Exhibit 10.75


 


IMPLANT SCIENCES CORPORATION


 


SECURITIES PURCHASE AGREEMENT


 


November 25, 2003


 

















 


IMPLANT SCIENCES CORPORATION

SECURITIES PURCHASE AGREEMENT


 


THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”)
is made and entered into as of November 25, 2003, by and between Implant
Sciences Corporation, a Massachusetts corporation (the “Company”),
and Laurus Master Fund, Ltd. a Cayman Islands company (the “Purchaser”).


 


RECITALS


 


WHEREAS,
the Company has authorized the sale of Series C 5% Convertible Preferred Stock,
$0.10 par value, (the “Preferred Stock”), for the aggregate
purchase price of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000),
convertible into shares of the Company’s common stock, $0.10 par value per
share (the “Common Stock”);


 


WHEREAS,
the Company wishes to issues a warrant (the “Warrant”) to the Purchaser to
purchase shares of the Company’s Common Stock in connection with Purchaser’s
purchase of the Preferred Stock;


 


WHEREAS,
Purchaser desires to purchase the Preferred Stock and Warrant on the terms and
conditions set forth herein; and


 


WHEREAS,
the Company desires to issue and sell the Preferred Stock and Warrant to the
Purchaser on the terms and conditions set forth herein.


 


AGREEMENT


 


NOW,
THEREFORE,
in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:


 


1.             AGREEMENT TO SELL AND PURCHASE.  Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3),
the Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, Preferred Stock in the stated amount of TWO MILLION
FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) , convertible in accordance with the
terms thereof into shares of the Company’s Common Stock.  The Preferred Stock purchased on the Closing
Date shall be known as the “Offering.” 
The Certificate of Vote of Directors Establishing a Class or Series of
Stock for the Preferred Stock (the “Certificate of Vote of Directors”) is
annexed hereto as Exhibit A.  The
Preferred Stock will have a Mandatory Redemption Date (as defined in the
Preferred Stock) eighteen months from the date of issuance.  Collectively, the Preferred Stock and
Warrant (as defined in Section 2) and Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrant are referred to
as the “Securities.”


 

















 


2.             FEES AND WARRANT.


 


(a)           The
Company will issue and deliver to the Purchaser a Warrant to purchase 100,000
shares of Common Stock in connection with the Offering (the “Warrant”)
pursuant to Section 1 hereof.  The
Warrant must be delivered on the Closing Date. 
A form of Warrant is annexed hereto as Exhibit B.  All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company’s Common Stock
issuable upon exercise of the Warrant (the “Warrant Shares”).


 


(b)           The
Company shall reimburse the Purchaser for its reasonable legal fees for
services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements, and expenses in connection with the Purchaser’s due
diligence review of the Company and relevant matters.  Amounts required to be paid hereunder will be paid at the Closing
and shall be  $10,000.


 


(c)           The
Company will pay a cash fee in the amount of three and one half   percent (3.5%) of the aggregate gross
purchase price to be paid to the Company from the sale of the Preferred Stock
in the Offering (the “Fund Management Fee”) to Laurus Capital
Management, L.L.C., a Delaware limited liability company.  The Fund Management Fee must be paid on the
Closing Date.  The aforementioned Fund
Management Fee and legal fees will be payable at the Closing out of funds held
pursuant to a Funds Escrow Agreement to be entered into by the Company,
Purchaser and an Escrow Agent.


 


3.             CLOSING, DELIVERY AND PAYMENT.


 


3.1          Closing.  Subject to
the terms and conditions herein, the closing of the transactions contemplated
hereby (the “Closing”), which closing is comprised of Purchaser’s purchase
of the Preferred Stock in the aggregate principal amount of $2,500,000, shall
take place on the date hereof, at the offices of John Tucker, Esq., 825 Third
Avenue, 14th Floor, New York, New York 10022, or at such other time or place as
the Company and Purchaser may mutually agree (such date is hereinafter referred
to as the “Closing Date”).


 


3.2          Delivery.  At the Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser the Certificate of
Vote of Directors in the form attached as Exhibit A representing the stated
amount of $2,500,000 of Preferred Stock and a Common Stock Purchase Warrant in
the form attached as Exhibit B in the Purchaser’s name representing the right
to purchase up to 100,000 Warrant Shares and the Purchaser will deliver to the
Company $2,500,000, less fees and expenses set forth in Section 2 hereof,
by certified funds or wire transfer made payable to the order of the Company.


 


4.             REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.


 


The Company hereby represents and warrants to the
Purchaser as of the date of this Agreement as set forth below.  As used herein, the term SEC Reports
shall mean the Company’s (i) Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2003 and (ii) Quarterly Reports on Form 10-QSB for the
fiscal quarters ended September 30, 2003.


 


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4.1          Organization, Good Standing and Qualification.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts.  The Company has all
requisite corporate power and authority to own and operate its properties and
assets, to execute and deliver this Agreement, the Warrant to be issued in connection
with this Agreement, the Funds Escrow Agreement, and all other agreements
referred to herein (collectively, the “Related Agreements”), to issue and sell the
Preferred Stock and the shares of Common Stock issuable upon conversion of the
Preferred Stock (the “Conversion Shares”), to issue and sell the
Warrant and the Warrant Shares, and to carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted and as presently proposed to be conducted.  The Company is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of its activities and of its properties (both owned and leased)
makes such qualification necessary, except for those jurisdictions in which
failure to do so would not have a material adverse effect on the Company or its
business.


 


4.2          Subsidiaries.  Except as set forth in the SEC Reports, the
Company does not own or control any equity security or other interest of any
other corporation, limited partnership or other business entity.


 


4.3          Capitalization; Voting Rights.


 


(a)           The
authorized capital stock of the Company, immediately prior to the Closing,
consists of (i) 20,000,000 shares of Common Stock, par value $0.10 per share,
6,948,746  shares of which are issued
and outstanding as of September 30, 2003, and (ii) 5,000,000 shares of
Preferred Stock, par value $0.10 per share, 450,000 of which are issued and outstanding
on the date hereof.


