NINTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT
Exhibit
99.7
NINTH AMENDMENT TO
NOTE AND WARRANT PURCHASE AGREEMENT
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NINTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT (this “Amendment”) is
dated as of December 14, 2009 (the “Ninth Amendment Effective Date”) by and among ISI
Security Group, Inc., a Delaware corporation formerly known as ISI Detention Contracting Group,
Inc. (the “Company” or the “Borrower”), ▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Fund III,
L.P., a Delaware limited partnership (the “Purchaser”), and for the limited purpose of
Sections 4.2, 4.3 and 4.10 of the Purchase Agreement (as defined below), Argyle Security, Inc., a
Delaware corporation (“Holdings” or “Parent”).
RECITALS:
WHEREAS, the Company, the Purchaser and the Guarantors (as such term is defined in the
Purchase Agreement (as defined below)) (such Guarantors are parties to the Purchase Agreement
solely for the purposes of Section 8 thereof) previously entered into that certain Note and Warrant
Purchase Agreement, dated as of October 22, 2004, as amended by that certain Omnibus First
Amendment to Note and Warrant Purchase Agreement and Warrant dated as of November 1, 2005, by that
certain Omnibus Second Amendment to Note and Warrant Purchase Agreement and Warrant, dated as of
July 31, 2007, by that certain Third Amendment to Note and Warrant Purchase Agreement, dated as of
January 2, 2008, by that certain Fourth Amendment to Note and Warrant Purchase Agreement, dated as
of June 25, 2008, by that certain Fifth Amendment and Waiver to Note and Warrant Purchase
Agreement, dated as of November 13, 2008, by that certain Sixth Amendment to Note and Warrant
Purchase Agreement, dated as of January 8, 2009, by that certain Seventh Amendment to Note and
Warrant Purchase Agreement, dated as of March 30, 2009, and by that certain Eighth Amendment and
Waiver to Note and Warrant Purchase Agreement, dated as of August 3, 2009 (as further amended,
restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”);
WHEREAS, the Company desires, and the Purchaser is willing, to amend the Purchase Agreement,
subject to the terms and conditions of this Amendment;
WHEREAS, this Amendment shall constitute a Transaction Document, and these Recitals shall be
construed as part of this Amendment; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have the respective
meanings given to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the above premises, the agreements contained herein and
other good and valuable consideration, the adequacy, sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Amendment to the Purchase Agreement.
(a) Section 1.1 of the Purchase Agreement is hereby amended by adding the following
new definitions of the terms “DI Promissory Note”, “Ninth Amendment”, “Ninth
Amendment Effective Date”, and “Subordinated Convertible Notes”, in each case in their
proper alphabetical order to read as follows:
“DI Promissory Note” shall mean that certain Senior Subordinated (DI)
Promissory Note dated as of the Ninth Amendment Effective Date, in the original
principal amount of Eight Hundred Ninety-Seven Thousand Two Hundred Fifteen and
18/100 Dollars ($897,215.18), made payable by the Company in favor of the Purchaser,
in substantially the form as set forth in Exhibit A attached to the Ninth
Amendment, with appropriate insertions, as may be amended, restated, substituted,
replaced or otherwise modified from time to time.
“Ninth Amendment” shall mean that certain Ninth Amendment to Note and
Warrant Purchase Agreement, dated as of the Ninth Amendment Effective Date.
“Ninth Amendment Effective Date” shall mean December 14, 2009.
“Subordinated Convertible Notes” shall mean, collectively, those
certain (i) 10% Convertible Subordinated Promissory Notes and (ii) 10% Convertible
Subordinated Bridge Promissory Notes (the “MML Bridge Notes”), each dated as
of the Ninth Amendment Effective Date, issued by Parent collectively to Mezzanine
Management Fund IV A, LP and Mezzanine Management Fund IV Coinvest A, LP, in the
aggregate principal amount of $10,450,000, as such notes may be amended, restated,
substituted, replaced or otherwise modified from time to time, in each instance,
subject to the subordination provisions and other restrictions provided by the terms
of the respective notes.
