Document:

Converted by EDGARwiz

Exhibit 10.1

OMNIBUS FIFTEENTH AMENDMENT TO CREDIT AGREEMENT AND

SEVENTEENTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT

This Omnibus Fifteenth Amendment to Credit Agreement and Seventeenth Amendment to Note and Warrant Purchase Agreement (“Amendment”) is dated as of July 20, 2016 and effective as of June 30, 2016, by and among Implant Sciences Corporation, a Massachusetts corporation (the “Company”), the Guarantors party to each Guaranty (as defined below), DMRJ Group LLC, a Delaware limited liability company (the “Investor”) and Montsant Partners LLC (the “Assignee”).

BACKGROUND

A.

The Company and Investor are parties to a certain Note and Warrant Purchase Agreement dated as of December 10, 2008 (as modified or amended from time to time, including, without limitation, as amended by (i) that certain First Amendment to Note and Warrant Purchase Agreement dated July 1, 2009, (ii) that certain Omnibus Waiver and First Amendment to Credit Agreement and Third Amendment to Note and Warrant Purchase Agreement dated as of January 12, 2010 (the “First Omnibus Amendment”), (iii) that certain Omnibus Second Amendment to Credit Agreement and Fourth Amendment to Note and Warrant Purchase Agreement dated as of April 23, 2010, (iv) that certain Omnibus Third Amendment to Credit Agreement and Fifth Amendment to Note and Warrant Purchase Agreement dated as of September 30, 2010, (v) that certain Omnibus Fourth Amendment to Credit Agreement and Sixth Amendment to Note and Warrant Purchase Agreement dated as of March 30, 2011, (vi) that certain Omnibus Fifth Amendment to Credit Agreement and Seventh Amendment to Note and Warrant Purchase Agreement dated as of April 7, 2011, (vii) that certain Omnibus Sixth Amendment to Credit Agreement and Eighth Amendment to Note and Warrant Purchase Agreement dated as of September 29, 2011, (viii) that certain Omnibus Seventh Amendment to Credit Agreement and Ninth Amendment to Note and Warrant Purchase Agreement dated as of October 13, 2011, (ix) that certain Omnibus Eighth Amendment to Credit Agreement and Tenth Amendment to Note and Warrant Purchase Agreement dated as of February 21, 2012, (x) that certain Omnibus Ninth Amendment to Credit Agreement and Eleventh Amendment to Note and Warrant Purchase Agreement dated as of September 5, 2012 (the “Ninth Omnibus Amendment”), (xi) that certain Omnibus Tenth Amendment to Credit Agreement and Twelfth Amendment to Note and Warrant Purchase Agreement dated as of February 28, 2013 (the “Tenth Omnibus Amendment”), (xii) that certain Omnibus Eleventh Amendment to Credit Agreement and Thirteenth Amendment to Note and Warrant Purchase Agreement dated as of November 14, 2013, (xiii) that certain Omnibus Twelfth Amendment to Credit Agreement and Fourteenth Amendment to Note and Warrant Purchase Agreement dated as of March 19, 2014, (xiv) that certain Omnibus Thirteenth Amendment to Credit Agreement and Fifteenth Amendment to Note and Warrant Purchase Agreement dated as of March 19, 2015, (collectively, the “Purchase Agreement”), pursuant to which, among other things, Investor purchased that certain Senior Secured Convertible Promissory Note dated December 10, 2008, as amended by that certain Amended and Restated Senior Secured Convertible Promissory Note dated as of March 12, 2009, and assigned to the Assignee pursuant to that certain Assignment Agreement 

dated as of May 4, 2015 (the “Assignment Agreement”), in the original aggregate principal amount of $5,600,000 (as amended, the “March 2009 Note”).

B.

Pursuant to the Purchase Agreement, Investor subsequently purchased that certain Senior Secured Promissory Note dated July 1, 2009 in the original aggregate principal amount of $1,000,000 (as modified or amended from time to time, the “July 2009 Note”).

C.

Pursuant to the Ninth Omnibus Amendment, among other things, the Company issued to the Investor a second Senior Secured Convertible Promissory Note (as modified or amended from time to time, the “September 2012 Note”).  Pursuant to the Tenth Omnibus Amendment, among other things, the Company issued to the Investor a third Senior Secured Convertible Promissory Note (as modified or amended from time to time, the “February 2013 Note”, and together with the September 2012 Note, the March 2009 Note and July 2009 Note, the “Term Notes” and each a “Term Note”).

D.

The Purchase Agreement and all instruments, documents and agreements executed in connection therewith, or related thereto, including, without limitation, the March 2009 Note, the July 2009 Note, the September 2012 Note and the February 2013 Note, are referred to herein collectively as the “Purchase Documents”.

E.

