**EXHIBIT 10.34**

 

AGREEMENT TO OFFSET AND CONVERT

 

This Agreementto Offset Certain Demand Notes, Convertible notes and Subordinated PromissoryNotes and Convert the remaining Demand Notes into Common Stock  is made as of December       , 2003, by and between AXCESSInternational, Inc., a Delaware corporation (the “***AXCESS***”), and Amphion Ventures L.P., aDelaware limited partnership (“***Amphion***”).

 

RECITALS

 

A.                                   AXCESS issued to Amphion a 10% ConvertibleNote due September 30, 2002 (the “***Convertible Note***”) having a principal amountup to Six Million Dollars ($6,000,000.00) and as of November 30, 2003 has anoutstanding principal balance of $2,477,979.04 and unpaid interest of$784,693.54.

 

B.                                     AXCESS also issued to Amphion a Demand Noteon November 14, 2001 and February 28, 2002 (the “***Demand Notes***”).  As of November 30, 2003 AXCESS hasoutstanding Principal balances of $300,000 and $1,747,021.85 under the Demandnotes, respectively.  AXCESS also owesinterest of $27,344.18 and $193,598.23, respectively.

 

C.                                     Amphion issued to AXCESS a SubordinatedPromissory Note due March 31, 2002 (the “***Promissory Note***”) having a principal amountof Four Million Dollars ($4,000,000.00) and as of November 30, 2003 has anoutstanding principal balance of $3,902,374.62 and unpaid interest of$1,407,405.17.

 

AGREEMENT

 

NOW THEREFORE, in considerationof the foregoing and the mutual covenants contained herein, the parties heretoagree as follows:

 

1.                                       Offset.   Amphion agree to offset the $5,309,779.79of principal and interest owed to them by AXCESS against $3,262,672.58(principal and interest) owed them for the Convertible Note and  $2,047,107.21 (principal and interest) owedthem for Demand Notes.

 

2.                                       Conversion.  AXCESS and Amphion agree that the remaining$220,857.05 owed to Amphion by AXCESS for Demand Notes and unpaid interest willbe converted into Common Stock and Warrants as follows:

 

i.              AXCESSupon the execution of this Agreement shall issue and deliver to Amphion 294,476shares of the Common Stock, and

 

ii.           Asfurther consideration for entering into this Agreement upon the execution ofthis Agreement AXCESS shall issue and deliver to Amphion a warrant to purchaseup to 294,476 shares of the Common Stock of AXCESS.  The exercise prise of the warrants will be $2.75 and they willexpire on November 30, 2005.

 

3.                                       SecuritiesAct Legend; Registration Rights. The Securities issued in connection with this agreement  (hereinafter collectively, the “Shares”)will not be registered under the Securities Act of 1933, as amended (the “SecuritiesAct”).  Certificates representing theShares shall bear a restrictive legend substantially to the effect of thefollowing:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAWS, OR THE SECURITIESLAWS OF ANY OTHER JUSRISDICTION.  THEYMAY NOT BE SOLD OR TRANSFERRED IN THE ABSENSE OF AN EFFECTIVE REGISTRATIONSTATEMENT UNDER THOSE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION THEREFROM.  ADDITIONAL RESTRICTIONS REGARDING THE TERMSUNDER WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE CONVERTED INTOVOTING OR NON-VOTING COMMON STOCK OF THE COMPANY, AS THE CASE MAY BE, ARE SETFORTH IN THE RESPECTIVE CERTIFICATES OF DESIGNATIONS, PREFERENCES, POWERS ANDRIGHTS FOR THE SHARES.

 

4.                                       Representationsand Warranties by AXCESS.  AXCESShereby represents and warrants to Amphion as follows:

 

a.               AXCESS is a corporation duly organized,validly existing and in good standing under the laws of the state of Delaware,and has the corporate power and authority to execute and deliver thisagreement, to issue the Shares on the basis described herein and otherwise toperform its obligations under this agreement.

 

a.               The execution and delivery by the AXCESSof this letter agreement, the issuance of the Shares, and the performance byAXCESS of its obligations hereunder, have been duly authorized by all requisitecorporation action on the part of AXCESS and will not (a) violate any provisionof law, statute, rule or

 

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regulation or any orderof any court or other agency of government, (b) conflict with or violate theCertificate of Incorporation or By-Laws of AXCESS, in each case as amended, or(c) violate, conflict with or constitute (with due notice or lapse of time orboth) a default under any indenture, mortgage, lease, license, agreement orother contract or instrument or result in the creation or imposition of anylien, charge or encumbrance of any nature upon the properties or assets ofAXCESS or any of its subsidiaries, in each case if such violation, conflict,default, lien, charge or encumbrance would have a material adverse effect onAXCESS.

 

a.               This letter has been duly executed anddelivered by AXCESS and constitutes the valid and legally binding obligation ofAXCESS, enforceable in accordance with its terms, except to the extent theenforceability hereof may be limited by applicable bankruptcy, moratorium orsimilar laws affecting the rights of creditors generally.

 

a.               Based in part upon the representationsand warranties of Amphion by, any federal, state or other governmentaldepartment, commission, board, bureau, agency, or instrumentality or any thirdparty is or will be necessary for the execution and delivery of this agreementby AXCESS and the issuance of the Shares hereunder, other that the filing of anotice of sale on Form D with the Securities and Exchange Commission inaccordance with the rules and regulations thereof under the Securities Act

 

a.               The Shares are duly authorized, validlyissued, fully paid and non-assessable shares of Common Stock and are notsubject to any preemptive rights.

