SECURITIES EXCHANGE AGREEMENT
Exhibit 10.5
This Securities Exchange Agreement (“Agreement”) is made and entered into as of March 28, 2006
between JMAR Technologies, Inc., a Delaware corporation (the “Company”), and Laurus Master Fund,
Ltd., a Cayman Islands company (“Laurus”).
RECITALS
A. Whereas, Laurus currently owns shares of the Company’s Series F, G and H Cumulative
Convertible Preferred Stock (“Preferred Stock”);
B. Whereas, the Company desires to issue shares from a new Series I Cumulative Convertible
Preferred Stock to Laurus in exchange for all of its shares of Series F and Series H Preferred
Stock and in exchange for $506,480 Stated Value of its Series G Preferred Stock, and Laurus desires
to exchange such shares of Series F, G and H Preferred Stock for Series I Preferred Stock, on the
terms and conditions set forth in this Agreement; and
C. Whereas, the parties also desire to make certain amendments to the terms of the remaining
shares of Series G Preferred Stock and to certain Warrants held by Laurus.
Now, therefore, the parties agree as follows:
AGREEMENT
1. EXCHANGE OF PREFERRED STOCK AND CERTAIN AMENDMENTS.
1.1
Authorization. As of the Closing (as defined below) the Company will have
authorized the issuance, pursuant to the terms and conditions of this Agreement, of 639,398 shares
of the Company’s Series I Cumulative Convertible Preferred Stock (the “Series I Preferred Stock”)
with a Stated Value of $10 per share and having the rights, preferences, privileges and
restrictions set forth in the “Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series I Cumulative Convertible Preferred Stock,
$.01 Par Value Per Share,” of the Company attached to this Agreement as Exhibit A (the
“Certificate of Designations”).
1.2
Agreement to Exchange Shares. At the Closing, the Company agrees to issue to
Laurus 639,398 shares of Series I Preferred Stock in exchange for and in cancellation of i) 196,250
shares of Series F Preferred Stock, with a stated value of $1,962,500, ii) 50,648 shares of Series
G Preferred Stock, with a stated value of $506,480, and iii) 392,500 shares of Series H Preferred
Stock, with a stated value of $3,925,000. Following this exchange, Laurus shall retain a total of
145,602 shares of Series G Preferred Stock, with a stated value of $1,456,020.
1.3 Amendments to Series G Preferred Stock. At the Closing, the terms of the
remaining 145,602 shares of Series G Preferred Stock held by Laurus shall be amended as follows:
1.3.1 The last paragraph of Section 5 of the
Certificate of Designations for the Series G
Preferred Stock is hereby amended by deleting said section in its entirety and inserting the
following in lieu thereof:
“In the event of any conversions of shares of Series G Preferred Stock in part pursuant to
this Section 5, such conversions shall be deemed to constitute conversions of outstanding
redemption amount applying to Monthly Amounts (as defined in Section 10 below) for the
Repayment Dates (as defined in Section 10 below) in chronological order. By way of example,
if the original stated amount of the Series G Preferred Stock is $1,456,020, the Monthly
Amount is $27,822 and the Holder converted $50,000 of such original stated amount prior to
the first Repayment Date, then (1) the principal amount of the Monthly Amount due on the
first Repayment Dates would equal $0, (2) the principal amount of the Monthly Amount due on
the second Repayment Date would equal $5,644 and (3) the principal amount of the Monthly
Amount due on each of the remaining Repayment Dates would be $27,822.”
1.3.2 Section 8 of the Certificate of
Designations for the Series G Preferred Stock is hereby
amended by deleting said section in its entirety and inserting the following in lieu thereof:
“8. Mandatory Redemption. In the event any shares of Series G Preferred Stock
are outstanding on August 5, 2008, any remaining Stated Value of such shares shall be
redeemed and such shares shall be cancelled, and any unpaid accrued dividends shall be
paid.”
1.3.3 Section 10 of the Certificate of
Designations for the Series G Preferred Stock is hereby
amended by deleting said section in its entirety and inserting the following in lieu thereof:
“10. Amortization.
(a) Monthly Payments. Subject to the terms of this Section 10, the Corporation
shall repay $27,822 of the original Stated Value of the Series G Preferred Stock (to the
extent such amount has not been converted pursuant to Section 5 above), together with the
dividend accrued to date on such portion of the original Stated Value then due and payable
(collectively the “Monthly Amount”), in accordance with Section 10(b) below, on the first
business day of each consecutive calendar month (each, a “Repayment Date”), beginning on
February 1, 2007.