The Company and Investor are also parties to a certain Credit Agreement dated September 4, 2009 (as modified or amended from time to time, including, without limitation, the Omnibus Amendments referenced in Paragraph A above, the “Credit Agreement”), pursuant to which, among other things, the Company executed and delivered to Investor that certain Promissory Note dated September 4, 2009 in the original aggregate principal amount of $3,000,000 (as amended by that certain Amended and Restated Promissory Note dated January 12, 2010 in the original aggregate principal amount of $5,000,000 and that certain Amended and Restated Promissory Note dated as of April 23, 2010 but effective as of April 7, 2010, in the original aggregate principal amount of $10,000,000, that certain Amended and Restated Promissory Note dated as of March 30, 2011 in the original aggregate principal amount of $15,000,000, and that certain Amended and Restated Promissory Note dated as of September 29, 2011 in the original aggregate principal amount of $23,000,000 (as modified or amended from time to time, the “Revolver Note” and, together with the March 2009 Note, the July 2009 Note, the September 2012 Note and the February 2013 Note, each a “Note” and collectively, the “Notes”)).

F.

Reference is also made to that certain Intercreditor Agreement, dated as of March 19, 2014 by and between the First Lien Agent (as defined therein) for itself and on behalf of the First Lien Creditors (as defined therein) and the Second Lien Creditor (as defined therein) and acknowledged by the Borrowers (as defined therein) and the other Obligors (as defined therein) (as amended, modified, supplemented or restated from time to time, being herein called the “Intercreditor Agreement”), pursuant to which the respective priorities and other related intercreditor matters as between the First Lien Agent, the First Lien Creditors, the Second Lien Creditor and acknowledged by the Borrowers and the other Obligors were addressed.

G.

The Credit Agreement and all instruments, documents and agreements executed in connection therewith, or related thereto, including, without limitation, the Revolver Note, are 

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referred to herein collectively as the “Credit Documents” and, together with the Purchase Documents and the Intercreditor Agreement, each a “Transaction Document” and collectively, the “Transaction Documents”.

H.

Despite the best efforts of the Company and the Investor and Assignee, certain post-closing effectiveness conditions to the Omnibus Fourteenth Amendment to Credit Agreement and Sixteenth Amendment to Note and Warrant Purchase Agreement  by and among the Company, Lender, and Assignee dated as of April 6, 2016 (the “Fourteenth Amendment”) with respect to the delivery of an opinion of counsel and the payment of the Investor’s and Assignee’s fees and expenses were not satisfied, and the Fourteenth Amendment was, therefore, never deemed effective, resulting in the Company being in default of its obligations to the Lender and Assignee since March 31, 2016.

I.

Accordingly, all the terms and conditions under this Fourteenth Amendment were non-effective and have never been in force or effect and the “blocker” provisions in the Series J, H and I Convertible Preferred Stock remained in effect at all times and the Company will file amendments to such certificates of designations as set forth in Exhibits A, B and C attached.

J.

The Investor, Assignee and Company have also agreed to modify certain of the definitions, terms and conditions in the Transaction Documents.

K.

All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the applicable Transaction Document.

NOW, THEREFORE, with the foregoing Background incorporated by reference and made a part hereof and intending to be legally bound, the parties agree as follows:

1.

Amendments to the Transaction Documents.  Notwithstanding anything to the contrary contained in any of the Transaction Documents, upon the effectiveness of this Amendment, the Transaction Documents are hereby amended as follows:

(a)

Maturity Date.  The term “Maturity Date”, as used and/or defined in each of the March 2009 Note, July 2009 Note, September 2012 Note, February 2013 Note, and the Credit Agreement, is hereby amended and restated to refer to the following:  “October 31, 2016”.

(b)

Section 3.4 of the March 2009 Note.  For the avoidance of doubt, Section 3.4 of the March 2009 Note is corrected and it is confirmed that it has continued to read as follows:  “Ownership Cap and Certain Conversion Restrictions.  Notwithstanding anything to the contrary set forth in Section 3 of this Note, at no time may the Holder convert all or a portion of this Note if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by the Holder at such time, would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with 61 days’ prior written notice that the Holder would like to waive Section 3.4 of this Note with regard to any or all shares of Common Stock issuable upon conversion of this Note, this Section 3.4 shall be of no force or effect with regard to all or a portion of the Note referenced in the waiver notice.”

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(c)

Section 3.4 of the September 2012 Note.  Section 3.4 of the September 2012 Note is hereby deleted in its entirety and replaced with the following:  “Ownership Cap and Certain Conversion Restrictions.  Notwithstanding anything to the contrary set forth in Section 3 of this Note, at no time may the Holder convert all or a portion of this Note if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by the Holder at such time, would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon the Holder providing the Company with 61 days’ prior written notice that the Holder would like to waive Section 3.4 of this Note with regard to any or all shares of Common Stock issuable upon conversion of this Note, this Section 3.4 shall be of no force or effect with regard to all or a portion of the Note referenced in the waiver notice.”

(d)

Section 3 of the February 2013 Note.  Section 3 of the February 2013 Note is hereby deleted in its entirety.

(e)

Section 3.1 of the September 2012 Note.  Section 3.1 of the September 2012 Note is hereby amended to add the following additional sentence at the end of such 

Section:  “Notwithstanding anything to the contrary contained herein, the maximum aggregate obligations under this Note that may be converted into shares of the Company’s Series H Preferred Stock is limited to $7,000,000.”

2.

