EXHIBIT 10.1
ALLIANCE AGREEMENT
THIS ALLIANCE AGREEMENT (this "Alliance Agreement"), is entered into
this June 10, 2004, between JMAR Technologies, Inc., a Delaware corporation
("JMAR"), on the one hand, and Xxxxxxx X. Xxxxx ("Xxxxx") and Xxxxx X. Xxxxx
("Xxxxx"), doing business as The LXT Group, on the other hand (Xxxxx and Drake
are referred to herein collectively as "Sellers").
WITNESSETH:
WHEREAS, the parties entered into a letter agreement, dated April
16, 2004, which provides for the execution of an alliance agreement to fund the
development of the proof of concept model and beta models of the CORTS system
and, upon the satisfaction of certain conditions, the execution of a definitive
purchase agreement for the purchase and sale of the CORTS Business (the "Letter
Agreement"); and
WHEREAS, the parties wish to set forth the terms of such an alliance
and certain terms of the purchase agreement;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, agreements and undertakings hereinafter set forth in this Alliance
Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 "CORTS" shall mean a continuous online real-time surveillance system
that uses light scattering for detection of microorganism contamination of
water.
1.2 "CORTS Technology" shall mean the technology related to the CORTS
system, including the technology described in the Provisional Patent Application
prepared by Xxxxx and Xxxxx and filed with the U.S. Patent & Trademark Office on
January 8, 2004, and all designs, specifications, build list, software,
algorithms and related technology.
1.2 "CORTS Business" shall mean all of the tangible and intangible assets
or other rights owned by Xxxxx and/or Drake related to the CORTS system and the
CORTS Technology.
1.3 "Seed Stage" shall mean the activities performed during the period
from April 19, 2004 until January 5, 2005.
ARTICLE II
ALLIANCE TERMS AND CONDITIONS
2.1 Funding of Seed Stage. Subject to JMAR's maximum financial commitment
set forth in Section 2.3 below and the satisfaction of the Milestones (as
defined in Section 2.3 below), during the Seed Stage JMAR agrees to provide
funding and other resources to complete the activities set forth on Schedule
2.3(a) hereto. These activities include the design, construction and testing of
a proof of concept model of the CORTS system, two alpha models and five beta
models.
2.2 Improvement of LXT Facility. The Sellers are a party to a short-term
lease of the premises (the "LXT Facility") located at 0000 Xxxxxxxxxx Xxxxxx,
Xxxxxxxxx, Xxxxxxxxxx ("Lease"). A copy of the Lease has been reviewed and
approved by JMAR. Attached hereto as Schedule 2.2 is a list of the proposed
improvements to be made to the CORTS Facility, together with a list of
furniture, equipment and other fixed assets to be purchased for the LXT
Facility. JMAR agrees to pay the cost for said improvements and equipment as a
part of its financial commitment under Section 2.3(a) below.
2.3 Maximum Funding Commitment.
(a) JMAR's total financial commitment during the Seed Stage shall not
exceed $1,000,000, including cash outlay, cost of labor (including applicable
overhead and general and administrative burden), consulting fees paid to Xxxxx
and Xxxxx and to other consultants (including those directly engaged by JMAR
with Sellers' consent), the cost of facility improvements, equipment and
materials and the value of assets contributed directly by JMAR. JMAR agrees to
continue to provide the monetary and non-monetary contributions described above
during the Seed Stage for so long as (i) the milestones listed on Schedule
2.3(a) hereto ("Milestones") are met in accordance with the schedule set forth
thereon, and (ii) the costs to complete the Seed Stage have not exceeded, and
are not expected by JMAR to exceed, the total budgeted costs set forth on
Schedule 2.3(b) hereto (the "Budgeted Costs"). In the event that the Milestones
are not met in accordance with Schedule 2.3(a) or the total costs of the Seed
Stage are expected to exceed the Budgeted Costs, then JMAR shall have the right
to terminate this Alliance Agreement pursuant to Section 4.1 below. The total
financial commitment described above shall be exclusive of the Loan (defined in
Section 2.4 below).
(b) JMAR agrees to make available to Sellers certain of its engineering
and other technical personnel and other staff to support completion of the Seed
Stage activities. The specific personnel and scheduling of such personnel shall
be determined by JMAR in its sole discretion. In the event that the personnel
required to complete the Seed Stage tasks are not available from JMAR, JMAR and
Sellers shall work together to identify and retain appropriate consultants or
other employees for the performance of the required tasks.