(b) Cash or Common Stock. Subject to the terms hereof, the Corporation has the
sole option to determine whether to satisfy payment of the Monthly Amount in full on each
Repayment Date either in cash or in registered shares of Common Stock, or a combination of
both. The Corporation shall deliver to the Holder a written
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irrevocable notice in the form
of Exhibit B attached hereto electing to pay such Monthly Amount in full on such Repayment
Date in either cash or registered Common Stock, or a combination of both (“Repayment
Election Notice”). Such Repayment Election Notice shall be delivered to the Holder at least
ten (10) days prior to the applicable Repayment Date (the date of such notice being
hereinafter referred to as the “Notice Date”). If such Repayment Election Notice is not
delivered within the prescribed period set forth in the preceding sentence, then the
repayment shall be made in either cash or shares of Common Stock on the same terms hereunder
at the Holder’s sole option. If the Corporation elects or is required to repay all or a
portion of the Monthly Amount in cash on a Repayment Date, then on such Repayment Date the
Corporation shall pay to the Holder an amount equal to 102% of the Monthly Amount in
satisfaction of such obligation. If the Corporation repays all or a portion of the Monthly
Amount in shares of Common Stock, the number of such shares to be issued for such Repayment
Date shall be the number determined by dividing (x) the portion of the Monthly Amount to be
paid in shares of Common Stock, by (y) the Conversion Price (as defined herein) as of such
date.
(c) No Effective Registration. Notwithstanding anything to the contrary
herein, the Corporation shall be prohibited from exercising its right to repay the Monthly
Amount in shares of Common Stock (and must deliver cash in respect thereof) on the
applicable Repayment Date if at any time from the Notice Date until the time at which the
Holder receive such shares (i) there fails to exist an effective registration statement or
the holder cannot sell the shares pursuant to Rule 144(k), or (ii) an Event of Default
hereunder exists or occurs, unless otherwise waived in writing by the Holder in whole or in
part at the Holder’s option.
(d) Share Price/Issuance Limitations. Notwithstanding anything to the contrary
herein, if the closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for any of the 11 trading days preceding a Repayment Date was less than
118% of the Conversion Price, and the Corporation has elected to pay all or a portion of the
Monthly Amount in shares of Common Stock, then, in lieu of the Corporation delivering the
required number of shares of Common Stock on the Repayment Date, Corporation shall pay the
Monthly Amount, or the unconverted part thereof, in cash.
(e) Deemed Conversions. Any repayment of the Monthly Amount in shares of
Common Stock pursuant to the terms hereof shall constitute and be deemed a conversion of
such portion of the applicable Stated Value of the Series G Preferred Stock for all purposes
under this Certificate and the Purchase Agreement (as defined herein) (except as otherwise
provided herein).
(f) Deemed Ownership. In the case of the exercise of the conversion rights or
payment of the Monthly Amount set forth herein the conversion privilege shall be deemed to
have been exercised and the shares of Common Stock issuable upon such conversion or
Repayment shall be deemed to have been issued upon the date of receipt by the Corporation of
the Notice of Conversion or on the Repayment Date if the Monthly Amount is paid in shares of
Common Stock, as the case may be. The person or
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entity entitled to receive Common Stock
issuable upon such conversion shall, on the date such conversion privilege is deemed to have
been exercised and thereafter, be treated for all purposes as the record holder of such
Common Stock.”
1.4
Amendments to Warrants. Laurus is the owner of the following Warrants: i) Warrant
to purchase 50,000 shares, dated February 5, 2004, with an original exercise price of $3.42, ii)
Warrant to purchase 50,000 shares, dated February 5, 2004, with an original exercise price of
$3.61, and iii) Warrant to purchase 100,000 shares, dated February 5, 2004, with an original
exercise price of $3.82 (collectively, the “February 2004 Warrants”). Effective on the Closing
Date, the February 2004 Warrants shall be amended as follows:
1.4.1 The Exercise Price (as defined therein) of each of the February 2004 Warrants shall be
reduced to $1.16;
1.4.2 Section 2.2(b) of each of the February 2004 Warrants shall be amended to delete the
first paragraph thereof and insert the following in lieu thereof:
”(b) Notwithstanding any provisions herein to the contrary, if the Warrant is
exercisable and a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice
is not available for the resale of such Warrant Shares, the Holder may elect to
receive shares of Common Stock which are freely tradable under Rule 144(k) equal to
the value (as determined below) of this Warrant (or the portion thereof being
exercised) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Exercise Notice in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the following
formula:”
1.4.3 Each of the February 2004 Warrants shall not be exercisable during the period commencing
on the Closing Date and continuing until six months after the Closing Date.
2. CLOSING.
Subject to the terms and conditions herein, the closing of the transactions contemplated
hereby (the “Closing”) shall take place on the date hereof or at such other time or place as the
Company and Laurus may mutually agree (such date is hereinafter referred to as the “Closing Date”).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Laurus as follows:
3.1 Organization, Good Standing and Qualification. The Company has been duly
incorporated and organized, and is validly existing in good standing, under the laws of
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the State of Delaware. The Company has the corporate power and authority to enter into and perform this
Agreement, to own and operate its properties and assets, and to carry on its business as currently
conducted and as presently proposed to be conducted.
3.2 Due Authorization. All corporate action on the part of the Company necessary for
the authorization, execution, delivery of, and the performance of all obligations of the Company
under this Agreement, the authorization, issuance, reservation for issuance and delivery of all of
the shares of Preferred Stock being exchanged under this Agreement has been taken, and this
Agreement constitutes, valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or affecting the
enforcement of creditors’ rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies.
