Unassociated Document


     

    
      	
               Execution
      Copy

            


    

     

    
      The
security represented by this instrument was originally issued on
October 22, 2004 (“Original Date of
Issuance”), and has not been registered under the Securities Act of 1933,
as amended (the “Act”), or under any
applicable state securities laws, and may not be offered, sold or otherwise
transferred, assigned, pledged or hypothecated unless and until registered under
the Act and applicable state securities laws, or unless the Borrower (as defined
below) has received an opinion of counsel satisfactory to the Borrower and its
counsel that such registration is not required.  The transfer of such
security is subject to the conditions specified in that certain Note and Warrant
Purchase Agreement, dated as of October 22, 2004 (as amended, restated or
otherwise modified from time to time), by and among the Borrower, William Blair
Mezzanine Capital Fund III, L.P., a Delaware limited partnership, and the
Guarantors party thereto from time to time.

       

      The
obligations evidenced hereby are subordinate in the manner and to the extent set
forth in that certain Subordination Agreement, dated as of October 22,
2004, as amended by that certain First Amendment to Subordination Agreement,
dated as of November 1, 2005, and that certain Reaffirmation and Second
Amendment to Subordination Agreement, dated as of July 31, 2007 (as further
amended, restated, supplemented or otherwise modified from time to time, the
“Subordination
Agreement”), among, without limitation, William Blair Mezzanine Capital
Fund III, L.P., a Delaware limited partnership, ISI Security Group, Inc., a
Delaware corporation formerly known as ISI Detention Contracting Group, Inc.
(the “Borrower”), and The
PrivateBank and Trust Company (successor-in-interest to LaSalle Bank National
Association) (the “Senior Lender”), to
the obligations (including interest) owed by Borrower to the holders of all of
the notes issued pursuant to that certain Loan and Security Agreement, dated as
of October 3, 2008, between Borrower and Senior Lender, as such Agreement
has been and may hereafter be supplemented, modified, restated or amended from
time to time; and each holder hereof, by its acceptance hereof, shall be bound
by the provisions of the Subordination Agreement.

       

      THIS
NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT AND, AS REQUIRED BY TREASURY
REGULATION §1.1275-3(b)(1), INFORMATION REGARDING THE ISSUE PRICE, THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD TO MATURITY MAY BE
OBTAINED FROM THE ISSUER HEREOF AT ISI DETENTION CONTRACTING GROUP, INC., 12903
DELIVERY DRIVE SAN ANTONIO, TEXAS 78247.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      THIRD AMENDED AND
RESTATED

      SENIOR SUBORDINATED
PROMISSORY NOTE

       

      
        	
                January 8,
      2009

              	
                $5,951,609.00

              


      

      
        


        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 “Borrower”), hereby
promises to pay to the order of William Blair Mezzanine Capital Fund III, L.P.,
a Delaware limited partnership, or its assignee (the “Holder”), the
principal amount of Five Million Nine Hundred Fifty-One Thousand Six Hundred
Nine and No/100 Dollars ($5,951,609.00) (the “Original Principal
Amount”), together with interest thereon calculated from the date hereof
(the “Date of
Issuance”), in accordance with the provisions of this instrument (this
“Note”).  For
purposes of this Note, the term “Principal Balance”
shall mean an amount equal to (a) the Original Principal Amount minus (b) all
payments of principal made by the Borrower from time to time pursuant to the
terms of this Note plus (c) all
amounts added to the Original Principal Amount pursuant to the terms of this
Note or the Note Purchase Agreement (as defined below).

         

        This Note
was issued pursuant to the terms of that certain Note and Warrant Purchase
Agreement, dated as of October 22, 2004 (as amended, restated or otherwise
modified from time to time, including, without limitation, pursuant to that
certain Sixth Amendment to Note and Warrant Purchase Agreement, dated as of
January 8, 2009, the “Note Purchase
Agreement”), by and among the Borrower, the Holder and the Guarantors (as
defined therein) party thereto from time to time.  This Note is the
“Note” referred to in the Note Purchase Agreement.  The Note Purchase
Agreement contains terms governing the rights and obligations of the Holder of
this Note and all provisions of the Note Purchase Agreement are hereby
incorporated herein in full by reference.  Except as otherwise
indicated herein, capitalized terms used in this Note have the same meanings set
forth in the Note Purchase Agreement.

         

        
          	
                  1.