2.4 Loan to Sellers. Upon the execution of this Alliance Agreement, JMAR
will loan a total of $125,000 to Sellers (the "Loan"). The Loan will be
evidenced by Promissory Notes executed by Drake and Xxxxx each in the principal
amount of $62,500 (collectively, the "Notes"),
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in the form attached as Exhibit A hereto. The Loan will not bear interest unless
and until it is not paid when due and will be secured by the grant of a security
interest in the assets of the CORTS Business, which security interest is
perfected by filing a UCC-1 Financing Statement. Unless extended by JMAR, the
Loan will be due on the earlier of 90 days after (i) the termination of this
Alliance Agreement, (ii) the failure to complete the acquisition of the CORTS
Business by January 7, 2005 as contemplated by the Purchase Agreement or (iii)
the termination of the Purchase Agreement prior to the Closing Date following
the occurrence of the events listed in Section 4.1(a), (b) or (e) of this
Alliance Agreement. In the event that the Purchase Agreement is executed by the
parties and the CORTS Business is acquired pursuant thereto, the Loan shall be
canceled at the Closing and the outstanding principal amount shall be credited
to the purchase price at the Closing.
2.5 Consulting Fees. JMAR agrees to engage Xxxxx and Xxxxx as independent
contractors during the Seed Stage. JMAR shall pay Xxxxx and Drake a consulting
fee of $6,923.08 each every two weeks, and shall reimburse their actual
out-of-pocket expenses in accordance with standard JMAR business expense
reimbursement policies (the "Consulting Fees"). JMAR shall continue to pay the
Consulting Fees until the earlier of the termination of this Alliance Agreement
or the execution of the Purchase Agreement. The Purchase Agreement shall provide
for a continuation of the Consulting Fees and the consulting relationship on the
same terms until either the Closing of the acquisition of the CORTS Business or
the termination of the Purchase Agreement. The Purchase Agreement shall also
provide for execution of Employment Agreements with Xxxxx and Xxxxx on the
Closing Date of the acquisition of the CORTS Business, as described more fully
in Section 3.7(f) below.
2.6 Representations and Warranties of Sellers. Each of the Sellers
represents and warrants to JMAR as follows:
(a) Authority Relative to this Alliance Agreement. Each of the Sellers has
the full power and authority to execute and deliver this Alliance
Agreement, the Notes and other documents to be executed in connection
herewith and to consummate the transactions contemplated hereby. This
Alliance Agreement, the Notes and other documents to be executed in
connection herewith have been duly and validly executed and delivered by
Sellers and constitute the legal, valid and binding agreement and
obligation of Sellers, enforceable against Sellers in accordance with
their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally or by general principles of equity, including
principles governing the availability of equitable remedies.
(b) Consents and Approvals; No Violation. Neither the execution and
delivery of this Alliance Agreement and related agreements by Sellers nor
the consummation of the transactions contemplated hereby will (i) require
any consent, approval, authorization or permit from, or filing with or
notification to, any governmental or regulatory authority or other third
party, except for any such consents, approvals, authorizations, permits,
filings or notifications, the absence of which would not have a material
adverse effect on the assets, properties, business or financial condition
of the CORTS Business; (ii) conflict with or result in a violation of any
provision of (A) any statute, rule, regulation or ordinance which conflict
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or violation might have a material adverse effect on the assets,
properties, business or financial condition of the CORTS Business, or (B)
any material order, injunction, judgment, award or decree applicable to
Sellers or the CORTS Business; or (iii) result in or require the creation
or imposition of any lien upon or with respect to any of the properties or
assets of the Sellers related to the CORTS Business.
(c) Patents, Trademarks, Trade Names, Etc. Schedule 2.6(c) hereto is a
complete and correct list of (i) all patents, technology, know-how and
processes, trademarks, service marks, trade names and copyrights
(including all applications for the registration thereof) and all licenses
and other agreements relating thereto, and (ii) all agreements relating to
third party technology, know-how and processes (collectively the
"Intellectual Property"), which are used or are proposed to be used in the
CORTS Business and are owned or held by or registered in the name of
Sellers or in which Sellers have any rights as licensor, licensee or
otherwise. The Intellectual Property is owned by Sellers and Sellers do
not have actual knowledge that any Intellectual Property is not valid or
in full force and effect, nor have Sellers received any notice or claim
that any of the Intellectual Property is invalid or unenforceable. The
Intellectual Property which is owned by Sellers is owned free and clear of
any license, sublicense, agreement, right, judgment, order, lien, adverse
claim, charge or encumbrance of any nature whatsoever. The Sellers are in
negotiations with NASA to enter into a license for the exclusive rights to
use the technology embodied in U.S. Patent No. 6,313,908 issued to McGill,
et al and assigned to NASA (the "NASA License") in the field of detection
of microorganisms in water. Except for the NASA License, Sellers own, are
licensed, have rights under or have the right to use all patents,
trademarks, trade names, copyrights, licenses, technology, know-how,
processes and other intellectual property used in or necessary to operate
the CORTS Business as it is proposed to be operated. None of the
Intellectual Property or any of the technology covered thereby or any of
the know-how included therein has been misappropriated from any person,
and Sellers are not infringing upon or otherwise acting illegally with
regard to any such property owned by any other person, and there is no
claim or action by any person pending, or to the knowledge of Sellers
threatened, with respect thereto.