Valid Issuance of Stock. The Series I Preferred Stock, when issued and paid for
as
provided in this Agreement will be duly authorized and validly issued, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the Series I Preferred Stock
have been duly and validly reserved for issuance upon conversion thereof and, when issued upon such
conversion in accordance with the Certificate of Designations will be duly authorized and validly
issued, fully paid and nonassessable.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF LAURUS.
Laurus hereby represents and warrants to, and agrees with, the Company as follows:
4.1 Authorization. This Agreement constitutes Laurus’ valid and legally binding
obligation, enforceable in accordance with its terms except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. Laurus represents that it has full power and
authority to enter into this Agreement.
4.2
Purchase for Own Account. The Series I Preferred Stock to be issued to Laurus
hereunder will be acquired for investment for Laurus’ own account, not as a nominee or agent, and
not with a view to the public resale or distribution thereof within the meaning of the 1933 Act
(other sales than pursuant to an effective registration statement under the Securities Act of 1993,
as amended or sales pursuant to Rule 144(k)).
4.3 Disclosure of Information. Laurus has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment decision with
respect to the Preferred Stock to be received by Laurus under this Agreement. Laurus further has
had an opportunity to ask questions and receive answers from the Company regarding the terms and
conditions of the issuance of the Preferred Stock and to obtain additional information (to the
extent the Company possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to Laurus or to
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which Laurus had access. The foregoing, however, does not in any way limit or modify the representations and warranties made
by the Company in Section 3.
4.4 Accredited Investor Status. Laurus is an “accredited investor” within the meaning
of Regulation D promulgated under the 1933 Act.
5. CONDITIONS TO LAURUS’ OBLIGATIONS AT CLOSING.
The obligations of Laurus under this Agreement are subject to the fulfillment or waiver, on or
before the Closing, of each of the following conditions:
5.1 Representations and Warranties True. The representations and warranties of the
Company contained in Section 3 shall be true and correct on the Closing with the same effect as
though such representations and warranties had been made on and as of the date of the Closing.
5.2 Performance. The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
6. CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING.
The obligations of the Company under this Agreement are subject to the fulfillment or waiver,
on or before the Closing, of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties of Laurus
contained in Section 4 shall be true and correct on the date of the Closing with the same effect as
though such representations and warranties had been made on and as of the Closing.
6.2 Performance. Laurus shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein
7. TRADING LIMITATIONS. Laurus agrees to limit its sale of those shares which are
issuable upon conversion of the Series I Preferred Stock to no more than a number of shares per
trading day equal to 20% of the average daily trading volume of JMAR Common Stock during regular
trading hours as reported by Nasdaq for the calendar week preceding the date of sale. Laurus
further agrees to limit its sale of those shares which are issuable upon exercise of the February
2004 Warrants to no more than a number of shares per trading day equal to 10% of the average daily
trading volume of JMAR Common Stock during regular trading hours as reported by Nasdaq for the
calendar week preceding the date of sale.
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8. GENERAL PROVISIONS.
8.1 Survival of Warranties. The representations, warranties and covenants of the
Company and Laurus contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closings and shall in no way be affected by any investigation of
the subject matter thereof made by or on behalf of Laurus or the Company, as the case may be.
8.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties.
8.3 Governing Law. This Agreement shall be governed by and construed under the
internal laws of the State of New York as applied to agreements among New York residents entered
into and to be performed entirely within New York, without reference to principles of conflict of
laws or choice of laws.
8.4 Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.
8.5 Headings. The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement. All
references in this Agreement to sections, paragraphs, exhibits and schedules shall, unless
otherwise provided, refer to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which exhibits and schedules are incorporated herein by this reference.
8.6 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when
sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not,
then on the next business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the Company at the address as set forth on the signature page
hereof and to Laurus at the address set forth on the signature page hereto for, with a copy in the
case of Laurus to Xxxx X. Xxxxxx Esq. 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000, facsimile number (000)
000-0000, or at such other address as the Company or Laurus may designate by ten days advance
written notice to the other parties hereto.
8.7 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written consent of the Company
and Laurus.
8.8 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
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8.9 Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or obligations between the
parties with respect to the subject matter hereof.
8.10 Further Assurances. From and after the date of this Agreement, upon the request
of Laurus or the Company, the Company and Laurus shall execute and deliver such instruments,
documents or other writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Securities Exchange Agreement as of
the date set forth in the first paragraph hereof.
| JMAR Technologies, Inc. | Laurus Master Fund, Ltd. | |||||||||
| By: | /s/ Xxxxxx X. Xxxxxxxxx | By: | /s/ Xxxxxx Grin | |||||||
| Name: Xxxxxx X. Xxxxxxxxx | Name: Xxxxxx Grin | |||||||||
| Title: Chief Financial Officer | Address: | LAURUS MASTER FUND, LTD. | ||||||||
| Address: 10905 Technology Place | c/o Ironshore Corporate Services Ltd. | |||||||||
| Xxx Xxxxx, Xxxxxxxxxx 00000 | X.X. Xxx 0000 G.T., Queensgate House, South Church Street Grand Cayman, Cayman Islands | |||||||||
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