Representations and Warranties.  Company represents and warrants to Investor and Assignee that:

(a)

The Company and the Guarantors (as applicable) have the requisite corporate power and authority to enter into and perform this Amendment in accordance with the terms hereof.  The execution, delivery and performance of this Amendment by the Company and the Guarantors, the consummation by them of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, no further consent or authorization of the Company, the Guarantors, their Board of Directors, stockholders or any other third party is required.  When executed and delivered by the Company and the Guarantors, this Amendment shall constitute a valid and binding obligation of the Company and the Guarantors enforceable against the Company and the Guarantors in accordance with its terms.

(b)

This Amendment and all other documents, instruments and agreements executed in connection with this Amendment and any assignment, instrument, document, or agreement executed and delivered in connection herewith, will be valid, binding, and enforceable in accordance with its respective terms.

(c)

Upon each of the effectiveness of this Amendment and the filing of each CoD Amendment (as defined below), after the effective date hereof, no default or Event of Default is outstanding under any of the Transaction Documents.

3.

Effectiveness Conditions.  This Amendment shall be effective upon completion of the following conditions precedent (the “Amendment Date”):

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(a)

Execution and delivery by the Company and each Person who delivered a Guaranty (as defined below) to Investor in connection with the Transaction Documents (each a “Guarantor” and collectively, the “Guarantors”) to Investor and Assignee of this Amendment; 

(b)

Delivery by the Company to Investor and Assignee of an officer’s certificate, dated as of the date hereof, as to (i) the resolutions adopted by the Board of Directors (A) approving the transactions contemplated hereby and (B) approving and adopting the amendments to the certificates of designation of the Series H Convertible Preferred Stock of the Company (the “Series H Preferred Stock”), the Series I Convertible Preferred Stock of the Company and the Series J Convertible Preferred Stock of the Company, in the form attached hereto as Exhibits A, B and C, respectively (collectively, the “CoD Amendments”) and confirmation of the filing of the CoD Amendments with and acceptance by the Massachusetts Secretary of State, (ii) the Articles of Organization (including all certificates of designation thereunder specifying the terms of each series of the Company’s preferred stock), as in effect as of the date hereof, (iii) the Bylaws, as in effect as of the date hereof, and (iv) the authority and incumbency of the officers of the Company and the Guarantors executing this Amendment and any other documents required to be executed or delivered in connection therewith;

(c)

Execution and delivery by the Company to Investor of a Warrant to Purchase Shares of Common Stock in the form attached as Exhibit D hereto (the “Warrant”), pursuant to which Investor shall be entitled to purchase up to 50,657,894 shares of Common Stock (the “Warrant Shares”) in accordance with the terms thereof.

(d)

Execution and/or delivery by Company of all agreements, instruments and documents requested by Investor and/or Assignee to effectuate and implement the terms hereof and the Transaction Documents, in form and substance satisfactory to Investor, Assignee and their counsel;

(e)

The Company shall pay any and all costs, fees and expenses of Investor and Assignee (including without limitation, attorneys’ fees and disbursements) in connection with this Amendment and the transactions contemplated hereby;

(f)

The Company, Investor and Assignee shall have completed and obtained all internal approvals with respect to this Amendment, including but not limited to the approvals of the Investor’s and Assignee’s respective investment committees and of the Company’s board of directors.

4.

Additional Terms and Covenants.

(a)

The Investor and Assignee hereby acknowledge that the Company intends to acquire all of the stock or assets of Zapata Industries SAS, a privately held company organized in France (“Zapata”), for a purchase price of $15,000,000 in cash, shares of Common Stock for 60% of the equity of the Company on a fully-diluted basis and 50,000,000 warrants to purchase Common Stock at a price of $1.50 per share and a requirement to have at least $20,000,000 in cash and cash equivalents in the Company for working capital purposes (in addition to the $15,000,000 cash purchase price) at the time of the closing of the acquisition (such acquisition, the “Flyboard Acquisition”); provided, that as a condition to the consummation of the Flyboard 

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Acquisition and the related actions to be taken in connection therewith, it must first be approved by vote of the shareholders of the Company in accordance with all of the laws and ordinances of the State in which the Company is organized  (the “Stockholder Approval”); provided, further, that prior to the Stockholder Approval, Investor and Assignor will not waive the 4.99% Common Stock ownership blocker limitations referenced in Sections 1(b) and 1(c) of this Amendment and in the CoD Amendments or similar ownership limitations contained in any other Purchase Documents.

(b)

The Company has amended the terms of the Series H Convertible Preferred Stock, to among other matters, decrease the conversion price of the Series H Convertible Preferred Stock so that the September 2012 Note can be converted into shares of Series H Convertible Stock and then into shares of Common Stock at an ultimate conversion price of $0.19 per share of Common Stock.  To assist the Company in meeting the minimum cash requirements for the Flyboard Acquisition, and in consideration of such decrease in the conversion price, Investor hereby agrees that it shall convert $7,000,000 of the principal amount of the September 2012 Note into Series H Convertible Preferred Stock and subsequently shares of Common Stock prior to the consummation of the Flyboard Acquisition.  Investor further agrees not to convert, and waives any right to convert, (i) the September 2012 Note with respect for any obligations in excess of Seven Million U.S. Dollars ($7,000,000) in the aggregate or (ii) the February 2013 Note for all or any portion thereof.

