SIXTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT
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Execution
Copy
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SIXTH
AMENDMENT
TO
THIS
SIXTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT, dated as of
January 8, 2009 (the “Amendment”),
by and between ISI Security Group, Inc., a Delaware corporation formerly known
as ISI Detention Contracting Group, Inc. and d/b/a “Argyle Security USA”
(successor-by-merger to ISI Security Group, Inc., an unrelated entity) (the
“Company”),
and Xxxxxxx Xxxxx Mezzanine Capital Fund III, L.P., a Delaware limited
partnership (the “Purchaser”),
and Com-Tec Security, LLC, a Wisconsin limited liability company, and Com-Tec
California Limited Partnership, a Wisconsin limited partnership, solely for
purposes of becoming a “Guarantor” under the Purchase Agreement (as defined
below).
WITNESSETH:
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 (a) Omnibus First
Amendment to Note and Warrant Purchase Agreement and Warrant dated as of
November 1, 2005, (b) Omnibus Second Amendment to Note and Warrant
Purchase Agreement and Warrant, dated as of July 31, 2007, (c) Third
Amendment to Note and Warrant Purchase Agreement, dated as of January 2,
2008, (d) Fourth Amendment to Note and Warrant Purchase Agreement, dated as
of June 25, 2008, and (e) Fifth Amendment to Note and Warrant Purchase
Agreement, dated as of November 13, 2008 (as further amended, restated,
supplemented or otherwise modified from time to time, the “Purchase
Agreement”) (capitalized terms used and not otherwise defined herein
shall have the meaning ascribed thereto in the Purchase Agreement);
and
WHEREAS,
the Company has requested and the Purchaser has agreed to the amendments to the
Purchase Agreement more fully set forth herein;
WHEREAS,
this Amendment shall constitute a Transaction Document, and these Recitals shall
be construed as part of this Amendment; and
WHEREAS,
such amendments shall be of benefit, either directly or indirectly, to the
Company.
NOW,
THEREFORE, in consideration of the covenants, conditions and agreements
hereinafter set forth and other good and valuable consideration, the adequacy,
sufficiency and receipt of which are hereby acknowledged, the parties hereto
agree as follows:
1.
Amendments
to Purchase Agreement. Upon and after the Sixth Amendment
Effective Date (as defined below):
(a)
Section 1.1 of the Purchase Agreement is hereby amended by adding the
following new definitions of the “Sixth Amendment Effective
Date” and “Total Debt” in its
proper alphabetical order to read as follows:
““Sixth Amendment Closing
Date” shall mean January 8, 2009.
“Total Debt” shall
mean all Indebtedness of the Company and its Subsidiaries, determined on a
consolidated basis, excluding (a) Contingent Obligations (except to the
extent constituting Contingent Obligations in respect of the Indebtedness of a
Person other than the Company or any Subsidiary), (b) Hedging Obligations
(as defined in the Loan and Security Agreement), (c) Indebtedness of the
Company to Subsidiaries and Indebtedness of Subsidiaries to the Company or to
other Subsidiaries, and (d) contingent obligations in respect to undrawn
Letters of Credit (as defined in the Loan and Security Agreement).”
(b) Section 1.1
of the Purchase Agreement is hereby amended by amending and restating the
following definitions in their entirety:
““Interest Expense”
shall mean, for any period, the sum of: (a) all interest,
charges and related expenses payable with respect to that fiscal period to a
lender in connection with borrowed money or the deferred purchase price of
assets that are treated as interest in accordance with GAAP, plus (b) the
portion of Capitalized Lease Obligations with respect to that fiscal period that
should be treated as interest in accordance with GAAP, plus (c) all charges
paid or payable (without duplication) during that period with respect to any
Hedging Agreements (as defined in the Loan and Security Agreement).
“Note” means that
certain Third Amended and Restated Senior Subordinated Promissory Note dated
January 8, 2009, 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 A
attached hereto, with appropriate insertions, as may be amended, restated,
substituted, replaced or otherwise modified from time to
time.
“Note A” means
that certain Third Amended and Restated Senior Subordinated Promissory Note
dated January 8, 2009, in the aggregate original principal amount of Five
Million and 00/100 Dollars ($5,000,000), made payable by the Company in
favor of the Purchaser, in substantially the form as set forth in Exhibit A-1
attached hereto, with appropriate insertions, as may be amended, restated,
substituted, replaced or otherwise modified from time to time.”
(c) Section 1.1
of the Purchase Agreement is hereby amended by deleting the definitions of
“Fixed Charge Coverage Ratio” and “Fixed Charges” in their
entirety.
(d) Section 4.7(a)
of the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:
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“(a)
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Maximum Capital
Expenditures. For the fiscal quarters ending
March 31, 2009, June 30, 2009 and September 30, 2009, the
Company and its Subsidiaries, on a consolidated basis, shall not make
Capital Expenditures in excess of $330,000 per fiscal
quarter.
