THE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
“SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR
IMPLANT SCIENCES CORPORATION SHALL HAVE RECEIVED AN OPINION OF
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.
AMENDED AND RESTATED SENIOR
SECURED CONVERTIBLE PROMISSORY NOTE
Dated: March 12, 2009
$5,600,000
For value received, IMPLANT SCIENCES
CORPORATION, a corporation organized under the laws of the
Commonwealth of Massachusetts (the “ Maker ” or
the “ Company ”), hereby promises to pay to the
order of DMRJ GROUP, LLC, a Delaware limited liability company,
with an address at 152 West 57 th Street, 4 th Floor, New York, NY 10019 (together with its
successors, representatives, and assigns, the “ Holder
”), in accordance with the terms hereinafter provided, the
principal amount of Five Million Six Hundred Thousand Dollars
($5,600,000) hereunder, together with interest and all other
obligations outstanding hereunder.
All payments under or pursuant to this Senior
Secured Convertible Promissory Note (this “ Note
”) shall be made in United States Dollars in immediately
available funds to the Holder at the address of the Holder first
set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of
funds to the Holder’s account, instructions for which are
attached hereto as Exhibit A . The outstanding
principal balance of this Note shall be due and payable on December
10, 2009 (the “ Maturity Date ”) or at such
earlier time as provided herein. This note amends and
restates, but does not extinguish, impair, novate or discharge the
obligations evidenced by, that certain Senior Secured Convertible
Promissory Note dated December 10, 2008 (the “ Closing
Date ”) in the original principal amount of Five Million
Six Hundred Thousand Dollars ($5,600,000) executed by the Company
in favor of the Holder.
ARTICLE I
Section 1.1 Purchase
Agreement . This Note has been executed and
delivered pursuant to the Note and Warrant Purchase Agreement,
dated as of the Closing Date (the “Purchase
Agreement”), by and between the Maker and the Holder (as an
Investor). Capitalized terms used and not otherwise
defined herein shall have the meanings set forth for such terms in
the Purchase Agreement.
Section 1.2 Interest.
Interest on the original principal amount of this Note
in the amount of $616,000 calculated at the rate of eleven percent
(11%) per annum for the period commencing on the Closing Date
through the scheduled Maturity Date on an unconditional,
non-refundable, original issue discount basis shall be paid in full
on the Closing Date. Furthermore,
upon the
occurrence of an Event of Default (as defined below) described in
Sections 2.1(a), (h) or (i), the Maker will pay interest to the
Holder, payable on demand, additional default rate interest at a
rate equal to the lesser of two and one half percent (2.5%) per
month (prorated for partial months) and the maximum applicable
legal rate per annum, computed on the basis of a 360-day year of
twelve (12) thirty-day months on the outstanding principal balance
of the Note and on all unpaid interest from the date of the Event
of Default.
Section 1.3 Payment of
Principal; Prepayment . The principal amount shall
be paid as follows: (a) the principal amount of One Million Dollars
($1,000,000) shall due and payable on December 24, 2008, (b) upon
the release to Maker of any funds (the amount of such funds, the
“ Escrow Release Funds ”) held in escrow in
connection with the sale of Accurel Systems International Corp. to
Evans Analytical Group, LLC, the lesser of (i) the
principal amount of One Million Dollars ($1,000,000) or (ii) the
principal amount of the Escrow Release Funds shall be immediately
due and payable; and (c) the remaining principal balance plus all
outstanding interest and all other amounts due and owing hereunder
shall be paid in full on the Maturity
Date. Notwithstanding the foregoing, the principal
balance hereunder and all other amounts may be payable in full at
such earlier time upon acceleration of this Note in accordance with
the terms hereof. Any amount of principal repaid
hereunder may not be reborrowed. The Maker may prepay
all or any portion of the principal amount of this Note in an
amount equal to the sum of (i) 100% of the amount of the principal
prepayment, and (ii) all outstanding interest and all other amounts
due and owing hereunder, upon not less than three (3) Business Days
prior written notice to the Holder, without other penalty or
premium. This Note is further subject to mandatory
prepayment at the option of the Holder as set forth in Article 4
hereof.