 


(b)           Other
than (i) the shares reserved for issuance under the Company’s stock option
plans, stock grant agreements and outstanding warrants; and (ii) shares which
may be granted pursuant to this Agreement and the Related Agreements, there are
no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, or
arrangements or agreements of any kind for the purchase or acquisition from the
Company of any of its securities, except as set forth in the SEC Reports.  Neither the offer, issuance or sale of any
of the Preferred Stock or Warrant, or the issuance of any of the Conversion
Shares or Warrant Shares, nor the consummation of any transaction contemplated
hereby will result in a change in the price or number of any securities of the
Company outstanding, under anti-dilution or other similar provisions contained
in or affecting any such securities.


 


(c)           All
issued and outstanding shares of the Company’s Common Stock (i) have been duly
authorized and validly issued and are fully paid and nonassessable and (ii)
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities.


 


(d)           The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Amended and Restated Articles of Organization (the
“Charter”).  The Conversion Shares and
Warrant Shares have been duly and validly reserved for


 


3

















 


issuance.  When issued in compliance
with the provisions of this Agreement and the Company’s Charter, the Securities
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; provided, however, that the Securities
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at
the time a transfer is proposed.


 


(e)           Except as
set forth in the SEC Reports, no stock plan, stock purchase, stock option or
other agreement or understanding between the Company and any holder of any
equity securities or rights to purchase equity securities provides for
acceleration or other changes in the vesting provisions or other terms of such
agreement or understanding as the result of any merger, consolidated sale of
stock or assets, change in control or any other transaction(s) by the Company,
including the transactions contemplated hereunder.


 


4.4          Authorization; Binding Obligations.  All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder at each Closing and the authorization,
sale, issuance and delivery of the Securities pursuant hereto and the Related
Agreements has been taken or will be taken prior to the Closing.  The Agreement and the Related Agreements,
when executed and delivered, will be valid and binding obligations of the
Company enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights, and (b) general
principles of equity that restrict the availability of equitable remedies.  The sale of the Preferred Stock and the
subsequent conversion of the Preferred Stock into Common Stock are not and will
not be subject to any preemptive rights or rights of first refusal that have
not been properly waived or complied with. The sale of the Warrants and the
subsequent exercise of the Warrants for Common Stock are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with.  The
Certificate of Vote of Directors and the Warrants, when executed and delivered
in accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.


 


4.5          Liabilities.  Except as set forth in the SEC Reports, the
Company has no material liabilities and, to the best of its knowledge, knows of
no material contingent liabilities, except current liabilities incurred in the
ordinary course of business which have not been, either in any individual case
or in the aggregate, materially adverse.


 


4.6          Agreements; Action.


 


(a)           Except as
set forth in the SEC Reports and Schedule 4.6 hereto, there are no
agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company is a party or to its
knowledge by which it is bound which may involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000 (other than
obligations of, or payments to, the Company arising from purchase or sale
agreements entered into in the ordinary course of business), or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses arising from the purchase of “off
the shelf” or other standard products), or (iii) provisions restricting the
development, manufacture or distribution of the


 


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Company’s products or services, or (iv) indemnification by the Company
with respect to infringements of proprietary rights.


 


(b)           Except as
set forth in the SEC Reports, the Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.


 


(c)           For the
purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.


 


(d)           The
Company has not engaged in the past two years in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation
or merger of the Company with or into any such corporation or corporations,
(ii) with any corporation, partnership, association or other business entity or
any individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company, or a transaction or series of
related transactions in which more than 50% of the voting power of the Company
is disposed of or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.


 


4.7          Obligations to Related Parties.  Except as set forth in the SEC Reports,
there are no obligations of the Company to officers, directors, stockholders or
employees of the Company other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of the
Company and (c) for other standard employee benefits made generally available
to all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company).  Except as set forth in the SEC Reports, none
of the officers, directors or stockholders of the Company, or any members of
their immediate families, are indebted to the Company.  Except as set forth in the SEC Reports, none
of the officers, directors or, to the best of the Company’s knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or
with which the Company has a business relationship, or any firm or corporation
which competes with the Company, other than passive investments in publicly
traded companies (representing less than 1% of such company) which may compete
with the Company.  Except as set forth
in the SEC Reports, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person.  Except as set forth in the SEC Reports, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.


 


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4.8          Changes.  Except as set forth in the SEC Reports,
since September 30, 2003 there has not been:


 


(a)           Any
change in the assets, liabilities, financial condition, prospects or operations
of the Company, other than changes in the ordinary course of business, none of
which individually or in the aggregate has had or is reasonably expected to
have a material adverse effect on such assets, liabilities, financial
condition, prospects or operations of the Company;


 


(b)           Any
resignation or termination of any officer, key employee or group of employees
of the Company;


 


(c)           Any
material change, except in the ordinary course of business, in the contingent
obligations of the Company by way of guaranty, endorsement, indemnity, warranty
or otherwise;


 


(d)           Any
damage, destruction or loss, whether or not covered by insurance, materially
and adversely affecting the properties, business or prospects or financial
condition of the Company;


 


(e)           Any
waiver by the Company of a valuable right or of a material debt owed to it;


 


(f)            Any
direct or indirect loans made by the Company to any stockholder, employee,
officer or director of the Company, other than advances made in the ordinary
course of business;


 


(g)           Any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;


 


(h)           Any
declaration or payment of any dividend or other distribution of the assets of
the Company;


 


(i)            Any
labor organization activity related to the Company;


 


(j)            Any
debt, obligation or liability incurred, assumed or guaranteed by the Company,
except those for immaterial amounts and for current liabilities incurred in the
ordinary course of business;


 


(k)           Any sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets;


 


(l)            Any
change in any material agreement to which the Company is a party or by which it
is bound which may materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company;


 


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(m)          Any other
event or condition of any character that, either individually or cumulatively,
has or may materially and adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company; or


 


(n)           Any
arrangement or commitment by the Company to do any of the acts described in
subsection (a) through (m) above.


 


4.9          Title to Properties and Assets; Liens,
Etc. Except as set forth in the SEC Reports, liens granted in favor of
Purchaser and the liens set forth on Schedule 4.9 hereto, the Company has
good and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business.  All
facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and repair
and are reasonably fit and usable for the purposes for which they are being
used.  The Company is in compliance with
all material terms of each lease to which it is a party or is otherwise bound.


 


4.10        Intellectual Property.


 


(a)           The
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes necessary for its business as now
conducted and to the Company’s knowledge as presently proposed to be conducted
(the “Intellectual
Property”), without any known infringement of the rights of
others.  Except as set forth in the SEC
Reports, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing proprietary rights, nor is the Company bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of “off the shelf” or standard products.


