Document:

Exhibit 10.3

 

SUBSIDIARY
GUARANTY

 

	
  New York, New York

  	
  July 6, 2005

  

 

FOR
VALUE RECEIVED, and in consideration of note purchases from, or credit
otherwise extended or to be extended by Laurus Master Fund, Ltd. (“Laurus”) to
or for the account of Implant Sciences Corporation, a Massachusetts corporation
(the “Parent”) and each of C Acquisition Corporation, a Delaware corporation
(d/b/a Core Systems), and Accurel Systems International Corporation, a
California Corporation, and together with the Parent, the “Companies” and each,
a “Company”) from time to time and at any time and for other good and valuable
consideration and to induce Laurus, in its discretion, to purchase such notes
or make other extensions of credit and to make or grant such renewals,
extensions, releases of collateral or relinquishments of legal rights as Laurus
may deem advisable, each of the undersigned (and each of them if more than one,
the liability under this Guaranty being joint and several) (jointly and
severally referred to as “Guarantors” or “the undersigned”) unconditionally
guaranties to Laurus, its successors, endorsees and assigns the prompt payment
when due (whether by acceleration or otherwise) of all present and future
obligations and liabilities of any and all kinds of each Company to Laurus and
of all instruments of any nature evidencing or relating to any such obligations
and liabilities upon which such Company or one or more parties and such Company
is or may become liable to Laurus, whether incurred by such Company as maker,
endorser, drawer, acceptor, guarantors, accommodation party or otherwise, and
whether due or to become due, secured or unsecured, absolute or contingent,
joint or several, and however or whenever acquired by Laurus, whether arising
under, out of, or in connection with (i) that certain Securities Purchase
Agreement dated as of the date hereof by and between the Parent and Laurus (the
“Securities Purchase Agreement”) and (ii) each Related Agreement referred to in
the Securities Purchase Agreement (the Securities Purchase Agreement and each
Related Agreement, as each may be amended, modified, restated and/or
supplemented from time to time, are collectively referred to herein as the “Documents”),
or any documents, instruments or agreements relating to or executed in
connection with the Documents or any documents, instruments or agreements
referred to therein or otherwise, or any other obligations or liabilities of
such Company to Laurus, whether now existing or hereafter arising, direct or
indirect, liquidated or unliquidated, absolute or contingent, due or not due
and whether under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise (all of which are herein collectively referred to as
the “Obligations”), and irrespective of the genuineness, validity, regularity
or enforceability of such Obligations, or of any instrument evidencing any of
the Obligations or of any collateral therefor or of the existence or extent of
such collateral, and irrespective of the allowability, allowance or disallowance
of any or all of the Obligations in any case commenced by or against any
Company under Title 11, United States Code, including, without limitation,
obligations or indebtedness of any Company for post-petition interest, fees,
costs and charges that would have accrued or been added to the Obligations but
for the commencement of such case.  Terms
not otherwise defined herein shall have the meaning assigned such terms in the
Securities Purchase Agreement, as applicable. 
In furtherance of the foregoing, the undersigned hereby
agrees as follows:

 

1.             No
Impairment.  Laurus may at any time
and from time to time, either before or after the maturity thereof, without
notice to or further consent of the undersigned, extend the

 

 

time of payment of, exchange or surrender any collateral for, renew or
extend any of the Obligations or increase or decrease the interest rate
thereon, or any other agreement with any Company or with any other party to or
person liable on any of the Obligations, or interested therein, for the
extension, renewal, payment, compromise, discharge or release thereof, in whole
or in part, or for any modification of the terms thereof or of any agreement
between Laurus and any Company or any such other party or person, or make any
election of rights Laurus may deem desirable under the United States Bankruptcy
Code, as amended, or any other federal or state bankruptcy, reorganization,
moratorium or insolvency law relating to or affecting the enforcement of
creditors’ rights generally (any of the foregoing, an “Insolvency Law”) without
in any way impairing or affecting this Guaranty.  This Guaranty shall be effective regardless
of the subsequent incorporation, merger or consolidation of any Company, or any
change in the composition, nature, personnel or location of any Company and
shall extend to any successor entity to each Company, including a debtor in
possession or the like under any Insolvency Law.