(b) Section 1.1 of the Purchase Agreement is hereby amended by amending and restating
the following definition in its entirety:
“EBITDA” shall mean, for any period, the sum for such period of: (i)
Consolidated Net Income, plus (ii) Interest Expense, plus (iii) federal and state
income taxes and the Texas Margin Tax, plus (iv) depreciation and amortization, plus
(v) non-cash management compensation expense, plus (vi) certain one-time charges and
expenses of the Company permitted by the Senior Lender, in its sole discretion,
after written notice from the Company, plus (vii) all other non-cash charges.
“Note” shall mean that certain Fourth Amended and Restated Senior
Subordinated Promissory Note dated as of the Ninth Amendment Effective Date, in the
aggregate original principal amount of Five Million Nine Hundred Fifty-One Thousand
Six Hundred Nine and 00/100 Dollars ($5,951,609), made payable by the Company in
favor of the Purchaser, in substantially the form as set forth in Exhibit B
attached to the Ninth Amendment, with appropriate insertions, as may be amended,
restated, substituted, replaced or otherwise modified from time to time.
“Notes” shall mean, collectively, the Note, Note A and the DI
Promissory Note.
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“Parent” or “Holdings” shall mean and refer to Argyle Security,
Inc., a Delaware corporation.”
In addition, the Ninth Amendment, the DI Promissory Note, the Notes and any and
all documents, instruments or agreements entered into in connection with the
transactions contemplated by the Ninth Amendment shall constitute “Transaction
Documents” under the Purchase Agreement.
(c) Section 2.2 of the Purchase Agreement is hereby amended by inserting a new clause
(d) thereto immediately after clause (c) to read as follows:
“(d) On the Ninth Amendment Effective Date, the Company shall issue to the
Purchaser and, subject to the terms and conditions set forth herein and in the Ninth
Amendment, the Purchaser shall purchase from the Company, the DI Promissory Note,
with an original principal amount of Eight Hundred Ninety-Seven Thousand Two Hundred
Fifteen and 18/100 Dollars ($897,215.18), which such initial principal amount shall
be deemed to be paid upon conversion of all accrued and unpaid Deferred Interest
under and as defined in Note A, due and owing to the Purchaser as of the Ninth
Amendment Effective Date.”
(d) Section 4.2 of the Purchase Agreement is hereby amended and restated in its
entirety to read as follows:
| “4.2 | Inspection of Property. Each of Holdings and
the Company shall, at their respective expense, permit any
representatives designated by the Purchaser, during normal business
hours and at such other times as the Purchaser may reasonably request
upon five (5) days notice, to (a) visit and inspect any of the
properties of Holdings, the Company and/or any of their respective
Subsidiaries; (b) examine the corporate and financial records of
Holdings, the Company and/or any of their respective Subsidiaries and
make copies thereof or extracts therefrom; and (c) discuss the affairs,
finances and accounts of any such Persons with the directors, officers,
key employees and independent accountants of Holdings, the Company
and/or any of their respective Subsidiaries, as the case may be,
provided, however, each of Holdings, the Company and the Company’s
Subsidiaries reserves the right to withhold any information if (x)
access to such information would be reasonably likely to require a
waiver of the attorney-client privilege between Holdings, the Company
or any Company Subsidiary and their respective counsel or if the
applicable representative of the Purchaser is a direct competitor of
Holdings, the Company or any Company Subsidiary or (y) the information
relates to a matter, transaction or interest involving Holdings, the
Company and/or any of the Company’s Subsidiaries, on one hand, and the
Purchaser, on the other hand. The presentation of an executed copy of
this Agreement or any amendment hereto by the Purchaser
to the independent accountants of Holdings, the Company or any of
their respective Subsidiaries, as the case may be, shall constitute
such Person’s permission to its independent accountants to
participate in discussions with the Purchaser.”