(d) Litigation. Sellers have not been served with or otherwise received
notice of any pending or threatened claim, legal action, suit,
arbitration, governmental investigation or other legal or administrative
proceeding relating to the CORTS Business or the CORTS Technology, the
Letter Agreement, this Alliance Agreement or the transactions contemplated
hereby, and Sellers do not know of any basis therefor. No unsatisfied
order, decree or judgment is in effect with respect to the CORTS Business,
the CORTS Technology, this Alliance Agreement or the transactions
contemplated hereby. No citations, fines or penalties have been asserted
against Sellers or the CORTS Business under any federal, state or local
law relating to air or water pollution or other environmental protection
matters, or relating to occupational health or safety.
(e) Expertise and Prior Experience. Xxxxx has investigated light
scattering techniques as applied to particle detection since 1980. Xxxxx
holds a Ph.D. from UCSB in Physics, a BS degree from Yale and several
patents covering particle detection systems. Xxxxx has been developing
microorganism detection systems for commercial application since
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1995. Xxxxx is currently a member of the board of directors of the Xxxxxx
Del Diablo Water District and serves as Xxxxxx'x representative to the San
Diego County Water Authority (SDCWA). Xxxxx, with two other authors, has
recently completed a peer reviewed paper to be published later this year
according to the American Water Works Association Research Foundation
concerning light scattering for Cryptosporidium detection. Drake has been
active in signal processing, radar and data acquisition systems since
1974. Drake has a BSEE from Caltech and holds patents in cryptography and
light scattering detection. Drake has served for nine years as the
representative from the City of Escondido to the SDCWA. Drake has served
in engineering management for 25 years. Xxxxx and Xxxxx have successfully
fielded light scattering microorganism detection systems at a major water
supplier and at the Super Bowl 2003 in San Diego.
(f) CORTS Capabilities. Previous versions of the CORTS system have been
characterized by raw false positive rates and the identification rate as
measured against all events. To the best of Sellers' knowledge, the proof
of concept instrument will have a raw false positive rate for 1, 2 and 4
micron PSL spheres at or below 1 part in a thousand in purified water. To
the best of Sellers' knowledge, the identification rate of such spheres
will be at or greater than 95% as measured against all events.
2.7 Representations and Warranties of JMAR. JMAR represents and warrants
to the Sellers as follows:
(a) Organization. JMAR is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and
has all requisite corporate power and authority to own, lease and operate
its properties and assets and to carry on its business as now being
conducted.
(b) Authorization of Agreement. JMAR has the requisite corporate power and
authority to enter into and deliver this Alliance Agreement and to carry
out its obligations hereunder. The execution and delivery by JMAR of this
Alliance Agreement, the performance by JMAR of its obligations hereunder
and the consummation by JMAR of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on its part. This
Alliance Agreement has been duly and validly executed and delivered by
JMAR and is the legal, valid and binding agreement and obligation of JMAR,
enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally or by general
principles of equity, including principles governing the availability of
equitable remedies.
(c) Consents and Approvals; No Violations. Neither the execution and
delivery of this Agreement by JMAR nor the consummation of the
transactions contemplated hereby or compliance with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of
the Certificate of Incorporation or Bylaws of JMAR, each as amended to
date; (ii) require any consent, approval, authorization or permit from, or
filing with or notification to, any governmental or regulatory authority
or other third party, except for any such consents, approvals,
authorizations, permits, filings or notifications, the absence of
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which would not have a material adverse effect on the assets, properties,
business or condition of JMAR; or (iii) conflict with or result in a
violation of any provision of (A) any statute, rule, regulation or
ordinance which conflict or violation might have a material adverse effect
on the assets, properties, business or condition of JMAR or (B) any
material order, writ, injunction, judgment, award, decree, permit,
concession, grant, franchise or license applicable to JMAR or any of its
respective properties or assets.
