MML LETTERHEAD]
Exhibit 99.1
[MML LETTERHEAD]
November 23, 2009
Gentlemen:
Each of 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
(collectively, the “Purchasers”) is pleased to provide to Argyle Security, Inc., a Delaware
corporation (the “Company”) its binding commitment to purchase from the Company Convertible
Subordinated Promissory Notes (collectively, the “Notes”) on terms and conditions set out below and
on the Term Sheet attached as Exhibit “A” to this commitment letter (the “Term Sheet”). The note
to be purchased by Fund A under the Bridge Notes Facility (as defined in the Term Sheet) shall be
in the original principal amount of $7,878,876 million and the note to be purchased by Fund A under
the Convertible Notes Facility shall be in the original principal amount of $2,412,906. The note
to be purchased by Coinvest Fund A under the Bridge Notes Facility shall be in the original
principal amount of $121,124 million and the note to be purchased by Coinvest Fund A under the
Convertible Notes Facility shall be in the original principal amount of $37,094.
The Purchasers’ commitments to purchase the Notes are subject to the following conditions
precedent: (a) satisfaction of each of the terms and conditions set forth herein and in the Term
Sheet; (b) the negotiation, execution and delivery of definitive documentation for the Note
Purchase consistent with the Term Sheet; and (c) the negotiation, execution and delivery of
definitive documentation for (i) an amendment to that certain Loan and Security Agreement dated
October 3, 2008 between ISI Security Group, Inc., a Delaware corporation (“ISI”) and The
PrivateBank and Trust Company (the “PrivateBank”), consistent with the terms set forth in the
commitment letter dated the date hereof between ISI and PrivateBank, (ii) an amendment to that
certain Note and Warrant Purchase Agreement dated as of October 22, 2004 between ISI and Xxxxxxx
Xxxxx Xxxxxxxxx Capital Fund III, L.P., a Delaware limited partnership (“Xxxxx Mezz”) consistent
with the terms set forth in the commitment letter dated the date hereof between ISI and Xxxxx Xxxx,
and (iii) a note modification agreement to each of those certain Guaranteed Convertible Promissory
Notes dated January 1, 2008 by ISI Detention Contracting Group, Inc., a California corporation
(“ISI Detention”), payable to the order of Xxxxxxxx Detention, Inc., a California corporation
(“PDI”), each in the original principal amount of $1.5 million (collectively and as amended or
modified, the “PDI Seller Notes”), consistent with the terms set forth in the commitment letter
dated the date hereof between ISI Detention and the holders of the PDI Seller Notes. The
definitive documentation with respect to each of the transactions referred to clause (c) above
shall not, without the prior written consent of the Purchaser, contain any substantive provisions
not set forth in the commitment letters referred to in clause (c) above.
This commitment letter and the accompanying Term Sheet form the entire agreement that has been
entered into between us with respect to the purchase and sale of the Notes and sets forth the
entire understanding of the parties with respect thereto. This commitment letter may be modified
or amended only by the written agreement of all of us. This commitment letter is not assignable by
the Company without our prior written consent and is intended to be solely for the benefit of the
parties hereto.
This commitment letter may be executed in counterparts which, taken together, shall constitute an
original. Delivery of an executed counterpart of this commitment letter by .pdf or facsimile
shall be effective as delivery of a manually executed counterpart thereof. This commitment letter
shall be governed by, and construed in accordance with, the laws of the State of Texas.
This commitment letter will expire at 5:00 p.m. (central time) on November 23, 2009, unless
accepted in writing by the Company on or before such time and will expire at 5:00 p.m. (central
time) on December 15, 2009 unless definitive documentation for the purchase and sale of the Notes
is executed and delivered and all conditions for closing have been satisfied or waived (such date,
the “Closing Date”) on or prior to such date.
[Remainder of Page Left Blank; Signatures Appear on Following Page]
We appreciate the opportunity to present you with this commitment and look forward to working with
you.
Very truly yours,
MEZZANINE MANAGEMENT FUND IV A, LP
By: |
/s/ X. Xxxxxx Xxxxxx | |||||
| Name: | X. Xxxxxx Xxxxxx | |||||
| Title: | Authorized Signatory | |||||
MEZZANINE MANAGEMENT FUND IV COINVEST A, LP
By: |
/s/ X. Xxxxxx Xxxxxx | |||||
| Name: | X. Xxxxxx Xxxxxx | |||||
| Title: | Authorized Signatory | |||||
ACKNOWLEDGED AND AGREED:
By:
|
/s/ Xxxxxx X. Xxxxxxx
|
|||
| Name: Xxxxxx X. Xxxxxxx | ||||
| Title: Chief Financial Officer |
EXHIBIT “A”
TERM SHEET
November 23, 2009
This term sheet is attached to and made a part of that certain commitment letter dated as of
November 23, 2009 (the “Commitment Letter”) from Mezzanine Management Fund IV A, LP, and Mezzanine
Management Fund IV Coinvest A, LP (collectively, the “Purchasers”), to Argyle Security, Inc. (the
“Company”). This term sheet summarizes the material terms and conditions of the Notes (as defined
in the Commitment Letter) that have been agreed by the parties hereto. This term sheet is further
conditioned upon satisfaction of the conditions precedent outlined herein and in the attached
Commitment Letter.
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 Xxxxxxx Xxxxx Xxxxxxxxx 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 Xxxxxxx X.
Xxxxxxxx and Xxxxxx X. Xxxxxxxx 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 Xxxxxxx Xxxxx Xxxxxxxxx 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:
|
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
Xxxxxxx Xxxxx Xxxxxxxxx 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. |