                	
                  Payment of
      Interest.  Except as otherwise expressly provided herein
      or as specifically provided in the Note Purchase Agreement, the Principal
      Balance of this Note shall bear interest (computed on the basis of actual
      days elapsed in a 360-day year) at the rate of (i) eleven and
      fifty-eight hundredths percent (11.58%) per annum from the date hereof
      through and including September 30, 2010 and (ii) fifteen and fifty-eight
      hundredths percent (15.58%) per annum from October 1, 2010 and at all
      times thereafter (“Current
      Interest”).  In addition, default interest shall accrue
      on the unpaid Principal Balance of this Note at the rate of two percent
      (2%) per annum after the occurrence and during the continuance of an Event
      of Default.  Current Interest accruing on the Principal Balance
      of this Note shall be payable quarterly in arrears in accordance with the
      payment schedule on Exhibit A
      attached hereto and made a part hereof (assuming for purposes of Exhibit A
      that no portion of the Principal Balance of this Note is prepaid and that
      this Note is not accelerated prior to the Maturity Date).  In
      addition, all accrued and unpaid Current Interest on this Note (together
      with any accrued and unpaid default interest) shall be paid upon the
      payment in full of the entire outstanding Principal Balance of this Note
      (whether on the Maturity Date or as a result of the acceleration of the
      maturity thereof), or if a prepayment of this Note is made, on the
      Principal Balance prepaid, and, if payment in full is not paid when due,
      thereafter on demand.  Unless prohibited under applicable law,
      any accrued interest (whether Current Interest or default interest) which
      is not paid on the date on which it is due and payable shall be
      capitalized and shall bear interest at the same rate at which interest is
      then accruing on the Principal Balance of this Note until such interest is
      paid.  Any accrued interest (whether Current Interest or default
      interest) which for any reason has not theretofore been paid shall be paid
      in full on the date on which the final principal payment on this Note is
      made (whether on the Maturity Date or as a result of the acceleration of
      the maturity thereof).  Interest shall accrue on any payment due
      under this Note at the rates set forth herein until such time as payment
      therefor is actually delivered to the
Holder.

                


        

         

        
          
            
            

          

          
            -2-

            
              

            

          

          
            
            

          

        

         

        
          	
                  2.

                	
                  Payment of Principal
      on Note.

                


        

         

        
          	
                   
      

                	
                  (a)

                	
                  Scheduled
      Payments.  The Borrower shall pay the outstanding
      principal amount of this Note, together with all accrued and unpaid
      interest on the principal amount being repaid, on January 31, 2011 (the
      “Maturity
      Date”).

                


        

         

        
          	
                   
      

                	
                  (b)

                	
                  Optional
      Prepayments.  At any time after the second (2nd)
      anniversary of the Original Date of Issuance (or, in the event of an IPO
      or a sale of the Borrower approved by the Holder, at any time after the
      Original Date of Issuance), the Borrower, at its option, may prepay all or
      any portion of this Note on any scheduled quarterly payment date at a
      prepayment price of one hundred percent (100%) of the Principal Balance to
      be prepaid, plus accrued and unpaid interest to the prepayment
      date.

                


        

         

        
          	
                   
      

                	
                  (c)

                	
                  [Intentionally
      Omitted].

                


        

         

        
          	
                   
      

                	
                  (d)

                	
                  Notice of
      Prepayments.  The Borrower shall give notice (which shall
      be irrevocable) to the Holder of this Note of each prepayment not later
      than 1:00 p.m. (Chicago time) on
      the Business Day immediately preceding the date of prepayment, specifying
      the aggregate Principal Balance to be prepaid and the prepayment
      date.  Once any such notice has been given, the Principal
      Balance specified in such notice, together with all accrued and unpaid
      interest on the amount of each such prepayment to the date of payment, and
      any prepayment premium, shall become due and payable on such date of
      payment.

                


        

         

        
          	
                  3.

                	
                  Payment
      Schedule.  Set forth as Exhibit A
      attached hereto is a schedule which reflects the amount of Current
      Interest payable quarterly and the Principal Balance of this Note at the
      beginning and at the end of each quarter during the term of this Note
      (assuming for purposes of Exhibit A
      that no portion of the Principal Balance of this Note is prepaid and that
      this Note is not accelerated prior to the Maturity Date).  Upon
      any voluntary or mandatory prepayment of all or any portion of the
      Principal Balance, the Current Interest reflected on Exhibit A
      attached hereto shall be recomputed based upon the remaining Principal
      Balance.  The Holder shall amend Exhibit A
      hereto to reflect such recomputation and deliver the same to the Borrower,
      and such amended Exhibit A
      shall constitute rebuttable presumptive evidence of the Principal Balance
      owing and unpaid on this Note and the interest accruing and payable
      thereafter under this Note.  The failure to amend Exhibit A
      hereto or to deliver the same to the Borrower shall not, however, affect
      the obligations of the Borrower to pay the Principal Balance and all
      accrued and unpaid interest on the Principal Balance of this
      Note.

