**Exhibit 10.1**

 

**FIFTH AMENDMENT AND WAIVER**

**TO NOTE AND WARRANT PURCHASEAGREEMENT**

** **

THIS FIFTH AMENDMENT AND WAIVER TO NOTE AND WARRANTPURCHASE AGREEMENT (this “Amendment”) is dated as of November 13,2008 by and among ISI Security Group, Inc., a Delaware corporationformerly known as ISI Detention Contracting Group, Inc. and d/b/a “ArgyleSecurity USA” (successor-by-merger to ISI Security Group, Inc., anunrelated entity) (the “Company”), and William Blair Mezzanine CapitalFund III, L.P., a Delaware limited partnership (the “Purchaser”).

 

RECITALS:

 

**WHEREAS**, the Company, thePurchaser and the Guarantors (as such term is defined in the Purchase Agreement(as defined below)) (such Guarantors are parties to the Purchase Agreementsolely for the purposes of Section 8 thereof) previously entered into thatcertain Note and Warrant Purchase Agreement, dated as of October 22, 2004,as amended by that certain Omnibus First Amendment to Note and Warrant PurchaseAgreement and Warrant dated as of November 1, 2005, by that certainOmnibus Second Amendment to Note and Warrant Purchase Agreement and Warrant,dated as of July 31, 2007, by that certain Third Amendment to Note andWarrant Purchase Agreement, dated as of January 2, 2008, and by thatcertain Fourth Amendment to Note and Warrant Purchase Agreement, dated as of June 25,2008 (as further amended, restated, supplemented or otherwise modified fromtime to time, the “Purchase Agreement”);

 

**WHEREAS**, theCompany acknowledges that a certain event of default has occurred and iscontinuing under the Purchase Agreement, and the Purchaser is willing toprovide a limited waiver in respect of such event of default, subject to theterms and conditions of this Amendment;

 

**WHEREAS**, inconnection with the event of default, the Company wishes, and the Purchaser iswilling to, amend the Purchase Agreement, subject to the terms and conditionsof this Amendment;

 

**WHEREAS**, thisAmendment shall constitute a Transaction Document, and these Recitals shall beconstrued as part of this Amendment; and

 

**WHEREAS**, capitalized terms usedbut not otherwise defined herein shall have the respective meanings given tothem in the Purchase Agreement.

 

**NOW, THEREFORE**, in considerationof the above premises, the agreements contained herein and other good andvaluable consideration, the adequacy, sufficiency and receipt of which arehereby acknowledged, the parties hereto agree as follows:

 

Section 1.               Amendment to thePurchase Agreement.  Section 4.7(a) ofthe Purchase Agreement is hereby deleted in its entirety and restated to readas follows:

 

(a)                                  CapitalExpenditure Limits.  The Company andits Subsidiaries, on a consolidated bases, shall not make Capital Expendituresin 

 

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excess of (i) $2,300,000, in the aggregate, for the 2007 FiscalYear, (ii) $3,000,000, in the aggregate, for the 2008 Fiscal Year and (iii) $600,000,in the aggregate, during each Fiscal Year thereafter.

 

Section 2.               Waiver.

 

(a)           The Company hasinformed the Purchaser that as of November 12, 2008, the Company hasexceeded the Capital Expenditure limitation as set forth in Section 4.7(a) ofthe Purchase Agreement prior to the effectiveness of this Amendment (the “ExistingDefault”).  The Purchaser herebywaives compliance by the Company of Section 4.7(a) of the PurchaseAgreement solely as it relates to the Existing Default.  The Purchaser’s waiver of non-compliance withSection 4.7(a) of the Purchase Agreement is limited to the specificinstance of the Existing Default and shall not be deemed a waiver of or consentto any other failure to comply with the terms of Section 4.7(a) ofthe Purchase Agreement or any other provisions of the Purchase Agreement.  Such waiver shall not prejudice or constitutea waiver of any right or remedies which the Purchaser may have or be entitledto with respect to any other breach of Section 4.7(a) or any otherprovision of the Purchase Agreement.  Thewaiver is for this particular instance and shall not be construed as a waiverof any other presently existing or future Event of Default.  Subsequent to the date hereof, the provisionsof Section 4.7(a) of the Purchase Agreement will apply as amendedhereby, without any further action on the part of the Purchaser.

 

(b)           Other than asspecifically set forth herein, the Purchaser reserves all of its interests,rights and remedies under and pursuant to the Transaction Documents.

 

Section 3.               Representationsand Warranties.  To induce thePurchaser to enter into this Amendment, the Company represents and warrantsthat:

 

(a)           Representations,Warranties; No Default.  The warrantiesand representations of the Company contained in the Transaction Documents shallbe true and correct as of the effective date hereof, with the same effect asthough made on such date, except to the extent that such warranties andrepresentations expressly relate to an earlier date.  No Event of Default (other than the ExistingDefault) or Potential Event of Default has occurred and is continuing under thePurchase Agreement.

