By: |
/s/ S. Arthur Morris | |||||
| Name: | S. Arthur Morris | |||||
| Title: | Authorized Signatory | |||||
By: |
/s/ S. Arthur Morris | |||||
| Name: | S. Arthur Morris | |||||
| Title: | Authorized Signatory | |||||
By:
|
/s/ Donald F. Neville
|
|||
| Name: Donald F. Neville | ||||
| Title: Chief Financial Officer |
Company:
|
Argyle Security, Inc., a Delaware corporation | |
Purchasers:
|
Mezzanine Management Fund IV A, LP, (“Fund A”), and
Mezzanine Management Fund IV Coinvest A, LP, (“Coinvest
Fund A”), each a limited partnership organized under
the laws of the United Kingdom. |
|
Facilities:
|
(a) $8.0 million convertible subordinated promissory
notes facility (such promissory notes, the “Bridge
Notes,” and such facility, the “Bridge Notes
Facility”). |
|
(b) $2.45 million convertible subordinated promissory
notes facility (such promissory notes, the “Convertible
Notes,” and such facility, the “Convertible Notes
Facility”). |
||
Fund A shall purchase 98.49% of the Notes issued
pursuant to the Bridge Note Facility and the
Convertible Note Facility, and Coinvest Fund A will
purchase 1.51% of the Notes issued pursuant to the
Bridge Notes Facility and the Convertible Notes
Facility. |
||
Guarantors:
|
None. | |
Ranking:
|
The Facilities shall be subordinate and rank junior to
(a) the Company’s guaranty of ISI Security Group,
Inc.’s (“ISI”) senior secured credit facility with The
PrivateBank and Trust Company pursuant to that certain
Loan and Security Agreement dated as of October 3, 2008
(as amended, the “Senior Credit Facility”), (b) the
Company’s guaranty of ISI’s senior subordinated notes
issued to William Blair Mezzanine Capital Fund III,
L.P. pursuant to that certain Note and Warrant Purchase
Agreement dated as of October 22, 2004 (as amended, the
“Senior Subordinated Notes Facility”), (c) the
Company’s guaranty of the PDI Seller Notes, and (d) the
Company’s guaranty of ISI Controls, Ltd.’s subordinated
promissory note dated January 31, 2008 to Jeffrey E.
Corcoran and Janell D. Corcoran in the original
principal amount of $3.515 million. |
|
Purpose:
|
(a) To enable the Company to make a capital
contribution to ISI to be used by ISI solely as
follows: (i) $3.0 million to prepay the term loan under
ISI’s senior secured credit facility with The
PrivateBank and Trust Company; and (ii) $5.0 million to
prepay in full Note A under ISI’s senior subordinated
note issued to William Blair Mezzanine Capital Fund
III, L.P. |
|
(b) For
working capital and general corporate expenses. |
Maturity:
|
(a) Earlier to occur of (i) closing and funding of the
Qualified Equity Offering (as hereinafter defined), and
(ii) June 30, 2010. |
|
(b)
January 3, 2012. |
||
Repayment:
|
(a) Accrued interest with respect to the Bridge Notes
Facility shall be accrued and added to the principal
balance of the Bridge Notes in arrears on a quarterly
basis commencing December 31, 2009 and at Maturity.