 

2.             Guaranty
Absolute.  Subject to Section 5(c)
hereof, each of the undersigned jointly and severally guarantees that the
Obligations will be paid strictly in accordance with the terms of the Documents
and/or any other document, instrument or agreement creating or evidencing the
Obligations, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of any
Company with respect thereto.  Guarantors
hereby knowingly accept the full range of risk encompassed within a contract of
“continuing guaranty” which risk includes the possibility that a Company will
contract additional obligations and liabilities for which Guarantors may be
liable hereunder after such Company’s financial condition or ability to pay its
lawful debts when they fall due has deteriorated, whether or not such Company
has properly authorized incurring such additional obligations and
liabilities.  The undersigned acknowledge
that (i) no oral representations, including any representations to extend
credit or provide other financial accommodations to any Company, have been made
by Laurus to induce the undersigned to enter into this Guaranty and (ii) any
extension of credit to any Company shall be governed solely by the provisions
of the Documents.  The liability of each
of the undersigned under this Guaranty shall be absolute and unconditional, in
accordance with its terms, and shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by, any circumstance or occurrence whatsoever, including,
without limitation: (a) any waiver, indulgence, renewal, extension, amendment
or modification of or addition, consent or supplement to or deletion from or
any other action or inaction under or in respect of the Documents or any other
instruments or agreements relating to the Obligations or any assignment or
transfer of any thereof, (b) any lack of validity or enforceability of any
Document or other documents, instruments or agreements relating to the
Obligations or any assignment or transfer of any thereof, (c) any furnishing of
any additional security to Laurus or its assignees or any acceptance thereof or
any release of any security by Laurus or its assignees, (d) any limitation on
any party’s liability or obligation under the Documents or any other documents,
instruments or agreements relating to the Obligations or any assignment or
transfer of any thereof or any invalidity or unenforceability, in whole or in
part, of any such document, instrument or agreement or any term thereof, (e)
any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to any Company, or
any action taken with respect to this Guaranty by any trustee or receiver, or
by any court, in any such proceeding, whether or not the undersigned shall have
notice or knowledge of any of the foregoing, (f) any exchange, release or
nonperfection of

 

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any collateral, or any release,
or amendment or waiver of or consent to departure from any guaranty or
security, for all or any of the Obligations or (g) any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
undersigned.  Any amounts due from the
undersigned to Laurus shall bear interest until such amounts are paid in full
at the highest rate then applicable to the Obligations.  Obligations include post-petition interest
whether or not allowed or allowable.

 

3.             Waivers.

 

(a)           This
Guaranty is a guaranty of payment and not of collection.  Laurus shall be under no obligation to
institute suit, exercise rights or remedies or take any other action against
any Company or any other person or entity liable with respect to any of the
Obligations or resort to any collateral security held by it to secure any of
the Obligations as a condition precedent to the undersigned being obligated to
perform as agreed herein and each of the Guarantors hereby waives any and all
rights which it may have by statute or otherwise which would require Laurus to
do any of the foregoing.  Each of the
Guarantors further consents and agrees that Laurus shall be under no obligation
to marshal any assets in favor of Guarantors, or against or in payment of any
or all of the Obligations.  Each of the
undersigned hereby waives all suretyship defenses and any rights to interpose
any defense, counterclaim or offset of any nature and description which the
undersigned may have or which may exist between and among Laurus, any Company
and/or the undersigned with respect to the undersigned’s obligations under this
Guaranty, or which any Company may assert on the underlying debt, including but
not limited to failure of consideration, breach of warranty, fraud, payment
(other than cash payment in full of the Obligations), statute of frauds,
bankruptcy, infancy, statute of limitations, accord and satisfaction, and
usury.

 

(b)           Each of
the undersigned further waives (i) notice of the acceptance of this Guaranty,
of the extensions of credit, and of all notices and demands of any kind to
which the undersigned may be entitled, including, without limitation, notice of
adverse change in any Company’s financial condition or of any other fact which
might materially increase the risk of the undersigned and (ii) presentment to
or demand of payment from anyone whomsoever liable upon any of the Obligations,
protest, notices of presentment, non-payment or protest and notice of any sale
of collateral security or any default of any sort.