 

(b)           OrganizationalAuthority.  (i) The execution,delivery and performance by the Company of this Amendment are within itscorporate powers and have been duly authorized by all necessary corporateaction, (ii) this Amendment is the legal, valid and binding obligation ofthe Company enforceable in accordance with its terms and (iii) neither theexecution and delivery nor the performance by the Company of this Amendment (1) violatesany law or regulation, or any other decree of any governmental body, (2) conflictswith or results in the breach or termination of, constitutes a default under oraccelerates any performance required by, any indenture, mortgage, deed oftrust, lease, agreement or other instrument to which such Person is a party orby which such Person or any of its property is bound, (3) results in thecreation or imposition of any Lien, upon any of the Collateral (as defined inthe Senior Loan Documents) other than Liens in favor of the Senior Lender, (4) violatesor conflicts with the certificate of incorporation or bylaws of such Person, or(5) requires the consent, approval or 

 

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authorization of, ordeclaration or filing with, any other Person, except for those already dulyobtained.

 

Section 4.               ConditionsPrecedent.  The effectiveness of thisAmendment is subject to the following conditions precedent:

 

(a)           No Default.  No Potential Event of Default or Event ofDefault (other than the Existing Default) under the Purchase Agreement shallhave occurred and be continuing.

 

(b)           Warranties andRepresentations.  The warranties andrepresentations of the Company contained in the Transaction Documents shall betrue and correct as of the effective date hereof, with the same effect asthough made on such date, except to the extent that such warranties andrepresentations expressly relate to an earlier date.

 

(c)           Execution andDelivery.  The Company and thePurchaser shall have executed and delivered this Amendment.

 

(d)           InitialAmendment Fee.  The Company shallhave paid to the Purchaser an initial amendment fee in the amount of $25,000.

 

Section 5.               Reference andEffect on Operative Documents.

 

(a)           Ratification.  Except as specifically amended above, thePurchase Agreement and the other Transaction Documents, as amended, shallremain in full force and effect. Notwithstanding anything contained herein, the terms of this Agreementare not intended to and do not effect a novation of the Purchase Agreement orany other Transaction Document.  TheCompany hereby ratifies and reaffirms each of the terms and conditions of theTransaction Documents to which it is a party and all of its obligationsthereunder.

 

(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 TransactionDocument to “the Agreement” or “the Purchase Agreement” shall, in each case andexcept as otherwise specifically stated therein, mean and be a reference to thePurchase Agreement or such other Transaction Documents, as applicable, asamended hereby.

 

Section 6.               Miscellaneous.

 

(a)           Additional Fee andExpenses.  In connection with thisAmendment, the Company shall pay to the Purchaser an additional amendment feein the amount of $25,000 on December 31, 2008.  Pursuant to Section 9.1 of thePurchase Agreement, the Company further agrees to pay on demand all reasonablelegal fees and out-of-pocket costs and expenses of or incurred by the Purchaserin connection with the instruments and agreements contemplated hereby.  The failure of the Company to comply with theforegoing requirements shall constitute an immediate Event of Default under thePurchase Agreement.

 

(b)           Binding Effect.  This Amendment shall be binding upon andshall inure to the benefit of the parties hereto and their respectivesuccessors and assigns.

 

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(c)           Counterparts.  This Amendment may be executed in one or morecounterparts, each of which when so executed and delivered, shall be anoriginal, and all of which together shall constitute one and the sameinstrument.

 

(d)           Governing Law.  This Amendment shall be governed by the lawsof the State of Illinois, without giving effect to its conflict of lawsprinciples.

 

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***Signature Page to Fifth Amendment andWaiver to Note and Warrant Purchase Agreement***

 
| COMPANY:                                                                                                                                                         |                    | PURCHASER:                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|----------------------------------------------------------|
|                                                                                                                                                             |                    |                                                     |
| **ISI SECURITY GROUP, INC.**,  a Delaware  corporation formerly known as ISI  Detention  Contracting Group, Inc. and d/b/a “Argyle  Security USA” |                    | **WILLIAM BLAIR MEZZANINE  CAPITAL FUND III, L.P.** |
| ** **                                                                                                                                                       |                    | By:                                                      | William  Blair Mezzanine Capital |
| By:                                                                                                                                                              | /s/ Tim Moxon           |                                                     |   | Partners III,  L.L.C., |
| Name:                                                                                                                                                            | Tim Moxon               |                                                     |   | its General  Partner |
| Title:                                                                                                                                                           | Chief Financial Officer |                                                     |   |   |
|                                                                                                                                                             |                    |                                                     |   |   |
|                                                                                                                                                             |                    |                                                     | By: | /s/ Marc J. Walfish |
|                                                                                                                                                             |                    |                                                     | Name: | Marc J. Walfish |
|                                                                                                                                                             |                    | ** **                                               | Title: | Managing Director |
|                                                                                                                                                                  |                         |                                                          |  |  |  |

 

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