 


(b)           The
Company has not received any communications alleging that the Company has
violated any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity, nor
is the Company aware of any basis therefor.


 


(c)           The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior to
their employment by the Company, except for inventions, trade secrets or
proprietary information that have been rightfully assigned to the Company.


 


4.11        Compliance with Other Instruments.  Except as set forth in the SEC Reports, the
Company is not in violation or default of any term of its Charter or Bylaws, or
of any provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ.  The execution,


 


7

















 


delivery and
performance of and compliance with this Agreement and the Related Agreements,
and the issuance and sale of Securities pursuant hereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term
or provision, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or
the suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.


 


4.12        Litigation.  Except as set forth in the SEC Reports,
there is no action, suit, proceeding or investigation pending or, to the
Company’s knowledge, currently threatened against the Company that questions
the validity of this Agreement or the Related Agreements or the right of the
Company to enter into any of such agreements, or to consummate the transactions
contemplated hereby or thereby, or which might result, either individually or
in the aggregate, in any material adverse change in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that
there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.  Except as set forth in the SEC Reports, there is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.


 


4.13        Tax Returns and Payments.  The Company has timely filed all tax returns (federal, state and
local) required to be filed by it.  All
taxes shown to be due and payable on such returns, any assessments imposed, and
to the Company’s knowledge all other taxes due and payable by the Company on or
before the Closing, have been paid or will be paid prior to the time they
become delinquent.  The Company has not
been advised (a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof, or (b) of any deficiency in assessment
or proposed judgment to its federal, state or other taxes.  The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the date
of this Agreement that is not adequately provided for.


 


4.14        Employees.  The Company has no collective bargaining
agreements with any of its employees. 
There is no labor union organizing activity pending or, to the Company’s
knowledge, threatened with respect to the Company.  Except as set forth in the SEC Reports, the Company is not a
party to or bound by any currently effective employment contract, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement.  To the Company’s knowledge, no employee of
the Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual
to be employed by, or to contract with, the Company because of the nature of
the business to be conducted by the Company; and to the Company’s knowledge the
continued employment by the Company of its present employees, and the
performance of the Company’s contracts with its independent contractors, will
not result in any such violation.  The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company.  The Company has not received any notice
alleging


 


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that any such violation has occurred. 
Except as set forth in the SEC Reports, no employee of the Company has
been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the
Company.  The Company is not aware that
any officer, key employee or group of employees intends to terminate his, her
or their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer, key employee or group of
employees.


 


4.15        Registration Rights and Voting Rights.  Except as set forth in the SEC Reports and
on Schedule 4.15 attached hereto, the Company is presently not under any
obligation, and has not granted any rights, to register any of the Company’s
presently outstanding securities or any of its securities that may hereafter be
issued.  To the Company’s knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.


 


4.16        Compliance with Laws; Permits.  To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company.  No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of any of the
Securities, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner.  The Company has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company.


 


4.17        Environmental and Safety Laws.  The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.  Except as set forth in
the SEC Reports, no Hazardous Materials (as defined below) are used or have
been used, stored, or disposed of by the Company or, to the Company’s
knowledge, by any other person or entity on any property owned, leased or used
by the Company.  For the purposes of the
preceding sentence, “Hazardous Materials” shall mean (a)
materials which are listed or otherwise defined as “hazardous” or “toxic”
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials, or (b) any petroleum products or nuclear materials.


 


4.18        Valid Offering.  Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale
and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities
Act”), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.  Neither the Company nor any agent on its
behalf has solicited or


 


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will solicit any offers to sell or has offered to sell or will offer to
sell all or any part of the Securities to any person or persons so as to bring
the sale of such Securities by the Company within the registration provisions
of the Securities Act or any state securities laws.


 


4.19        Full Disclosure.  The Company has provided the Purchaser with
all information requested by the Purchaser in connection with its decision to
purchase the Preferred Stock and Warrant, including all information the Company
believes is reasonably necessary to make such investment decision.  To the Company’s knowledge, neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.  Any financial projections and other
estimates provided to the Purchaser by the Company were based on the Company’s
experience in the industry and assumptions of fact and opinion as to future
events which the Company, at the date of the issuance of such projections or estimates,
believed to be reasonable.  As of the
date hereof no facts have come to the attention of the Company that would, in
its opinion, require the Company to revise or amplify in any material respect
the assumptions underlying such projections and other estimates or the
conclusions derived therefrom.  Any
financial projections are subject to future events and the Company cannot give
any assurance that it will meet its financial projections.


 


4.20        Insurance.  The Company has general commercial, product
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.


 


4.21        SEC Reports.  The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act
of 1934, as amended (the “Exchange Act”).    Each SEC Report was in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.


 


4.22        No Market Manipulation.  The
Company has not taken, and will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of the Common Stock of the Company
to facilitate the sale or resale of any of the Securities being offered hereby
or affect the price at which any of the Securities being offered hereby may be
issued.


 


4.23        Listing.  The Company’s Common Stock is listed for
trading on the American Stock Exchange and satisfies all requirements for the
continuation of such listing.  The
Company has not received any notice that its Common Stock will be delisted from
the American Stock Exchange or that the Common Stock does not meet all
requirements for the continuation of such listing.


 


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4.24        No Integrated Offering.  Except
for the Company’s Series B 5% Cumulative Convertible Preferred Stock issued to
the Purchaser on or about August 28, 2003,  neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions.  Nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.


 


4.25        Stop Transfer.  The Securities are restricted securities as
of the date of this Agreement.  The
Company will not issue any stop transfer order or other order impeding the sale
and delivery of any of the Securities at such time as the Securities are
registered for public sale or an exemption from registration is available,
except as required by federal securities laws.


 


4.26        Dilution.  The Company understands the nature of the
Securities being sold hereby and recognizes that they may have a potential
dilutive effect.  The Company specifically
acknowledges that its obligation to issue the Conversion Shares and Warrant
Shares is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.


 


5.             REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASER.


 


The Purchaser hereby represents and warrants to the Company with
respect to itself or himself as follows (such representations and warranties do
not lessen or obviate the representations and warranties of the Company set
forth in this Agreement):


 


5.1          Requisite Power and Authority.  Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions.  All action on Purchaser’s part required for
the lawful execution and delivery of this Agreement and the Related Agreements
have been or will be effectively taken prior to the Closing.  Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable remedies.


