EXHIBIT 10.11
DEBT CONVERSION AGREEMENT
This Debt Conversion Agreement (the "Agreement") is made as of 28th day of
December, 2004 by and between iSecuretrac Corp., a Delaware corporation (the
"Company"), and Xxxxx Xxxxx (the "Debt Holder").
RECITALS
A. The Debt Holder is the holder of one or more liabilities and
obligations of the Company which is described in Schedule 1 hereto (the
"Obligations"). The outstanding balance and accrued interest of each of the
Obligations is set forth in Schedule 1.
B. In order to facilitate the Company's ability to raise additional equity
capital, the Debt Holder and the Company desire to convert the entire principal
balance of the Obligations, but not the accrued interest thereon, into shares of
the Company's Common Stock, par value ($0.01) per share (the "Common Stock") on
the terms and conditions set forth herein and, in connection therewith to (i)
cancel and forgive the accrued interest on the Obligations, (ii) release all
claims held by the Debt Holder with respect to the Obligations and the payment
of principal and interest thereon, and (iii) effect the release any and all
security interests, liens and other encumbrances on the assets of the Company
held by the Debt Holder as security for the Obligations.
NOW, THEREFORE, in consideration of the mutual promises set forth herein
and of other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, do agree as follows:
AGREEMENT
1. Conversion of Obligations, Forgiveness of Interest and Release of Security.
1.1 Conversion of Obligations into Common Stock. Subject to the terms and
conditions of this Agreement, at the Closing (as defined herein) Debt Holder
agrees to cancel and terminate the Obligations and to convert the entire
outstanding principal balance of the Obligations (which amounts are set forth in
Schedule 1 hereto) into shares of Common Stock at a conversion price of
twenty-three cents ($0.23) per share. In addition, the Debt Holder agrees that
all accrued and unpaid interest on the Obligations through the Closing shall be
cancelled and forgiven at the Closing. By converting the Obligations into Common
Stock, and cancelling and forgiving the interest thereon, the Debt Holder
acknowledges and agrees that the Obligations will be cancelled and terminated in
all respects and for all purposes and that the Debt Holder will be deemed to
have released all claims held by the Debt Holder with respect to the Obligations
and the payment of principal and interest thereon.
1.2 Release of Security Interests. As a condition to the issuance of the
shares of Common Stock in conversion of the Obligations at Closing, Debt Holder
hereby cancels, terminates and releases any and all security interests, liens
and other encumbrances held by or for the benefit of the Debt Holder with
respect to the Obligations in or on the assets, rights or other property of the
Company, including, without limitation, all security interests, liens and other
encumbrances on the patents, trademarks and other intellectual property rights
of the Company (collectively, the "Security Interests"). Debt Holder agrees to
execute and deliver such instruments and documents (including UCC-3 filings) and
take such other action as may be necessary to affect the complete release of all
Security Interests.
1.3 General Release. It is the intention of the parties hereto in
executing this instrument that the same shall be effective as a bar to each and
every claim, demand and cause of action, known or unknown as of the date hereof,
relating to the Obligations. The Debt Holder expressly consents that the above
release shall be given full force and effect according to each and all of its
express terms and provisions, including as well those relating to the unknown
and unsuspected claims, demands and causes of action hereinabove specified.
1.4 Closing; Deliveries.
(a) The conversion of the Obligations into Common Stock shall take place
at a closing (the "Closing") to be held in the offices of the Company, 0000
Xxxxx 000xx Xxxxxx, Xxxxx, Xxxxxxxx, at 10:00 a.m. local time on December 31,
2004.
(b) At the Closing, the Company shall deliver to the Debt Holder a
certificate representing the shares of Common Stock being issued in conversion
of the Obligations.
(c) At the Closing, Debt Holder shall deliver to the Company:
(i) each of the notes or other documents evidencing the Obligations
listed in Schedule 1 which shall be marked as "Cancelled"; and
(ii) such instruments and documents (including UCC-3 filings) and
take such other action as may be necessary to effect the full and complete
release of all Security Interests.
2. Representations and Warranties of the Company. The Company hereby represents
and warrants to Debt Holder that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure so to qualify would
have a material adverse effect on its business or properties.
2.2 Authorization. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and thereunder and the authorization, issuance and delivery of
the shares of Common Stock at Closing has been taken or will be taken prior to
the Closing.
2.3 Valid Issuance of Shares. The shares of Common Stock, when issued,
sold and delivered in accordance with the terms hereof for the consideration
expressed herein, will be duly and validly issued, fully paid and nonassessable
and free of restrictions on transfer other than restrictions on transfer under
Section 3.5 and applicable federal and state securities laws. Based in part upon
the representations of the Debt Holder in this Agreement, the Common Stock will
be issued in compliance with all applicable federal and state securities laws.
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3. Representations and Warranties of the Debt Holder. Debt Holder hereby
represents and warrants to the Company that:
3.1 Authorization. The Debt Holder has full power and authority to enter
into this Agreement. All corporate or other action on the part of the Debt
Holder, and if applicable, its officers, directors, shareholders and/or partners
necessary for the authorization, execution and delivery of this Agreement, and
the performance of all obligations of Debt Holder hereunder has been taken or
will be taken prior to the Closing. This Agreement, when executed and delivered
by Debt Holder, will constitute valid and legally binding obligations of Debt
Holder, enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or any other laws of general application affecting enforcement of
creditors rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies.
