Document:

exv10w5

 

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.

 

 

          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	 	 

8exv10w6

 

Exhibit 10.6

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

     It is hereby certified that:

     I. The name of the corporation is JMAR Technologies, Inc. (the “Corporation”), a Delaware
corporation.

     II. The certificate of incorporation of the Corporation, as amended, authorizes the issuance
of 5,000,000 shares of Preferred Stock, $.01 par value per share, and expressly vests in the Board
of Directors of the Corporation the authority provided therein to issue all of said shares in one
or more Series by resolution or resolutions, to establish the designation and number and to fix the
relative rights and preferences of each series to be issued.

     III. The Board of Directors of the Corporation, pursuant to the authority expressly vested in
it, has adopted the following resolution creating a class of Series I Preferred Stock:

     RESOLVED, that a portion of the authorized shares of Preferred Stock of the Corporation shall
be designated as a separate series possessing the rights and preferences set forth below:

     1. Designation: Number of Shares. The designation of said series of Preferred Stock
shall be Series I Cumulative Convertible Preferred Stock (the “Series I Preferred Stock”). The
number of shares of Series I Preferred Stock shall be 639,398. Each share of Series I Preferred
Stock shall have a stated value equal to $10 (as adjusted for any stock dividends, combinations or
splits with respect to such shares) (the “Stated Value”), and $.01 par value.

     2. Ranking. The Series I Preferred Stock shall rank (i) prior to the Corporation’s
common stock, par value $.01 per share (“Common Stock”); (ii) prior to any class or series of
capital stock of the Corporation hereafter created (unless such class or series of capital stock
specifically, by its terms, ranks senior to or Pari Passu with the Series I Preferred Stock); (iii)
on a parity with any class or series of capital stock of the Corporation hereafter created
specifically ranking, by its terms, on parity with the Series I Preferred Stock (“Pari Passu
Securities”); and (iv) junior to any class or series of capital stock of the Corporation hereafter
created specifically ranking, by its terms, senior to the Series I Preferred Stock (“Senior
Securities”), in each case as to distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary.

     3. Dividends.

          (a) The Holders of outstanding shares of Series I Preferred Stock shall be entitled to receive
preferential dividends in cash out of any funds of the Corporation legally available at the time
for declaration of dividends before any dividend or other distribution will be paid or declared and
set apart for payment on any shares of any Common Stock, or other class of stock presently
authorized or to be authorized, other than the Corporation’s Series G Preferred Stock which shall
be Senior Securities (the Common Stock, and such other stock being hereinafter collectively the
"Junior Stock”), at a per annum rate equal to the “prime rate” published in the Wall
Street Journal from time to time, on the Stated Value per share of Series I
Preferred Stock (the “Dividend Rate”) then outstanding payable monthly commencing April 1, 2006 and
on the first business day of each consecutive calendar month thereafter

 

 

(each a “Monthly Dividend Payment”); provided, however, that dividend payments may be made in fully paid and non assessable
registered shares of the Corporation’s Common Stock at the Conversion Price (as defined herein)
then in effect, and the issuance of such additional shares shall constitute full payment of such
dividend.

          (b) The dividends on the Series I Preferred Stock at the rates provided above shall be
cumulative whether or not earned so that, if at any time full cumulative dividends at the rate
aforesaid on all shares of the Series I Preferred Stock then outstanding from the date from and
after which dividends thereon are cumulative to the end of the monthly dividend period next
preceding such time shall not have been paid or declared and set apart for payment, or if the full
dividend on all such outstanding Series I Preferred Stock for the then current dividend period
shall not have been paid or declared and set apart for payment, the amount of the deficiency shall
be paid or declared and set apart for payment (but without interest thereon) before any sum shall
be set apart for or applied by the Corporation or a subsidiary of the Corporation to the purchase,
redemption or other acquisition of the Series I Preferred Stock or Parri Passu Securities and
before any dividend or other distribution shall be paid or declared and set apart for payment on
any Junior Stock and before any sum shall be set aside for or applied to the purchase, redemption
or other acquisition of Junior Stock.

