


 


To Purchase                     
Shares of Common Stock of


 


Implant
Sciences Corporation


 


THIS COMMON STOCK
PURCHASE WARRANT (the “Warrant”) 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 issuance of this Warrant (the
“Initial Exercise Date”) and on or prior to the 5 1⁄2 year anniversary of
the Closing Date (the “Termination Date”) but not thereafter, to
subscribe for and purchase from Implant Sciences Corporation, a Massachusetts
corporation (the “Company”), up to                         
shares (the “Warrant 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 Warrant shall be $9.35, subject to adjustment hereunder.  The Exercise Price and the number of Warrant
Shares for which the Warrant 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 Warrant.  Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this
Warrant 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 Warrant 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 Warrant Shares
which may be issued upon the exercise of the purchase rights represented by
this Warrant will, upon exercise of the purchase rights represented by this
Warrant, 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 Warrant.


 


(a)  Exercise of the purchase rights represented
by this Warrant 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 Warrant 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 Warrant 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 Warrant and
payment of the aggregate Exercise Price as set forth above (“Warrant Share
Delivery Date”).  This Warrant shall
be deemed to have been exercised on the date the Exercise Price is received by
the Company.  The Warrant 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 Warrant has been exercised by surrender of
the Warrant 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. 
If the Company fails to cause its transfer agent to transmit to the
Holder through the DWAC system a certificate or certificates representing the
Warrant Shares pursuant to this Section 3(a) by the 2nd Trading
Day following the Warrant Share Delivery Date, then the Holder will have the
right to rescind such exercise; provided, however, if the Company
delivers the Warrant Shares after the Warrant 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


 


2





















 


the Warrant Shares to the Holder; provided, further,
if the Holder rescinds such exercise after delivery, the Holder shall promptly
return such Warrant 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 Warrant Shares pursuant
to an exercise by the 2nd Trading Day following the Warrant 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 Warrant 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 Warrant 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 Warrant and
equivalent number of Warrant 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 Warrant as required pursuant to the terms hereof.


 


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


 


(c)  The Holder shall not have the right to
exercise any portion of this Warrant, 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 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 Warrant 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,


 


3





















 


nonexercised portion of this Warrant 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 Warrants) 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 Warrant is exercisable (in relation to other
securities owned by the Holder) and of which a portion of this Warrant 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 Warrant is exercisable (in relation to other securities owned by
such Holder) and of which portion of this Warrant 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 Warrant, 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 Warrant there is no effective Registration Statement
registering the resale of the Warrant Shares by the Holder at such time (subject
to any suspensions permitted pursuant to the Registration Rights Agreement),
this Warrant may also be exercised at such time (if at such time of exercise
the Registration Statement is not effective) by means of a “cashless exercise”
in which the Holder shall be entitled to receive a certificate for the number
of Warrant Shares equal to the quotient obtained by dividing [(A-B)*(X)] by
(A), where:


 


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


 


(B) – the Exercise Price
of this Warrant, as adjusted; and


 


(X) – the number of
Warrant Shares issuable upon exercise of this Warrant in accordance with the
terms of this Warrant by means of a cash exercise rather than a cashless
exercise.


 


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4.  No Fractional Shares or Scrip.  No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.  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 Warrant 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 Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant 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
Warrant, 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 Warrant and all rights hereunder are transferable, in
whole or in part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant 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 Warrant or
Warrants 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 Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.


 


(b)  This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants 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 Warrant or Warrants in exchange for the Warrant or Warrants 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 Warrant or Warrants under this Section 7.


 


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


 


(e)  If, at the
time of the surrender of this Warrant in connection with any transfer of this
Warrant, the transfer of this Warrant 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 Warrant, 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 Warrant 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 Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise, if applicable), the Warrant 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
Warrant.  The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant 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 Warrant Shares.


 


(a)  Stock
Splits, etc.  The number and kind of
securities purchasable upon the exercise of this Warrant 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


 


6





















 


shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other securities
of the Company which it would have owned or have been entitled to receive had
such Warrant been exercised in advance thereof. 
Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the Holder
shall thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant 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.


 


(b)  Anti-Dilution
Provisions.   During the Exercise
Period, the Exercise Price shall be subject to adjustment from time to time as
provided in this Section 11(b).  In
the event that any adjustment of the Exercise Price as required herein results
in a fraction of a cent, such Exercise Price shall be rounded up or down to the
nearest cent.