 

(c)           Notwithstanding
any payment or payments made by the undersigned hereunder, or any setoff or
application of funds of the undersigned by Laurus, the undersigned shall not be
entitled to be subrogated to any of the rights of Laurus against any Company or
against any collateral or guarantee or right of offset held by Laurus for the
payment of the Obligations, nor shall the undersigned seek or be entitled to
seek any contribution or reimbursement from any Company in respect of payments
made by the undersigned hereunder, until all amounts owing to Laurus by each
Company on account of the Obligations are indefeasibly paid in full and Laurus’
obligation to extend credit pursuant to the Documents has been irrevocably
terminated.  If, notwithstanding the
foregoing, any amount shall be paid to the undersigned on account of such subrogation
rights at any time when all of the Obligations shall not have been paid in full
and Laurus’

 

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obligation to extend credit pursuant to the Documents shall not have
been terminated, such amount shall be held by the undersigned in trust for
Laurus, segregated from other funds of the undersigned, and shall forthwith
upon, and in any event within two (2) business days of, receipt by the
undersigned, be turned over to Laurus in the exact form received by the
undersigned (duly endorsed by the undersigned to Laurus, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as
Laurus may determine, subject to the provisions of the Documents.  Any and all present and future obligations
and liabilities of each Company to any of the undersigned are hereby waived and
postponed in favor of, and subordinated to the full payment and performance of,
all Obligations of each Company to Laurus.

 

4.             Security.  All sums at any time to the credit of the
undersigned and any property of the undersigned in Laurus’ possession or in the
possession of any bank, financial institution or other entity that directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, Laurus (each such entity, an “Affiliate”)
shall be deemed held by Laurus or such Affiliate, as the case may be, as
security for any and all of the undersigned’s obligations and liabilities to
Laurus and to any Affiliate of Laurus, no matter how or when arising and
whether under this or any other instrument, agreement or otherwise.

 

5.             Representations
and Warranties.  Each of the
undersigned hereby jointly and severally represents and warrants (all of which
representations and warranties shall survive until all Obligations are
indefeasibly satisfied in full and the Documents have been irrevocably
terminated), that:

 

(a)           Corporate
Status.  It is a corporation,
partnership or limited liability company, as the case may be, duly formed,
validly existing and in good standing under the laws of its jurisdiction of
formation indicated on the signature page hereof and has full power, authority
and legal right to own its property and assets and to transact the business in
which it is engaged.

 

(b)           Authority
and Execution.  It has full power,
authority and legal right to execute and deliver, and to perform its
obligations under, this Guaranty and has taken all necessary corporate,
partnership or limited liability company, as the case may be, action to
authorize the execution, delivery and performance of this Guaranty.

 

(c)           Legal,
Valid and Binding Character.  This
Guaranty constitutes its legal, valid and binding obligation enforceable in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting the enforcement of creditor’s rights and general
principles of equity that restrict the availability of equitable or legal
remedies.

 

(d)           Violations.  The execution, delivery and performance of
this Guaranty will not violate any requirement of law applicable to it or any
contract, agreement or instrument to which it is a party or by which it or any
of its property is bound or result in the creation or imposition of any
mortgage, lien or other encumbrance other than in favor of Laurus on any of its
property or assets pursuant to the provisions of any of the

 

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foregoing, which, in any of the
foregoing cases, could reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect.

 

(e)           Consents
or Approvals.  No consent of any
other person or entity (including, without limitation, any creditor of the
undersigned) and no consent, license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required in connection with the execution,
delivery, performance, validity or enforceability of this Guaranty by it,
except to the extent that the failure to obtain any of the foregoing could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

 

(f)            Litigation.  No litigation, arbitration, investigation or
administrative proceeding of or before any court, arbitrator or governmental
authority, bureau or agency is currently pending or, to the best of its
knowledge, threatened (i) with respect to this Guaranty or any of the transactions
contemplated by this Guaranty or (ii) against or affecting it, or any of its
property or assets, which, in each of the foregoing cases, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.