2.8 No Shop Provision. Until either the termination of this Alliance
Agreement or the execution of the Purchase Agreement, Sellers agree that neither
Sellers nor any of their respective agents, representatives or affiliates will,
directly or indirectly, solicit, encourage, negotiate or enter into any
transaction with any other person with respect to the sale or license of, or
other transfer of rights to, the CORTS Business or the CORTS Technology, nor
will Sellers participate in any negotiations regarding or furnish to any other
person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek to do any of the foregoing. In the event of a
material violation of any of the provisions of this Section 2.8 by one or both
of the Sellers prior to the termination of this Alliance Agreement resulting in
a material alteration of the terms of the Purchase Agreement, or in the failure
to execute the Purchase Agreement or in the failure to consummate the
transactions contemplated by the Purchase Agreement, Sellers will reimburse JMAR
for all of its actual costs incurred after the execution of the Letter Agreement
and before the termination of this Alliance Agreement.
2.9 Indemnification by JMAR. JMAR agrees to indemnify, defend and hold
harmless Sellers and their respective successors or assigns from and against any
and all losses, liabilities, damages, deficiencies, costs or expenses, including
interest, penalties and reasonable attorneys' fees and disbursements ("Losses")
which either of them shall incur or suffer based upon, arising out of or
otherwise in respect to any third party claims made or threatened against
Sellers which arise out of or involve the operation of the CORTS Business after
the execution of the Letter Agreement and until the termination of this Alliance
Agreement; provided, however, JMAR shall not be obligated to indemnify Sellers
for Losses which are finally judicially determined to have resulted from the
gross negligence or willful misconduct of Sellers, including Losses arising from
the misappropriation of the trade secrets of another person. JMAR shall have no
obligation to indemnify Sellers against Losses arising from their pursuit of the
CORTS Business or their use of the CORTS Technology after termination of this
Alliance Agreement.
ARTICLE III
EXECUTION OF PURCHASE AGREEMENT
3.1 Execution of the Purchase Agreement. The parties agree to use their
best efforts to execute a definitive Purchase Agreement for the purchase and
sale of all of the assets of the CORTS Business by no later than August 1, 2004
(the "Purchase Agreement"). Subject to the satisfaction of the conditions set
forth in Sections 3.7 and 3.8 below, the Purchase Agreement will provide that on
the Closing Date (as defined in Section 3.4 below) the Sellers will sell and
deliver to JMAR, and JMAR will purchase and acquire from Sellers, all right,
title and interest of
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Sellers in and to all of their respective rights, assets, and properties of
every kind relating to or primarily involving the CORTS Business, other than
cash on hand (the "Purchased Assets").
3.2 Purchased Assets. The Purchased Assets shall include, without
limitation, the following assets related to the CORTS Business and CORTS
Technology:
(a) all machinery, equipment, furniture and similar property;
(b) all inventories of raw materials, work in process, finished products,
goods, products, including the Proof of Concept, Alpha models and Beta
Models, spare parts, replacement and component parts, and office and other
supplies (collectively, the "Inventories");
(c) all rights to unfilled customer orders;
(d) all of the rights of Sellers under all contracts, arrangements,
confidentiality agreements, patent assignments, license and technology
agreements, leases and agreements;
(e) all accounts receivable and other receivables;
(f) (i) all patents throughout the world and applications therefor
including all applications for patents filed between the date hereof and
the Closing Date, (ii) all trademarks, service marks and trade names
throughout the world, including registrations and applications for
registration thereof, if any, and (iii) all copyright registrations
throughout the world and applications therefor, and any other
non-registered copyrights;
(g) all designs, software, algorithms, drawing packages, plans, trade
secrets, inventions, processes, procedures, research records,
manufacturing know-how and manufacturing formulae;
(h) all books, records, manuals and other materials, including, without
limitation, all lists of customers, distribution lists, production data,
sales and promotional materials and records, research and development
files, data and laboratory books, patent disclosures and accounting
records; and
(i) to the extent their transfer is permitted by law, all governmental and
other licenses, permits and approvals and license applications relating
specifically to the Purchased Assets.
At the Closing, Sellers will transfer, convey, assign and deliver all of the
Purchased Assets to JMAR free and clear of all liabilities, obligations,
security interests, liens, charges, encumbrances and claims.
3.3 Assumption of Liabilities. The Purchase Agreement will provide that at
the Closing JMAR will assume the liabilities, obligations and commitments
arising out of or
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requiring performance under agreements, contracts or commitments entered into
after April 16, 2004 that are included in the Purchased Assets (the "Assumed
Contracts"). Except for the Assumed Contracts, JMAR shall not assume any
liabilities, obligations or commitments of Sellers relating to or arising out of
the business, products, services, operations, assets, properties, taxes or
deferred taxes of the CORTS Business on or prior to the Closing, or based on any
omission or state of facts or events existing or occurring on or prior to the
Closing.