(c)

In connection with the Flyboard Acquisition, subject to the Stockholder Approval and as a condition to the consummation of the Flyboard Acquisition, the Company shall (i) re-domesticate from the Commonwealth of Massachusetts to the State of Delaware and (ii) amend its Articles of Organization to increase its authorized share capital to 650,000,000 shares of Common Stock.  Subject to clause (d) below, the Company shall be responsible for payment of all legal fees incurred on its behalf in the Flyboard Acquisition.

(d)

Notwithstanding the foregoing provisions of this Section 4, in the event that (x) the Stockholder Approval is not obtained, (y) the Flyboard Acquisition is abandoned by either the Company or Zapata or (z) the Flyboard Acquisition is not otherwise consummated on or prior to January 31, 2017 (the earliest date of any the foregoing, the “Termination Date”), (i) the Warrant will automatically terminate, and (ii) the Company and the Investor agree that any Warrant Shares that are issued under the Warrant prior to the Termination Date will be sold by the Investor to the Company for the exercise price paid by the Investor therefor.

(e)

The Company hereby agrees that at all times prior to the Termination Date, it shall (i) maintain its status as a public company in good standing, and shall maintain its standing on a nationally recognized stock exchange or the OTC Markets, and (ii) continue to make and file timely each and every filing required under the Securities Exchange Act of 1934, as amended, or that may be required by any other governmental agency or stock exchange or other self-regulatory agency that regulates the Company.

5.

No Waiver.  Each of the Investor and Assignee, as applicable, reserves all of its rights and remedies arising with respect to any and all defaults or events of defaults under the Transaction Documents that may be in existence on the date hereof, regardless of whether such defaults or events of default have been identified, or which may occur in the future.  Each of the 

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Investor and the Assignee has not modified, is not waiving and has not agreed to forbear in the exercise of, any of its present or future rights and remedies.  No action taken or claimed to be taken by Investor or Assignee will constitute such a waiver, modification or agreement to forbear.  This Amendment does not obligate Investor or Assignee to agree to any other extension or modification of the Transaction Documents nor does it constitute a course of conduct or dealing on behalf of Investor or Assignee or a waiver of any other rights or remedies of Investor or Assignee except as and only to the extent expressly set forth herein.  No omission or delay by Investor or Assignee in exercising any right or power under the Transaction Documents, this Amendment or any related instruments, agreements or documents will impair such right or power or be construed to be a waiver of any default or Event of Default or an acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise thereof or the exercise of any other right, and no waiver will be valid unless in writing and then only to the extent specified.  Notwithstanding any of the foregoing in this Section 5, the Investor and the Assignee hereby waive any default or event of default arising from the failure of the conditions to the effectiveness of the Fourteenth Amendment being satisfied or the Fourteenth Amendment being deemed to be effective. 

6.

Ratification of Loan Documents.  Except as expressly set forth herein, all of the terms and conditions of the Purchase Agreement, the Credit Agreement and the other Transaction Documents are hereby ratified and confirmed and continue unchanged and in full force and effect.  All references to any of the Transaction Documents shall mean the applicable Transaction Document as modified by this Amendment and all references to the Note or Notes in any of the Transaction Documents shall mean, collectively, the Notes as modified herein.

7.

Confirmation of Indebtedness.  The Company confirms and acknowledges that as of the close of business on June 30, 2016, Company was indebted to Investor and Assignee without any deduction, defense, setoff, claim or counterclaim, of any nature, in the aggregate principal and interest in the amount of $65,742,503.98 of which $5,283,754.56 is due on account of the March 2009 Note, $2,149,665.82 is due on account of the July 2009 Note, $21,815,628.60 is due on account of Advances (as defined in the Credit Agreement), $18,970,000.00 is due on account of the September 2012 Note, and $17,523,455.00 is due on account of the February 2013 Note plus all fees, costs and expenses incurred to date in connection with the Purchase Agreement, the Credit Agreement and the other Transaction Documents.

8.

Collateral.  The Company and Guarantors hereby confirm and agree that all security interests and liens granted to Investor and Assignee pursuant to the Transaction Documents continue in full force and effect and shall continue to secure the Obligations (as defined in the Security Agreements (as defined in the Purchase Agreement and as defined in the Credit Agreement)), including all liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing, under the Notes and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Investor and/or Assignee as a preference, 

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fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.

9.

Acknowledgment of Guarantors.  By execution of this Amendment, each Guarantor hereby acknowledges the terms and conditions of this Amendment and confirms that the Guarantors jointly and severally and absolutely and unconditionally guarantee, as surety, all of the Secured Obligations (as defined in the Transaction Documents, including without limitation the Guaranty from Guarantors to Investor dated December 10, 2008 and in the Guaranty from Guarantors to Investor dated September 4, 2009 (each, a “Guaranty”)) including all liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing, under the Notes and covenants that each such Guaranty remains unchanged and in full force and effect and shall continue to cover the existing and future Obligations of Company to Investor and Assignee.

10.

Governing Law.  This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction.  This Amendment shall not be interpreted or construed with any presumption against the party causing this Amendment to be drafted.

11.