 

(g)           Financial
Benefit.  It has derived or expects
to derive a financial or other advantage from each and every loan, advance or
extension of credit made under the Documents or other Obligation incurred by
the Companies to Laurus.

 

(h)           Solvency.  As of the date of this Guaranty, (a) the fair
saleable value of its assets exceeds its liabilities and (b) it is meeting its
current liabilities as they mature.

 

6.             Acceleration.

 

(a)           If any
breach of any covenant or condition or other event of default shall occur and
be continuing under any agreement made by any Company or any of the undersigned
to Laurus, or either any Company or any of the undersigned should at any time
become insolvent, or make a general assignment, or if a proceeding in or under
any Insolvency Law shall be filed or commenced by, or in respect of, any of the
undersigned, or if a notice of any lien, levy, or assessment is filed of record
with respect to any assets of any of the undersigned by the United States of
America or any department, agency, or instrumentality thereof, or if any taxes
or debts owing at any time or times hereafter to any one of them becomes a lien
or encumbrance upon any assets of the undersigned in Laurus’ possession, or
otherwise, any and all Obligations shall for purposes hereof, at Laurus’
option, be deemed due and payable without notice notwithstanding that any such
Obligation is not then due and payable by the Companies.

 

(b)           Each of
the undersigned will promptly notify Laurus of any default by such undersigned
in its respective performance or observance of any term or condition of any
agreement to which the undersigned is a party if the effect of such default is
to cause, or permit the holder of any obligation under such agreement to cause,
such obligation to become due prior to its stated maturity and, if such an
event occurs, Laurus shall have the right to accelerate such undersigned’s
obligations hereunder.

 

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7.             Payments
from Guarantors.  Laurus, in its sole
and absolute discretion, with or without notice to the undersigned, may apply
on account of the Obligations any payment from the undersigned or any other
guarantors, or amounts realized from any security for the Obligations, or may
deposit any and all such amounts realized in a non-interest bearing cash
collateral deposit account to be maintained as security for the Obligations.

 

8.             Costs.  The undersigned shall pay on demand, all
costs, fees and expenses (including expenses for legal services of every kind)
relating or incidental to the enforcement or protection of the rights of Laurus
hereunder or under any of the Obligations.

 

9.             No
Termination.  This is a continuing
irrevocable guaranty and shall remain in full force and effect and be binding
upon the undersigned, and each of the undersigned’s successors and assigns,
until all of the Obligations have been indefeasibly paid in full and Laurus’
obligation to extend credit pursuant to the Documents has been irrevocably
terminated.  If any of the present or
future Obligations are guarantied by persons, partnerships, corporations or
other entities in addition to the undersigned, the death, release or discharge
in whole or in part or the bankruptcy, merger, consolidation, incorporation,
liquidation or dissolution of one or more of them shall not discharge or affect
the liabilities of any undersigned under this Guaranty.

 

10.           Recapture.  Anything in this Guaranty to the contrary
notwithstanding, if Laurus receives any payment or payments on account of the
liabilities guaranteed hereby, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver, or any other party
under any Insolvency Law, common law or equitable doctrine, then to the extent
of any sum not finally retained by Laurus, the undersigned’s obligations to
Laurus shall be reinstated and this Guaranty shall remain in full force and
effect (or be reinstated) until payment shall have been made to Laurus, which
payment shall be due on demand.

 

11.           Books
and Records.  The books and records
of Laurus showing the account between Laurus and each Company shall be
admissible in evidence in any action or proceeding, shall be binding upon the
undersigned for the purpose of establishing the items therein set forth and
shall constitute prima facie proof thereof.

 

12.           No
Waiver.  No failure on the part of
Laurus to exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by Laurus of any right, remedy or power hereunder preclude any other
or future exercise of any other legal right, remedy or power.  Each and every right, remedy and power hereby
granted to Laurus or allowed it by law or other agreement shall be cumulative
and not exclusive of any other, and may be exercised by Laurus at any time and
from time to time.