3.4 Closing Date. The Purchase Agreement will provide for the completion
of the purchase and sale of the CORTS Business by no later than January 7, 2005
(the "Closing Date").
3.5 Purchase Price. The Purchase Agreement will provide that, subject to
the terms and conditions set forth in the Purchase Agreement, in consideration
for the sale, transfer and delivery by Sellers of all of the Purchased Assets to
JMAR, at the Closing JMAR will pay or cause to be paid to Sellers the total
Purchase Price as follows:
(a) On the Closing Date, JMAR will pay the Sellers a total of $250,000
in cash, divided equally between Xxxxx and Xxxxx. One-half of the
payment shall be made in the form of cancellation of the Loan;
(b) On the Closing Date, JMAR will issue and deliver 90,000 shares of
JMAR common stock to Xxxxx and 90,000 shares to Drake. If Xxxxx'x
employment with JMAR terminates for any reason other than (i)
termination upon the death or disability of Xxxxx as provided in
Exhibit B, (ii) termination by JMAR for Cause (as defined in Exhibit
B), (iii) termination by JMAR because the CORTS Business has been
discontinued in substantial part or (iv) termination by Xxxxx
without Good Reason (as defined in Exhibit B), then all of Xxxxx'x
unvested shares shall immediately vest. Otherwise, if Xxxxx is
employed by JMAR at the end of the first year after the Closing
Date, one-third of his shares shall thereupon vest, with an
additional one-third vesting if he is so employed at the end of the
second year after the Closing Date and the remaining one-third shall
vest if he is employed at the end of the third year after the
Closing Date. If Drake's employment with JMAR terminates for any
reason other than (i) termination upon the death or disability of
Drake as provided in Exhibit B, (ii) termination by JMAR for Cause
(as defined in Exhibit B), (iii) termination by JMAR because the
CORTS Business has been discontinued in substantial part or (iv)
termination by Drake without Good Reason (as defined in Exhibit B),
then all of Drake's unvested shares shall immediately vest.
Otherwise, if Drake is employed by JMAR at the end of the first year
after the Closing Date, one-third of his shares shall thereupon
vest, with an additional one-third vesting if he is so employed at
the end of the second year after the Closing Date and the remaining
one-third shall vest if he so employed at the end of the third year
after the Closing Date. Except as set forth above in this paragraph,
upon the termination of employment of Xxxxx or Xxxxx, as the case
may be, the unvested shares, if any, held by such person shall be
forfeited; and
(c) On the Closing Date, JMAR will grant to each of Xxxxx and Xxxxx
one-half of the
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right to receive an annual payment (the "Future Payment Right")
calculated as follows:
(i) 2% of the revenue of the CORTS Business for 2004 and for each
of the five full fiscal years after the Closing Date;
(ii) 1% of the revenue of the CORTS Business for each of the next
two fiscal years;
(iii) 25% of the "Residual Income" generated by the CORTS Business
for 2004 and for each of the five full fiscal years after the
Closing Date; and
(iv) 4% of Residual Income for the next five full fiscal years.
(d) The "Residual Income" of the CORTS Business for a given fiscal year
shall be defined as the Net Income of the CORTS Business for that
fiscal year (computed in accordance with generally accepted
accounting principles ("GAAP")), less interest imputed on the
average amount of the Total Investment (as defined in Section 3.5(e)
below) as of the last day of each fiscal quarter during that fiscal
year. The imputed interest for a given fiscal quarter shall be equal
to (i) the average of the "prime rate" for that fiscal quarter, plus
(ii) six percent (referred to herein as the "Applicable Rate").
(e) The Future Payment Right shall be calculated within 60 days after
the end of each fiscal year, shall accrue and shall be deemed to
have been earned by Xxxxx and Xxxxx, but no payment of the Future
Payment Right will be made to Xxxxx or Drake unless and until the
Cumulative Cash (as defined below) is sufficient to repay JMAR's
Total Investment in the CORTS Business, plus interest accrued at the
Applicable Rate. If the Cumulative Cash is sufficient to repay
JMAR's Total Investment in the CORTS Business, plus interest accrued
at the Applicable Rate, then Xxxxx and Xxxxx shall be paid in the
aggregate the lesser of (i) one-half of the Cumulative Cash after
deduction of the Total Investment and said accrued interest for the
applicable fiscal year or (ii) the total unpaid accrued Future
Payment Right. "Total Investment" shall mean all amounts contributed
by JMAR under Section 2.3(a) prior to the Closing Date, plus all
cash, direct costs paid by JMAR on behalf of the CORTS Business and
all other assets contributed by JMAR to the CORTS Business after the
Closing Date. "Cumulative Cash" shall mean cash or cash equivalents
at the end of the subject period minus any outstanding working
capital line of credit attributable directly to the CORTS Business.