Signatories.  Each individual signatory hereto represents and warrants that he or she is duly authorized to execute this Amendment on behalf of his or her principal and that he or she executes the Amendment in such capacity and not as a party.

12.

Duplicate Originals.  Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument.  This Amendment may be executed in counterparts, all of which counterparts taken together shall constitute one completed fully executed document.  Signature by facsimile or PDF shall bind the parties hereto.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have executed this Amendment the day and year first above written.

		
	COMPANY: 

	IMPLANT SCIENCES CORPORATION

By:_/s/ William McGann____

     Name:  William McGann

     Title:  Chief Executive Officer

	 
	 

	GUARANTORS:

	C ACQUISITION CORP.

By:_/s/ William McGann____

     Name:  William McGann

     Title:  President

	 

	ACCUREL SYSTEMS INTERNATIONAL CORPORATION

By:_/s/ William McGann____

     Name:  William McGann

     Title:  President

	 

	IMX ACQUISITION CORP.

By:_/s/ William McGann____

     Name:  William McGann

     Title:  President

(Signature Page to Omnibus Fifteenth Amendment to Credit Agreement and

Seventeenth Amendment to Note and Warrant Purchase Agreement)

		
	INVESTOR:

	DMRJ GROUP LLC

By:_/s/ Mark Nordlicht______

     Name:  Mark Nordlicht

     Title:  Co-CIO

	 
	 

	ASSIGNEE:

	MONTSANT PARTNERS LLC

By:_/s/ David Steinberg______

     Name:  David Steinberg

     Title:  Authorized Signatory

(Signature Page to Omnibus Fifteenth Amendment to Credit Agreement and

Seventeenth Amendment to Note and Warrant Purchase Agreement)

EXHIBIT A

IMPLANT SCIENCES CORPORATION

AMENDMENT TO TERMS OF

SERIES H CONVERTIBLE PREFERRED STOCK

The terms of the Series H Convertible Preferred Stock (the “Series H Preferred Stock”) of Implant Sciences Corporation, a Massachusetts corporation (the “Corporation”), as originally set forth in Exhibit A of the Articles of Amendment of the Corporation adopted by the Corporation on September 4, 2012 are hereby corrected and amended to add back Section 5.5 that was deleted in the amendment to the Articles of Amendment of the Corporation on April 6, 2016 as Section 5.6 and in lieu and in replacement of the Section 5.6 that was added to the amendment to the Articles of Amendment of the Corporation on July 18, 2016:

 “5.6

Ownership Cap and Certain Conversion Restrictions.  Notwithstanding anything to the contrary set forth herein, at no time may any holder of Series H Preferred Stock convert all or a portion of such holder’s Series H Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by such Holder at such time, would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time.”

EXHIBIT B

IMPLANT SCIENCES CORPORATION

AMENDMENT TO TERMS OF

SERIES I CONVERTIBLE PREFERRED STOCK

The terms of the Series I Convertible Preferred Stock (the “Series I Preferred Stock”) of Implant Sciences Corporation, a Massachusetts corporation (the “Corporation”), as originally set forth in Exhibit A of the Articles of Amendment of the Corporation adopted by the Corporation on February 27, 2013 are hereby corrected and amended to add back Section 5.5 that was deleted in the amendment to the Articles of Amendment of the Corporation on April 6, 2016 as Section 5.6 and in lieu and in replacement of the Section 5.6 that was added to the amendment to the Articles of Amendment of the Corporation on July 18, 2016:

“5.6

Ownership Cap and Certain Conversion Restrictions.  Notwithstanding anything to the contrary set forth herein, at no time may any holder of Series I Preferred Stock convert all or a portion of such holder’s Series I Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by such Holder at such time, would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time.”

EXHIBIT C

IMPLANT SCIENCES CORPORATION

AMENDMENT TO TERMS OF

SERIES J CONVERTIBLE PREFERRED STOCK

The terms of the Series J Convertible Preferred Stock (the “Series J Preferred Stock”) of Implant Sciences Corporation, a Massachusetts corporation (the “Corporation”), as originally set forth in Exhibit B of the Articles of Amendment of the Corporation adopted by the Corporation on February 27, 2013 are hereby corrected and amended to add back Section 5.5 that was deleted in the amendment to the Articles of Amendment of the Corporation on April 6, 2016 as Section 5.6 and in lieu and replacement of the Section 5.6 that was added to the amendment to the Articles of Amendment of the Corporation on July 18, 2016:

“5.6

Ownership Cap and Certain Conversion Restrictions.  Notwithstanding anything to the contrary set forth herein, at no time may any holder of Series J Preferred Stock convert all or a portion of such holder’s Series J Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by such Holder at such time, would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon a Holder providing the Corporation with 61 days’ prior written notice that such Holder would like to waive this Section 5.5, with regard to any or all shares of Common Stock issuable upon conversion of such Holder’s shares of Series J Preferred Stock, this Section 5.5 shall be of no force or effect with regard to all or a portion of the shares of Series J Preferred Stock referenced in the waiver notice.”

