ARGYLE SECURITY, INC. STANDSTILL AND PROTECTIVE MEASURES AGREEMENT
Exhibit B
ARGYLE SECURITY, INC.
STANDSTILL AND PROTECTIVE MEASURES AGREEMENT
STANDSTILL AND PROTECTIVE MEASURES AGREEMENT
THIS STANDSTILL AND PROTECTIVE MEASURES AGREEMENT (this “Agreement”) is made as of March 30,
2010, by and among Argyle Security, Inc., a Delaware corporation (the “Company”), and the Investors
listed on Exhibit A hereto.
WHEREAS, the Investors beneficially own an aggregate of 5,369,800 shares of Common Stock,
which include: (i) 1,900,200 shares directly held, (ii) 742,300 shares issuable upon conversion of
11,327 shares of Series A Convertible Preferred Stock and (iii) 2,727,300 shares issuable upon
conversion of 27,273 shares of Series B Convertible Preferred Stock;
WHEREAS, the Investors also hold (i) $8.0 million aggregate principal amount of 10%
Convertible Subordinated Bridge Promissory Notes of the Company (collectively, the “MML Bridge
Notes”) and (ii) $2.45 million aggregate principal amount of 10% Convertible Subordinated
Promissory Notes of the Company (collectively, the “MML Convertible Notes”), each of which will
have a fixed conversion price per common share of $0.4302, assuming no Qualified Equity Offering
(as defined in such notes) occurs prior to June 30, 2010;
WHEREAS, the Company intends to file a Form 15 with the U.S. Securities and Exchange
Commission (the “SEC”) to (i) terminate the registration of its securities under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (ii) suspend its duty to
file reports under Sections 13 and 15(d) of the Exchange Act (collectively, the “Proposal”);
WHEREAS, the parties hereto acknowledge the right of a holder of 90% or more of the voting
power of the Shares to effectuate a “short form” merger under Section 253 of the Delaware General
Corporation Law (the “DGCL”) pursuant to which, absent fraud or illegality, appraisal rights under
Section 262 of the DGCL would be the only remedy of any minority stockholder of the Company; and
WHEREAS, the parties hereto have agreed to enter into this Agreement to provide for certain
rights and obligations in respect of, among other things, the Shares.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the
Investors agree as follows:
1. Definitions.
1.1 “Affiliate” shall mean, with respect to any specified Person, any other Person who
directly or indirectly, controls, is controlled by or is under common control with such Person,
including without limitation any general partner, managing member, officer or director of such
Person, or any venture capital fund now or hereafter existing which is controlled by one or more
general partners or managing members of, or shares the same management company with, such Person.
1.2 “Board” shall mean the Board of Directors of the Company.
1.3 “Business Day” shall mean any day other than a Saturday or Sunday or a day on which banks
are required or authorized to close in the City of Stamford or the City of San Antonio.
1.4 “Common Stock” means the Common Stock, par value $0.0001 per share, of the Company.
1.5 “Investors” initially means the Persons named in Exhibit A hereto, the Affiliates
(other than the Company) of each of them, and any one of them, as the context may require.
1.6 “Person” shall mean a natural person, corporation, limited partnership, general
partnership, joint stock company, joint venture, association, company, bank, trust company, and
trust, business trust or other organization, whether or not a legal entity, or a government or
agency or any political subdivision thereof.
1.7 “Series A Convertible Preferred Stock” means the Series A Convertible Preferred Stock, par
value $0.0001 per share, of the Company.
1.8 “Series B Convertible Preferred Stock” means the Series B Convertible Preferred Stock, par
value $0.0001 per share, of the Company.
1.9 “Shares” shall mean shares of capital stock of the Company.
1.10 “Stockholder” shall mean each holder of Shares.