 

13.           Waiver
of Jury Trial.  EACH OF THE
UNDERSIGNED DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS.  THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
EACH OF THE UNDERSIGNED HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS, AND/OR ANY OF THE UNDERSIGNED
ARISING

 

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OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS GUARANTY, ANY DOCUMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.

 

14.           Governing
Law; Jurisdiction.  THIS GUARANTY
CANNOT BE CHANGED OR TERMINATED ORALLY, AND SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.  EACH OF THE
UNDERSIGNED HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY OF THE UNDERSIGNED, ON
THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS GUARANTY OR ANY
OF THE DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS GUARANTY OR
ANY OF THE DOCUMENTS; PROVIDED, THAT EACH OF THE UNDERSIGNED
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO
PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF LAURUS.  EACH OF THE
UNDERSIGNED EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH UNDERSIGNED HEREBY
WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.  EACH OF THE UNDERSIGNED HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH
UNDERSIGNED IN ACCORDANCE WITH SECTION 18 AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF SUCH UNDERSIGNED’S ACTUAL RECEIPT THEREOF
OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

 

15.           Understanding
With Respect to Waivers and Consents. 
Each Guarantor warrants and agrees that each of the waivers and consents
set forth in this Guaranty is made voluntarily and unconditionally after consultation
with outside legal counsel and with full knowledge of its significance and
consequences, with the understanding that events giving rise to any defense or
right waived may diminish, destroy or otherwise adversely affect rights which
such Guarantor otherwise may have against any Company, Laurus or any other
person or entity or against any collateral. 
If, notwithstanding the intent of the parties that the terms of this
Guaranty shall control in any and all circumstances, any such waivers or
consents are determined to be

 

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unenforceable under applicable
law, such waivers and consents shall be effective to the maximum extent
permitted by law.

 

16.           Severability.  To the extent permitted by applicable law,
any provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

 

17.           Amendments,
Waivers.  No amendment or waiver of
any provision of this Guaranty nor consent to any departure by the undersigned
therefrom shall in any event be effective unless the same shall be in writing
executed by each of the undersigned directly affected by such amendment and/or
waiver and Laurus.

 

18.           Notice.  All notices, requests and demands to or upon
the undersigned, shall be in writing and shall be deemed to have been duly
given or made (a) when delivered, if by hand, (b) three (3) days after
being sent, postage prepaid, if by registered or certified mail, (c) when
confirmed electronically, if by facsimile, or (d) when delivered, if by a
recognized overnight delivery service in each event, to the numbers and/or
address set forth beneath the signature of the undersigned.

 

19.           Successors.  Laurus may, from time to time, without notice
to the undersigned, sell, assign, transfer or otherwise dispose of all or any
part of the Obligations and/or rights under this Guaranty.  Without limiting the generality of the
foregoing, Laurus may assign, or grant participations to, one or more banks,
financial institutions or other entities all or any part of any of the
Obligations.  In each such event, Laurus,
its Affiliates and each and every immediate and successive purchaser, assignee,
transferee or holder of all or any part of the Obligations shall have the right
to enforce this Guaranty, by legal action or otherwise, for its own benefit as
fully as if such purchaser, assignee, transferee or holder were herein by name
specifically given such right.  Laurus
shall have an unimpaired right to enforce this Guaranty for its benefit with
respect to that portion of the Obligations which Laurus has not disposed of,
sold, assigned, or otherwise transferred.

 

20.           Joinder.  It is understood and agreed that any person
or entity that desires to become a Guarantor hereunder, or is required to
execute a counterpart of this Guaranty after the date hereof pursuant to the
requirements of any Document, shall become a Guarantor hereunder by (x)
executing a joinder agreement in form and substance satisfactory to Laurus,
(y) delivering supplements to such exhibits and annexes to such Documents
as Laurus shall reasonably request and/or as may be required by such joinder
agreement and (z) taking all actions as specified in this Guaranty as would
have been taken by such such Guarantor had it been an original party to this
Guaranty, in each case with all documents required above to be delivered to
Laurus and with all documents and actions required above to be taken to the
reasonable satisfaction of Laurus.