Section 1.4 Security
Documents . The obligations of the Maker hereunder
are secured by a continuing security interest in substantially all
of the assets of the Maker pursuant to the terms of a Security
Agreement dated as of the Closing Date by and between the Maker and
the Holder and other collateral documents.
Section 1.5 Payment on
Non-Business Days . Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the
laws of the State of New York, such payment shall be due on the
next succeeding Business Day and such next succeeding day shall be
included in the calculation of the amount of accrued interest
payable on such date.
Section 1.6 Transfer.
This Note may be transferred or sold, and may also be
pledged, hypothecated or otherwise granted as security, by the
Holder; provided, however, that any transfer or sale of this Note
must be in compliance with any applicable securities
laws.
Section 1.7
Replacement. Upon receipt of a duly executed,
notarized and unsecured written statement from the Holder with
respect to the loss, theft or destruction of this Note (or any
replacement hereof) and a standard indemnity, or, in the case of a
mutilation of this Note, upon surrender and cancellation of such
Note, the Maker shall issue a new Note, of like tenor and amount,
in lieu of such lost, stolen, destroyed or mutilated
Note.
Section 1.8 Use of
Proceeds . The Maker shall use the proceeds of this
Note as set forth in the Purchase Agreement.
ARTICLE II
EVENTS OF DEFAULT;
REMEDIES
Section 2.1 Events of
Default . The occurrence of any of the following
events shall be an “ Event of Default ” under
this Note:
(a) any failure to
make any payment of the principal amount, interest or any other
monetary obligation under this Note, as and when the same shall be
due and payable (whether on the Maturity Date or by acceleration or
otherwise); or
(b) the Maker shall
fail to observe or perform any other condition, covenant or
agreement contained in this Note and such failure continues for a
period of ten (10) days after the earlier of (i) the date on which
such failure first becomes known to any officer of the Maker or
(ii) notice thereof is given to the Maker by Holder; or
(c) the suspension
from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, the Nasdaq Capital Markets, the Nasdaq Global
Market, the Nasdaq Global Select Market, The New York Stock
Exchange, Inc. or the NYSE Alternext Exchange for a period of five
(5) consecutive Trading Days, such a suspension to only constitute
an Event of Default if the Holder provides the Maker written
notification that it deems such suspension to be an Event of
Default; or
(d) the Maker shall
default in the performance or observance of any undertaking,
covenant, condition or agreement contained in Sections 3.5, 3.6,
3.12, 3.13, 3.15, 3.16, 3.19, 3.20, 3.22, 3.24, 3.30, and 3.31 of
the Purchase Agreement; or
(e) the Maker shall
default in the performance or observance of any undertaking,
covenant, condition or agreement contained in the Purchase
Agreement (other than Sections 3.5, 3.6, 3.12, 3.13, 3.15, 3.16,
3.19, 3.20, 3.22, 3.24, 3.30, and 3.31 of the Purchase Agreement)
or any other Transaction Document and such failure continues for a
period of ten (10) days after the earlier of (i) the date on which
such failure first becomes known to any officer of the Maker or
(ii) notice thereof is given to the Maker by
Holder; or
(f) any representation
or warranty made by the Maker herein or in the Purchase Agreement
or any other Transaction Document shall prove to have been false or
incorrect or breached in a material respect on the date as of which
made; or
(g) (A) a
default in any payment of any amount or amounts of principal of or
interest on any Indebtedness of the Maker (other than the
Indebtedness hereunder), the aggregate principal amount of which
Indebtedness is in excess of $50,000 or (B) a default
in the observance or performance of any other agreement or
condition relating to any Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto,
or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to
permit, after any applicable grace period, the holder or holders or
beneficiary or
beneficiaries
of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated
maturity; or
(h) the Maker shall
(i) apply for or consent to 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 or assets,
(ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United States Bankruptcy
Code (as now or hereafter in effect) or under the comparable laws
of any jurisdiction (foreign or domestic), (iv) file a petition
seeking to take advantage of any bankruptcy, insolvency,
moratorium, reorganization or other similar law affecting the
enforcement of creditors’ rights generally, (v) acquiesce in
writing to any petition filed against it in an involuntary case
under United States Bankruptcy Code (as now or hereafter in effect)
or under the comparable laws of any jurisdiction (foreign or
domestic), (vi) issue a notice of bankruptcy or winding down of its
operations or issue a press release regarding same, or (vii) take
any action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing; or
(i) a proceeding or
case shall be commenced in respect of the Maker, without its
application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its
debts, (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of Maker or of all or any substantial part
of Maker’s assets or (iii) similar relief in respect of it
under any law providing for the relief of debtors, and such
proceeding or case described in clause (i), (ii) or (iii) shall
continue undismissed, or unstayed and in effect, for a period of
thirty (30) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic) against the Maker or action
under the laws of any jurisdiction (foreign or domestic) analogous
to any of the foregoing shall be taken with respect to the Maker
and shall continue undismissed, or unstayed and in effect for a
period of sixty (60) days; or
(j) a judgment or
judgments in the aggregate amount exceeding $50,000 is/are entered
against the Maker and not dismissed or discharged within twenty
(20) days following the entry thereof; or
(k) the Maker shall
cease to actively conduct its business operations for a period of
five (5) consecutive Business Days other than in connection with
temporary shutdown during the last two weeks of December 2008;
or
(l) any material
portion of the properties or assets of the Maker is seized by any
governmental authority; or
(m) the Maker is
indicted for the commission of any criminal activity.
