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Exhibit 10.2 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. SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
Dated: December 10,
2008 $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 57th Street, 4th 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. ARTICLE I Section
1.1 Purchase
Agreement. This Note has been executed and delivered
pursuant to the Note and Warrant Purchase Agreement, bearing even
date herewith (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 date hereof through the scheduled
Maturity Date on an unconditional, non-refundable, original issue
discount basis shall be paid in full on the date
hereof. 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 -1-
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 hereof, (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 bearing even date herewith 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. -2-
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
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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 -4-
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 “Voluntary 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 twenty six cents ($0.26), calculated as the 10 day weighted
average closing price of the Maker’s Common Stock prior to
the closing, subject to adjustment under Section 3.6 hereof (the
“Set Price”).
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Section 3.3
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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) -5-
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 -6-
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.
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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
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