Contract
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR
ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS
NOTE 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.
FOR
VALUE
RECEIVED, IMPLANT SCIENCES CORPORATION, a Massachusetts corporation (the
“Company”),
promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services
Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street, Xxxxxx Town, Grand
Cayman, Cayman Islands, Fax: 000-000-0000 (the “Holder”)
or its
registered assigns or successors in interest, the sum of One Million Five
Hundred Thousand Dollars ($1,500,000), together with any accrued and unpaid
interest hereon, on August 29, 2007 (the “Maturity
Date”)
if not
sooner paid.
Capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in that certain Securities Purchase Agreement dated as of the date hereof
by and between the Company and the Holder (as amended, modified and/or
supplemented from time to time, the “Purchase
Agreement”).
The
following terms shall apply to this Secured Term Note (this “Note”):
ARTICLE
I
CONTRACT
RATE AND AMORTIZATION
1.1 Contract
Rate.
Subject
to Sections 4.2 and 5.10, interest payable on the outstanding principal amount
of this Note (the “Principal
Amount”)
shall
accrue at a rate per annum equal to the “prime rate” published in The
Wall Street Journal
from
time to time (the “Prime
Rate”),
plus
one percent (1.0%) (the “Contract
Rate”).
The
Contract Rate shall be increased or decreased as the case may be for each
increase or decrease in the Prime Rate in an amount equal to such increase
or
decrease in the Prime Rate; each change to be effective as of the day of the
change in the Prime Rate. Interest shall be (i) calculated on the basis of
a 360
day year, and (ii) payable monthly in cash, in arrears, commencing on February
1, 2007, on the first business day of each consecutive calendar month thereafter
through and including the Maturity Date, and on the Maturity Date, whether
by
acceleration or otherwise.
1.2 Principal
Payments.
All
outstanding principal amounts together with any accrued and unpaid interest
and
any and all other unpaid amounts which are then owing by the Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement shall be due and payable on the Maturity Date.
ARTICLE
II
NOTE
ISSUANCE
2.1 Issuance
of New Note.
Upon
any loss or destruction of this Note, a new Note containing the same date and
provisions of this Note shall, at the request of the Holder, be issued by the
Company to the Holder for the principal balance of this Note and interest which
shall not have been paid. The Company shall not pay any costs, fees or any
other
consideration to the Holder for the production and issuance of a new
Note.
ARTICLE
III
EVENTS
OF DEFAULT
3.1 Events
of Default.
The
occurrence of any of the following events set forth in this Section 3.1 shall
constitute an event of default (“Event
of Default”)
hereunder:
(a) Failure
to Pay.
The
Company fails to pay when due any installment of principal, interest or other
fees hereon in accordance herewith, or the Company fails to pay any of the
other
Obligations (under and as defined in the Master Security Agreement) when due,
and, in any such case, such failure shall continue for a period of three (3)
days following the date upon which any such payment was due.
(b) Breach
of Covenant.
The
Company or any of its Subsidiaries breaches any covenant contained in the
Purchase Agreement in any material respect and such breach, if subject to cure,
continues for a period of fifteen (15) days after the occurrence
thereof.
(c) Breach
of Representations and Warranties.
Any
representation, warranty or statement made or furnished by the Company under
the
Purchase Agreement or any other Related Agreement shall at any time be false
or
misleading in any material respect on the date as of which made or deemed
made.
(d) Default
Under Other Agreements.
The
occurrence of any default (or similar term) in the observance or performance
of
any other agreement or condition relating to any now existing or future
indebtedness, preferred equity, or contingent obligation of the Company or
any
of its Subsidiaries to Holder or otherwise beyond the relevant stated period
of
grace (if any), the effect of which default is to cause, or permit the holder
or
holders of such indebtedness or beneficiary or beneficiaries of such contingent
obligation to cause, such indebtedness to become due prior to its stated
maturity or such contingent obligation to become payable;
(e) Bankruptcy.
The
Company or any of its Subsidiaries shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of
its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file
a
petition seeking to take advantage of any other law providing for the relief
of
debtors, (vi) acquiesce to, without challenge within ten (10) days of the filing
thereof, or failure to have dismissed, within thirty (30) days, any petition
filed against it in any involuntary case under such bankruptcy laws, or (vii)
take any action for the purpose of effecting any of the foregoing;
(f) Judgments.
Attachments or levies in excess of $100,000 in the aggregate are made upon
the
Company or any of its Subsidiary’s assets or a judgment is rendered against the
Company’s property involving a liability of more than $100,000 which shall not
have been vacated, discharged, stayed or bonded within thirty (30) days from
the
entry thereof;
(g) Insolvency.
The
Company or any of its Subsidiaries shall admit in writing its inability, or
be
generally unable, to pay its debts as they become due or cease operations of
its
present business;
(h) Change
of Control.
A
Change of Control (as defined below) shall occur with respect to the Company,
unless Holder shall have expressly consented to such Change of Control in
writing. A “Change of Control” shall mean any event or circumstance as a result
of which (i) any “Person” or “group” (as such terms are defined in Sections
13(d) and 14(d) of the Exchange Act, as in effect on the date hereof), other
than the Holder, is or becomes the “beneficial owner” (as defined in Rules
13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of 35%
or
more on a fully diluted basis of the then outstanding voting equity interest
of
the Company, (ii) the Board of Directors of the Company shall cease to consist
of a majority of the Parent’s board of directors on the date hereof (or
directors appointed by a majority of the board of directors in effect
immediately prior to such appointment) or (iii) the Company or any of its
Subsidiaries merges or consolidates with, or sells all or substantially all
of
its assets to, any other person or entity;
(i) Indictment;
Proceedings.