EXHIBIT D

FORM OF WARRANT

See attachment.Converted by EDGARwiz

Exhibit 10.2

EXCEPT AS SET FORTH BELOW UNDER THE PARAGRAPH HEADINGS “REIMBURSEMENT AND PAYMENT”, “NO SHOP”, “CONDUCT OF BUSINESS; ACCESS”, “CONFIDENTIALITY”, “EXPENSES”, “PUBLICITY” AND “GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL; MISCELLANEOUS” (THE TERMS AND CONDITIONS OF WHICH ARE INTENDED TO BE AND SHALL BE LEGALLY BINDING ON THE PARTIES), THIS TERM SHEET IS A NON-BINDING EXPRESSION OF INTENT, DOES NOT CONSTITUTE A COMMITMENT BY EITHER PARTY AND DOES NOT CREATE ANY OBLIGATION OR DUTY BY EITHER PARTY TO MAKE, CONSIDER OR NEGOTIATE ANY TRANSACTION.  THESE PROPOSED TERMS AND CONDITIONS ARE PROVIDED FOR DISCUSSION PURPOSES ONLY AND DO NOT CONSTITUTE AN OFFER, AGREEMENT OR COMMITMENT BY EITHER PARTY TO ENTER INTO ANY PROPOSED TRANSACTION PURPORTED TO BE EVIDENCED HEREBY AND THE ENTERING INTO SUCH TRANSACTION IS SUBJECT TO THE COMPLETION OF SATISFACTORY DUE DILIGENCE BY THE PARTIES AS DETERMINED IN THEIR SOLE AND ABSOLUTE DISCRETION AND THE EXECUTION OF BINDING DEFINITIVE DOCUMENTATION.  NOTHING CONTAINED HEREIN SHALL IMPOSE UPON EITHER PARTY ANY DUTY TO NEGOTIATE, AND EITHER PARTY SHALL HAVE THE RIGHT TO TERMINATE DISCUSSIONS WITH THE OTHER WITH RESPECT TO THE PROPOSED TRANSACTION AT ANYTIME WITHOUT NOTICE OR ANY OBLIGATION OR LIABILITY TO SUCH PARTY. 

TERM SHEET 

		
	Acquirer:

	Implant Sciences Corporation (“IMSC”).

	Target:

	Zapata Industries SAS (“Zapata”).

	Transaction:

	Acquisition by IMSC of one hundred percent (100%) of Zapata’s outstanding equity, or all of Zapata’s business, on a cash free and debt free basis, excluding inventory (such acquisition, in whatever form as agreed by the parties, the “Acquisition”)1.  The Acquisition will be structured by the parties based on the due diligence findings as well as business, legal, tax, accounting and other considerations.

	Target Closing Date:

	September 30, 2016, promptly after the satisfaction of all conditions precedent.

1 The parties acknowledge that approval of the French government may be necessary as a condition of sale of “dual use” technology.  If and to the extent that such approval is required for this transaction and not obtained in advance of the Closing, the parties agree to restructure the Acquisition  in a manner that complies with law and consistent with the economics hereunder, including without limitation the Purchase Price section of this term sheet. If such restructure is not possible then Paragraph B of the Reimbursement and Payment section of this term sheet shall not apply (but Paragraph A of such section under all circumstances shall remain in full force and effect). 

	Purchase Price:

	IMSC shall pay the following consideration to Zapata for the Acquisition:

a.

A number of shares of common stock of IMSC equal to sixty percent (60%) of the total issued and outstanding common shares of IMSC on a fully-diluted basis (treating any preferred stock on an as-converted basis and any warrants on an as-exercised basis) (the “Stock Consideration”);

b.

$15,000,000 in cash (the “Cash Consideration”); and

c.

Warrants to purchase 50,000,000 common shares of IMSC for $1.50 per share, which warrants will contain customary provisions, and shall expire four (4) years following the closing of the Acquisition (the “Closing”).

	Conditions Precedent:

	The obligations of the parties to enter into the Acquisition is subject to customary conditions appropriate for a transaction of this size and complexity, including without limitation:

(i)

review and potential revision to IMSC’s bylaws as applicable from and after the Closing;

(ii)    completion by both parties and their representatives of all business, tax, accounting, legal and other due diligence review (in parallel with the negotiation of the definitive documents), with results satisfactory to each party in all respects; 

(iii)

the negotiation and execution of definitive documents for the Acquisition, including, without limitation, any required ancillary documents;

(iv)

no material adverse change in Zapata’s business, operations, prospects or financial condition;

(v)

the representations and warranties of all parties being true and correct at signing and Closing (subject to customary materiality standards); 

(vi)   inclusion of mechanism(s) to be negotiated by which Zapata and IMSC are indemnified for all liabilities arising prior to the closing, with sufficient protections for same; and

(vii)

such other such customary additional terms not inconsistent with this term sheet as agreed between the parties.

In addition to the above, the definitive documentation shall provide that prior to the Closing, IMSC shall have:

a.

Repaid all of its outstanding indebtedness, so that IMSC shall be debt free;

b.

Shall have $35,000,000 in cash on hand ($15,000,000 of which constitutes the Cash Consideration and $20,000,000 of which will be left as cash on hand for working capital after the Closing);

c.

Re-domesticated from Massachusetts to a Delaware domiciled company; 

d.

Proposed (to the extent any approvals are required) and/or caused the following board/management changes to occur effective as of the Closing:

a.