Section 2.2 Remedies Upon
An Event of Default . If an Event of Default shall
have occurred and shall be continuing, the Holder may at any time
at its option (a) declare the entire unpaid principal balance of
this Note, together with all interest accrued hereon, plus fees and
expenses, due and payable, and thereupon, the same shall be
accelerated and so due and
payable,
without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the
Maker; provided, however, that upon the occurrence of an Event of
Default described in Sections 2.1 (h) or (i) above, the outstanding
principal balance and accrued interest hereunder, plus fees and
expenses, shall be immediately and automatically due and payable,
and/or (b) exercise or otherwise enforce any one or more of the
Holder’s rights, powers, privileges, remedies and interests
under this Note, the Purchase Agreement, the Security Agreement or
other Transaction Document or applicable law. No course
of delay on the part of the Holder shall operate as a waiver
thereof or otherwise prejudice the right of the
Holder. No remedy conferred hereby shall be exclusive of
any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise. Upon and
after an Event of Default of the type described in Sections
2.1(a), (h) or (i), this Note shall bear interest at the default
rate set forth in Section 1.2 hereof.
ARTICLE III
CONVERSION;
ANTIDILUTION
Section 3.1 Conversion
Option . At any time and from time to time on or
after the Issuance Date (as defined below), this Note shall be
convertible (in whole or in part), at the option of the Holder (the
“ Conversion Option ”), into such number of
fully paid and non-assessable shares of Common Stock (the “
Conversion Rate ”) as is determined by dividing (x)
that portion of the outstanding principal balance plus any accrued
but unpaid interest under this Note as of such date that the Holder
elects to convert by (y) the Conversion Price (as defined in
Section 3.2 hereof) then in effect on the date on which the Holder
delivers a notice of conversion (the “ Conversion
Notice ”), duly executed, to the Company (the “
Conversion Date ”), provided, however, that the
Conversion Price shall be subject to adjustment as described in
Section 3.6 below. The Holder shall deliver this Note to
the Company at the address designated in the Purchase Agreement at
such time that this Note is fully converted. With
respect to partial conversions of this Note, the Company shall keep
written records of the amount of this Note converted as of each
Conversion Date.
Section 3.2 Conversion
Price . The term “Conversion Price”
shall mean eighteen cents ($0.18), subject to adjustment under
Section 3.6 hereof (the “ Set Price
”).
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Mechanics of Conversion .