                


        

         

        
          
            
            

          

          
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                  4.

                	
                  Transfer and Exchange;
      Replacement; Cancellation.

                


        

         

        
          	
                   
      

                	
                  (a)

                	
                  Transfer and
      Exchange.

                


        

         

        
          	
                   
      

                	
                  (i)

                	
                  Subject
      to any restrictions contained in this Note or the Note Purchase Agreement,
      this Note and all rights and obligations hereunder are transferable, in
      whole or in part, to any Person (excluding any Person that is a direct or
      indirect competitor of the Borrower), without charge to the Holder, upon
      surrender of this Note with a properly executed assignment in form and
      substance reasonably acceptable to the Borrower at the principal office of
      the Borrower.  To facilitate any such transfer, the Borrower
      hereby covenants to execute such documents and perform such acts as may be
      necessary or appropriate in the Holder’s sole judgment for the Holder to
      effect any such transfer.

                


        

         

        
          	
                   
      

                	
                  (ii)

                	
                  Upon
      surrender of this Note for transfer or for exchange, the Borrower, at its
      expense, will (subject to the conditions set forth herein and in the Note
      Purchase Agreement) execute and deliver in exchange therefor a new Note or
      Notes, as the case may be, as requested by the Holder or transferee, which
      aggregates the Principal Balance of such Note, issued as the Holder or
      such transferee may request, dated so that there will be no gain or loss
      of interest on such surrendered Note and otherwise of like
      tenor.  The issuance of new Notes shall be made without charge
      to the Holder(s) of the surrendered Note for any issuance tax in respect
      thereof or other cost incurred by the Borrower in connection with such
      issuance.

                


        

         

        
          	
                   
      

                	
                  (b)

                	
                  Replacement.  Upon
      receipt of evidence reasonably satisfactory to the Borrower (an affidavit
      of the Holder of this Note shall be satisfactory) of the ownership and the
      loss, theft, destruction or mutilation of this Note and, in the case of
      any such loss, theft or destruction, upon receipt of indemnity reasonably
      satisfactory to the Borrower (provided that if the Holder is a financial
      institution or other institutional investor, its own agreement of
      indemnity shall be satisfactory), or, in the case of any such mutilation,
      upon the surrender of this Note, the Borrower shall (at its expense)
      execute and deliver, in lieu thereof, a new Note of the same class and
      representing the same rights and obligations represented by such lost,
      stolen, destroyed or mutilated Note dated so that there will be no loss of
      interest on this Note.

                


        

         

        
          
            
            

          

          
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                  5.

                	
                  Payments.  All
      payments to be made to the Holder of this Note shall be made by wire
      transfer to the Holder in lawful money of the United States of America in
      same-day available funds.  Any payment received by the Holder of
      this Note after 2:00 p.m. (Chicago time) on any day will be deemed to have
      been received on the next following Business
  Day.

                


        

         

        
          	
                  6.

                	
                  Place of
      Payment.  Payments of principal, interest, premium and
      other amounts shall be made by wire transfer of immediately available
      funds to the following account of the Holder
  hereof:

                


        

         

        ABA
No.:  026 009 593

        Account
No.:  5800441577

        Account
Name:  William Blair Mezzanine Capital Fund III, L.P.

        Bank:  Bank
of America

         

        or to
such other account or to the attention of such other Person as specified by the
Holder in a prior written notice to the Borrower.

         

        
          	
                  7.

                	
                  Business
      Days.  If any payment is due, or any time period for
      giving notice or taking action expires, on a day which is not a Business
      Day, the payment shall be due and payable on, and the time period shall
      automatically be extended to, the next Business Day immediately following,
      and interest shall continue to accrue at the required rate hereunder until
      any such payment is made.

                


        

         

        
          	
                  8.

                	
                  Governing
      Law.  This Note shall be governed and construed in
      accordance with the domestic laws of the State of Illinois, without giving
      effect to any choice of law or conflict of law provision or rule (whether
      of the State of Illinois or any other jurisdiction) that would cause the
      application of the laws of any jurisdiction other than the State of
      Illinois.

                


        

         

        
          	
                  9.

                	
                  Liabilities.  In
      furtherance and not in limitation of the rights and remedies of the Holder
      of this Note hereunder or at law, the Holder of this Note may proceed
      under this Note against the Borrower in its absolute and sole discretion
      for any of the liabilities of the Borrower under this Note or any other
      liability or obligation of the Borrower arising
  hereunder.