|
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(e) Section 4.3 of the Purchase Agreement is hereby amended and restated in its
entirety to read as follows:
| “4.3 | Board Meetings. The Purchaser shall be
notified of the time, place and purpose of each meeting of the (i)
Board of Holdings (the “Holdings Board”); (ii) Board of the
Company (the “Company Board”); and (iii) Board of the Company’s
Subsidiaries (the “Subsidiary Boards”). Effective upon
conversion of the DI Promissory Note in accordance with its terms and
thereafter for so long as the Purchaser owns at least ten percent (10%)
of any shares of capital stock of Holdings held by the Purchaser on the
Ninth Amendment Effective Date, or any obligations under the Notes
remain unpaid, the Company and Holdings hereby covenant and agree as
follows: |
| (a) | the Purchaser shall have
the right to designate one Person who shall have
observation rights with respect to all meetings of the
Holdings Board, the Company Board and any Subsidiary
Boards (the “Purchaser Observer”). The
Purchaser Observer shall have the right to attend each
meeting of the Holdings Board, the Company Board and
each Subsidiary Board and all committees, respectively,
thereof; and |
| (b) | the Holdings Board, the
Company Board and each Subsidiary Board shall give the
Purchaser notice of each meeting of its respective Board
and the committees thereof at the same time and in the
same manner as notices are given to the members of its
Board (which notice shall be promptly confirmed to the
Purchaser in writing). The Purchaser Observer shall be
entitled to receive all written materials and other
information given to members of the Holdings Board, the
Company Board and the Subsidiary Boards, as applicable,
in connection with such meetings at the same time such
materials and information are given to all other members
of such Boards. Holdings and the Company, as
applicable, shall reimburse the Purchaser Observer for
reasonable out-of-pocket expenses in connection with
attending such Person’s non-telephonic Board and
committee meetings. |
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Notwithstanding the requirements of clauses (a) and (b) of
this Section 4.3, each of Holdings, the Company and the
Company’s Subsidiaries reserves the right to withhold any
information and exclude the Purchaser Observer from any
meeting or portion thereof if (x) access to such information
or attendance at such meeting would be reasonably likely to
adversely affect the attorney-client privilege between
Holdings, the Company or any Company Subsidiary and their
respective counsel or if the Purchaser Observer or its
affiliates is a direct competitor of Holdings, the Company or
any Company Subsidiary or (y) the information or the meeting
or portion thereof relates to a matter, transaction or
interest involving Holdings, the Company and/or any of the
Company’s Subsidiaries, on one hand, and the Purchaser, on
the other hand. The Company and Holdings agree to take any
and all actions necessary to effectuate the intent of the
foregoing provisions of this Section 4.3.” |
(f) Section 4.7(a) of the Purchase Agreement is amended and restated to read in its
entirety as follows:
“Maximum Capital Expenditures. The Company and its Subsidiaries, on a
consolidated basis, shall not make Capital Expenditures in excess of $250,000 per
fiscal quarter.”
(g) Section 4.7(b) of the Purchase Agreement is amended and restated in its entirety
to read as follows:
“Minimum Fixed Charge Coverage.
(i) While a Payment Blockage Period is not in effect under, and as defined in,
the Senior Subordination Agreement, or any other subordination agreement, as of the
end of each of its fiscal quarters, the Company and its Subsidiaries shall maintain
a ratio (the “Fixed Charge Coverage Ratio”) of (A) for the applicable
reporting period EBITDA minus the sum of all income taxes paid in cash by
the Company and its Subsidiaries and all Capital Expenditures which are not financed
with Funded Debt, to (B) the sum for such reporting period of (1) cash Interest
Expense paid plus (2) required payments of principal of Total Debt
(including the Facility C Loans (as defined in the Loan and Security Agreement), but
excluding the Facility A Loans and Facility B Loans (each as defined in the Loan and
Security Agreement)), of not less than 0.90 to 1.00 for the fiscal quarter ending
March 31, 2010 and 1.00 to 1.00 for each fiscal quarter ending June 30, 2010 and
thereafter. For each of the fiscal quarters commencing with the fiscal quarter
ending December 31, 2009 through the fiscal quarter ending June 30, 2010, the Fixed
Charge Coverage Ratio shall be based on cumulative reporting beginning October 1,
2009 for such periods, and for each of
the fiscal quarters ending September 30, 2010 and thereafter, the Fixed Charge Coverage Ratio shall
be measured on a trailing twelve (12) month basis.
