**Exhibit10.36**

 

AGREEMENT TO CONVERT

 

This Agreement to Convert Senior Promissory Note intoCommon Stock of AXCESS is made as of January 16, 2004, by and between AXCESSInternational, Inc., a Delaware corporation (the “***AXCESS***”), and J.P. Morgan SBIC LLC (formerlyknown as J.P. Morgan Investment Corporation), a Delaware corporation (“***JP Morgan***”).

 

RECITALS

 

A.           AXCESS issued to JPMorgan a Senior Promissory Note (“***Note***”) originally entered on June 25, 1997 and amendedthe last amendment was on April 12, 2002. The Note was due on December 31, 2003and as of December 31, 2003 has an outstanding principal balance of $400,000.00and unpaid interest thereon of $169,795.79.

 

B.             JP Morgan currentlyholds 2 shares of AXCESS Series J Preferred Stock ***(“Series J”),*** and desires to convert sharesinto Voting Common Shares of AXCESS as provided in Section 5 of the Certificateof Designations, Preferences, Powers and Rights of Series J Preferred Stock.

 

C.             JP Morgan currentlyholds 9 shares of AXCESS Series I Preferred Stock ***(“Series I”),*** and desires to convert sharesinto Voting Common Shares of AXCESS as provided in Section 5 of the Certificateof Designations, Preferences, Powers and Rights of Series I Preferred Stock.

 

D.            The Company hasproposed to restructure certain outstanding debts and obligations with itscreditors and debtors (the “***Restructuring***”).

 

E.              As part of and inorder to facilitate the Restructuring, the Company and JP Morgan desire toenter into this Agreement to (i) convert Note, (ii) convert Series J, (iii)convert Series I and (iv) set forth certain of the other terms and conditionsagreed upon in connection with the Restructuring.

 

AGREEMENT

 

NOW THEREFORE, in consideration of the foregoing and the mutualcovenants contained herein, the parties hereto agree as follows:

 

1.                                       Conversion.  AXCESS and JP Morgan agree to convert Note,Series I and Series J along with all unpaid interest and dividends into AXCESSCommon Stock as follows:

 

a.                           AXCESSand JP Morgan agree to convert $569,795.79 owed to JP Morgan by AXCESS pursuantto the Note and unpaid interest thereon into AXCESS Common Stock.  AXCESS, immediately upon the execution ofthis Agreement, shall issue and deliver to JP Morgan 227,918 fully-paid and non

 

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assessable shares of theCommon Stock of AXCESS, and a certificate issued to JP Morgan evidencing theissuance of such shares.

 

b.                          Uponreceipt of the aforementioned stock certificates, JP Morgan shall mark originalnote paid in full and return to AXCESS along with a Letter of Transmittalacknowledging Note has been paid in full and is cancelled.

 

c.                           JPMorgan hereby directs AXCESS to issue 11,173 fully-paid and non-assessableshares of the Common Stock of AXCESS in exchange for all currently held SeriesJ and unpaid dividends.  Upon receipt ofSeries J Preferred Stock Certificate AXCESS shall issue a certificate to JPMorgan evidencing the issuance of such shares.

 

d.                          JPMorgan hereby directs AXCESS to issue 42,590 fully-paid and non-assessableshares of the Common Stock of AXCESS in exchange for all currently held SeriesI and unpaid dividends.  Upon receipt ofSeries I Preferred Stock Certificate AXCESS shall issue a certificate to JPMorgan evidencing the issuance of such shares.

 

2.                                       Registration          AXCESS agrees to include all 281,681shares of Common Stock of AXCESS to be held by JP Morgan (the “RegistrableShares”) following the execution of this agreement in the next SB-2Registration Statement (or any other registration statement filed with theCommission to register shares of Common Stock) filed by or on behalf of AXCESSafter the date hereof.  AXCESS will useits best efforts to have the said registration statement filed with, anddeclared effective by, the Securities and Exchange Commission no later thanJune 30, 2004.  If such registrationstatement is not declared effective by such date, AXCESS shall use its bestefforts thereafter to effectuate the effectiveness of such registrationstatement.