 


(i)  Adjustment of Exercise
Price.  If and whenever the
Company issues or sells, or in accordance with Section 11(b)(ii) hereof is
deemed to have issued or sold, any shares of Common Stock for an effective
consideration per share of less than the then Exercise Price or for no
consideration (such lower price, the “Base Share Price” and such
issuances collectively, a “Dilutive Issuance”), then, (a) from the
Initial Exercise Date until the 1 year anniversary of the Effective Date (if
the Registration Statement is unavailable for use by the Holder during such
period, such period shall be extended for such number of unavailable days), the
Exercise Price shall be reduced to a price equal to 110% of the Base Share
Price and (b) after the 1 year anniversary of the Effective Date (as extended
in clause (a) above), the Exercise Price shall be reduced by multiplying the
Exercise Price by a fraction, the numerator of which is the number of shares of
Common Stock issued and outstanding immediately prior to the Dilutive Issuance
plus the number of shares of Common Stock which the offering price for such
Dilutive Issuance would purchase at the then Exercise Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
issued and outstanding immediately prior to the Dilutive Issuance plus the
number of shares of Common Stock so issued or issuable in connection with the
Dilutive Issuance.  Notwithstanding
anything herein to the contrary, in no event shall the Exercise Price be adjusted
under this Section 2(b) to less than $8.50, subject
to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement.  Such
adjustment shall be made whenever shares of Common Stock or Common Stock
Equivalents are issued.


 


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(ii)  Effect on Exercise Price
of Certain Events.  For
purposes of determining the adjusted Exercise Price under Section 11(b)
hereof, the following will be applicable:


 


(A)  Issuance of Rights or Options.  If the Company in any manner issues or grants
any warrants, rights or options, whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or Common Stock Equivalents (such
warrants, rights and options to purchase Common Stock or Common Stock
Equivalents are hereinafter referred to as “Options”) and the effective
price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Exercise Price (“Below Base Price Options”),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Base Price Options (assuming full exercise,
conversion or exchange of Common Stock Equivalents, if applicable) will, as of
the date of the issuance or grant of such Below Base Price Options, be deemed
to be outstanding and to have been issued and sold by the Company for such
price per share and the maximum consideration payable to the Company upon such
exercise (assuming full exercise, conversion or exchange of Common Stock
Equivalents, if applicable) will be deemed to have been received by the
Company.  For purposes of the preceding
sentence, the “effective price per share for which Common Stock is issuable
upon the exercise of such Below Base Price Options” is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Below Base Price
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Below Base Price Options,
plus, in the case of Common Stock Equivalents issuable upon the exercise of
such Below Base Price Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange thereof at the
time such Common Stock Equivalents first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Base Price Options (assuming full
conversion of Common Stock Equivalents, if applicable).  No further adjustment to the Exercise Price
will be made upon the actual issuance of such Common Stock upon the exercise of
such Below Base Price Options or upon the exercise, conversion or exchange of
Common Stock Equivalents issuable upon exercise of such Below Base Price
Options.


 


(B)  Issuance of Common Stock Equivalents.
If the Company in any manner issues or sells any Common Stock Equivalents,
whether or not immediately convertible (other than where the same are issuable
upon the exercise of Options) and the effective price per share for which
Common Stock is issuable upon such exercise, conversion or exchange is less
than the Exercise Price, then the maximum total number


 


8





















 


of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Common Stock Equivalents will, as of the
date of the issuance of such Common Stock Equivalents, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share and the maximum consideration payable to the Company upon such exercise
(assuming full exercise, conversion or exchange of Common Stock Equivalents, if
applicable) will be deemed to have been received by the Company.  For the purposes of the preceding sentence,
the “effective price per share for which Common Stock is issuable upon such
exercise, conversion or exchange” is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Common Stock Equivalents, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise, conversion or exchange thereof at the time such Common Stock
Equivalents first become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Common Stock Equivalents.  No further adjustment to the Exercise Price
will be made upon the actual issuance of such Common Stock upon exercise,
conversion or exchange of such Common Stock Equivalents.