2. Standstill; Deferral; Insurance.
2.1 From the date hereof until December 31, 2010 (the “Standstill Period”), neither the
Investors nor any of their Affiliates will, directly or indirectly, or otherwise participate in,
(a) any acquisition of any shares of Common Stock or common stock of any of the Company’s
subsidiaries, including through any tender offer or similar mechanism or (b) any transaction that
would have the effect of the acquisition of such common stock, including for example a cash out
merger or other business combination or a reverse stock split by the Company; provided, however,
the foregoing limitations shall not apply if (i) notice of such proposed transaction is provided to
the Company by such Investors or any of their Affiliates, (ii) such proposed transaction would not
result in the Investors and/or their Affiliates owning 90% or more of the Company’s then
outstanding Shares on a fully diluted basis (excluding the Common Stock represented by the Series A
Preferred Stock, Series B Preferred Stock and MML Convertible Notes), and (iii) with respect to an
acquisition under clause (a) above only, such acquisition is the result of an unsolicited offer
made by a Stockholder to sell such Stockholder’s shares of Common Stock to one or more of the
Investors or any of their Affiliates. Notwithstanding the foregoing, the first sentence of this
Section 2.1 shall not apply with respect to (i) any capital funding provided by the Investors or
their Affiliates that the Board determines in good faith is necessary to (A) avoid a pending or anticipated default under the existing
loan agreements of the Company or any of its Subsidiaries, (B) support bonding lines critical to
the business of the Company or any of its Subsidiaries, (C) provide additional working capital and
general corporate expenses to the Company or any of its Subsidiaries in the event of a shortfall
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of
unrestricted cash or (D) pay for costs specifically related to a critical project of the Company or
any of its Subsidiaries, (ii) any transaction, such as a cash out merger or reverse split, that the
Board determines in good faith is necessary to avoid the potential that the Company may revive its
reporting obligations under Section 13 or Section 15(d) of the Exchange Act based on the number of
its stockholders of record of Common Stock, warrants or units to purchase common stock and
warrants, (iii) any acquisition of Common Stock by the Investors as a result of the conversion of
any Company securities held by the Investors as of the date hereof or (iv) any acquisition effected
with the approval of a special committee of the Board comprised solely of independent,
disinterested directors. For avoidance of doubt, the first sentence of this Section 2.1 shall not
apply and the Board shall deemed to be acting in good faith if it determines to take action under
clause (ii) of the immediately preceding sentence where the Company has 200 or more holders of
record for any of its Common Stock, warrants or units to purchase common stock and warrants.
During the Standstill Period, the Investors agree not to request that the Company (or any of its
directors, officers, employees or other representatives), directly or indirectly, amend or waive
any material provision of this Agreement.
2.2 During the Standstill Period, the Investors agree to defer payment of accrued interest
under the MML Convertible Notes and defer requests for reimbursement of certain legal costs
incurred by the Investors in prior dealings with the Company.
2.3 From the date hereof until such time as the matters set forth in Section 5.1(b) have
occurred, the Investors will use their reasonable best efforts to cause the Company to provide for
continued D&O liability coverage at levels the Board determines in good faith are adequate.
3. Information; Stockholder Meetings.
3.1 From the date hereof until the date of the submission to the OTC Disclosure and News
Service of the Company’s financial statements for the year ending December 31, 2010 (the “Reporting
Period”), the Investors will use their reasonable best efforts to cause the Company to provide
annual and quarterly financial statements through the OTC Disclosure and News Service as they
becomes available, but no later than six months from the date of such reporting period. The
parties agree that such annual and quarterly financial statements shall include, at a minimum, a
balance sheet, an income statement and number of shares of Common Stock outstanding. The parties
acknowledge that the submission of the Company’s financial statements for the year ending December
31, 2009 to the OTC Disclosure and News Service is not expected to occur until the middle of April
2010.
3.2 During the Reporting Period, the Investors will use their reasonable best efforts to cause
the Company to continue to hold and conduct annual stockholders meetings pursuant to Delaware law,
in form and substance substantially similar to those conducted during the two years prior to the date hereof; provided, however, the Company shall not be required
to distribute a proxy statement in similar form and substance as that which had been distributed
for meetings occurring during the two years prior to the date hereof.