          (c) Dividends on all shares of the Series I Preferred Stock shall begin to accrue and be
cumulative from and after the date of issuance thereof. A dividend period shall be deemed to
commence on the day following a Monthly Dividend Payment date herein specified and to end on the
next succeeding Monthly Dividend Payment date herein specified.

     4. Liquidation Rights.

          (a) Upon the dissolution, liquidation or winding-up of the Corporation, whether voluntary or
involuntary, the Holders of the Series I Preferred Stock shall be entitled to receive before any
payment or distribution shall be made on the Junior Stock, out of the assets of the Corporation
available for distribution to stockholders, the Stated Value per share of Series I Preferred Stock
then outstanding and all accrued and unpaid dividends to and including the date of payment thereof.
Upon the payment in full of all amounts due to Holders of the Series I Preferred Stock, the
holders of the Common Stock of the Corporation and any other class of Junior Stock shall receive
all remaining assets of the Corporation legally available for distribution. If the assets of the
Corporation available for distribution to the holders of the Series I Preferred Stock shall be
insufficient to permit payment in full of the amounts payable as aforesaid to the holders of Series
I Preferred Stock upon such liquidation, dissolution or winding-up, whether voluntary or
involuntary, then all such assets of the Corporation shall be distributed ratably among the holders
of the Series I Preferred Stock.

          (b) Neither the purchase nor the redemption by the Corporation of shares of any class of stock
nor the merger or consolidation of the Corporation with or into any other corporation or
corporations nor the sale or transfer by the Corporation of all or any part of its assets shall be
deemed to be a liquidation, dissolution or winding-up of the Corporation for the purposes of this
Section 4.

     5. Conversion into Common Stock. Shares of Series I Preferred Stock shall have the
following conversion rights and obligations:

          (a) Subject to the further provisions of this Section 5, each holder of shares of Series I
Preferred Stock shall have the right at any time commencing after the issuance of the Series I
Preferred Stock to such holder to convert such shares into fully paid and non-assessable shares of
Common Stock of the Corporation (as further subject to the limitation set forth in Section 5(i)
below) at the Conversion

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Price provided in Section 5(b) below. All issued or accrued but unpaid
dividends may be converted at the election of the holder simultaneously with the conversion of the
Series I Preferred Stock being converted.

     Notwithstanding anything contained herein to the contrary, no holder of Series I Preferred
Stock shall be entitled to convert pursuant to the terms of this Section 5(a) that amount of the
Preferred Stock convertible into that number of shares of Common Stock which would result in the
Holder’s beneficial ownership (as defined below) of the Corporation’s Common Stock being in excess
of 4.99% of the outstanding shares of Common Stock of the Company. For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to the foregoing, a holder of
Series I Preferred Stock shall not be limited to aggregate conversions of only 4.99%. A holder of
Series I Preferred Stock may void the conversion limitation described in this Section 5(a) upon 75
days prior notice to the Corporation or upon an Event of Default hereunder.

          (b) The number of shares of Common Stock issuable upon conversion of each share of Series I
Preferred Stock shall equal (i) the sum of (A) the Stated Value per share, as adjusted pursuant to
Section 5 hereof, and (B) at the holder’s election, accrued and unpaid dividends on such share,
divided by (ii) 1.16 (the “Conversion Price”).

          (c) The holder of any certificate for shares of Series I Preferred Stock desiring to convert
any of such shares may give notice of its decision to convert the shares into common stock by
delivering, along with the certificate(s) representing the shares of Series I Preferred Stock to be
converted if requested by the Corporation, an executed and completed notice of conversion (“Notice
of Conversion”) to the Corporation (the “Conversion Date”). Each date on which a notice of
conversion is delivered or telecopied to the Corporation in accordance with the provisions hereof
shall be deemed a Conversion Date. A form of Notice of Conversion that may be employed by a holder
is annexed hereto as Exhibit A. The Corporation will cause the transfer agent to transmit the
certificates representing the shares of the Corporation’s Common Stock issuable upon conversion of
the Series I Preferred Stock (and a certificate representing the balance of the Preferred Stock not
so converted, if requested by Purchaser) to the holder by (i) to the extent permitted by the
transfer agent for the Common Stock, crediting the account of the Holder’s prime broker with the
Depository Trust Corporation (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”)
system, or (ii) otherwise, by delivery to the Holder of a stock certificate representing such
shares of Common Stock, within three (3) business days after receipt by the Corporation of the
Notice of Conversion and the certificate(s) representing the shares of Series I Preferred Stock to
be converted (the “Delivery Date”). The Corporation is obligated to deliver to the holder
simultaneously with the aforedescribed Common Stock, at the election of the Holder, additional
Common Stock representing the conversion at the Conversion Price, of dividends accrued on the
Series I Preferred Stock being converted.