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(ii) Until January 1, 2010 or otherwise while a Payment Blockage Period is in
effect under the Senior Subordination Agreement, or any other subordination
agreements, as of the end of each of its fiscal quarters, the Company and its
Subsidiaries shall maintain a ratio of (A) for the applicable reporting period
EBITDA minus the sum of all income taxes paid in cash by the Company and its
Subsidiaries and all Capital Expenditures which are not financed with Funded Debt,
to (B) the sum for such reporting period of (1) cash Interest Expense paid
plus (2) required payments of principal of Total Debt (including the
Facility C Loans, but excluding the Facility A Loans and Facility B Loans),
provided, however, that cash Interest Expense and principal paid by Parent on behalf
of the Company on Senior Debt and Subordinated Debt (each as defined in the Loan and
Security Agreement) shall be deducted from the sum of cash Interest Expense and
principal payments on Total Debt, of not less than 0.90 to 1.00 for the fiscal
quarter ending December 31, 2009, of not less than 0.90 to 1.00 for the fiscal
quarter ending March 31, 2010 and of not less than 1.00 to 1.00 for the fiscal
quarter ending June 30, 2010 and thereafter. For each of the fiscal quarters
commencing with the fiscal quarter ending December 31, 2009 through the fiscal
quarter ending June 30, 2010, the Fixed Charge Coverage Ratio shall be based on
cumulative reporting beginning October 1, 2009 for such periods, and for each of the
fiscal quarters ending September 30, 2010 and thereafter, the Fixed Charge Coverage
Ratio shall be measured on a trailing twelve (12) month basis.”
(h) Section 4.7(c)(i) of the Purchase Agreement is amended and restated in its
entirety to read as follows:
“Senior Debt to EBITDA. As of the end of each of its fiscal quarters, the
Company and its Subsidiaries shall maintain a ratio of consolidated Senior Debt to
consolidated trailing twelve (12) month EBITDA of not greater than
| (a) | 2.20 to 1.00 for the fiscal quarters ending
December 31, 2009 and ▇▇▇▇▇ ▇▇, ▇▇▇▇, |
| (▇) | 2.97 to 1.00 for the fiscal quarter ending June
30, 2010, and |
| (c) | 2.20 to 1.00 for the fiscal quarter ending
September 30, 2010 and for each of the fiscal quarters ending
thereafter.” |
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(i) Section 4.7(c)(ii) of the Purchase Agreement is amended and restated in its
entirety to read as follows:
“Total Debt to EBITDA. As of the end of each of its fiscal quarters, the
Company and its Subsidiaries shall maintain a ratio of consolidated Total Debt
plus an amount equal to undrawn Letters of Credit (as defined in the Loan
and Security Agreement) under the Facility A Loan Commitment (as defined in the Loan
and Security Agreement) and any undrawn Letters of Credit (as defined in the Loan
and Security Agreement) under the Facility B Loan Commitment (as defined in the Loan and Security Agreement) to consolidated trailing twelve (12) month EBITDA of not
greater than
| (a) | 4.68 to 1.00 for the fiscal quarter ending
December 31, 2009, |
| (b) | 5.78 to 1.00 for the fiscal quarter ending
March 31, 2010, |
| (c) | 8.25 to 1.00 for the fiscal quarter ending June
30, 2010, |
| (d) | 3.85 to 1.00 for the fiscal quarter ending
September 30, 2010, and for each of the fiscal quarters ending
thereafter. |
(j) Section 7.1 of the Purchase Agreement shall be amended to add in the proper order the
following clause (q) to the definition of “Event of Default”:
“(q) the occurrence of an “Event of Default” under and as defined in the
Subordinated Convertible Notes.”
(k) Section 9.11 of the Purchase Agreement is amended and restated to read in its entirety as
follows:
“Section 9.11. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid), sent via electronic mail or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices, demands
and other communications shall be sent to the parties hereto at their respective
addresses indicated below:
To the Purchaser:
|
▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Fund III, L.P. | |
| c/o Merit Capital Partners | ||
| ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ | ||
| ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | ||
| Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇ | ||
| Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ | ||
With a copy to:
|
▇▇▇▇▇▇ Price P.C. | |
| ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | ||
| ▇▇▇▇▇ ▇▇▇▇ | ||
| ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ | ||
| Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq. | ||
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. |
||
| Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and | ||
▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ |
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To the Company:
|
ISI Security Group, Inc. | |
| ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | ||
| ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ | ||
| Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ | ||
| Email: ▇▇▇@▇▇▇▇▇▇.▇▇▇ | ||
With a copy to:
|
Argyle Security, Inc. | |
| ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ | ||
| ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ | ||
| Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq. | ||
| Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ | ||
With additional copies to:
|
Loeb & Loeb LLP | |
| ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ | ||
| ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ | ||
| Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq. | ||
| Email: ▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇ | ||
| ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP | ||
| ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ | ||
| ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ | ||
| Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq. | ||
| Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ |
or to such other address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party.