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4. Legends.
4.1 Each certificate representing Shares now or hereafter owned by an Investor shall be
endorsed with the following legend:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS AGREEMENT BY AND
BETWEEN THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY.”
4.2 The legend required by Section 4.1 shall be removed upon termination of this
Agreement.
5. Termination.
5.1 Except as set forth in Section 2.3 and Section 5.2, this Agreement shall terminate upon
the earlier to occur of any of the following:
(a) the written agreement of the Company and the Investors;
(b) the Investors (together with their Affiliates) collectively ceasing (i) to hold
beneficially at least 10% of the Common Stock on a fully diluted basis and (ii) to have a
representative on the Board;
(c) the Company’s failing to file with the SEC a Form 15 by 5:30 p.m. Eastern Time on
March 31, 2010; or
(d) the date of the submission to the OTC Disclosure and News Service of the Company’s
financial statements for the year ending December 31, 2010.
5.2 The provisions set forth in Section 6 below shall survive any termination of this
Agreement.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and construed under the laws
of the State of Delaware, without regard to principles of conflict of laws.
6.2 Amendment and Waiver. This Agreement may be amended or terminated and the
observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) with the written consent of the Company and the
Investors. No waivers of or exceptions to any term, condition or provision of this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver
of any such term, condition or provision.
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6.3 Assignment of Rights. This Agreement and the rights and obligations of the
parties hereunder shall inure to the benefit of, and be binding upon, their respective successors,
assigns and legal representatives.
6.4 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii)
five (5) Business Days after having been sent by certified mail, return receipt requested, postage
prepaid, or (iii) one (1) Business Day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt. All communications
shall be sent to the party to be notified at the following addresses (or at such other address for
a party as shall be specified by notice given in accordance with this Section):
| (a) | if to the Company: |
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Argyle Security, Inc. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Attention: Chief Executive Officer |
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| (b) | if to the Investors: |
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▇/▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇ |
6.5 Severability. In the event one or more of the provisions of this Agreement
should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.6 Attorneys’ Fees. In the event that any suit or action is instituted to enforce
any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all reasonable fees, costs and expenses incurred in connection with enforcing
any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys, which shall include,
without limitation, all reasonable fees, costs and expenses of appeals.
6.7 Entire Agreement. This Agreement and the Exhibits hereto constitute the full and
entire understanding and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other party in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
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6.8 Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.
6.9 Specific Performance. The parties hereto hereby declare that it is impossible to
measure in money the damages which will accrue to a party hereto or to its heirs, personal
representatives, or assigns by reason of a failure to perform any of the obligations under this
Agreement and agree that the terms of this Agreement shall be specifically enforceable. If any
party hereto or its heirs, personal representatives or assigns institutes any action or proceeding
to specifically enforce the provisions hereof, any person against whom such action or proceeding is
brought (i) hereby waives the claim or defense therein that such party or such personal
representative has an adequate remedy at law, (ii) hereby waives any bond, surety, or other
security that might be required of any other party with respect thereto, and (iii) shall not offer
in any such action or proceeding the claim or defense that an adequate remedy at law exists
6.10 Indemnification. The Investors agree to indemnify, hold harmless and defend the
Company’s directors from any breach of this Agreement by any of the Investors or any of their
Affiliates.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date above first
written.
ARGYLE SECURITY, INC.: |
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| By: | /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| Title: | Chief Financial Officer | |||
THE INVESTORS: Mezzanine Management Fund IV A, LP |
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| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ | |||
| Title: | Authorized Signatory | |||
Mezzanine Management Fund IV Coinvest A, LP |
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| By: | /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ | |||
| Title: | Authorized Signatory | |||
[Signature Page to Standstill and Protective Measures Agreement]
EXHIBIT A
LIST OF INVESTORS
Mezzanine Management Fund IV A, LP
Mezzanine Management Fund IV Coinvest A, LP