          The Corporation understands that a delay in the delivery of the Common Stock in the form
required pursuant to this Section beyond the Delivery Date could result in economic loss to the
Holder. In the event that the Corporation fails to direct its transfer agent to deliver the Common
Stock to the Holder within the time frame set forth in Section 5 and the Common Stock is not
delivered to the Holder by the Delivery Date, as compensation to the Holder for such loss, the
Corporation agrees to pay late payments to the Holder for late issuance of the Common Stock in the
form required pursuant to this Section 5 in the amount equal to $500 per business day after the
Delivery Date. The Corporation shall pay any payments incurred under this Section in immediately
available funds upon demand and, in the case of actual damages, accompanied by reasonable
documentation of the amount of such damages.

          In the case of the exercise of the conversion rights set forth in Section 5(a) the conversion
privilege shall be deemed to have been exercised and the shares of Common Stock issuable upon such

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conversion shall be deemed to have been issued upon the date of receipt by the Corporation of the
Notice of Conversion. The person or 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 and shall on the
same date cease to be treated for any purpose as the record holder of such shares of Series I
Preferred Stock so converted.

          Upon the conversion of any shares of Series I Preferred Stock no adjustment or payment shall
be made with respect to such converted shares on account of any dividend on the Common Stock,
except that the holder of such converted shares shall be entitled to be paid any dividends declared
on shares of Common Stock after conversion thereof.

          The Corporation shall not be required, in connection with any conversion of Series I Preferred
Stock, and payment of dividends on Series I Preferred Stock to issue a fraction of a share of its
Series I Preferred Stock and shall instead deliver a stock certificate representing the next whole
number.

          In the event of any conversions of shares of Series I 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 I Preferred Stock is $6,393,980, the Monthly Amount is $122,178 and the Holder
converted $200,000 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 Date would equal $0, (2) the
principal amount of the Monthly Amount due on the second Repayment Date would equal $44,356 and (3)
the principal amount of the Monthly Amount due on each of the remaining Repayment Dates would be
$122,178.

          (d) The Conversion Price determined pursuant to Section 5(b) shall be subject to adjustment
from time to time as follows:

               (i) In case the Corporation shall at any time (A) declare any dividend or distribution on
its
Common Stock or other securities of the Corporation other than the Series G Preferred Stock, (B)
split or subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common Stock any shares or other
securities of the Corporation, then in each such event the Conversion Price shall be adjusted
proportionately so that the holders of Series I Preferred Stock shall be entitled to receive the
kind and number of shares or other securities of the Corporation which such holders would have
owned or have been entitled to receive after the happening of any of the events described above had
such shares of Series I Preferred Stock been converted immediately prior to the happening of such
event (or any record date with respect thereto). Such adjustment shall be made whenever any of the
events listed above shall occur. An adjustment made to the Conversion Price pursuant to this
Section 5(d)(i) shall become effective immediately after the effective date of the event for the
event.

          (e) (i) In case of any merger of the Corporation with or into any other corporation (other
than a merger in which the Corporation is the surviving or continuing corporation and which does
not result in any reclassification, conversion, or change of the outstanding shares of Common
Stock) then unless the right to convert shares of Series I Preferred Stock shall have terminated,
as part of such merger lawful provision shall be made so that holders of Series I Preferred Stock
shall thereafter have the right to convert each share of Series I Preferred Stock into the kind and
amount of shares of stock and/or other securities or property receivable upon such merger by a
holder of the number of shares of Common Stock into which such shares of Series I Preferred Stock
might have been convertible by the holder immediately prior to such consolidation or merger. Such
provision shall also provide for adjustments that shall be as

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nearly equivalent as may be practicable to the adjustments provided for in Section (d) of this Section 5. The foregoing
provisions of this Section 5(e) shall similarly apply to successive mergers.