 


5.2          Investment Representations.  Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser’s representations contained
in the Agreement.


 


5.3          Purchaser Bears Economic Risk.   Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the


 


11

















 


Company and has the capacity to protect its own interests.  Purchaser must bear the economic risk of
this investment until the Securities are registered pursuant to the Securities
Act, or an exemption from registration is available.


 


5.4          Acquisition for Own Account.  Purchaser is acquiring the Preferred Stock
for Purchaser’s own account for investment only, and not with a view towards
their distribution.


 


5.5          Purchaser Can Protect Its Interest.   Purchaser represents that by reason of its,
or of its management’s, business or financial experience, Purchaser has the
capacity to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Related Agreements.  Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.


 


5.6          Accredited Investor.   Purchaser
represents that it is an accredited investor within the meaning of Regulation D
under the Securities Act.


 


5.7          Legends.


 


(a)           The
Preferred Stock shall bear the following legend until the Preferred Stock and
Conversion Shares are sold pursuant to an effective registration statement
filed with the Securities and Exchange Commission (the “SEC”):


 


“THESE SHARES OF PREFERRED STOCK AND THE COMMON STOCK
ISSUABLE UPON CONVERSION OF THE PREFERRED STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES
LAWS.  THESE SHARES OF PREFERRED STOCK
AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE PREFERRED STOCK MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE PREFERRED STOCK OR COMMON STOCK
ISSUABLE UPON CONVERSION OF PREFERRED STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IMPLANT
SCIENCES CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”


 


(b)           The
Conversion Shares and the Warrant Shares shall bear a legend which shall be in
substantially the following form until such shares are sold pursuant to an
effective registration statement filed with the SEC:


 


“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE,
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IMPLANT


 


12

















 


SCIENCES CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”


 


(c)           The
Warrants shall bear the following legend:


 


“THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IMPLANT SCIENCES CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.”


 


The Purchaser covenants and agrees with the Company as
follows:


 


5.8          Security Interest. 
Purchaser agrees to terminate its security interest in the assets,
as fully described in the Security Agreement between the Company and Purchaser
of even date herewith (the “Security Agreement”), upon the Company
tendering the final payment in satisfaction of the obligations as defined in
the Security Agreement.  Purchaser
agrees to join with the Company in executing termination statements and other
instruments pursuant to the Uniform Commercial Code as enacted and in effect
from time to time in the Commonwealth of Massachusetts in form satisfactory to
the Company and in executing such other documents or instruments as may be
required or deemed necessary by the Company for purposes of terminating the
security interest in the collateral.


 


5.9          Prospectus.  Purchaser shall furnish copies of the
prospectus in connection with a public sale or disposition of the Common Stock.


 


5.10        Preferred Stock Certificate.  When Purchaser elects to convert shares of
Preferred Stock in accordance with Section 8 below, Purchaser shall
surrender the Preferred Stock Certificate upon receipt of a credit to the
account of the Purchaser’s prime broker through the DWAC system (as defined
below), representing the Conversion Shares or upon complete satisfaction of the
Preferred Stock.


 


5.11        Certain Trading Restrictions.  Purchaser agrees that, as long as it
holds any shares of Preferred Stock, neither it nor any of its Affiliates shall
enter into any Short Sales (as defined herein).  For purposes of this Section 5.11, a “Short Sale” shall mean a sale
of Common Stock by Purchaser that would be required to be marked as a “short
sale” by the broker executing the sale pursuant to the provisions of Rules
10a-1(c) and 10a-1(d)(1) under the Exchange Act if such rules applied to the
sale (whether or not they in fact apply to the sale), and that is made at a
time when immediately after the sale, and giving effect to all other sales by
the Purchaser, there would be no equivalent offsetting long position in Common
Stock held by


 


13

















 


Purchaser.  For the purpose of
determining under this Section 5.11 whether there is an equivalent
offsetting long position in Common Stock held by Purchaser, only those
Conversion Shares that are (i) issuable upon conversion of the Preferred Stock
for which a conversion notice has been delivered by Purchaser on or prior to a
trading day or (ii) issuable as a result of the delivery by the Company of a
Repayment Election Notice, as defined in the Certificate of Vote of Directors,
shall be deemed to be held long by Purchaser on such trading day.


 


5.12        Reporting Requirements.  Purchaser will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act.  Purchaser will respond timely, accurately
and completely to any inquiry by the SEC, NASD, or any stock exchange upon
which the Company maintains a listing, relating to the offering.


 


6.             COVENANTS OF THE COMPANY.   The Company covenants and agrees with the Purchaser as follows:


 


6.1          Stop-Orders. The Company will advise the Purchaser,
promptly after it receives notice of issuance by the SEC, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.


 


6.2          Listing.   The
Company shall promptly secure the listing of the shares of Common Stock
issuable upon conversion of the Preferred Stock and upon the exercise of the
Warrant on the Pink Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market, American Stock Exchange or New York Stock
Exchange (the “Principal Market”) upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain such listing
so long as any other shares of Common Stock shall be so listed.  The Company will maintain the listing of its
Common Stock on a Principal Market, and will comply in all material respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers (“NASD”) and such exchanges, as
applicable.  The Company will provide
the Purchaser copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.


 


6.3          Market Regulations.   The
Company shall notify the SEC, NASD and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Securities to Purchaser and promptly provide copies
thereof to Purchaser.


 


6.4          Reporting Requirements.   The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination. 
In addition, within 20 days after the end of each calendar month, the
Company will provide to the Purchaser a monthly cash flow statement, balance
sheet and income statement for the immediately preceding month.


 


14

















 


Purchaser understands that the provision of the information described
herein may constitute material non-public information and such information will
only be provided upon the execution by Purchaser of a confidentiality
agreement.


 


6.5          Use of Funds.   The
Company agrees that it will use the proceeds of the sale of the Preferred Stock
and Warrant for the purchase of an Axcelis Ion Implanter and general corporate
purposes only, in the ordinary course of its business and consistent with past
practice and, without limiting the generality of the foregoing, shall not use such
proceeds to make a loan to any employee, officer, director or stockholder of
the Company, to repay any loan or other obligation of the Company or to
repurchase or pay a dividend on shares of Common Stock or other securities of
the Company (in any such case, regardless of whether such loan or payment was
authorized by the Company’s Board of Directors prior to the date hereof), other
than any such repurchase or payment explicitly required, permitted or
contemplated by the terms of this Agreement or the other Related Agreements.