 

a.               Preparation andFiling If and when AXCESS is under anobligation pursuant to the provisions of this agreement to use its best effortsto effect the registration of any Registrable Shares, AXCESS shall, asexpeditiously as practicable:

 

1.               Furnish to JPMorgan, at least five days before filing the registration statement thatregisters such Registrable Shares, copies of all documents proposed to be filedin connection with such registration and all amendments or supplements thereto;

 

2.               Prepare and filewith the Securities and Exchange Commission (the “Commission”) such amendmentsand supplements to such registration statement used in connection therewith asmay be necessary to keep such registration statement effective for at least aperiod of 90 days or until all of such Registrable Shares, have been disposedof (if earlier) and to comply with

 

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the provisions of theSecurities Act with respect to the sales or other disposition of suchRegistrable Shares;

 

3.               Promptly notify JPMorgan in writing (i) of the receipt by AXCESS of any notification with respectto any comments by the Commission with respect to such registration statementor any amendment or supplement thereto or any request by the Commission for theamending or supplementing thereof or for additional information with respectthereto, (ii) of any receipt by AXCESS of any notification with respect to theissuance by the Commission of any stop order suspending the effectiveness ofsuch registration statement or an amendment or supplement thereto or initiationor threatening of any proceeding for that purpose and (iii) of the receipt byAXCESS of any notification with respect to the suspension of the qualificationof such Registrable Shares for sale on any jurisdiction or the initiation orthreatening of any preceding for such purposes;

 

4.               Use its bestefforts to register or qualify such Registrable Shares under such othersecurities or blue sky laws of such jurisdictions as the holders of suchRegistrable Shares reasonably request and do any and all other acts and thingswhich may be reasonably necessary or advisable to enable such holders toconsummate the disposition in such jurisdictions of such holders’ RegistrableShares;

 

5.               Provide a transferagent and registrar (which may be the same entity and which may be AXCESS) forsuch Registrable Shares;

 

6.               Subject to all theother provisions of this Agreement, use its best efforts to take all othersteps necessary to effect the registration of such Registrable Sharescontemplated hereby.

 

b.              Expenses       All expenses incurred by AXCESS incomplying with this agreement, including, without limitation, all registrationand filing fees (including all expenses incident to filing with the NationalAssociation of Securities Dealers, Inc.) fees and expenses of complying withthe securities and blue-sky laws. Printing expenses, fees and expenses ofAXCESS’s counsel and accountants and reasonable fees and expenses of counsel toJP Morgan (not to exceed $1,000.00), shall be paid by AXCESS.

 

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i.      Indemnification            

 

a.               In connection withany registration of any Registrable Shares under the Securities Act pursuant tothis Agreement AXCESS shall indemnify and hold harmless the holders ofRegistrable Shares, each underwriter, broker, or any person acting on behalf ofthe holders of Registrable Shares, and each other person, if any, who controlsany of the foregoing persons within the meaning of the Securities Act againstlosses, claims, damages or liabilities, joint or several (or actions in respectthereof), to which any of the foregoing persons may become subject under theSecurities Act or otherwise, insofar as such losses, claims, damages orliabilities (or actions in respect thereof) arise out of or are based upon anuntrue statement or allegedly untrue statement of a material fact contained inthe registration statement under which such Registrable Shares were registeredunder the Securities Act, any preliminary prospectus contained therein orotherwise filed with the Commission, any amendment or supplement thereto or anydocument incident to registration or qualification of any Registrable Shares,or arise out of or are based upon the omission or alleged omission to statetherein a material fact required to be stated therein or necessary to make thestatements therein not misleading or, with respect to any prospectus, necessaryto make the statements therein in light of the circumstances under which theywere made not misleading, or any violation by AXCESS of the Securities Act orstate securities or blue sky laws applicable to AXCESS and related to action orinaction required by AXCESS in connection with such registration orqualification under such state securities or blue sky laws;  and shall reimburse the holders ofRegistered Shares, such underwriters, such broker or such other person actingon behalf of the holders Registable Shares and each such controlling person forany legal or other expenses reasonably incurred by any of them in connectionwith investigating or defending any such loss, claim, damage, liability or action.

 

b.              Promptly afterreceipt by an indemnified party of notice of the commencement of any actioninvolving a claim referred to in this Section 2A-3, such indemnified partywill, if a claim in respect thereof is made against party, give written noticeto the latter of the commencement of such action.  The failure of any indemnified party to notify an indemnifyingparty of such action shall not relieve the indemnifying party from anyliability in respect of such action that it may have to such indemnified partyon account of this Section 2A – iii.