3.2 Acquiring Shares Entirely for Own Account. Debt Holder hereby
represents that the shares of Common Stock to be issued to Debt Holder hereunder
will be acquired for investment for Debt Holder's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that Debt Holder has no present intention of selling the same. By executing
this Agreement, Debt Holder further represents that Debt Holder does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell to any of the shares of Common Stock to be issued hereunder.
3.3 Accredited Investor. Debt Holder is an accredited investor as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act and has such
knowledge and experience in financial and business matters to be capable of
evaluating the risks and merits of the shares of Common Stock.
3.4 Disclosure of Information. The Debt Holder, if not an officer of the
Company, has (i) had an opportunity to discuss the Company's business,
management, financial affairs and the terms and conditions of the issuance of
the shares of Common Stock hereunder with the Company's management; (ii) not
been offered shares of Common Stock by any form of advertisement, notice,
article or other solicitation, whether broadcast over television, radio, seminar
or Internet, and (iii) relied in making its investment decision exclusively the
foregoing investigation and on the representations and warranties contained in
this Agreement.
3.5 Restricted Stock.
(a) The Debt Holder understands that issuance of the shares of Common
Stock to the Debt Holder has not been registered under the Securities Act of
1933, as amended (the "Securities Act"), by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Debt Holder's representations as expressed herein. The Debt Holder
understands that the shares of Common Stock are "restricted securities" under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, Debt Holder must hold the shares of Common Stock indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. The Debt Holder further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the shares of Common Stock, and on requirements
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relating to the Company which are outside of such Debt Holder's control, and
which the Company is under no obligation and may not be able to satisfy.
(b) Notwithstanding the paragraph (a) of this Section 3.5, the Company
will enter into a registration rights agreement relating to the registration of
the shares of its Common Stock issued to the Debt Holder under which the Company
will agree to register, at the Company's expense, such Common Stock under the
Securities Act for resale by the Debt Holder.
3.6 Legend. The Debt Holder understands that the shares of Common Stock
will bear a legend required by the Securities Act or by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended. The Company may instruct its transfer agent not to
register the transfer of any shares of Common Stock until and unless the
conditions specified in the legend is satisfied.
4. Conditions of the Debt Holder's Obligations at Closing. The obligations of
Debt Holder to the Company under this Agreement are subject to the fulfilment on
or before the Closing of each of the following conditions, unless otherwise
waived:
4.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true and correct in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied in all
material respects with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing.
4.3 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance of the shares of
Common Stock pursuant to this Agreement shall be obtained and effective as of
the Closing.
5. Conditions of the Company's Obligations at Closing. The obligations of the
Company to Debt Holder under this Agreement are subject to the fulfilment on or
before the Closing of each of the following conditions, unless otherwise waived:
5.1 Representations and Warranties. The representations and warranties of
the Debt Holder contained in Section 3 shall be true and correct on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed by Debt Holder on or prior to the Closing shall
have been performed or complied with in all material respects.
5.3 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
shares of Common Stock pursuant to this Agreement shall be obtained and
effective as of the Closing.
6. Miscellaneous.
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6.1 Further Actions. The Company and Debt Holder agree that in case at any
time after the Closing any further action is necessary or desirable to carry out
the purposes of this Agreement, each of the parties hereto will take such
further action (including without limitation, the execution and delivery of such
further instruments and documents) as any other party hereto may reasonably
request.
6.2 Survival of Warranties. Unless otherwise set forth in this Agreement,
the warranties, representations and covenants of the Company and Debt Holder
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of one (1) year
following the Closing.
6.3 Transfer; 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. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.4 Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
6.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.6 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.7 Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page, or as subsequently modified
by written notice, and if to the Company, 0000 Xxxxx 000xx Xxxxxx, Xxxxx,
Xxxxxxxx, 00000.
6.8 Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
6.09 Amendments and Waivers. Any term of this Agreement may be amended or
waived only with the written consent of the Company and the Debt Holder. Any
amendment or waiver affected in accordance with this Section 6.09 shall be
binding upon the Debt Holder and each transferee of the Common Stock, each
future holder of all such securities, and the Company.
6.10 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
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agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.11 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.12 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly cancelled.
6.13 Third Party Beneficiaries. Except as specifically provided in
Sections 6.3 and 6.09 hereof, no provision of this Agreement is intended for the
benefit of any party other than the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Debt Conversion
Agreement as of the date first written above.
DEBT HOLDER
/s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
ISECURETRAC CORP.
/s/ Xxxxx X. Xxxx
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Xxxxx X. Xxxx
Chief Financial Officer
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Schedule 1
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Principal Interest Origination Maturity Accrued
Account Name at 12/28/04 Rate Date Date Interest
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Note Payable - Xxxxx Xxxxx $576,388 10.00% 06/02 - 12/02 06/03 - 12/03 $14,048