 


6.6          Access to Facilities.   The
Company will permit any representatives designated by the Purchaser (or any
transferee of the Purchaser), so long as such person holds any Securities upon
reasonable notice and during normal business hours, at such person’s expense
and accompanied by a representative of the Company, to (a) visit and inspect
any of the properties of the Company, (b) examine the corporate and financial
records of the Company (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom and (c) discuss the affairs, finances and accounts of any such
corporations with the directors, officers and independent accountants of the
Company.


 


6.7          Taxes.   The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings
to foreclose any lien which may have attached as security therefor.


 


6.8          Insurance.   The
Company will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company’s line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than 100% of the insurable
value of the property insured; and the Company will maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated and to the extent available
on commercially reasonable terms.


 


6.9          Books and Records.   The Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles


 


15

















 


applied on a consistent basis. 
Purchaser understands that the provision of the information described
herein may constitute material non-public information and such information will
only be provided upon the execution by Purchaser of a confidentiality
agreement, and in accordance with applicable securities law.


 


6.10        Intellectual Property.   The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.


 


6.11        Confidentiality. 
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser, unless expressly agreed to
by the Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.


 


6.12        Corporate Existence.  The
Company shall maintain its corporate existence, and will not liquidate, dissolve
or effect a recapitalization, reclassification or reorganization in any form of
transaction.  In addition, the Company
shall not sell all or substantially all of the Company’s assets, except in the
event of a merger or consolidation or sale or transfer of all or substantially
all of the Company’s assets, where the surviving or successor entity in such
transaction (i) assumes the Company’s obligations hereunder and the Related
Agreements and (ii) is a publicly traded company whose common stock is quoted or
listed on a Principal Market or  (iii)
simultaneously with the consummation of such transaction irrevocably pays in
full all of the obligations due and owing to Purchaser from the Company under
this Agreement and/or the Securities.


 


6.13        Reissuance of Securities.  The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7
above at such time as (a) the holder thereof has disposed of such Securities
pursuant to an exemption from registration under the Securities Act, or (b)
upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.  The Company agrees to cooperate with the Purchaser in connection
with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its counsel
receive reasonably requested representations from the selling Purchaser and
broker, if any.


 


6.14        Opinion. On the
Closing Date, the Company will deliver to the Purchaser an opinion acceptable
to the Purchaser from the Company’s legal counsel in the form annexed hereto as
Exhibit C.  The Company will provide, at
the Company’s expense, such other legal opinions in the future as are
reasonably necessary for the conversion of the Preferred Stock and exercise of
the Warrants.


 


6.15        Financing
Right of First Refusal.    The Company hereby grants the
Purchaser a right of first refusal to enter into a financing arrangement with
the Company. The Company shall submit a fully executed term sheet setting out
the terms, conditions and pricing of any proposed financing (such financing to
be negotiated on “arm’s length” terms) to be entered


 


16

















 


into by the Company. Purchaser shall have the right, but not the
obligation, to offer financing, to the Company on terms no less favorable than
those outlined in the previously negotiated term sheet (which such term sheet
shall be negotiated in good faith) within five business days of receipt of such
proposed term sheet. If the provisions of the Purchaser’s term sheet shall be
at least as favorable to the Company, the Company shall enter into the
financing arrangement outlined in the Purchaser’s term sheet.  If the Purchaser declines to exercise it
right of first refusal hereunder, it hereby agrees to enter into such
documentation as shall be reasonably requested by Company in order to
subordinate its rights hereunder or under the Preferred Stock to the subsequent
financier.


 


 


7.             COVENANTS OF THE COMPANY AND PURCHASER
REGARDING INDEMNIFICATION.


 


7.1          Company Indemnification.  The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser’s officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.


 


7.2          Purchaser’s Indemnification.  Purchaser agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company’s officers, directors, agents,
affiliates, control persons and principal shareholders, at all times against
any claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company
which results, arises out of or is based upon (i) any misrepresentation by
Purchaser or breach of any warranty by Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by Purchaser of any covenant or undertaking to
be performed by Purchaser hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.


 


7.3          Procedures.  The procedures and limitations set forth in
Section 9.6 shall apply to the indemnifications set forth in Sections 7.1
and 7.2 above.


 


8.             CONVERSION OF PREFERRED STOCK.


 


8.1          Mechanics of Conversion.


 


(a)           Provided
the Purchaser has notified the Company of the Purchaser’s intention to sell the
Conversion Shares and the Conversion Shares are included in an effective
registration statement or are otherwise exempt from registration when
sold:  (i) Upon the conversion of the
Preferred Stock or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of an opinion of
counsel) to assure that the Company’s transfer agent shall issue the Conversion
Shares in the name of the Purchaser (or


 


17

















 


its nominee) or such other persons as designated by the Purchaser in
accordance with Section 8.1(b) hereof and in such denominations to be
specified representing the number of Conversion Shares issuable upon such
conversion; and (ii) the Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company’s
Common Stock and that after the Effective Date (as hereinafter defined) the
Conversion Shares issued will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the provisions of this
Agreement, and will not contain a legend restricting the resale or
transferability of the Conversion Shares, other than as required by law.


 


(b)           Purchaser
will give notice of its decision to exercise its right to convert the Preferred
Stock or part thereof by telecopying or otherwise delivering an executed and
completed notice of the number of shares to be converted to the Company (the “Notice of
Conversion”). The Purchaser will not be required to surrender the
Preferred Stock Certificate until the Purchaser receives a credit to the
account of the Purchaser’s prime broker through the DWAC system (as defined
below), representing the Conversion Shares or until the Preferred Stock has
been fully satisfied.  Each date on
which a Notice of Conversion is telecopied or delivered to the Company in
accordance with the provisions hereof shall be deemed a “Conversion Date.”  The Company will cause the transfer agent to
transmit the Conversion Shares (and a certificate representing the balance of
the Preferred Stock not so converted, if requested by Purchaser) to the
Purchaser by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent
Commission (“DWAC”) system within three (3) business days after receipt by
the Company of the Notice of Conversion (the “Delivery Date”).