(l) On the Ninth Amendment Effective Date, Parent shall make a cash contribution of capital to
the Company of no less than $8,000,000.00. The capital contribution shall be in a form acceptable
to the Purchaser. On the Ninth Amendment Effective Date, the Company shall concurrently (x) pay
down from the proceeds of the capital contribution (i) the outstanding balance of the “Facility C
Loan” under the Loan and Security Agreement by $3,000,000.00, and (ii) the outstanding principal
balance under Note A in the amount of $5,000,000.00, and (y) pay down from other sources all
accrued and unpaid Current Interest (as defined in Note A).
(m) The Purchaser hereby consents to the modifications to the Guaranteed Convertible
Promissory Notes dated January 1, 2008 by ISI Detention Contracting Group, Inc., a California
corporation (“ISI Detention”), currently held by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
each in the original principal amount of $1,500,000 (collectively and as amended or modified, the
“PDI Seller Notes”) consistent with the terms set forth in the commitment letter dated
November 23, 2009 between ISI Detention and the holders of the PDI Seller Notes. No such
modification shall constitute an Event of Default.
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(n) Effective January 1, 2010, the Company and its Subsidiaries, as appropriate, may make
principal and interest payments to the holders of the PDI Seller Notes and the holders of that
certain $3,515,000 Subordinated Promissory Note dated January 31, 2008 by ISI Controls
Ltd. payable to the order of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the “▇▇▇▇▇▇▇▇
Note”). The Company shall not pay or accrue any principal and interest payments on the PDI
Seller Notes or the ▇▇▇▇▇▇▇▇ Note that became due and payable on or before December 31, 2009,
(other than accruals made by the Borrower for principal and interest payments made on the PDI
Seller Notes or the ▇▇▇▇▇▇▇▇ Note by the Parent) or result from the termination of the Payment
Blockage Period under the Subordination Agreement between The PrivateBank and Trust Company (the
“Bank”), ISI Controls, Ltd. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, dated October
3, 2008 and Subordination Agreement between the Bank, ISI Detention Contracting Group, Inc. and
▇▇▇▇▇▇▇▇ Detention, Inc., dated October 3, 2008
(o) The Purchaser consents to the Company entering into an amendment to that certain Loan and
Security Agreement dated as of January 8, 2009, between the Company and the Bank consistent with
the terms set forth in the commitment letter dated November 23, 2009 between the Company and the
Bank, which includes, among other provisions, the Purchaser’s consent to the Company’s
$3,000,000.00 payment on the “Facility C Loan” (as defined in such commitment letter).
Section 2. Representations and Warranties. To induce the Purchaser to enter into this
Amendment, Holdings and the Company, jointly and severally, represent and warrant as follows:
(a) Representations, Warranties; No Default. The warranties and representations of
the Company contained in the Transaction Documents shall be true and correct as of the Ninth
Amendment Effective Date, with the same effect as though made on such date, except to the extent
that such warranties and representations expressly relate to an earlier date. Except for the
Events of Default waived by the Purchaser pursuant to Section 3 of this Amendment, no Event of
Default or Potential Event of Default has occurred and is continuing under the Purchase Agreement.
(b) Organizational Authority. Each of Holdings and the Company represents and
warrants that (i) the execution, delivery and performance by Holdings and the Company of this
Amendment are within their respective corporate powers and have been duly authorized by all
necessary corporate action, (ii) this Amendment is the legal, valid and binding obligation of
Holdings and the Company and is enforceable against each such party in accordance with its terms
(except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors’ rights generally or by general equitable
principles, regardless of whether such enforceability is considered in a proceeding at law or in
equity) and (iii) neither the execution and delivery nor the performance by Holdings or the Company
of this Amendment (1) violates any law or regulation, or any other decree of any governmental body,
(2) conflicts with or results in the breach or termination of, constitutes a default under or
accelerates any performance required by, any indenture, mortgage, deed of trust, lease, agreement
or other instrument to which such Person is a party or by which such Person or any of its property
is bound, (3) results in the creation or imposition of any Lien, upon any of the Collateral (as
defined in the Senior Loan Documents) other than Liens in favor of the Senior Lender, (4) violates
or conflicts with any of the governing documents (certificate of incorporation, bylaws, etc.) of
such Person, or (5) requires the consent, approval or authorization of, or declaration or filing
with, any other Person, except for those already duly obtained.