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(a) Not later than
three (3) Trading Days after any Conversion Date, the Company or
its designated transfer agent, as applicable, shall issue and
deliver to the Depository Trust Company (“ DTC
”) account on the Holder’s behalf via the Deposit
Withdrawal Agent Commission System (“ DWAC ”) as
specified in the Conversion Notice, registered in the name of the
Holder or its affiliates, for the number of shares of Common Stock
to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any
Conversion Date, the Company or its designated transfer agent, as
applicable, shall deliver to the applicable Holder by express
courier a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those
required by Section 5.1 of the Purchase Agreement)
representing
the number of shares of Common Stock being acquired upon the
conversion of this Note (the “ Delivery Date
”). Notwithstanding the foregoing to the contrary,
the Company or its transfer agent shall only be obligated to issue
and deliver the shares to the DTC on the Holder’s behalf via
DWAC (or certificates free of restrictive legends) if such
conversion is in connection with a sale and the Holder has complied
with the applicable prospectus delivery requirements (as evidenced
by documentation furnished to and reasonably satisfactory to the
Company) or such shares may be sold pursuant to Rule 144 or other
exemption under the Securities Act. If in the case of
any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the
Delivery Date, the Holder shall be entitled by written notice to
the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion,
in which event the Company shall immediately return this Note
tendered for conversion, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to
the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the
date notice of rescission is given to the Company.
(b) The Company
understands that a delay in the delivery of the shares of Common
Stock upon conversion of this Note beyond the Delivery Date could
result in economic loss to the Holder. If the Company
fails to deliver to the Holder such shares via DWAC (or, if
applicable, certificates) by the Delivery Date, the Company shall
pay to such Holder, in cash, an amount per Trading Day for each
Trading Day until such shares are delivered via DWAC or
certificates are delivered (if applicable), together with interest
on such amount at a rate of 10% per annum, accruing until such
amount and any accrued interest thereon is paid in full, equal to
the greater of (A) 2% of the aggregate principal amount of the
Notes requested to be converted for each Trading Day and (B) $2,000
per day (which amount shall be paid as liquidated damages and not
as a penalty). Nothing herein shall limit a
Holder’s right to pursue actual damages for the
Company’s failure to deliver certificates representing shares
of Common Stock upon conversion within the period specified herein
and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation,
a decree of specific performance and/or injunctive
relief). Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a
Conversion Notice, and upon such withdrawal the Company shall only
be obligated to pay the liquidated damages accrued in accordance
with this Section 3.3(b) through the date the Conversion Notice is
withdrawn.
(c) In addition to any
other rights available to the Holder, if the Company fails to cause
its transfer agent to transmit via DWAC or transmit to the Holder a
certificate or certificates representing the shares of Common Stock
issuable upon conversion of this Note (the “ Conversion
Shares ”) on or before the Delivery Date, and if after
such date the Holder is required by its broker to purchase (in an
open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the shares of
Common Stock issuable upon conversion of this Note which the Holder
anticipated receiving upon such conversion (a “
Buy-In” ), then the Company shall (1) pay in cash to
the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of shares of Common Stock issuable
upon conversion of this Note that the Company was
required to
deliver to the Holder in connection with the conversion at issue
times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the
Holder, either reinstate the portion of the Note and equivalent
number of shares of Common Stock for which such conversion was not
honored or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied
with its conversion and delivery obligations
hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of shares of Common Stock
with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein
shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon
conversion of this Note as required pursuant to the terms
hereof.
Section 3.4 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.
Section 3.5 Trading Market
Regulation . The Company shall not be obligated to
issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the
aggregate number of shares of Common Stock which the Company may
issue upon conversion or exercise, as applicable, of the Notes and
Warrants in the aggregate without breaching the Company’s
obligations under the rules or regulations of any applicable
Trading Market, except that such limitation shall not apply in the
event that the Company (A) obtains the approval of its stockholders
as required by the applicable rules of such Trading Market for
issuances of Common Stock in excess of such amount or (B) obtains a
written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the Holder.
Section 3.6 Adjustment of
Conversion Price .
(a) Until the Note has
been paid in full or converted in full, the Set Price shall be
subject to adjustment from time to time as follows (but shall not
be increased, other than pursuant to Section 3.6(a)(i)
hereof):
(i) Adjustment for
Stock Dividends, Subdivisions and Combinations . If
at any time the Company shall:
(1) set a record date
or take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other
distribution of, shares of Common Stock,
(2) subdivide its
outstanding shares of Common Stock into a larger number of shares
of Common Stock, or
(3) combine its
outstanding shares of Common Stock into a smaller number of shares
of Common Stock,
then (1) the number of Conversion
Shares immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a
record holder of the same number of shares of Common Stock for
which this Note may be converted immediately prior to the
occurrence of such event would own or be entitled to receive after
the happening of such event (without giving effect to the
limitations on exercise s