 


(c)           The
Company understands that a delay in the delivery of the Conversion Shares in
the form required pursuant to Section 8 hereof beyond the Delivery Date
could result in economic loss to the Purchaser.  In the event that the Company fails to direct its transfer agent
to deliver the Conversion Shares to the Purchaser via the DWAC system within
the time frame set forth in Section 8.1(b) above and the Conversion Shares
are not delivered to the Purchaser by the Delivery Date through any act or
failure to act on the part of the Company, as compensation to the Purchaser for
such loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Conversion Shares in the form required pursuant to
Section 8 hereof upon conversion of the Preferred Stock in the amount
equal to the greater of (i) $500 per business day after the Delivery Date or
(ii) the Purchaser’s actual damages from such delayed delivery. The Company
shall pay any payments incurred under this Section in immediately
available funds upon demand and, in the case of actual damages, accompanied by
reasonable documentation of the amount of such damages.  Such documentation shall show the number of
shares of Common Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon such conversion,
and shall be calculated as the amount by which (A) the Purchaser’s total
purchase price (including customary brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the aggregate Stated Value (as
defined in the Certificate of Vote of Directors) and/or dividend amount of the
Preferred Stock, for which such Conversion Notice was not timely honored.


 


(d)           Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law.  In the event that


 


18

















 


the rate of interest or dividends required to be paid or other charges
hereunder exceed the maximum amount permitted by such law, any payments in
excess of such maximum shall be credited against amounts owed by the Company to
a Purchaser and thus refunded to the Company.


 


8.2          Maximum Conversion.  The
Purchaser shall not be entitled to convert on a Conversion Date that amount of
the Preferred Stock in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Purchaser on a Conversion Date, and (ii) the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock
with respect to which the determination of this proviso is being made on a
Conversion Date, which would result in beneficial ownership by the Purchaser of
more than 4.99% of the outstanding shares of Common Stock of the Company on
such Conversion Date.  Subject to the
foregoing, a Purchaser shall not be limited to aggregate conversions of only
4.99%.  A Purchaser may void the
conversion limitation described in this Section 8.2 upon 75 days prior
notice to the Company. Upon an Event of Default under the Preferred Stock, the
conversion limitation in this Section 8.2 shall automatically become null
and void.  Notwithstanding the
foregoing, if the Company has elected to make a payment of a Monthly Amount (as
defined in the Certificate of Vote of Directors) in shares of Common Stock and
such issuance would cause Purchaser’s beneficial ownership to exceed 4.99%,
then Purchaser shall be required to sell that number of shares of Common Stock
that it beneficially owns in order to permit the Company to make a payment of a
Monthly Amount in shares of Common Stock. 
Beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder.


 


8.3          Optional Redemption.  The
Company will have the option of redeeming any outstanding Stated Value of the
Preferred Stock (“Optional Redemption”) by paying to the
Purchaser 130% of such amount, together with accrued but unpaid dividends
thereon and any and all other sums due, accrued or payable to the Purchaser
arising under this Agreement, Certificate of Vote of Directors or any other
document delivered herewith (“Redemption Amount”) outstanding on the day
notice of redemption (“Notice of Redemption”) is delivered to a
Purchaser (“Redemption Date”).  A
Notice of Redemption may not be given in connection with any portion of
Preferred Stock for which a Notice of Conversion has been given by the
Purchaser at any time before receipt of a Notice of Redemption.  The Redemption Amount must be paid in
immediately available funds to the Purchaser no later than the seventh (7th)
business day after the Redemption Date (“Optional Redemption Payment Date”).  In the event the Company fails to pay the
Redemption Amount by the Optional Redemption Payment Date, then the Redemption
Notice will be null and void.  A Notice
of Redemption may be given by the Company, provided no Event of Default as
described in the Certificate of Vote of Directors shall have occurred or be
continuing.


 


9.             REGISTRATION RIGHTS.


 


9.1          Registration Rights Granted.  The Company hereby grants the following
registration rights to holders of the securities purchased hereby.


 


(a)           The
Company shall use its reasonable commercial efforts to file a Form S-3
registration statement (or such other form that it is eligible to use) in order
to register


 


19

















 


the Securities  (the “Registrable
Securities”) for resale and distribution under the Securities Act
with the SEC by January     , 2004  (the “Filing Date”), and use its reasonable
commercial efforts to cause such registration statement to be declared
effective within 90 days of the Filing Date (the “Effective Date”).  The Company will register (a sufficient
number of shares of Common Stock to cover full conversion of the Preferred
Stock and the Warrant)
               shares
of Common Stock in the aforedescribed registration statement.  The Registrable Securities shall be reserved
and set aside exclusively for the benefit of the Purchaser and the holders of
the Warrant, as the case may be, and not issued, employed or reserved for
anyone other than the Purchaser and the holders of the Warrant.  If the closing price of the Common Stock is
less than $3.00 per share for five (5) consecutive trading days prior to the
Effective Date, then such registration statement will be promptly amended or
additional registration statements will be promptly filed by the Company as
necessary to register additional shares of Common Stock of the Company to allow
the public resale of all Common Stock included in and issuable by virtue of the
Registrable Securities.  No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 9.1(a).


 


9.2          Registration Procedures. If and whenever the
Company is required by the provisions hereof to effect the registration of any
shares of Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:


 


(a)           prepare
and file with the SEC a registration statement with respect to such securities
and use its best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby
(determined as herein provided), and promptly provide to the holders of
Registrable Securities copies of all filings and SEC letters of comment;


 


(b)           prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective until the later of: (i) six
months after the latest exercise period of the Warrants; or (ii) four years
after the Closing Date, and comply with the provisions of the Securities Act
with respect to the disposition of all of the Registrable Securities covered by
such registration statement in accordance with the Seller’s intended method of
disposition set forth in such registration statement for such period;


 


(c)           furnish
to the Seller, and to each underwriter if any, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request to facilitate
the public sale or their disposition of the securities covered by such
registration statement;


 


(d)           use its
best efforts to register or qualify the Seller’s Registrable Securities covered
by such registration statement under the securities or “blue sky” laws of such
jurisdictions as the Seller and in the case of an underwritten public offering,
the managing underwriter shall reasonably request, provided, however, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;


 


20

















 


(e)           list the
Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed;


 


(f)            immediately
notify the Seller and each underwriter under such registration statement at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing; and


 


(g)           make
available for inspection by the Seller, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by the Seller or underwriter, all publicly
available, non-confidential financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company’s officers,
directors and employees to supply all publicly available, non-confidential
information reasonably requested by the seller, underwriter, attorney,
accountant or agent in connection with such registration statement.