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Section 3. Waiver. The Purchaser hereby reaffirms its waiver of the Events of Default
that occurred and exist as a result of the Company’s failure to comply with (i) the financial
covenant set out in Section 4.7(c)(ii) of the Purchase Agreement for the period ended September 30,
2009, (ii) Section 7.1(f) of the Purchase Agreement, and (iii) Section 4.5(g) of the Purchase
Agreement arising from the Company’s cancellation of accounts receivable identified as “▇▇▇▇▇▇” in
the amount of $423,981.45. In addition, the Purchaser hereby waives any requirement set forth
under Note A, to provide advance notice of the Company’s intention to prepay of any portion of the
obligations of the Company under Note A. The foregoing waivers are effective only for the specific
instances provided for under this Amendment.
Section 4. Conditions Precedent. The effectiveness of this Amendment is subject to
the following conditions precedent:
(a) No Event of Default or Potential Event of Default under the Purchase Agreement shall have
occurred and be continuing.
(b) The warranties and representations of Holdings and the Company contained herein and the
representation and warranties of the Company in the Transaction Documents shall be true and correct
as of the effective date hereof, with the same effect as though made on such date, except to the
extent that such warranties and representations expressly relate to an earlier date.
(c) Holdings, the Company and the Purchaser shall have executed and delivered this Amendment.
(d) The Guarantors and Holdings shall have executed and delivered to the Purchaser a
Reaffirmation of Guaranty Agreement in the form attached to this Amendment.
(e) The Company shall have executed and delivered to the Purchaser the DI Promissory Note and
the Note in the forms, respectively, attached hereto as Exhibit A and Exhibit B.
(f) Argyle Security, Inc. shall have made the capital contribution to the Company and the
Company shall have applied the proceeds of such capital contribution in accordance with Section
1(k) of this Amendment.
(g) The Company shall have paid the expenses described in Section 6 of this Amendment.
(h) The Company shall have executed and delivered, or shall have caused to be executed or
delivered, such other documents and instruments as the Purchaser may reasonably request to effect
the purposes of this Amendment.
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Section 5. Reference and Effect on Operative Documents.
(a) Ratification. Except as specifically amended above, the Purchase Agreement and
the other Transaction Documents, as amended, shall remain in full force and effect.
Notwithstanding anything contained herein, the terms of this Agreement are not intended to and
do not effect a novation of the Purchase Agreement or any other Transaction Document. The
Company hereby ratifies and reaffirms each of the terms and conditions of the Transaction Documents
to which it is a party and all of its obligations thereunder.
(b) References. Upon the effectiveness of this Amendment, each reference in (i) the
Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” or words of similar import, and (ii)
any other Transaction Document to “the Agreement” or “the Purchase Agreement” shall, in each case
and except as otherwise specifically stated therein, mean and be a reference to the Purchase
Agreement or such other Transaction Documents, as applicable, as amended hereby.
Section 6. Miscellaneous.
(a) Additional Fee and Expenses. Pursuant to Section 9.1 of the Purchase
Agreement, the Company further agrees to pay on demand all currently outstanding legal fees and
expenses of the Purchaser’s outside counsel and all reasonable legal fees and out-of-pocket costs
and expenses of or incurred by the Purchaser in connection with the instruments and agreements
contemplated hereby and thereby, including without limitation, the reasonable fees and expenses of
▇▇▇▇▇▇ Price P.C., counsel for the Purchaser. The failure of the Company to comply with the
foregoing requirements shall constitute an immediate Event of Default under the Purchase Agreement.
(b) Deferred Interest Under Note A. Except for the accrued and unpaid deferred
interest on Note A that is evidenced by the DI Promissory Note, contemporaneous with the execution
and delivery of this Amendment, the aggregate principal amount, plus all current interest, due and
payable to the Purchaser pursuant to the terms of Note A and the Purchase Agreement is being paid
in full and thereupon, subject to the Purchaser’s rights and remedies under the Purchase Agreement,
including, without limitation, Section 9.4 of the Purchase Agreement, Note A shall be of no further
force and effect.
(c) Binding Effect. This Amendment shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
(d) Counterparts. This Amendment may be executed in one or more counterparts, each of
which when so executed and delivered, shall be an original, and all of which together shall
constitute one and the same instrument.