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(e) Section 4.7(b)
of the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:
“(b) Minimum Fixed Charge
Coverage.
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(i)
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While
a payment blockage period is not in effect under 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, on a
consolidated basis, 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 1.10 to
1.00. For the calendar year of 2008, the Fixed Charge Coverage
Ratio shall be based upon cumulative 2008 reporting until
December 31, 2008, and thereafter it shall be measured on a trailing
twelve (12) month basis; provided, however, that in the event the Fixed
Charge Coverage Ratio for the applicable reporting period is at or between
.90 to 1.00 and 1.09 to 1.00, the Company shall have the option (the
“Coverage Option”), exercisable one (1) time during the term of this
Agreement, to accrue the Current Interest and default interest due and
payable under the Note (but not under Note A or any other note) “in
kind” for two (2) successive quarterly periods prior to any Event of
Default being declared by the Purchaser
hereunder.
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(ii)
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While
a payment blockage period is in effect under 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 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)), provided, however, that cash Interest
Expense and principal paid by Parent on behalf of the Company on Senior
Debt (limited to a $500,000.00 deduction for the period ending
December 31, 2008 and an additional $500,000.00 deduction for the
period ending March 31, 2009) and Subordinated Debt shall be deducted
from the sum of cash Interest Expense and principal payments on Total
Debt, of not less
than 1.10 to 1.00. For the calendar year of 2008, the Fixed Charge
Coverage Ratio shall be based upon cumulative 2008 reporting until
December 31, 2008, and thereafter it shall be measured on a trailing
twelve (12) month basis.”
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(f)
Section 4.7(c) of the Purchase
Agreement is hereby amended and restated in its entirety to read as
follows:
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“(c)(i)
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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
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(a) 2.20
to 1.00 for the fiscal quarter ending December 31, 2008,
(b) 2.50
to 1.00 for the fiscal quarters ending March 31, 2009 and June 30,
2009, and
(c) 2.20
to 1.00 for the fiscal quarter ending September 30, 2009 and the fiscal
quarters ending thereafter.
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(ii)
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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 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
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(a) 4.40
to 1.00 for the fiscal quarters ending September 30, 2008 through the
fiscal quarter ending December 31, 2008,
(b) 5.94
to 1.00 for fiscal quarters ending March 31, 2009,
(c) 5.78
to 1.00for fiscal quarters ending June 30, 2009,
(d) 4.40
to 1.00 for the fiscal quarter ending September 30, 2009, and
(e) 3.85
to 1.00 the fiscal quarters ending thereafter.”
;
provided, however, that in the event the Company has not exercised the Coverage
Option, the Company shall have the option, exercisable one (1) time during
the term of this Agreement, to accrue the Current Interest and default interest
due and payable under the Note (but not under Note A or any other note) “in
kind” for two (2) successive quarterly periods prior to any Event of
Default being declared by the Purchaser hereunder.
2.
Additional
Provisions.
(a) On
or before January 8, 2009, Argyle Security, Inc. shall contribute to the
Company no less than $3,000,000.00 of capital. The capital
contribution shall be in a form acceptable to the Purchaser. The
Company shall pay down from the proceeds of the capital contribution
(a) the outstanding balance of the Facility C Loan (as defined in the Loan
and Security Agreement) under the Loan and Security Agreement by $2,500,000.00,
and (b) the outstanding balance of the Facility A Loan (as defined in the
Loan and Security Agreement) under the Loan and Security Agreement by
$500,000.00. The Company shall not be required to make the
$500,000.00 Facility C Loan (as defined in the Loan and Security Agreement)
installment payment that is due on March 31, 2009 as required by Section 2.3(c)
of the Loan and Security Agreement. Facility C Loan (as defined in
the Loan and Security Agreement) installment payments required pursuant to Section 2.3(c)
of the Loan and Security Agreement shall resume with the installment payment due
June 30, 2009.
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(b) The
Company acknowledges that payment blockage period notices under certain
subordination agreements in connection with certain subordinated notes have been
sent by the Senior Lender to certain subordinated debt holders listed on the
Indebtedness Schedule of the Purchase Agreement. The Company
represents and warrants that it will not make principal and interest payments on
such subordinated Indebtedness until the Company complies with the financial
covenants set forth in Sections 4.7 of
the Purchase Agreement (before giving effect to this Amendment) that are
calculated in accordance with Section 4.7 of
the Purchase Agreement.
(c) Pursuant
to the provisions and in satisfaction of the terms set forth in the Waiver dated
December 24, 2008 (the “Waiver”), the Company
hereby withdraws its Option Election (as defined in the Waiver). By
signing below, the Purchaser acknowledges that the provisions of the Waiver are
satisfied and that the Option Election is no longer in effect and shall, in the
future, be available to the Company pursuant to the terms and conditions of this
Amendment and the Purchaser waives compliance with the financial covenants set
forth in Sections
4.7(c) of the Purchase Agreement for the period ending on each of
September 30, 2008 and December 31, 2008. This waiver is effective only for the
specific instances provided for under this Amendment.