               (ii) In case of any sale or conveyance to another person or entity of the property of the
Corporation as an entirety, or substantially as an entirety, in connection with which shares or
other securities or cash or other property shall be issuable, distributable, payable, or
deliverable for outstanding shares of Common Stock, then, unless the right to convert such shares
shall have terminated, lawful provision shall be made so that the holders of Series I Preferred
Stock shall thereafter have the right to convert each share of the Series I Preferred Stock into
the kind and amount of shares of stock or other securities or property that shall be issuable,
distributable, payable, or deliverable upon such sale or conveyance with respect to each share of
Common Stock immediately prior to such conveyance.

          (f) Whenever the number of shares to be issued upon conversion of the Series I Preferred Stock
is required to be adjusted as provided in this Section 5, the Corporation shall forthwith compute
the adjusted number of shares to be so issued and prepare a certificate setting forth such adjusted
conversion amount and the facts upon which such adjustment is based; and the Corporation shall mail
to each holder of record of Series I Preferred Stock notice of such adjusted conversion price.

          (g) In case at any time the Corporation shall propose:

               (i) to pay any dividend or distribution payable in shares upon its Common Stock or make any
distribution (other than cash dividends) to the holders of its Common Stock; or

               (ii) to offer for subscription to the holders of its Common Stock any additional shares of any
class or any other rights; or

               (iii) any capital reorganization or reclassification of its shares or the merger of the
Corporation with another corporation (other than a merger in which the Corporation is the surviving
or continuing corporation and which does not result in any reclassification, conversion, or change
of the outstanding shares of Common Stock); or

               (iv) the voluntary dissolution, liquidation or winding-up of the Corporation;

then, and in any one or more of said cases, the Corporation shall cause at least fifteen (15) days
prior notice of the date on which (A) the books of the Corporation shall close or a record be taken
for such stock dividend, distribution, or subscription rights, or (B) such capital reorganization,
reclassification, merger, dissolution, liquidation or winding-up shall take place, as the case may
be, to be mailed to the Transfer Agent for the Series I Preferred Stock and to the holders of
record of the Series I Preferred Stock.

          (h) So long as any shares of Series I Preferred Stock shall remain outstanding and the holders
thereof shall have the right to convert the same in accordance with provisions of this Section 5
the Corporation shall at all times reserve from the authorized and unissued shares of its Common
Stock a sufficient number of shares to provide for such conversions.

          (i) Overall Limit on Common Stock Issuable. The number of shares of Common Stock
issuable by the Corporation and acquirable by the Holder under all securities issued by the Company
to the Holder, shall not exceed an aggregate of 7,011,900 shares, subject to appropriate adjustment
for stock splits, stock dividends, or other similar recapitalizations affecting the Common Stock
(the “Maximum Common Stock Issuance”), unless the issuance of shares hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Corporation’s shareholders provided,

- 5 -

 

however, that any shares of Common Stock issued to Holder upon conversion of convertible
securities or upon exercise of warrants and subsequently sold by the Holder shall be excluded from
the calculation of the aggregate Maximum Common Stock Issuance. If at any point in time and from
time to time the number of shares of Common Stock issued pursuant to conversion of the Preferred
Stock, together with the number of shares of Common Stock that would then be issuable by the
Corporation in the event of the conversion or exercise of all other securities issued by the
Company, would exceed the Maximum Common Stock Issuance but for this Section, the Corporation shall
promptly call a shareholders meeting to obtain shareholder approval for the issuance of the shares
of Common Stock hereunder in excess of the Maximum Common Stock Issuance if required by the NASDAQ
Capital Market listing requirements.

          (j) The Corporation shall pay the amount of any and all issue taxes (but not income taxes)
which may be imposed in respect of any issue or delivery of stock upon the conversion of any shares
of Series I Preferred Stock, but all transfer taxes and income taxes that may be payable in respect
of any change of ownership of Series I Preferred Stock or any rights represented thereby or of
stock receivable upon conversion thereof shall be paid by the person or persons surrendering such
stock for conversion.