IMSC’s board of directors will have authorization to have up to 7 directors, with 4 directors (and in all events, the majority) appointed by Zapata at the Closing, and 3 directors appointed by IMSC (with Robert Liscouski being one of such 3 directors) and such 3 directors approved by Zapata.  All decisions are subject to a majority vote of all directors.  In any event, a majority of the IMSC board of directors will be independent directors under NASDAQ requirements;

b.

Robert Liscouski shall remain as a director and appointed the Chairman of IMSC’s board of directors.  As Chairman, Mr. Liscouski will also be an executive officer of IMSC and actively involved in its business; and

c.

Zapata shall have the right to designate the President and Chief Executive Officer, in each case subject to satisfactory D&O insurance and IMSC indemnification.

e.

Shall have completed any required SEC or other regulatory review and received any requisite shareholder, governmental and court approvals which may be necessary; and

f.

Adopted a new equity incentive plan effective as of the Closing; 

g.

Not be subject to any litigation, or threatened litigation, that could, in Zapata’s reasonable discretion, cause a material adverse effect on IMSC’s business after the Closing or the Acquisition or that otherwise seeks to prevent the Closing

h.

entered into a new employment agreement between IMSC and Franky Zapata, effective as of the Closing; and

i.

had good-faith negotiations for entry into an employment agreement between IMSC and Robert Liscouski, effective as of the Closing.

In addition to the above, the definitive documentation shall provide that prior to the Closing, Zapata shall:

a.

Possess good and defensible title to its patent portfolio;

b.

Except if and to the extent otherwise agreed, be free and clear of all liens and encumbrances with respect to its and its subsidiaries equity interests and assets;

c.

Have completed and provided to IMSC any requisite audits required by the SEC and stock exchange requirements applicable to IMSC; 

d.

Not be subject to any litigation, or threatened litigation that could, in IMSC’s reasonable discretion cause a material adverse effect on Zapata’s business or the Acquisition or that otherwise seeks to prevent the Closing;

e.

Complete any required regulatory review and obtain all required shareholder, governmental and third party consents; and

f.

Have its stockholders sign non-competition agreements with IMSC for a period of four (4) years after the Closing (in addition to any obligations under employment agreements).

	Post-Closing:

	
a.

At or following the closing, IMSC shall change its name to a name that Zapata pre-approves; 

b.

Following the closing, IMSC shall seek to up-list to NASDAQ Marketplace; and

c.

At or following the closing, IMSC shall have the right to purchase all or any portion of Zapata’s inventory as of the closing, at cost.

	Reimbursement and Payment:

No Shop:

	
A.

If the Acquisition does not occur for any reason (other than due  to breach by Zapata of this term sheet or definitive deal documentation), then IMSC shall immediately reimburse Zapata for any of its expenses which Zapata had incurred in preparation and/or contemplation of the Acquisition, but solely to the extent that such expenses were (i) for the joint benefit of Zapata and IMSC and/or for the benefit of IMSC (but excluding legal fees to Zapata’s counsel and/or other like expenses that were solely for the benefit of Zapata); and (ii) incurred with approval by IMSC.

B.

If IMSC is ready, willing and able to consummate the Acquisition on the business terms provided for herein then, if Zapata for any reason should choose not to consummate the Acquisition, Zapata shall then immediately pay a break-up fee to IMSC totaling Three Hundred Fifty Thousand Dollars ($350,000).  If for any reason IMSC is  not ready, willing and/or able to consummate the Acquisition on the business terms provided for herein, then IMSC shall then immediately pay a break-up fee to Zapata totaling Three Hundred Fifty Thousand Dollars ($350,000).  For avoidance of doubt, this provision is and shall be binding and effective irrespective of due diligence results and/or any other form of deal contingency.

In consideration of the considerable time, effort and expense to be undertaken by IMSC in connection with the proposed Acquisition, commencing on the date hereof and through October 15, 2016 (the “No Shop Period”), Zapata shall not (and shall cause its Representatives (as defined below) to not), directly or indirectly, solicit or initiate or enter into discussions, negotiations or transactions with, or encourage, or provide any information to, any individual, corporation, partnership, limited liability company or other entity or group (other than IMSC and its affiliates) concerning any transaction with respect to the direct or indirect sale, transfer, license or other disposition of Zapata or its or its subsidiaries equity interests, business or material assets (outside of the ordinary course of business), whether by purchase, merger, consolidation, recapitalization, exclusive license or otherwise, or any similar transaction that could reasonably be expected to prohibit or materially impair or delay the proposed Acquisition (a “Competing Transaction”), or enter into any agreement in principle, letter of intent or definitive agreement with respect thereto.  For purposes of this Term Sheet, a “Representative” shall mean, with respect to any person or entity, it affiliates and the respective officers, directors, managers, shareholders, members, employees, consultants, contractors, advisors, agents and other representatives of such person or entity and its affiliates.  Zapata shall immediately suspend any pre-existing discussion with all parties other than IMSC and its affiliates regarding any solicitation or offer for a Competing Transaction.  During the No Shop Period, Zapata shall promptly (but in any event within 2 business days) after receipt notify IMSC if it receives any solicitation or offer for a Competing Transaction.  Zapata represents that neither Zapata nor any of its affiliates or shareholders is party to or bound by any binding or non-binding agreement or understanding with respect to any Competing Transaction.  Notwithstanding anything stated to contrary herein, this paragraph “No Shop” shall be binding upon Zapata and enforceable by IMSC. 