3.
Joinder of
Guarantors. Each of Com-Tec Security, LLC, a Wisconsin limited
liability company, and Com-Tec California Limited Partnership, a Wisconsin
limited partnership, hereby agrees to become a party to the Purchase Agreement
and agrees to be bound by all of the terms, conditions, obligations and
covenants contained therein that apply to “Guarantors” thereunder, including,
without limitation, the provisions of Section 8 of the Purchase
Agreement.
4.
Representations and
Warranties. In order to induce the Purchaser to agree to the
amendments to the Purchase Agreement described in Section 1 of this
Amendment, the Company makes the following representations and warranties, which
shall survive the execution and delivery of this Amendment:
(a) No
Event of Default has occurred and is continuing and no Event of Default will
exist immediately after giving effect to the amendments contained
herein;
(b) Each
of the representations and warranties set forth in Section 5 of the
Purchase Agreement are true and correct as though such representations and
warranties were made at and as of the Amendment Effective Date, except to the
extent that any such representations or warranties are made as of a specified
date or with respect to a specified period of time, in which case such
representations and warranties shall be made as of such specified date or with
respect to such specified period. Each of the representations and
warranties made under the Purchase Agreement shall survive to the extent
provided therein and not be waived by the execution and delivery of this
Amendment;
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(c) The
Company is a duly organized, validly existing Delaware corporation and has the
power and authority to execute, deliver and carry out the terms and provisions
of this Amendment, and has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this
Amendment;
(d) No
consent of any other Person or filing or action by any governmental authorities,
is required to authorize the execution, delivery and performance of this
Amendment;
(e) This
Amendment has been duly executed by a duly authorized signatory on behalf of the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforcement thereof may be
subject to the effect of any applicable (i) bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors’ rights generally
and (ii) general principals of equity; and
(f) The
execution and delivery and performance of the agreements in this Amendment will
not violate any law, statute or regulation applicable to the Company or any
order or decree of any governmental authorities, or conflict with or result in
the breach or any contractual obligation of the Company.
5.
Conditions
Precedent to Effectiveness of the Amendment. The amendments
described in Section 1 above
are subject to the satisfaction of (or waiver by the Purchaser in its sole
discretion) the following conditions precedent:
(a) The
Company shall have entered into an amendment to the Loan and Security Agreement
on terms satisfactory to the Purchaser;
(b) The
Company shall have executed and delivered to the Purchaser this
Amendment;
(c) The
Company shall have executed and delivered to the Purchaser a Third Amended and
Restated Senior Subordinated Promissory Note and an Amended and Restated Senior
Subordinated Promissory Note, in the forms of the attached Exhibit A and
Exhibit A-1,
respectively;
(d) The
Guarantors shall have executed and delivered to the Purchaser a Reaffirmation of
Guaranty Agreement in the form attached to this Amendment; and
(e) The
Company shall have executed and delivered such other documents and instruments
that the Purchaser may reasonably request to effect the purposes of this
Amendment.
6.
Effectiveness. The
amendments to the Purchase Agreement contained in Section 1 of
this Amendment shall become effective as of the Sixth Amendment Effective Date
(as defined in the Purchase Agreement) after the Purchaser shall have received
this Amendment, executed and delivered by the Company and the Purchaser and all
of the conditions precedent have been satisfied.
7.
Expenses. The
Company agrees to pay on demand all reasonable costs and expenses, including
filing and recording fees, incurred by the Purchaser in connection with the
preparation, execution and delivery of this Amendment, and any other documents
or instruments which may be delivered in connection herewith, including without
limitation, the reasonable fees and expenses of Xxxxxx Price P.C., counsel for
the Purchaser.
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8.
Counterparts. This
Amendment may be executed in counterparts and by different parties hereto in
separate counterparts, each of which, when so executed and delivered, shall be
deemed to be an original and all of which, when taken together, shall constitute
one and the same instrument. Faxed or emailed signatures of this
Agreement shall be binding on the parties. Each party shall promptly
send to the other party signed originals of faxed or emailed signatures to this
Agreement.
9.
Ratification. The
Purchase Agreement, as amended by this Amendment, is and shall continue to be in
full force and effect and is hereby in all respects confirmed, approved and
ratified. Except as amended hereby, all terms and conditions of the
Purchase Agreement remain the same.