 


9.3          Provision of Documents.  In
connection with each registration hereunder, the Purchaser will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.


 


9.4          Non-Registration Events.  If (i) the registration statement on Form S-3 or such other form
as described in Section 9.1(a) is not filed on or before the Filing Date
or not declared effective on or before the sooner of the Effective Date, or
within three business days of receipt by the Company of a communication from
the SEC that the registration statement described in Section 9.1(a) will
not be reviewed, or (iii) if the registration statement described in
Section 9.1(a) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time which
shall exceed 30 days in the aggregate per year but not more than 20 consecutive
calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in
this Section 9.4 is referred to herein as a “Non-Registration Event”),
then, for so long as such Non-Registration Event shall continue, the Company
shall pay in cash as Liquidated Damages to each holder of any Registrable
Securities an amount equal to one percent (1%) per month  (prorated accordingly for parts thereof)
during the pendency of such Non-Registration Event of the Stated Value of the
Preferred Stock issued in connection with the Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event, but no in event more than
130% the unpaid Stated Value of the Preferred Stock.  Payments to be made pursuant to this Section shall be due
and payable immediately upon demand in immediately available funds.  It shall be deemed a Non-Registration Event
to the extent that all the Common Stock included in the Registrable Securities
and underlying the Securities is not included in an effective registration
statement as of and after the Effective Date at the conversion prices in effect
from and after the Effective Date. 
Failure by the Company to


 


21

















 


pay the Liquidated Damages as and when due shall be deemed an Event of
Default for the purposes of this Section 9.4


 


9.5          Expenses.  All expenses incurred by the Company in
complying with Section 9, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and up to $2,500 in disbursements
incurred by, one counsel for the Seller, and costs of insurance are called “Registration
Expenses”. All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller beyond those included in
Registration Expenses, are called “Selling Expenses.”


 


The Company will pay all Registration Expenses in
connection with the registration statement under Section 9.  All Selling Expenses in connection with each
registration statement under Section 9 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.


 


9.6          Indemnification and Contribution.


 


(a)           In the
event of a registration of any Registrable Securities under the Securities Act
pursuant to Section 9, the Company will indemnify and hold harmless each
Seller, each officer of each Seller, each director of each Seller, each
underwriter of such Registrable Securities thereunder and each other person, if
any, who controls any such Seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities was registered under the Securities Act pursuant to Section 9,
any final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished by any such Seller, the underwriter or
any such controlling person in writing specifically for use in such
registration statement or prospectus.


 


(b)           In the
event of a registration of any of the Registrable Securities under the
Securities Act pursuant to Section 9, the Seller will indemnify and hold
harmless the Company, and each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement and each


 


22

















 


director of the
Company, against all losses, claims, damages or liabilities, joint or several,
to which the Company or such officer or director may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to Section 9, any final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer or
director for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such,
furnished in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of the Registrable Securities sold by the Seller
under such registration statement bears to the total public offering price of
all securities sold thereunder, but not in any event to exceed the net proceeds
received by the Seller from the sale of Registrable Securities covered by such
registration statement.


 


(c)           Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party hereunder, notify the indemnifying
party in writing thereof, but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to such indemnified
party other than under this Section 9.6(c) and shall only relieve it from
any liability which it may have to such indemnified party under this
Section 9.6(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in and, to the extent it shall wish, to assume and undertake the defense
thereof with counsel reasonably satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
shall not be liable to such indemnified party under this Section 9.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided, however, that,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.


 


23

















 


(d)           In order
to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) the Seller, or any
controlling person of the Seller, makes a claim for indemnification pursuant to
this Section 9.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9.6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the Seller
or controlling person of the Seller in circumstances for which indemnification
is provided under this Section 9.6; then, and in each such case, the
Company and the Seller will contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.


 


10.          OFFERING RESTRICTIONS.   Except
as previously disclosed in the SEC Reports or stock or stock options granted to
employees or directors of the Company; or equity or debt issued in connection
with an acquisition of a business or assets by the Company; or the issuance by
the Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the “Excepted
Issuances”), the Company will not issue any securities with a
floorless variable/floating conversion feature, otherwise known as a “floorless
convertible security” which are or could be (by conversion or registration)
free-trading securities prior to the repayment in full or conversion in full of
the Preferred Stock.


 


11.          SECURITY INTEREST. 
As a condition of Closing, the Company will grant to the Purchaser a
security interest in its assets pursuant to a Security Agreement.  The Company will also execute all such
documents reasonably necessary to memorialize and further protect the security
interest described above.


 


12.          MISCELLANEOUS.


 


12.1        Governing Law.
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York, without regard to principles of conflicts of
laws.  Any action brought by either
party against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York; provided, however that the Purchaser may
choose to waive this provision and bring an action outside the state of New
York.  Both parties and the individuals
executing this Agreement and other agreements on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury.  The prevailing party shall be entitled to
recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this
Agreement or any other agreement delivered in connection


 


24

















 


herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement.


 


12.2        Survival.  The representations, warranties, covenants
and agreements made herein shall survive any investigation made by the
Purchaser and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.


 


12.3        Successors and Assigns.  Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of the Securities from time to
time.


 


12.4        Entire Agreement.  This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or
bound to any other in any manner by any representations, warranties, covenants
and agreements except as specifically set forth herein and therein.


 


12.5        Severability.  In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.


 


12.6        Amendment and Waiver.


 


(a)           This
Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.


 


(b)           The
obligations of the Company and the rights of the holders of the Securities
under the Agreement may be waived only with the written consent of such holders
of Securities.  The rights of the holder
of Preferred Stock may be waived only with the written consent of such holder.


 


12.7        Delays or Omissions.  It is
agreed that no delay or omission to exercise any right, power or remedy
accruing to any party, upon any breach, default or noncompliance by another
party under this Agreement or the Related Agreements, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance thereafter occurring.  It is further agreed that any waiver,
permit, consent or approval of any kind or character on the Purchaser’s part of
any breach, default or noncompliance under this Agreement, the Preferred Stock
or the Related Agreements or any waiver on such party’s part of any provisions
or conditions of the Agreement, the Certificate of Vote of Directors or the
Related Agreements must be in writing and shall be effective only to the


 


25

















 


extent
specifically set forth in such writing. 
All remedies, either under this Agreement, the Preferred Stock or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.