                


        

         

        
          	
                  10.

                	
                  Events of
      Default. Upon the occurrence of any “Event of Default,” as
      described and specified in the Note Purchase Agreement, the Holder shall
      have all of the rights and remedies in accordance with, and as provided
      by, the terms of the Note Purchase Agreement.  In addition, the
      Holder shall be entitled to recover from the Borrower any and all costs
      and expenses, including reasonable attorneys’ fees and court costs,
      incurred in enforcing its rights
hereunder.

                


        

         

        
          
            
            

          

          
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                  11.

                	
                  Usury
      Laws.  It is the intention of the Borrower and the Holder
      of this Note to conform strictly to all applicable usury laws now or
      hereafter in force, and any interest payable under this Note shall be
      subject to reduction to an amount not in excess of the maximum legal
      amount allowed under the applicable usury laws as now or hereafter
      construed by the courts having jurisdiction over such
      matters.  If the maturity of this Note is accelerated by reason
      of an election by the Holder hereof resulting from an Event of Default,
      voluntary prepayment by the Borrower or otherwise, then the earned
      interest may never include more than the maximum amount permitted by law,
      computed from the date hereof until payment, and any interest in excess of
      the maximum amount permitted by law shall be canceled automatically and,
      if theretofore paid, shall at the option of the Holder hereof either be
      rebated to the Borrower or credited on the Principal Balance of this Note,
      or if this Note has been paid, then the excess shall be rebated to the
      Borrower.  The aggregate of all interest (whether designated as
      interest, service charges, points or otherwise) contracted for,
      chargeable, or receivable under this Note shall under no circumstances
      exceed the maximum legal rate upon the Principal Balance of this Note
      remaining unpaid from time to time.  If such interest does
      exceed the maximum legal rate, it shall be deemed a mistake and such
      excess shall be canceled automatically and, if theretofore paid, at the
      option of the Holder hereof either be rebated to the Borrower or credited
      on the Principal Balance of this Note, or if this Note has been repaid,
      then such excess shall be rebated to the
  Borrower.

                


        

         

        
          	
                  12.

                	
                  Waiver.  The
      Borrower hereby waives diligence, presentment, protest and demand and
      notice of protest and demand, dishonor and nonpayment of this Note, and
      expressly agrees that this Note, or any payment hereunder, may be extended
      from time to time and that the Holder hereof may accept security for this
      Note or release security for this Note, all without in any way affecting
      the liability of the Borrower
hereunder.

                


        

         

        
          	
                  13.

                	
                  Section 163 of
      the Internal Revenue Code.  Notwithstanding any other
      provisions contained in this Note, payments under this Note shall not be
      deferred beyond any date if deferral beyond such date would result in this
      Note being treated as an “applicable high yield discount obligation” under
      Section 163(e)(5) and Section 163(i) of the Code.  The
      preceding sentence shall apply only to the extent necessary to achieve the
      objective herein described and shall apply only to amounts treated as
      interest or original issue discount under the
  Code.

                


        

         

        
          	
                  14.

                	
                  Amended and
      Restated.  This Note replaces in its entirety and is in
      substitution for but not in payment of that certain Second Amended and
      Restated Senior Subordinated Promissory Note, dated as of July 31, 2007
      (as amended, restated, supplemented or otherwise modified from time to
      time, the “Prior
      Note”), made by the Borrower in favor of the Holder in the
      aggregate maximum principal amount of $5,951,609.00, and does not and
      shall not be deemed to constitute a novation thereof.  Such
      Prior Note shall be of no further force and effect upon the execution of
      this Note; provided, however, that all outstanding indebtedness,
      including, without limitation, principal and interest under the Prior Note
      as of the date of this Note, is hereby deemed indebtedness evidenced by
      this Note and is incorporated herein by this
  reference.

                


        

         

        [SIGNATURE
PAGE FOLLOWS]

         

        
          
            
            

          

          
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        Third
Amended and Restated Senior Subordinated Promissory Note Signature
Page

         

        IN
WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered
by a duly authorized officer as of the date first written above.

         

        
          
            
              	 	ISI SECURITY GROUP,
      INC., a Delaware corporation formerly known as ISI Detention Contracting
      Group, Inc. and d/b/a “Argyle Security USA”	 
	 	 	 	 
	 	
                      By:
      

                    	/s/ Sam Youngblood  	 
	 	Name:  	Sam
      Youngblood	 
	 	
                      Title:  

                    	Chief Executive Officer	 


            

          

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

           

        

        EXHIBIT A

         

        


        See
attached.