          (k) Required Conversions. In the event that the volume weighted average price (as determined
using the AQR function on the Bloomberg terminal) of the Corporation’s Common Stock for all trades
during any consecutive eleven (11) day trading period on the Principal Market is at a price
greater than 118% of the Conversion Price, then the Corporation may, at its sole option, provide
the Holder irrevocable written notice (“Call Notice”) within three (3) business days following
such eleven (11) day period requiring the conversion at the Conversion Price of all or a portion
of the Stated Value held by the Holder as of the date set forth in such Call Notice (the “Call
Date”), which such date shall be at least 11 trading days following the date of the Call
Notice, provided a registration statement covering resales of that number of shares of Common
Stock then issuable upon conversion of this Preferred Stock pursuant to such Call Notice has been
declared effective and is available for use, or the shares are tradable under Rule 144(k). The
amount of Common Stock to be issued in connection with any such conversion pursuant to a
particular Call Notice pursuant to this Section 5(k) shall not exceed 25% of the aggregate
dollar trading volume of the Common Stock for the 11 trading days immediately preceding the
Call Date. If the volume weighted average price (as determined using the AQR function on the
Bloomberg terminal) of the Common Stock for all trades during such consecutive eleven (11) day
trading period preceding the Call Date falls below 118% of the Conversion Price, then the Holder
will no longer be required to convert the Preferred Stock pursuant to such Call Notice.

     6. Voting Rights. The shares of Series I Preferred Stock shall not have voting
rights.

     7.  Events of Default.

     The occurrence of any of the following events of default (each, an “Event of Default”) shall,
after the applicable period to cure the Event of Default, cause the then applicable Dividend Rate
described in Section 3 hereof to become 20% from and after the occurrence of such event, and the
Holder shall have the option to require the Corporation to redeem the Series I Preferred Stock held
by such Holder by the immediate payment to the Holder by the Corporation of a sum of money equal to
120% of the outstanding Stated Value, plus accrued and unpaid dividends:

          7.1 Failure to Make Payment. The Corporation fails to pay any payment required to be
paid pursuant to the terms of hereof or the failure to timely pay any other sum of money due to the
Holder from the Corporation and such failure continues for a period of three (3) days after written
notice to the Corporation from the Holder.

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          7.2 Breach of Covenant. The Corporation breaches any material covenant or other term
or condition of this Certificate of Designations or the Purchase Agreement in any material respect
and such breach, if subject to cure, continues for a period of five (5) days after written notice
to the Corporation from the Holder.

          7.3 Breach of Representations and Warranties. Any material representation or warranty
of the Corporation made herein, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall have been false or misleading when made.

          7.4 Receiver or Trustee. The Corporation shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business; or such a receiver or trustee shall otherwise be
appointed.

          7.5 Judgments. Except for judgments related to obligations of JMAR Semiconductor,
Inc., which are reflected on the Corporation’s balance sheet, any money judgment, writ or similar
final process shall be entered or filed against Corporation or any of its property or other assets
for more than $250,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five
(45) days.

          7.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Corporation.

          7.7 Stop Trade. An SEC stop trade order or Principal Market trading suspension.

          7.8 Default Under Related Agreements. An Event of Default occurs under and as defined
in any one or more of the following agreements which is not cured during any applicable cure or
grace period: (i) Security Agreement dated March 27, 2006 between the Corporation, certain of its
subsidiaries, and Laurus Master Fund, Ltd., (ii) Secured Non-Convertible Revolving Note, dated
March 27, 2006, (iii) Stock Pledge Agreement dated March 14, 2003 between the Corporation and
Laurus Master Fund, Ltd. and (iv) Pledge and Security Agreement dated March 14, 2003 between the
Corporation and Laurus Master Fund, Ltd., as each such agreement may be amended, modified and
supplemented from time to time.

     8. Mandatory Redemption. In the event any shares of Series I Preferred Stock are
outstanding on August 5, 2008, any remaining Stated Value of such shares shall be redeemed and such
shares shall be cancelled.