 


12.8        Notices.  All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then
on the next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt.  All communications shall be sent to the Company at the address as
set forth on the signature page hereof, with a copy to Ellenoff Grossman and
Schole LLP, 370 Lexington Avenue New York, New York 10017 Attention: Barry I.
Grossman, Esq. Facsimile number (212) 370-7889 and to the Purchaser at the
address set forth on the signature page hereto for such Purchaser, with a copy
in the case of the Purchaser to John Tucker, Esq., 152 West 57th Street, 4th
Floor, New York, NY 10019, facsimile number (212) 541-4434, or at such other
address as the Company or the Purchaser may designate by ten days advance
written notice to the other parties hereto.


 


12.9        Attorneys’ Fees.  In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.


 


12.10      Titles and Subtitles.  The titles
of the sections and subsections of the Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.


 


12.11      Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.


 


12.12      Broker’s Fees.  Each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker’s
or finder’s fee or any other commission directly or indirectly in connection
with the transactions contemplated herein, except as specified herein with
respect to the Purchaser.  Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 12.12 being untrue.


 


12.13      Construction.  Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.


 


26

















 


[Remainder of page intentionally left blank.]


 


27

















 


IN
WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph
hereof.


 


 


	
  COMPANY:

  	
  PURCHASER:

  
	
   

  	
   

  
	
  IMPLANT SCIENCES CORPORATION

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  
	
  By

  	
  : /s/ Anthony J. Armini

  	
   

  	
  By:

  	
  /s/ David Grin

  	
   

  
	
  Name: 
  Anthony J. Armini

  Title:  President

  Address:

  107 Audubon Road #5

  Wakefield, Massachusetts 01880

  	
  Name:  David
  Grin, Director

  Address:  LAURUS MASTER FUND, LTD.

  c/o Ironshore Corporate Services Ltd.

  P.O. Box 1234 G.T., Queensgate House,

  South Church Street

  Grand Cayman, Cayman Islands

  
							



 


28

















 


	
  LIST OF EXHIBITS

  
	
   

  
	
  Form of Offering Certificate of Vote of Directors

  	
   

  	
  Exhibit A

  
	
   

  	
   

  	
   

  
	
  Form of Warrant

  	
   

  	
  Exhibit B

  
	
   

  	
   

  	
   

  
	
  Form of Opinion

  	
   

  	
  Exhibit C

  



 

















 


EXHIBIT A


 


CERTIFICATE OF VOTE OF DIRECTORS


 

















 


EXHIBIT B


 


FORM OF WARRANT


 

















 


EXHIBIT C


 


FORM OF OPINION


 

















 


TABLE OF CONTENTS


 


	
  1.

  	
  AGREEMENT TO SELL AND PURCHASE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  FEES AND WARRANT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CLOSING, DELIVERY AND PAYMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Closing

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2

  	
  Delivery

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Organization, Good Standing and
  Qualification

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Subsidiaries

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Capitalization; Voting Rights

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4

  	
  Authorization; Binding Obligations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Liabilities

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Agreements; Action

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Obligations to Related
  Parties

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.8

  	
  Changes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.9

  	
  Title to
  Properties and Assets; Liens, Etc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.10

  	
  Intellectual Property

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.11

  	
  Compliance with Other
  Instruments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.12

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.13

  	
  Tax Returns and Payments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.14

  	
  Employees

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.15

  	
  Registration
  Rights and Voting Rights

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.16

  	
  Compliance with Laws; Permits

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.17

  	
  Environmental and Safety
  Laws

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.18

  	
  Valid Offering

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.19

  	
  Full Disclosure

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.20

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.21

  	
  SEC Reports

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.22

  	
  No Market Manipulation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.23

  	
  Listing

  	
   

  



 


i

















 


	
   

  	
  4.24

  	
  No Integrated Offering

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.25

  	
  Stop Transfer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.26

  	
  Dilution

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS, WARRANTIES AND
  COVENANTS OF THE PURCHASER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Requisite Power and
  Authority

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Investment Representations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Purchaser Bears Economic
  Risk

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
  Acquisition for Own Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.5

  	
  Purchaser Can
  Protect Its Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6

  	
  Accredited Investor

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.7

  	
  Legends

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.8

  	
  Security Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.9

  	
  Prospectus

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.10

  	
  Preferred Stock Certificate

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.11

  	
  Certain Trading
  Restrictions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.12

  	
  Reporting Requirements

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  COVENANTS OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Stop-Orders

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Listing

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Market Regulations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.4

  	
  Reporting Requirements

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.5

  	
  Use of Funds

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.6

  	
  Access to Facilities

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.7

  	
  Taxes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.8

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.9

  	
  Books and Records

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.10

  	
  Intellectual Property

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.11

  	
  Confidentiality

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.12

  	
  Corporate Existence

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.13

  	
  Reissuance of Securities

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.14

  	
  Opinion

  	
   

  



 


ii

















 


	
   

  	
  6.15

  	
  Financing Right of
  First Refusal

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  COVENANTS
  OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Company Indemnification

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Purchaser’s
  Indemnification

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Procedures

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  CONVERSION OF PREFERRED
  STOCK

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Mechanics of Conversion

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Maximum Conversion

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3

  	
  Optional Redemption

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  REGISTRATION RIGHTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Registration Rights
  Granted

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Registration Procedures

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.3

  	
  Provision of Documents

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.4

  	
  Non-Registration Events

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.5

  	
  Expenses

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.6

  	
  Indemnification and
  Contribution

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  OFFERING RESTRICTIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  SECURITY INTEREST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Governing Law

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.2

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.3

  	
  Successors and Assigns

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.4

  	
  Entire Agreement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.5

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.6

  	
  Amendment and Waiver

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.7

  	
  Delays or Omissions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.8

  	
  Notices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.9

  	
  Attorneys’ Fees

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.10

  	
  Titles and Subtitles

  	
   

  
					



 


iii

















 


	
   

  	
  12.11

  	
  Counterparts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.12

  	
  Broker’s Fees

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.13

  	
  Construction

  	
   

  



 


iv