 

21.           Release.  Nothing except indefeasible payment in full
of the Obligations shall release any of the undersigned from liability under
this Guaranty.

 

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22.           Remedies
Not Exclusive.  The remedies
conferred upon Laurus in this Guaranty are intended to be in addition to, and
not in limitation of any other remedy or remedies available to Laurus under
applicable law or otherwise.

 

23.           Limitation
of Obligations under this Guaranty. 
Each Guarantor and Laurus (by its acceptance of the benefits of this
Guaranty) hereby confirms that it is its intention that this Guaranty not constitute a fraudulent transfer or conveyance for purposes
of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act of any similar
Federal or state law.  To effectuate the
foregoing intention, each Guarantor and Laurus (by its acceptance of the
benefits of this Guaranty) hereby irrevocably agrees that the Obligations
guaranteed by such Guarantor shall be limited to such amount as will, after
giving effect to such maximum amount and all other (contingent or otherwise)
liabilities of such Guarantor that are relevant under such laws and after
giving effect to any rights to contribution pursuant to any agreement providing
for an equitable contribution among such Guarantor and the other Guarantors
(including this Guaranty), result in the Obligations of such Guarantor under
this Guaranty in respect of such maximum amount not constituting a fraudulent
transfer or conveyance.

 

[REMAINDER OF THIS
PAGE IS BLANK.

SIGNATURE PAGE IMMEDIATELY FOLLOWS]

 

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IN
WITNESS WHEREOF, this Guaranty has been executed by the undersigned as of the
date and year here above written.

 

	
   

  	
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  ACQUISITION CORPORATION

  
	
   

  	
   

  
	
   

  	
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10Exhibit 10.4

 

THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THIS WARRANT AND THE COMMON STOCK 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 UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IMPLANT SCIENCES CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.

 

Right to Purchase up to 250,000 Shares of Common Stock
of

IMPLANT SCIENCES CORPORATION 

(subject to adjustment as provided herein)

 

COMMON STOCK
PURCHASE WARRANT

 

	
  No.

  	
  Issue Date: As of July 6, 2005

  

 

IMPLANT SCIENCES
CORPORATION, a corporation organized under the laws of the Commonwealth of
Massachusetts (the “Company”), hereby certifies that, for value received,
LAURUS MASTER FUND, LTD., or assigns (the “Holder”), is entitled, subject to
the terms set forth below, to purchase from the Company (as defined herein)
from and after the Issue Date of this Warrant and at any time or from time to
time before 5:00 p.m., New York time, through the close of business July 6,
2010 (the “Expiration Date”), up to Two Hundred Fifty Thousand (250,000) fully
paid and nonassessable shares of Common Stock (as hereinafter defined), $0.10
par value per share, at the applicable Exercise Price per share (as defined
below).  The number and character of such
shares of Common Stock and the applicable Exercise Price per share are subject
to adjustment as provided herein.

 

As used herein the
following terms, unless the context otherwise requires, have the following
respective meanings:

 

(a)           The
term “Company” shall include IMPLANT SCIENCES CORPORATION and any corporation
which shall succeed, or assume the obligations of, IMPLANT SCIENCES CORPORATION
hereunder.

 

(b)           The
term “Common Stock” includes (i) the Company’s Common Stock, par value
$0.10 per share; and (ii) any other securities into which or for which any
of the securities described in the preceding clause (i) may be converted
or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.

 

(c)           The
term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which
the holder of the Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of the Warrant, in lieu of or in addition to
Common Stock, or

 

 

which at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common
Stock or Other Securities pursuant to Section 4 or otherwise.

 

(i)            The
“Exercise Price” applicable under this Warrant shall be $3.75.

 

1.             Exercise
of Warrant.

 

1.1.          Number
of Shares Issuable upon Exercise. 
From and after the date hereof through and including the Expiration
Date, the Holder shall be entitled to receive, upon exercise of this Warrant in
whole or in part, by delivery of an original or fax copy of an exercise notice
in the form attached hereto as Exhibit A (the “Exercise Notice”), shares
of Common Stock of the Company, subject to adjustment pursuant to Section 4.