 

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c.               If theindemnification provided for in this Section 2A- iii is held by a court ofcompetent jurisdiction to be unavailable to an indemnified party with respectto any loss, claim, damage, liability or action referred to herein, then theindemnifying party, in lieu of indemnifying such indemnified party hereunder,shall contribute to the amounts paid or payable by such indemnified party as aresult of such loss, claim, damage, liability or action in such proportion asis appropriate to reflect the relative fault of the indemnifying party on theone hand and of the indemnified party on the other in connection with thestatements or omissions which resulted in such loss, claim, or damage,liability or action as well as any other relevant equitableconsiderations,  The relative fault ofthe indemnifying party and of the indemnified party shall be determined byreference to, among other things, whether the untrue or alleged untruestatement of a material fact or the omission or alleged omission to state amaterial fact relates to information supplied by the indemnifying party or bythe indemnified party and the parties’ relative intent, knowledge, access toinformation and the opportunity to correct or prevent such statement oromission.  The parties agree that itwould not be just and equitable if contribution pursuant hereto were determinedby pro rata allocation or by any other method or allocation which does not takeaccount of the equitable considerations referred to herein.  No person guilty of fraudulentmisrepresentation shall be entitled to contribution from any person.

 

3.                                       SecuritiesAct Legend; Registration Rights. The Securities issued in connection with this agreement will not beregistered under the Securities Act of 1933, as amended (the “SecuritiesAct”).  Certificates representing theRegistrable Shares shall bear a restrictive legend substantially to the effectof the following only until such time as the Registrable Shares are registeredunder a registration statement declared effective under the Securities Act:

 

THE SECURITIESREPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,OR APPLICABLE STATE SECURITIES LAWS, OR THE SECURITIES LAWS OF ANY OTHERJUSRISDICTION.  THEY MAY NOT BE SOLD ORTRANSFERRED IN THE ABSENSE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSESECURITIES LAWS OR PURSUANT TO AN EXEMPTION THEREFROM.

 

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

 

a.               AXCESSis a corporation duly organized, validly existing and in good standing underthe laws of the State of Delaware, and has the corporate power and authority toexecute and deliver this agreement, to issue the Registrable Shares on thebasis described herein and otherwise to perform its obligations under thisagreement.

 

b.              Theexecution and delivery by the AXCESS of this letter agreement, the issuance ofthe Registrable Shares, and the performance by AXCESS of its obligationshereunder, have been duly authorized by all requisite corporation action on thepart of AXCESS and will not (a) violate any provision of law, statute, rule orregulation or any order of any court or other agency of government, (b)conflict with or violate the Certificate of Incorporation or By-Laws of AXCESS,in each case as amended, or (c) violate, conflict with or constitute (with duenotice or lapse of time or both) a default under any indenture, mortgage,lease, license, agreement or other contract or instrument or result in thecreation or imposition of any lien, charge or encumbrance of any nature uponthe properties or assets of AXCESS or any of its subsidiaries, in the case ofclauses (a) and (c) if such violation, conflict, default, lien, charge orencumbrance would have a material adverse effect on AXCESS.

 

c.               Thisletter has been duly executed and delivered by AXCESS and constitutes the validand legally binding obligation of AXCESS, enforceable in accordance with itsterms, except to the extent the enforceability hereof may be limited byapplicable bankruptcy, moratorium or similar laws affecting the rights ofcreditors generally.

 

d.              Basedin part upon the representations and warranties of JP Morgan by, any federal,state or other governmental department, commission, board, bureau, agency, orinstrumentality or any third party is or will be necessary for the executionand delivery of this agreement by AXCESS and the issuance of the Shareshereunder, other that the filing of a notice of sale on Form D with theSecurities and Exchange Commission in accordance with the rules and regulationsthereof under the Securities Act

 

e.               TheRegistrable Shares are duly authorized, validly issued, fully paid andnon-assessable shares of Common Stock and are not subject to any preemptiverights.

 

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5.                                       Representationsand Warranties by JP Morgan.  JPMorgan hereby represents and warrants to AXCESS as follows:

 

a.               JPMorgan is acquiring the Registrable Shares for its own account, for investmentand not with a view to the distribution thereof within the meaning of theSecurities Act.

 

b.              JPMorgan understands that the Registrable Shares have not been registered underthe Securities Act, by reason of their issuance by AXCESS in transactionsexempt from the registration requirements of the Securities Act, and that theRegistrable Shares must be held by JP Morgan indefinitely unless a subsequentdisposition thereof is registered under the Securities Act or is exempt fromsuch registration.