 

5.                                       Representationsand Warranties by Amphion.  Amphionhereby represents and warrants to AXCESS as follows:

 

a.               Amphion is acquiring the Shares for itsown account, for investment and not with a view to the distribution thereofwithin the meaning of the Securities Act.

 

a.               Amphion understands that the Shares havenot been registered under the Securities Act, by reason of their issuance byAXCESS in transactions exempt from the registration requirements of theSecurities Act, and that the Shares must be held by Amphion indefinitely unlessa subsequent disposition thereof is registered under the Securities Act or isexempt from such registration

 

a.               Amphion further understands that theexemption from registration afforded by Rule 144 (the provisions of which areknown to it) promulgated under the Securities Act depends on the satisfactionof various conditions, and that, if applicable, Rule 144 may afford the basisfor sales only in limited amounts, after compliance with the holding periodsand other provisions thereof.

 

a.               Amphion understands that its investmenthereunder involves substantial risks and represents and warrants that it hasmade such independent examinations and investigations of AXCESS as it hasdeemed necessary in making its investment decision, and Amphion furtherrepresents and warrants that it has had sufficient access to the officers,directors, books and records of AXCESS as it has deemed necessary to conductsuch examination and investigation and make such investment decision

 

a.               Amphion is able to bear the economic riskof the investment contemplated by this agreement and has such knowledge andexperience in financial and business matters that it is capable of evaluatingthe merits and risks of the investment contemplated by this agreement

 

6.                                       Miscellaneous.

 

a.               This letter agreement constitutes ourentire agreement with respect to the subject matter hereof.  This letter agreement may not be modified oramended of any provision hereof waived except by an instrument in writingsigned by AXCESS and Amphion.

 

a.               This letter agreement shall be bindingupon and inure to the benefit of the parties hereto and their respectivesuccessors and permitted assigns.  Therights of Amhion hereunder shall be assignable to any other holder of theShares.  Except as provided in theimmediately preceding sentence, this agreement and the rights of Amhionhereunder shall not be assignable, and any purported assignment hereof orthereof shall be void

 

a.               This letter agreement may be executed inany number of counterparts and on separate counterparts, each of which shall bean original instrument, but all of which together shall constitute a singleagreement.  One or more signature pagesfrom any counterpart of this letter agreement may be attached to any other

 

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counterpart of thisletter agreement without in any way changing the effect thereof.  This letter agreement shall be effectivewhen executed and delivered by AXCESS and Amhion.

 

a.               All notices, requests, demands, consents,waivers, or other communications made hereunder to any party or holder ofShares shall be in writing and shall be deemed to have been duly given ifdelivered personally or sent by nationally-recognized overnight courier, facsimileor by first class registered or certified mail, return receipt requested,postage prepaid, addressed to such party at the address set forth below:

 
| AXCESS:          | 3208  Commander Drive                    |
|------------------|------------------------------------------|
|             | Carrollton,  Texas 75093                 |
|             | Attention:  Chief Financial Officer |
|             | Facsimile No.:  972-407-9085        |
|             |                                     |
| With a Copy  to: | Craig G.  Ongley                         |
|             | Vial,  Hamilton, Koch & Knox, LLP    |
|             | 1700 Pacific  Avenue, Suite 2800         |
|             | Dallas,  Texas 75201                     |

 

or to such other address as the party to whom suchcommunication is to be given may have furnished to the other party in writingin accordance herewith.  All suchnotices, requests, demands, consents, waivers or other communications shall bedeemed to have been delivered (a) in the case of personal delivery, on the dateof delivery, (b) if sent by facsimile, on the date sender receives aconfirmation receipt, (c) if sent by overnight courier, on the next businessday following the date sent and (d) in the case of mailing, on the thirdbusiness day following such mailing

 

a.               Entire Agreement. This Agreement sets forth the entire agreement of the parties heretowith respect to the subject matter hereof.

 

a.               Governing Law. This Agreement shall be governed by, and construed and enforced inaccordance with, the laws of the State of Delaware.

 

 

IN WITNESS WHEREOF, theundersigned have executed this Agreement as of the date first written above.

 

 
|   | **AXCESS  INTERNATIONAL, INC.,**                                          |
|--------|---------------------------------------------------------------------------|
|   |                                                                      |
|   | a Delaware  corporation                                                   |
|   | By:                                                                       | /s/ Allan Frank |   |
|   |                                                                      |
|   | Name:                                                                     |   | Allan Frank |   |   |
|   | Title:                                                                    |   | Vice President  and CFO |   |   |
|   |                                                                      |
|   |                                                                      |
|   | **AMPHION  VENTURES, L.P.**                                               |
|   |                                                                      |
|   | a Delaware  limited partnership  by Amphion Partners LLC, General Partner |
|   |                                                                      |
|   | By:                                                                       | /s/ Robert J. Bertoldi |   |
|   |                                                                      |
|   | Name:                                                                     |   | Robert J.  Bertoldi |   |   |
|   | Title:                                                                    |   | Managing Member |   |   |
|        |                                                                           |  |  |  |  |  |  |  |  |  |  |

 

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