 

1.2.          Company
Acknowledgment.  The Company will, at
the time of the exercise of this Warrant, upon the request of the holder hereof
acknowledge in writing its continuing obligation to afford to such holder any
rights to which such holder shall continue to be entitled after such exercise
in accordance with the provisions of this Warrant.  If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.

 

1.3.          Trustee
for Warrant Holders.  In the event
that a bank or trust company shall have been appointed as trustee for the
holders of this Warrant pursuant to Subsection 3.2, such bank or trust
company shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1.

 

2.             Procedure
for Exercise.

 

2.1.          Delivery
of Stock Certificates, Etc., on Exercise. 
The Company agrees that the shares of Common Stock purchased upon
exercise of this Warrant shall be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares in
accordance herewith.  As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, pursuant to Section 1 or otherwise.

 

2.2.          Exercise.

 

(a)           Payment may be made in
cash or by certified or official bank check payable to the order of the Company
equal to the applicable aggregate Exercise Price, for

 

2

 

the number of Common
Shares specified in such Exercise Notice (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common
Stock issuable to the Holder per the terms of this Warrant) and the Holder
shall thereupon be entitled to receive the number of duly authorized, validly
issued, fully-paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.

 

3.             Effect
of Reorganization, Etc.; Adjustment of Exercise Price.

 

3.1.          Reorganization,
Consolidation, Merger, Etc.  In case
at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c) transfer
all or substantially all of its properties or assets to any other person under
any plan or arrangement contemplating the dissolution of the Company, then, in
each such case, as a condition to the consummation of such a transaction,
proper and adequate provision shall be made by the Company whereby the Holder,
on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon
such consummation or in connection with such dissolution, as the case may be,
if such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.

 

3.2.          Dissolution.  In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, concurrently with any distributions made to holders of its
Common Stock, shall at its expense deliver or cause to be delivered to the
Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder pursuant to Section 3.1, or, if the
Holder shall so instruct the Company, to a bank or trust company specified by
the Holder and having its principal office in New York, NY as trustee for the
Holder (the “Trustee”).

 

3.3.          Continuation
of Terms.  Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force
and effect and the terms hereof shall be applicable to the shares of stock and
other securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant as provided
in Section 4.  In the event this
Warrant does not continue in full force and effect after the consummation of
the transactions described in this Section 3, then the Company’s
securities and property (including cash, where applicable) receivable by the
Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

 

4.             Extraordinary
Events Regarding Common Stock.  In
the event that the Company shall (a) issue additional shares of the Common
Stock as a dividend or other distribution on

 

3

 

outstanding Common Stock
or any preferred stock issued by the Company (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock, then, in each
such event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Exercise Price then in effect.
The Exercise Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described herein in this Section 4.  The number of shares of Common Stock that the
Holder shall thereafter, on the exercise hereof as provided in Section 1,
be entitled to receive shall be adjusted to a number determined by multiplying
the number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction
of which (a) the numerator is the Exercise Price that would otherwise (but
for the provisions of this Section 4) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such exercise
(taking into account the provisions of this Section 4).

 

5.             Certificate
as to Adjustments.  In each case of
any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its
expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common Stock
(or Other Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or Other Securities) outstanding or deemed to
be outstanding, and (c) the Exercise Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. 
The Company will forthwith mail a copy of each such certificate to the
Holder and any Warrant agent of the Company (appointed pursuant to Section 11
hereof).

 

6.             Reservation
of Stock, Etc., Issuable on Exercise of Warrant.  The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of this
Warrant, shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of this Warrant.

 

7.             Assignment;
Exchange of Warrant.  Subject to
compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”)
in whole or in part.  On the surrender
for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B
attached hereto (the “Transferor Endorsement Form”) and together with evidence
reasonably satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall include, without limitation, the provision of a
legal opinion from the Transferor’s counsel (at the Company’s expense) that
such transfer is exempt from the registration requirements of applicable
securities laws, the Company at its expense (but with payment by the Transferor
of any applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a

 

4

 

new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a “Transferee”), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.