 

c.               JPMorgan further understands that the exemption from registration afforded byRule 144 (the provisions of which are known to it) promulgated under the SecuritiesAct depends on the satisfaction of various conditions, and that, if applicable,Rule 144 may afford the basis for sales only in limited amounts, aftercompliance with the holding periods and other provisions thereof.

 

d.              JPMorgan understands that its investment hereunder involves substantial risks andrepresents and warrants that it has made such independent examinations andinvestigations of AXCESS as it has deemed necessary in making its investmentdecision, and JP Morgan further represents and warrants that it has hadsufficient access to the officers, directors, books and records of AXCESS as ithas deemed necessary to conduct such examination and investigation and makesuch investment decision

 

e.               JPMorgan is able to bear the economic risk of the investment contemplated by thisagreement and has such knowledge and experience in financial and businessmatters that it is capable of evaluating the merits and risks of the investmentcontemplated by this agreement.

 

f.                 AXCESShas timely filed with the Commission all forms, reports, schedules, statementsand other documents required to be filed since December 31, 2002 under theSecurities Exchange Act of 1934 (the “Exchange Act”) or Securities Act (suchdocuments as supplemented and amended since the time of filing, collectively,the “SEC Documents”).

 

6.                                       Miscellaneous.

 

a.               Thisletter agreement constitutes our entire agreement with respect to the subjectmatter hereof.  This letter agreementmay not be modified or amended of any provision hereof waived except by aninstrument in writing signed by AXCESS and JP Morgan.

 

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b.              Thisletter agreement shall be binding upon and inure to the benefit of the partieshereto and their respective successors and permitted assigns.  The rights of JP Morgan hereunder shall beassignable to any other holder of the Registrable Shares.  Except as provided in the immediatelypreceding sentence, this agreement and the rights of JP Morgan hereunder shallnot be assignable, and any purported assignment hereof or thereof shall bevoid.  Notwithstanding anything to thecontrary set forth herein, AXCESS may not assign any of its rights orobligations hereunder.

 

c.               Thisletter agreement may be executed in any number of counterparts and on separatecounterparts, each of which shall be an original instrument, but all of whichtogether shall constitute a single agreement. One or more signature pages from any counterpart of this letter agreementmay be attached to any other counterpart of this letter agreement without inany way changing the effect thereof. This letter agreement shall be effective when executed and delivered byAXCESS and JP Morgan.

 

d.              Allnotices, requests, demands, consents, waivers, or other communications made hereunderto any party or holder of Registrable Shares shall be in writing and shall bedeemed to have been duly given if delivered personally or sent bynationally-recognized overnight courier, facsimile or by first class registeredor certified mail, return receipt requested, postage prepaid, addressed to suchparty 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                                                                                                                                    |
|            |                                                                                                                                                   |
| JP Morgan:      | J.P. Morgan Partners  1211 Avenue of the Americas  40th Floor  New York, NY 10036  Attention: Securities Management Group  Facsimile No.: 646-792-6049 |

 

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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

 

e.               EntireAgreement.  This Agreement setsforth the entire agreement of the parties hereto with respect to the subjectmatter hereof.

 

f.                 GoverningLaw.  This Agreement shall begoverned by, and construed and enforced in accordance with, the laws of theState of Delaware.

 

 

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

 

 
|   | **AXCESS  INTERNATIONAL, INC.,**a Delaware corporation                                        |
|--------|-----------------------------------------------------------------------------------------------|
|   |                                                                                          |
|   |                                                                                          |
|   | By:                                                                                           | /s/ Allan Frank |   |
|   |                                                                                          |   |
|   | Name:                                                                                         | Allan Frank |   |
|   |                                                                                          |   |
|   | Title:                                                                                        | VP and CFO |   |
|   |                                                                                          |
|   |                                                                                          |
|   | **J.P. Morgan SBIC LLC (f.k.a. J.P.  Morgan  Investment Corporation),**a Delaware corporation |
|   |                                                                                          |
|   |                                                                                          |
|   | By:                                                                                           | /s/ Puneet Gulati |   |
|   |                                                                                          |   |
|   | Name:                                                                                         | Puneet Gulati |   |
|   |                                                                                          |   |
|   | Title:                                                                                        | Vice President and Assistant Secretary |   |
|        |                                                                                               |  |  |  |  |  |

 

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