The
indictment or threatened indictment of the Company or any of its Subsidiaries
or
any executive officer of the Company or any of its Subsidiaries under any
criminal statute, or commencement or threatened commencement of criminal
proceeding against the Company or any of its Subsidiaries or any executive
officer of the Company or any of its Subsidiaries pursuant to which statute
or
proceeding penalties or remedies sought or available include forfeiture of
any
of the property of the Company or any of its Subsidiaries;
(j) The
Purchase Agreement and Related Agreements.
(i) An
Event of Default shall occur under and as defined in the Purchase Agreement
or
any other Related Agreement, (ii) the Company or any of its Subsidiaries shall
breach any term or provision of the Purchase Agreement or any other Related
Agreement in any material respect and such breach, if capable of cure, continues
unremedied for a period of fifteen (15) days after the occurrence thereof,
(iii)
the Company or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under, the Purchase Agreement or any Related
Agreement, (iv) any proceeding shall be brought to challenge the validity,
binding effect of the Purchase Agreement or any Related Agreement or (v) the
Purchase Agreement or any Related Agreement ceases to be a valid, binding and
enforceable obligation of the Company or any of its Subsidiaries (to the extent
such persons or entities are a party thereto);
(k) Stop
Trade.
An SEC
stop trade order or Principal Market trading suspension of the Common Stock
shall be in effect for five (5) consecutive days or five (5) days during a
period of ten (10) consecutive days, excluding in all cases a suspension of
all
trading on a Principal Market, provided that the Company shall not have been
able to cure such trading suspension within thirty (30) days of the notice
thereof or list the Common Stock on another Principal Market within sixty (60)
days of such notice; or
(l) Failure
to Deliver Replacement Note.
The
Company’s failure to deliver to issue and deliver a replacement Note as required
by Section 2.2 hereof to the Holder within seven (7) business days of Xxxxxx’s
written request therefor.
3.2 Default
Interest.
Following the occurrence and during the continuance of an Event of Default,
the
Company shall pay additional interest on this Note in an amount equal to seventy
five basis points (0.75%) per month, and all outstanding obligations under
this
Note, the Purchase Agreement and each other Related Agreement, including unpaid
interest, shall continue to accrue interest at such additional interest rate
from the date of such Event of Default until the date such Event of Default
is
cured or waived.
.
ARTICLE
IV
MISCELLANEOUS
4.1 Cumulative
Remedies.
The
remedies under this Note shall be cumulative.
4.2 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
4.3 Notices.
Any
notice herein required or permitted to be given shall be in writing and shall
be
deemed effectively given: (a) upon personal delivery to the party notified,
(b)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient, if not, then on the next business day, (c) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification
of
receipt. All communications shall be sent to the Company at the address provided
in the Purchase Agreement executed in connection herewith, and to the Holder
at
the address provided in the Purchase Agreement for such Holder, with a copy
to
Xxxx X. Xxxxxx, Esq., 000 Xxxxx Xxxxxx, 00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (000) 000-0000, or at such other
address as the Company or the Holder may designate by ten days advance written
notice to the other parties hereto.
4.4 Amendment
Provision.
The
term “Note” and all references thereto, as used throughout this instrument,
shall mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented, and any successor instrument
as such successor instrument may be amended or supplemented.
4.5 Assignability.
This
Note shall be binding upon the Company and its successors and assigns, and
shall
inure to the benefit of the Holder and its successors and assigns, and may
be
assigned by the Holder in accordance with the requirements of the Purchase
Agreement. The Company may not assign any of its obligations under this Note
without the prior written consent of the Holder, any such purported assignment
without such consent being null and void.
4.6 Cost
of Collection.
In case
of any Event of Default under this Note, the Company shall pay the Holder
reasonable costs of collection, including reasonable attorneys’
fees.
4.7 Governing
Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS
NOTE
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
(b) THE
COMPANY 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 THE COMPANY, ON THE ONE HAND,
AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR ANY OF THE OTHER
RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE
OR
ANY OF THE RELATED AGREEMENTS; PROVIDED,
THAT
THE COMPANY 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 NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER 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 THE
HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS.
THE
COMPANY 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 THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT
AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) THE
COMPANY 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, THE COMPANY 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 THE HOLDER AND THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
4.8 Severability.
In the
event that any provision of this Note 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 Note.
4.9 Maximum
Payments.
Nothing
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum rate permitted by such law, any payments in excess
of such maximum rate shall be credited against amounts owed by the Company
to
the Holder and thus refunded to the Company.
4.10 Security
Interest.
The
Holder has been granted a security interest in certain assets of the Company
as
more fully described in the Master Security Agreement dated as of the date
hereof. The obligations of the Company under this Note are guaranteed by certain
Subsidiaries of the Company pursuant to the Subsidiary Guaranty dated as of
the
date hereof.
4.11 Construction.
Each
party acknowledges that its legal counsel participated in the preparation of
this Note 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 Note to favor any party against the
other.
[Balance
of page intentionally left blank; signature page follows]
IN
WITNESS WHEREOF,
the
Company has caused this Secured Term Note to be signed in its name effective
as
of this ___ day of December, 2006.
IMPLANT
SCIENCES CORPORATION
By:
/s/
Xxxxx X. Xxxx
Name:
Xxxxx X. Xxxx
Title:
VP
and CFO
WITNESS:
/s/ Xxxxxxx X. Xxxxxx