(f) The maximum total payment to Sellers as a group under the Future
Payment Right shall be $20,000,000 ("Maximum Future Payment").
(g) Schedule 3.5 hereto sets forth an illustration of the calculations
to be made pursuant to this Section 3.5.
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3.6 Representations and Warranties. The Purchase Agreement will contain
the representations and warranties listed on Schedule 3.6 hereto, plus such
other representations and warranties as are customary for transactions of this
nature or as may become necessary as a result of the parties' experiences during
the Seed Stage. The representations will expire two years after the Closing Date
and the Sellers' indemnification obligations under the representations shall be
limited to an offset against any Future Payment Right earned by Sellers.
3.7 Conditions to the Obligations of JMAR. The Purchase Agreement will
provide that the obligations of JMAR to complete the acquisition of the
Purchased Assets will be subject to the satisfaction of each of the following
conditions prior to the Closing Date unless waived by JMAR:
(a) All representations and warranties of Sellers contained in the
Alliance Agreement and in the Purchase Agreement shall be true and correct
when made and as of the Closing Date.
(b) All covenants, agreements and obligations required by the terms of the
Purchase Agreement to be performed by Sellers at or before the Closing
Date shall have been duly and properly performed.
(c) JMAR shall be satisfied with all intellectual property matters,
including having reviewed the pending PointSource patent application and
having determined that any modifications to the design of the Proof of
Concept, alpha or beta products that are required in order to avoid
infringement of the PointSource patents can be made without significant
adverse impact on the operation or economics of those units. The
satisfaction of this condition shall not operate as a waiver of the
representations of Sellers in Section 2.6(c) above or the representations
concerning Intellectual Property contained in the Purchase Agreement.
(d) JMAR's Board of Directors shall have approved the execution by JMAR of
the Purchase Agreement and the performance by JMAR of the transactions
contemplated therein.
(e) JMAR shall have entered into Employment Agreements with Xxxxx and
Drake in the form of Exhibit B hereto.
(f) All of the Milestones that are required to have been satisfied as of
the Closing Date shall have been satisfied.
(h) JMAR shall have received from Sellers: 1) a xxxx of sale and
assignment; 2) assignments of the contracts, agreements, licenses,
instruments (including purchase and sales orders), leases, joint venture
agreements, claims, rights, copyrights, patents, trade secrets and other
intangible properties included in the Purchased Assets; and 3) such other
instruments of conveyance, assignment and transfer, reasonably
satisfactory in form and substance to JMAR.
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3.8 Conditions to the Obligations of Sellers. The Purchase Agreement will
provide that the obligations of Sellers to complete the acquisition of the
Purchased Assets will be subject to the satisfaction of each of the following
conditions prior to the Closing Date unless waived by Sellers:
(a) All representations and warranties of JMAR contained in the Alliance
Agreement and in the Purchase Agreement shall be true and correct when
made and as of the Closing Date.
(b) All covenants, agreements and obligations required by the terms of the
Purchase Agreement to be performed by JMAR at or before the Closing shall
have been duly and properly performed.
(c) Sellers shall have received an opinion letter of Xxxxxx X. Xxxxxxxx,
General Counsel of JMAR, dated as of the Closing Date, in form and
substance agreed to by the parties.
(d) JMAR shall have entered into Employment Agreements with Xxxxx and
Drake in the form of Exhibit B hereto.
3.9 Other Provisions of Purchase Agreement.
(a) As additional consideration for the purchase of the Purchased Assets,
the Purchase Agreement will contain non-competition provisions in the form
set forth on Schedule 3.9 hereto restricting the activities of Xxxxx and
Drake for a term of five years after the Closing Date.
(b) The Purchase Agreement will provide that in the event JMAR sells the
CORTS Business, then JMAR will pay Sellers the lesser of (i) 50% of the
gain (calculated in accordance with GAAP) over JMAR's Total Investment in
the CORTS Business or (ii) the remaining unpaid amount of the Maximum
Future Payment (defined in Section 3.5(f) above). The Purchase Agreement
will provide that if after the Closing Date JMAR decides to discontinue
its support or otherwise dispose of the CORTS Business, then it will first
offer to sell the assets of the CORTS Business (including Intellectual
Property) to Xxxxx and Xxxxx on terms that will include the repayment to
JMAR of its Total Investment in the CORTS Business, plus interest accrued
at the Applicable Rate (as defined in Section 3.5(d)), either in the form
of a purchase price payment, the payment of a royalty of 5% of future
revenues from the sale of systems using the CORTS Technology, or some
combination of purchase price and royalty. The Purchase Agreement will
provide that in the event of a sale, merger or other transfer of the stock
or assets of JMAR, the acquiring party (or surviving party in a merger)
shall be required to assume JMAR's obligations under this Alliance
Agreement and the Purchase Agreement.