	Conduct of Business; Access:

Confidentiality:

	During the No Shop Period, except with the prior written consent of IMSC, Zapata will and will cause its subsidiaries to:  (a) conduct its business in the ordinary course in a manner consistent with past practice (except as expressly otherwise contemplated herein); (b) maintain its properties and other assets in good working condition (normal wear and tear excepted); and (c) use its reasonable commercial efforts to maintain its business and employees, customers, assets and operations as an ongoing concern in accordance with past practice.  During the No Shop Period, Zapata will, upon reasonable advance notice and during normal business hours, afford IMSC and its Representatives with reasonable access to its and its subsidiaries assets, properties, facilities, books and records and personnel, and cooperate with IMSC and its Representatives regarding all due diligence matters, including without limitation document requests.  Notwithstanding anything stated to contrary herein, this paragraph “Conduct of Business; Access” shall be binding upon Zapata and enforceable by IMSC.

This term sheet and any and all other non-public information a party learns about the other party in connection with the Acquisition shall be kept strictly confidential and shall not be used for any purpose other than to evaluate, negotiate and consummate the Acquisition. No party shall disclose or permit its representatives to disclose any such information except: (a) if required by law, regulation or legal or regulatory process, or (b) to its representatives, to the extent necessary to permit such representatives to assist the party in evaluating, negotiating and consummating the Acquisition.

	Expenses:

	Each Zapata and IMSC shall pay for its legal fees, diligence costs and expenses, and actual out-of-pocket disbursement charges incurred in connection with entering into this Term Sheet and evaluating, negotiating and implanting the definitive documentation and the proposed Acquisition (except as otherwise set forth in the definitive documentation), whether or not the parties enter into definitive documents for the Acquisition or the Acquisition is consummated. Notwithstanding anything stated to the contrary herein, the provisions of this paragraph “Expenses” shall be binding on IMSC and Zapata and enforceable by each party.

	Publicity:

	Except as required by applicable law, rule or regulation (including without limitation U.S. Securities and Exchange Commission and applicable stock exchange requirements) or any governmental, judicial, regulatory or supervisory authority having jurisdiction over such party or its Representatives (any of the foregoing, “Applicable Law”), neither party nor its Representatives will make any public announcements relating to the proposed Acquisition without the prior written consent of the other party (such consent not to be unreasonably withheld, delayed or conditioned).  In the event a public announcement relating to the proposed Acquisition is required by Applicable Law (including without limitation any filing of a Form 8-K by IMSC announcing its entrance into this Term Sheet), the disclosing party will consult with the other party with respect to such disclosure reasonably in advance of making such disclosure, and will consider in good faith and accept all reasonable comments on such disclosure made by the other party.  Notwithstanding anything stated to the contrary herein, the provisions of this paragraph “Publicity” shall be binding on IMSC and Zapata and enforceable by each party.

	Governing Law; Jurisdiction; Waiver of Jury Trial; Miscellaneous:

	This Term Sheet and the definitive agreements shall be governed by and construed under and in accordance with the laws of the State of New York and the federal laws of the United States of America, without giving effect to any choice of law or conflict of law provision or rule.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the New York County, State of New York (and appellate courts thereof) for the adjudication of any dispute under or in connection with or arising out of this Term Sheet or any transaction contemplated hereby (and the definitive agreements will provide for the same), and hereby agrees not to commence any such action or proceeding except in such courts and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.    EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE UNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS TERM SHEET OR ANY TRANSACTION CONTEMPLATED HEREBY.  This Term Sheet may be amended, modified or supplemented, or any provision hereof waived, only by written agreement of the parties.  Notwithstanding anything stated to the contrary herein, the provisions of this paragraph “Governing Law; Jurisdiction; Waiver of Jury Trial; Miscellaneous” shall be binding on IMSC and Zapata and enforceable by each party.

	 
	 

This Term Sheet does not contain all of the terms and conditions of any arrangement proposed between the parties hereto, which shall be set forth in detail in definitive documentation.  As a result, this Term Sheet is not, and shall not be deemed to constitute and is not intended to constitute, a commitment or an offer by any party to consummate the transactions contemplated hereby, all of which shall be subject to satisfactory due diligence, all requisite approvals, definitive documentation and the satisfaction or waiver of all conditions set forth therein.

(SIGNATURE PAGE FOLLOWS)

7

Private and Confidential

IN WITNESS WHEREOF, the undersigned parties have caused this Term Sheet to be duly executed and delivered as of the last date set forth below.

IMPLANT SCIENCES CORPORATION

By:_/s/ William McGann

Name:  William McGann

Title:  Chief Executive Officer

Date:  July 18, 2016

ZAPATA INDUSTRIES SAS

By:_/s/ Franky Zapata

Name:

Franky Zapata

Title:

President

Date:          7/18/16

[Signature Page to Term Sheet]

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