(e) Governing Law. This Amendment shall be governed by the laws of the State of
Illinois, without giving effect to its conflict of laws principles.
[The remainder of this page is left blank intentionally.]
11
Signature Page to Ninth Amendment to Note and Warrant Purchase Agreement
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first
written above.
| COMPANY: | ISI SECURITY GROUP, INC., a Delaware corporation, formerly known as ISI Detention Contracting Group, Inc. | |||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||
| Chief Financial Officer | ||||||
Signature Page to Ninth Amendment to Note and Warrant Purchase Agreement
| PURCHASER: | ▇▇▇▇▇▇▇ ▇▇▇▇▇ MEZZANINE CAPITAL FUND III, L.P., a Delaware limited partnership | |||||||
| By: | ▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Partners III, L.L.C., its General Partner | |||||||
| By: | /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||||||
| Managing Director | ||||||||
Signature Page to Ninth Amendment to Note and Warrant Purchase Agreement
| HOLDINGS: | ARGYLE SECURITY, INC., a Delaware corporation | |||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||
| Chief Financial Officer | ||||||
REAFFIRMATION OF GUARANTY AGREEMENT
Each of the undersigned (a) acknowledges receipt of a copy of (i) that certain Ninth Amendment
to Note and Warrant Purchase Agreement, dated December 14, 2009, between ISI Security Group, Inc.
and ▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Fund III, L.P., (b) consents to such amendments and waivers and
all prior amendments and each of the transactions referenced therein and (c) hereby reaffirms its
obligations under the Note and Warrant Purchase Agreement dated as of October 22, 2004, as amended,
restated or otherwise modified from time to time, in favor of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Fund
III, L.P.
Dated as of December 14, 2009
| DETENTION CONTRACTING GROUP, LTD., a Texas limited partnership | ||||||||
| By: | ISI Detention Contracting Group, Inc., a Texas corporation, its general partner | |||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
Chief Financial Officer |
||||||||
| ISI DETENTION CONTRACTING GROUP, INC., a Texas corporation | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
| ISI DETENTION CONTRACTING GROUP, INC., a California corporation | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
| ISI DETENTION CONTRACTING GROUP, INC., a New Mexico corporation | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
Signature Page to Reaffirmation of Guaranty Agreement
| ISI DETENTION SYSTEMS, INC., a Texas corporation | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
| ISI SYSTEMS, LTD., a Texas limited partnership | ||||||||
| By: | ISI Detention Systems, Inc., a Texas corporation, its general partner | |||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| Chief Financial Officer | ||||||||
| METROPLEX CONTROL SYSTEMS, INC., a Texas corporation, (f/k/a ISI Metroplex Controls, Inc.) | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
| ISI CONTROLS, LTD., a Texas limited partnership | ||||||||
| By: | Metroplex Control Systems, Inc., a Texas corporation, its general partner | |||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| Chief Financial Officer | ||||||||
| METROPLEX COMMERCIAL FIRE AND SECURITY ALARMS, INC., a Texas corporation | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
Signature Page to Reaffirmation of Guaranty Agreement
| MCFSA, LTD., a Texas limited partnership | ||||||||
| By: | Metroplex Commercial Fire and Security Alarms, Inc., a Texas corporation, its general partner | |||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| Chief Financial Officer | ||||||||
| COM-TEC SECURITY, LLC, a Wisconsin limited partnership | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
| COM-TEC CALIFORNIA LIMITED PARTNERSHIP, a Wisconsin limited partnership |
||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||||||||
| Chief Financial Officer | ||||||||
REAFFIRMATION OF GUARANTY AGREEMENT
The undersigned (a) acknowledges receipt of a copy of (i) that certain Ninth Amendment to Note
and Warrant Purchase Agreement, dated December 14, 2009, between ISI Security Group, Inc. and
▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Fund III, L.P., (b) consents to such amendments and waivers and all
prior amendments and each of the transactions referenced therein and (c) hereby reaffirms its
obligations under the Note and Warrant Purchase Agreement dated as of October 22, 2004, as amended,
restated or otherwise modified from time to time, in favor of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Mezzanine Capital Fund
III, L.P.
Dated as of December 14, 2009
| ARGYLE SECURITY, INC., a Delaware corporation | ||||||||
| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||||
| Chief Financial Officer | ||||||||