 


(C)  Change in Option Price or Conversion Rate.  If there is a change at any time in (i) the
amount of additional consideration payable to the Company upon the exercise of
any Options; (ii) the amount of additional consideration, if any, payable to
the Company upon the exercise, conversion or exchange of any Common Stock
Equivalents; or (iii) the rate at which any Common Stock Equivalents are
convertible into or exchangeable for Common Stock (in each such case, other
than under or by reason of provisions designed to protect against dilution),
the Exercise Price in effect at the time of such change will be readjusted to
the Exercise Price which would have been in effect at such time had such
Options or Common Stock Equivalents still outstanding provided for such changed
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold.


 


(D)  Calculation of Consideration Received.  If any Common Stock, Options or Common Stock
Equivalents are issued, granted or sold for cash, the consideration received
therefor for purposes of this Warrant will be the amount received by the
Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Company in connection with such issuance, grant or sale.  In case any Common Stock, Options or Common
Stock Equivalents are issued or sold for a consideration part or all of which
shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration,
except where such consideration


 


9





















 


consists of securities, in which case the amount of
consideration received by the Company will be the fair market value (closing
price, if traded on any market) thereof as of the date of receipt.  In case any Common Stock, Options or Common
Stock Equivalents are issued in connection with any merger or consolidation in
which the Company is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair market value of such portion of the net
assets and business of the non-surviving corporation as is attributable to such
Common Stock, Options or Common Stock Equivalents, as the case may be.  The fair market value of any consideration
other than cash or securities will be determined in good faith by an investment
banker or other appropriate expert of national reputation selected by the
Company and reasonably acceptable to the holder hereof, with the costs of such
appraisal to be borne by the Company.


 


(E)  Exceptions to Adjustment of Exercise Price.  Notwithstanding the foregoing, no adjustment
will be made under this Section 11(b) in respect of an Exempt Issuance.


 


(F)  Readjustment of Exercise Price.  In the event that the Exercise
Price shall have been reduced pursuant to the provisions of this Section 11(b)
but no Common Stock of the Company was actually or could in the future be
issued in a Dilutive Issuance, then the Exercise Price shall be increased by
the same amount that it was initially reduced.


 


(c)                                  Offerings of Other Property to Common Stock Holders.  If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not to
Holders of the Warrants) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security other than the Common Stock
(which shall be subject to Section 11(a)(i)), then in each such case the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Closing Price determined as of the record date mentioned above,
and of which the numerator shall be such Closing Price on such record date less
the then per share fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors in good
faith.  In either case the adjustments
shall be described in a statement provided to the Holders of the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. 
Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.


 


(d)                                 Minimum Adjustment of Exercise Price.  No adjustment of the Exercise Price shall be
made in an amount of less than 1% of the Exercise Price in effect at the time
such adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next


 


10





















 


subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than 1% of such Exercise Price.


 


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 receive, at the option of the
Holder, upon exercise of this Warrant, 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
Warrant is exercisable immediately prior to such event. In the 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 Warrant 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 Warrant Shares
for which this Warrant 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 Warrant 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 Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant 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
Warrant Shares (and other securities or property) purchasable


 


11





















 


upon the exercise of this
Warrant and the Exercise Price of such Warrant 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


 


(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 Warrant 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 Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant.  The Company further covenants
that its issuance of this Warrant 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 Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as


 


12





















 


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 Warrant, 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 appropriate to protect the rights of
Holder as set forth in this Warrant against impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant
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 Warrant Shares upon the exercise of this Warrant, 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
Warrant.


 


Before taking any action which would result in an
adjustment in the number of Warrant Shares for which this Warrant 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 Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.


 


(b)  Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, 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 Warrant,
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.


 


13





















 


(e)  Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant 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 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 Warrant.  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 Warrant 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 Warrant 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 Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.


 


(h)  Amendment.  This Warrant 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
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant 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 Warrant.


 


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


 


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


 


14





















 


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


 


 


Dated:  March           ,
2005


 


 


	
   

  	
  IMPLANT SCIENCES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  A. J. Armini

  
	
   

  	
   

  	
  Title:

  	
  President and CEO

  



 


15





















 


NOTICE OF EXERCISE


 


To:                              Implant
Sciences Corporation


 


(1)  The undersigned hereby elects to purchase                 
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(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):


 


o
in lawful money of the United States; or


 


o
the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 3(d), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 3(d).


 


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


 


 


The Warrant 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 warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)


 


FOR VALUE
RECEIVED, the foregoing Warrant 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
Warrant, 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 Warrant.