 

8.             Replacement
of Warrant.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of this Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.

 

9.             Registration
Rights.  The Holder has not been
granted registration rights by the Company in respect of this Warrant.

 

10.           Maximum
Exercise.  Notwithstanding anything
contained herein to the contrary, the Holder shall not be entitled to exercise
this Warrant in connection with that number of shares of Common Stock which
would exceed the difference between (i) 4.99% of the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common
Stock beneficially owned by the Holder. 
For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.  The limitation described in
the first sentence of this Section 10 shall automatically become null and
void following notice to the Company upon the occurrence and during the
continuance of an Event of Default under and as defined in the Note made by the
Company to the Holder dated the date hereof (as amended, modified or
supplemented from time to time, the “Note”), or upon 75 days prior notice to
the Company.

 

11.           Warrant
Agent.  The Company may, by written
notice to the each Holder of the Warrant, appoint an agent for the purpose of
issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.

 

12.           Transfer
on the Company’s Books.  Until this
Warrant is transferred on the books of the Company, the Company may treat the
registered Holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

 

13.           Notices,
Etc.  All notices and other
communications from the Company to the Holder shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by such Holder or, until any such Holder
furnishes to the Company an address, then to, and at the address of, the last
Holder who has so furnished an address to the Company.

 

14.           Miscellaneous.  This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which

 

5

 

enforcement
of such change, waiver, discharge or termination is sought.  THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.  ANY
ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT 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 HOLDER MAY CHOOSE
TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK.  The individuals executing this Warrant 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
attorneys’ fees and costs.  In the event
that any provision of this Warrant 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 this Warrant.  The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof.  The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof. 
The Company acknowledges that legal counsel participated in the
preparation of this Warrant 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 Warrant to favor any party
against the other party.

 

[BALANCE OF PAGE
INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

 

6

 

IN WITNESS WHEREOF, the
Company has executed this Warrant as of the date first written above.

 

 

	
   

  	
  IMPLANT SCIENCES CORPORATION

  
	
   

  	
   

  
	
  WITNESS:

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
					

 

7

 

Exhibit A

 

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise Of Warrant)

 

TO:         IMPLANT
SCIENCES CORPORATION

 

Attention:              Chief
Financial Officer

 

The undersigned, pursuant
to the provisions set forth in the attached Warrant (No.          ),
hereby irrevocably elects to purchase (check applicable box):

 

	
   

  	
   

  	
                
  shares of the Common Stock covered by such Warrant;

  

 

The undersigned herewith
makes payment of the full Exercise Price for such shares at the price per share
provided for in such Warrant, which is $                   .  Such payment takes the form of (check
applicable box or boxes):

 

	
   

  	
   

  	
  $                  in lawful money of the United States.

  

 

The undersigned requests
that the certificates for such shares be issued in the name of, and delivered
to                                                                      
whose address is                                                                                                                                           .

 

The undersigned
represents and warrants that all offers and sales by the undersigned of the
securities issuable upon exercise of the within Warrant shall be made pursuant
to registration of the Common Stock under the Securities Act of 1933, as
amended (the “Securities Act”) or pursuant to an exemption from registration
under the Securities Act.

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder
  as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

A-1

 

Exhibit B

 

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

 

For value received, the
undersigned hereby sells, assigns, and transfers unto the person(s) named below
under the heading “Transferees” the right represented by the within Warrant to
purchase the percentage and number of shares of Common Stock of IMPLANT
SCIENCES CORPORATION into which the within Warrant relates specified under the
headings “Percentage Transferred” and “Number Transferred,” respectively,
opposite the name(s) of such person(s) and appoints each such person Attorney
to transfer its respective right on the books of IMPLANT SCIENCES CORPORATION
with full power of substitution in the premises.

 

	
  Transferees

  	
   

  	
  Address

  	
   

  	
  Percentage

  Transferred

  	
   

  	
  Number

  Transferred

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder
  as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  SIGNED IN THE PRESENCE OF:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  
	
  [TRANSFEREE]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
   

  

 

B-1

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