All principal and all accrued but unpaid interest shall
be due at Maturity. |
|
(b) Accrued interest with respect to the Convertible
Notes Facility shall be accrued and added to the
principal balance of the Convertible Notes in arrears
on a quarterly basis commencing December 31, 2009, and
at Maturity. All principal and all accrued but unpaid
interest shall be due at Maturity. |
||
Optional Prepayment:
|
The Facilities may be prepaid at any time at the
Company’s option without premium or penalty. |
|
Mandatory Prepayment:
|
(a) The Bridge Notes shall be prepaid (i) in full or in
part to the extent of proceeds paid by investors other
than the Purchasers from a Qualified Equity Offering,
or (ii) in full upon a change of control or sale of all
or substantially all of the assets of the Company or
ISI. |
|
(b) The Convertible Notes shall be prepaid in full by
the Company upon a change of control or sale of all or
substantially all of the assets of the Company or ISI. |
||
Interest Rate:
|
(a) Fixed
rate equal to ten percent (10%) per annum. |
|
(b) Fixed rate
equal to ten percent (10%) per annum. |
||
Collateral:
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None. |
Conversion Option:
|
(a) The Company will use its reasonable commercial
efforts to consummate a rights offering of shares of
its common stock as promptly as reasonably practicable
following the issuance of the Bridge Notes, to the
extent permitted by applicable law. To the extent
shareholders, other than Purchasers, subscribe for and
purchase shares of the Company’s common stock in such
rights offering, or investors, other than Purchasers,
in any other private or public placement of shares of
the Company’s capital stock for cash (such rights
offering or such private or public placement being
hereinafter referred to as a “Qualified Equity
Offering”), the net cash proceeds thereof will be used
to prepay the Bridge Notes. Any portion of the Bridge
Notes that is not prepaid with such net cash proceeds
shall be converted into shares of the Company’s common
stock at the price per share at which common shares
were offered in the rights offering (or the common
stock equivalent price per share paid in such other
private or public placement of shares). Any portion of
the Bridge Notes not prepaid or converted into the
Company’s common stock as set forth above, on or before
the Maturity Date shall be converted into shares of the
Company’s common stock at a price per share equal to
the volume weighted average sales price per share of
the Company’s common stock from trades quoted on the
OTC Bulletin Board for the ten (10) trading days
immediately prior to the issue date of the Bridge
Notes. |
|
(b) After the completion of a Qualified Equity
Offering, at the option of the Purchasers, the
Convertible Notes may be converted into the Company’s
common stock at a price per share equal to the
equivalent common stock price per share paid in such
Qualified Equity Offering. If a Qualified Equity
Offering is not consummated by June 30, 2010, then
thereafter, at the option of the Purchasers, the
Convertible Notes may be converted into common stock of
the Company at a price per share equal to the volume
weighted average sales price per share of the Company’s
common stock from trades quoted on the OTC Bulletin
Board for the ten (10) trading days immediately prior
to the issue date of the Convertible Notes. The
Convertible Notes shall be subject to standard and
customary anti-dilution protection other than in
connection with a Qualified Equity Offering. |
||
Conditions Precedent
to Closing:
|
The extension of the aforementioned financing
arrangement is subject to the conditions set out in the
Commitment Letter and the fulfillment of a number of
conditions to Lender’s satisfaction, including, but not
limited to, the following: |
|
• The negotiation, execution and delivery of
definitive documentation with respect to the
Facilities. |
||
• Borrower will pay all reasonable costs and
expenses incurred by Purchasers associated with the
preparation, negotiation and closing of the Facilities,
including, without limitation, the reasonable legal
fees and expenses of Purchasers’ counsel, whether or
not the Facilities are closed. |
Covenants:
|
Usual and customary affirmative and negative covenants
for transactions of this type, subject to agreed to
materiality carve-outs and exceptions, including, but
not limited to: (a) limitation on incurrence of debt;
(b) limitation on liens; (c) compliance with laws; (d)
payment of taxes; (e) notices of default, material
litigation, and material governmental proceedings; and
(f) financial covenants consistent with the financial
covenants under the senior subordinated notes issued to
William Blair Mezzanine Capital Fund III, L.P. but
after giving effect to a 10% cushion from such
covenants. |
|
Representations and
Warranties:
|
Usual and customary for transactions of this type,
including without limitation, corporate existence and
good standing, corporate power and authority, due
authorization, no conflict with material agreements,
and enforceability. |
|
Events of Default:
|
Usual and customary for transactions of this type,
including, but not limited to: (a) failure to pay
amounts when due under the Facilities; (b) failure to
comply with covenants; (c) breach of representations
and warranties; (d) default under material agreements,
including guaranties that are senior to and rank
superior to the Facilities; (d) material judgments; (e)
bankruptcy; and (f) cross-default under other
significant credit facilities including the Senior
Credit Facility and the Senior Subordinated Notes
Facility. |
|
Governing Law:
|
Texas. |