(c) The Purchase Agreement will confirm that as officers and/or employees
of
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JMAR, Xxxxx and Xxxxx will be entitled to the same indemnification
protections that are generally available to JMAR employees and officers,
as well as the benefits of JMAR's directors and officers liability
insurance coverage as in effect from time to time. The Purchase Agreement
will also provide that JMAR will indemnify, defend and hold harmless
Sellers and their respective successors or assigns from and against any
and all losses, liabilities, damages, deficiencies, costs or expenses,
including interest, penalties and reasonable attorneys' fees and
disbursements ("Losses") which either of them shall incur or suffer based
upon, arising out of or otherwise in respect to any third party claims
made or threatened against Sellers which arise out of or involve the
operation of the CORTS Business after the execution of the Letter
Agreement; provided, however, JMAR shall not be obligated to indemnify
Sellers for Losses which are finally judicially determined to have
resulted from the gross negligence or willful misconduct of Sellers,
including Losses arising from the misappropriation of the trade secrets of
another person. JMAR shall have no obligation to indemnify Sellers against
Losses arising from their pursuit of the CORTS Business or their use of
the CORTS Technology after termination of this Alliance Agreement.
ARTICLE IV
TERMINATION OF ALLIANCE AGREEMENT
4.1 Termination. The Alliance Agreement may be terminated at any time
prior to the Closing by:
(a) The mutual consent of Sellers, on the one hand, and JMAR, on the other
hand; or
(b) JMAR, if the Milestones have not been achieved in accordance with
Schedule 2.3(a) hereto, or if the costs have exceeded, or if the costs are
projected by Sellers and JMAR to exceed, the Budgeted Costs (as defined in
Section 2.3); or
(c) JMAR or the Sellers, if the Purchase Agreement has not been executed
by the Sellers by August 1, 2004; or
(d) JMAR or the Sellers, if the Closing has not occurred by January 7,
2005 through no fault of the terminating party; or
(e) JMAR, if Sellers shall have materially breached or failed in any
material respect to comply with any of their obligations under this
Alliance Agreement, or any representation or warranty of Sellers contained
in this Alliance Agreement shall have been inaccurate when made in any
material respect; or
(f) Sellers, if JMAR shall have materially breached or failed in any
material respect to comply with any of its obligations under this Alliance
Agreement, or any representation or warranty of JMAR contained in this
Alliance Agreement shall have been inaccurate when made in any material
respect.
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4.2 Transfer of Rights to Sellers; License to JMAR. In the event that JMAR
terminates this Alliance Agreement pursuant to Section 4.1(a), (b), (c) or (d)
above, or in the event that Sellers terminate this Alliance Agreement pursuant
to Section 4.1(f) above, then JMAR shall assign and transfer all property and
rights acquired or created during the Seed Stage to Sellers and shall confirm
Seller's ownership of all of the intellectual property and other rights to the
CORTS Technology. In consideration for said transfer and confirmation of rights,
Sellers will grant JMAR a royalty of 5% of future revenues from the sale of
systems using the CORTS Technology until JMAR's Total Investment (as defined in
Section 3.5(e) above) in the Seed Stage is repaid. In the event that JMAR
terminates this Alliance Agreement pursuant to Section 4.1(e) above, then JMAR
shall retain all property and rights that it provided or otherwise contributed
to the CORTS Business during the Seed Stage.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 Expenses. Except as otherwise provided in this Alliance Agreement,
Sellers and JMAR shall pay their respective expenses separately incurred in
connection with this Alliance Agreement and the Purchase Agreement and the
transactions contemplated hereby and thereby.
5.2 Entire Agreement. This Alliance Agreement and the additional written
agreements called for herein together contain the entire agreement between
Sellers and JMAR with respect to the purchase and sale of the business and
assets of the CORTS Business and the related transactions and supersede all
prior arrangements or understandings with respect thereto, including the Letter
Agreement, dated April 16, 2004, between JMAR and the Sellers. There have been
no oral representations or warranties and neither party has relied on any
representation not contained herein.