10. Release. In
consideration of the amendments provided herein, the Company releases and
discharges the Purchaser, and its directors, officers, employees, agents,
successors and assigns from all claims and causes of action of any nature
whatsoever, which the Company, its successors and assigns ever had or have as of
the date hereof against the Purchaser that arise, directly or indirectly, out of
or are related to the Purchase Agreement. The Company acknowledges
that the Obligations arising under the Purchase Agreement are not subject to any
such counterclaim, offset, defense or rights of recoupment against the
Purchaser.
11.
Governing
Law. The rights and duties of the Company and the Purchaser
under this Amendment shall be governed by the law of the State of
Illinois.
12. Reference to Purchase
Agreement. From and after the Amendment Effective Date, each
reference in the Purchase Agreement to “this Purchase Agreement”, “hereof”,
“hereunder” or words of like import, and all references to the Purchase
Agreement in any and all agreements, instruments, documents, notes, certificates
and other writings of every kind and nature, shall be deemed to mean the
Purchase Agreement as modified and amended by this Amendment.
[The
remainder of this page is left blank intentionally.]
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IN WITNESS WHEREOF, the
parties have caused this Amendment to be duly executed by their authorized
officers as of the date first written above.
| COMPANY: |
PURCHASER:
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| ISI SECURITY GROUP, INC., a Delaware corporation formerly known as ISI Detention Contracting Group, Inc. and d/b/a “Argyle Security USA” | XXXXXXX XXXXX MEZZANINE CAPITAL FUND III, L.P. | ||||
| By: |
Xxxxxxx
Xxxxx Mezzanine Capital
Partners III,
L.L.C.,
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| By: | /s/ Xxx Xxxxxxxxxx |
its
General Partner
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | President | ||||
| By: | /s/ Xxxxxxxx X. Xxxxx | ||||
| Name: | Xxxxxxxx X. Xxxxx | ||||
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Title: |
Managing
Director
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GUARANTORS:
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COM-TEC
SECURITY, LLC,
a
Wisconsin limited liability company
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| By: Metroplex Control Systems, Inc., its General Partner | |||||
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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COM-TEC
CALIFORNIA LIMITED
PARTNERSHIP,
a Wisconsin limited partnership
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
REAFFIRMATION OF GUARANTY
AGREEMENT
The
undersigned (a) acknowledges receipt of a copy of the Sixth Amendment to
Note and Warrant Purchase Agreement, dated January 8, 2009, by and between
ISI Security Group, Inc. and Xxxxxxx Xxxxx Mezzanine Capital Fund III,
L.P., a Delaware limited partnership, (b) consents to such amendments and
all prior amendments and each of the transactions referenced therein, and
(c) hereby reaffirms its obligations as a Guarantor under the Purchase
Agreement in favor of Xxxxxxx Xxxxx Mezzanine Capital Fund III, L.P., a
Delaware limited partnership.
Dated as
of January 8, 2009
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DETENTION
CONTRACTING GROUP, LTD.,
a
Texas limited partnership
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| By: |
ISI DETENTION
CONTRACTING GROUP, INC.,
a
Texas corporation,
its
general partner
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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ISI
DETENTION CONTRACTING
GROUP, INC., a Texas
corporation
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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ISI
DETENTION CONTRACTING
GROUP, INC., a
California corporation
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
Signature
Page to Reaffirmation of Guaranty Agreement
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ISI
DETENTION CONTRACTING
GROUP, INC., a New
Mexico corporation
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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ISI
DETENTION SYSTEMS, INC.,
a
Texas corporation
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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ISI
DETENTION SYSTEMS, LTD.,
a
Texas limited partnership
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| By: |
ISI DETENTION SYSTEMS, INC.,
a
Texas corporation, its
general partner
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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METROPLEX
CONTROL SYSTEMS, INC.,
a
Texas corporation, (f/k/a ISI Metroplex Controls,
Inc.)
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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ISI CONTROLS,
LTD.,
a
Texas limited partnership
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| By: |
METROPLEX
CONTROL SYSTEMS, INC.,
a
Texas corporation, its general partner
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
Signature
Page to Reaffirmation of Guaranty Agreement
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METROPLEX
COMMERCIAL FIRE AND
SECURITY ALARMS, INC., a
Texas corporation
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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MCFSA,
LTD.,
a
Texas limited partnership
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| By: |
METROPLEX COMMERCIAL FIRE
AND
SECURITY ALARMS, INC., a
Texas
corporation,
its general partner
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| By: | /s/ Xxx Xxxxxxxxxx |
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| Name: | Xxx Xxxxxxxxxx | ||||
| Title: | CEO | ||||
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a
Delaware corporation
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| By: | /s/ Xxxxxx X. Xxxxxxx |
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| Name: | Xxxxxx X. Xxxxxxx | ||||
| Title: | Chief Financial Officer | ||||
EXHIBIT A
Third
Amended and Restated Senior Subordinated Promissory Note
A-1
EXHIBIT
A-1
Amended
and Restated Senior Subordinated Promissory Note
A1-1
