Exhibit 10.5
SECURITIES EXCHANGE AGREEMENT
     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.

 

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          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 John E. Tucker Esq. 825 Third Avenue, New York, NY 10022, facsimile
number (212) 541-4434, 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/ Dennis E. Valentine   By:   /s/ Eugene Grin      
                Name: Dennis E. Valentine   Name: Eugene Grin     Title: Chief
Financial Officer   Address:   LAURUS MASTER FUND, LTD.     Address: 10905
Technology Place           c/o Ironshore Corporate Services Ltd.     San Diego,
California 92127           P.O. Box 1234 G.T., Queensgate House, South Church
Street Grand Cayman, Cayman Islands    

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