5.3 Assignment. This Alliance Agreement and each other agreement entered
into pursuant hereto and all of the provisions hereof and thereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Alliance Agreement nor any of
the rights, interests or obligations hereunder and thereunder, shall be assigned
by either party hereto or thereto without the prior written consent of the other
party. Sellers hereby agree that notwithstanding the foregoing or the fact that
this Alliance Agreement shall have been executed by JMAR directly, JMAR may, at
its option, cause the transactions contemplated hereby to be consummated by (i)
a newly-formed subsidiary or subsidiaries of JMAR to be organized for the
purpose of consummating this transaction or (ii) any other affiliated
corporation of JMAR; provided, however, that JMAR's obligations shall be
retained or guaranteed by JMAR. This Alliance Agreement is not intended to
confer upon any other party, except the parties hereto, any rights or remedies
hereunder.
5.4 Counterparts. This Alliance Agreement may be executed in any number of
counterparts, each of which independently shall have the same effect as if it
were the original and all of which taken together shall constitute one and the
same document. Executed signature pages which are transmitted by facsimile to
the other party shall be deemed to have been delivered on the date so
transmitted provided that an originally executed signature is delivered to
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the other party within 3 business days thereafter.
5.5 Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or served,
if in writing and delivered personally, sent by registered or certified mail,
postage prepaid, sent by established overnight delivery service, or transmitted
by fax (except for legal process) to:
If to JMAR:
JMAR Technologies, Inc.
0000 Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Fax: 000-000-0000
If to Sellers:
Xxxxxxx X. Xxxxx
0000 Xxxxx Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Fax: 760-
Xxxxx X. Xxxxx
000 Xxxx Xxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Fax: 760-
With a copy to:
Xxxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxxx Xxxx Seidenwurm & Xxxxx, LLP
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Fax: 000-000-0000
or to such other address or fax number as any party hereto may, from time to
time, designate in a written notice given in a like manner. Notice given by mail
as set out above shall be deemed delivered three days after the date it is
postmarked. Notice given by overnight delivery service shall be deemed delivered
when received. Notice given by fax shall be deemed given when transmitted,
provided that the sender retains a written confirmation of such transmission and
mails an original thereof to the other party within one business day after said
transmission.
5.6 Arbitration. Any dispute, claim or controversy arising out of or
relating to this Alliance Agreement or breach, termination, enforcement,
interpretation or validity thereof, including the determination of the scope or
applicability of this Agreement to arbitrate, shall be
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determined by arbitration in San Diego County, California, before a sole
arbitrator, in accordance with the laws of the State of California for
agreements made in and to be performed in that State. The arbitration shall be
administered by JAMS pursuant to its Streamlined Arbitration Rules and
Procedures. Judgment on the Award may be entered in any court having
jurisdiction.
5.7 Interpretation. The parties acknowledge that this Alliance Agreement
has been negotiated by both parties and that neither this Alliance Agreement nor
any of its provisions should be interpreted for or against any party on the
basis said party or its attorney drafted the Alliance Agreement or the provision
in question.
5.8 Severability. If any provision of this Alliance Agreement is declared
by a court of competent jurisdiction or arbitrator to be invalid, void or
unenforceable, the remaining provisions of this Alliance Agreement nevertheless
will continue in full force and effect without being impaired or invalidated in
any way.
5.9 Governing Law. This Alliance Agreement shall be governed by and
construed in accordance with the laws of the State of California.
5.10 Attorneys' Fees. In the event suit is commenced to enforce or contest
this Alliance Agreement, or any portion thereof, the prevailing party in such
suit shall be entitled to recover from the non-prevailing party all fees, costs
and expenses of enforcing any right of such prevailing party under and with
respect to this Alliance Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
5.11 Force Majeure. Whenever a period of time is prescribed for action by
a party hereunder, such party shall not be responsible for, and there will be
excluded from the computation for such period of time, any delays due to an
event of force majeure, including but not limited to strikes, riots, acts of
God, war, governmental laws, regulations or restrictions of general application
to the public at large, or any other causes beyond the control of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Alliance Agreement
to be duly executed as of the date first above written.
JMAR TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------------
Xxxxxx X. Xxxxxx, President and
Chief Executive Officer
/s/ Xxxxxxx X. Xxxxx
---------------------------------------------------
Xxxxxxx X. Xxxxx, doing business as The LXT Group
/s/ Xxxxx X. Xxxxx
---------------------------------------------------
Xxxxx X. Xxxxx, doing business as The LXT Group
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List of Schedules
Schedule 2.2 - List of Improvements to LXT Facility
Schedule 2.3(a) - Seed Stage Activities and Seed Stage Milestones
Schedule 2.3(b) - Budgeted Costs
Schedule 2.6(c) - List of Intellectual Property
Schedule 3.5 - Calculation of Residual Income (Illustration)
Schedule 3.6 - Representations and Warranties for Purchase Agreement
Schedule 3.9 - Non-Competition Provisions
Exhibits:
Exhibit A - Form of Promissory Note and Security Agreement
Exhibit B - Form of Employment Agreement
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