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     9. Optional Redemption. The Corporation will have the option of redeeming any
outstanding amount of the Stated Value of the Preferred Stock (“Optional Redemption”) by paying to
the holder 118% of such amount, together with accrued but unpaid dividends thereon and any and all
other sums due, accrued or payable to the holder arising under this certificate or any other
document delivered herewith (“Redemption Amount”) outstanding on the day notice of redemption
(“Notice of Redemption") is delivered to a holder (“Redemption Date”). A Notice of Redemption may
not be given in connection with any portion of Preferred Stock for which a Notice of Conversion has
been given by the holder at any time before receipt of a Notice of Redemption or given pursuant to
the following sentence. The holder may elect within five (5) business days after receipt of a
Notice of Redemption to give the Corporation a Notice of Conversion in connection with some or all
of the amount which was the subject of the Notice of Redemption. The Redemption Amount must be paid
in good funds to the holder no later than the seventh (7th) business day after the
Redemption Date (“Optional Redemption Payment Date”). In the event the Corporation fails to pay
the Redemption Amount by the Optional Redemption Payment Date, then the Redemption Notice will be
null and void. A Notice of Redemption may be given by the Corporation, provided no Event of
Default shall have occurred or be continuing.

     10. Amortization.

               (a) Monthly Payments. Subject to the terms of this Section 10, the Corporation
shall
repay $122,178.00 of the original Stated Value of the Series I 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 of the six
consecutive calendar months (each, a “Repayment Date”) beginning on August 1, 2007 and continuing
through and including January 1, 2008.

               (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 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.

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               (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 I 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 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.

     11. Status of Converted or Redeemed Stock. In case any shares of Series I Preferred
Stock shall be redeemed or otherwise repurchased or reacquired, the shares so redeemed, converted,
or reacquired shall resume the status of authorized but unissued shares of Preferred Stock and
shall no longer be designated as Series I Preferred Stock.

     In witness whereof, JMAR Technologies, Inc. has caused this Certificate to be executed by
Dennis E. Valentine, its Vice President of Finance and Chief Financial Officer, this 28th day of
March, 2006.

JMAR TECHNOLOGIES, INC.

By: /s/ DENNIS E. VALENTINE

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EXHIBIT A

NOTICE OF CONVERSION

(To Be Executed By the Registered Holder in Order to Convert the Series I Convertible Preferred
Stock of JMAR Technologies, Inc.)

     The
undersigned hereby irrevocably elects to convert
                     shares of Series I
Convertible Preferred Stock and $                     of the dividend due, into shares of Common Stock of
JMAR Technologies, Inc. (the “Corporation”) according to the conditions hereof, as of the date
written below.

	 	 	 	 	 	 	 
	Date of Conversion:
	 	 	 	 	 	 
	 	 
	 
	 	 	 	 	 	 
	Applicable
Conversion Price Per Share: 	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Number of Common Shares Issuable Upon This Conversion:	 	 
	 

	 	 	 	 	 

	 	 	 	 	 
	Signature: 
	 	 	 	 
	 	 
	 
	 	 	 	 
	Print
Name: 	 	 
	 

	 	 
	 
	 	 	 	 
	Address:
	 	 	 	 
	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 
	 	 	 	 
	Deliveries Pursuant to this Notice of Conversion Should Be Made to:
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

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EXHIBIT B

FORM OF REPAYMENT ELECTION NOTICE

To: [HOLDER AT HOLDER’S ADDRESS]

     Pursuant to Section 10(b) of the Certificate to Set Forth Designations of Series I Convertible
Preferred Stock (“Preferred Stock”) of JMAR Technologies, Inc. issued on March 27, 2006, we hereby
notify you that we are irrevocably electing to repay the outstanding Monthly Amount (as defined in
the Preferred Stock) due on the Repayment Date (as defined in the Preferred Stock) which occurs on
                    , 20___(CHECK ONE):

	 	______	 	In full in cash on such Repayment Date.
	 
	 	______	 	In full in shares of the Company’s Common Stock within three (3) trading days
following such Repayment Date.
	 
	 	______	 	In part in cash in the amount of $                      on such Repayment Date, and in part
in shares of the Company’s Common Stock (in the amount of                     shares) within three
(3) trading days following such Repayment Date.

	 	 	 	 	 
	 	 	JMAR Technologies, Inc.
	 

	 	By:	 	 
	 

	 	 	 
	 	 	Name:

Title:

- 11 -

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