EXECUTION
VERSION

     

     

     

     

    SECURITIES
PURCHASE AGREEMENT

     

    BY
AND AMONG

     

    ARGYLE
SECURITY, INC.,

     

    CERTAIN
STOCKHOLDERS

     

    AND

     

    THE
PURCHASERS NAMED HEREIN

     

     

    
 

     

    DATED
AS OF JANUARY 8, 2009

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
OF CONTENTS

     

    
      
        	
                SECURITIES
      PURCHASE AGREEMENT

              	
                1

              
	 	 
	
                ARTICLE
      I PURCHASE AND SALE OF SECURITIES

              	
                1

              
	
                Section

              	
                 1.1

              	
                     Purchase
      and Sale of Securities

              	
                1

              
	
                Section

              	
                 1.2

              	
                     Payment

              	
                2

              
	
                Section

              	
                 1.3

              	
                     [Intentionally
      Omitted]

              	
                2

              
	
                Section

              	
                 1.4

              	
                     Closing
      Date

              	
                2

              
	 	 	 	 
	
                ARTICLE
      II REPRESENTATIONS AND WARRANTIES OF THE COMPANY

              	
                2

              
	
                Section

              	
                 2.1

              	
                     Organization
      and Qualification

              	
                2

              
	
                Section

              	
                 2.2

              	
                     Authorization;
      Enforcement

              	
                2

              
	
                Section

              	
                 2.3

              	
                     Capitalization

              	
                3

              
	
                Section

              	
                 2.4

              	
                     Issuance
      of Securities

              	
                3

              
	
                Section

              	
                 2.5

              	
                     Subsidiaries

              	
                4

              
	
                Section

              	
                 2.6

              	
                     No
      Conflicts; Government Consents and Permits

              	
                4

              
	
                Section

              	
                 2.7

              	
                     SEC
      Documents, Financial Statements

              	
                5

              
	
                Section

              	
                 2.8

              	
                     Disclosure
      Controls and Procedures

              	
                6

              
	
                Section

              	
                 2.9

              	
                     Accounting
      Controls

              	
                6

              
	
                Section

              	
                 2.10

              	
                     Absence
      of Litigation

              	
                6

              
	
                Section

              	
                 2.11

              	
                     Intellectual
      Property Rights

              	
                7

              
	
                Section

              	
                 2.12

              	
                     Placement
      Agents

              	
                7

              
	
                Section

              	
                 2.13

              	
                     Investment
      Company

              	
                7

              
	
                Section

              	
                 2.14

              	
                     No
      Material Adverse Change

              	
                7

              
	
                Section

              	
                 2.15

              	
                     OTC
      Bulletin Board

              	
                8

              
	
                Section

              	
                 2.16

              	
                     Acknowledgment
      Regarding Purchasers’ Purchase of Shares

              	
                8

              
	
                Section

              	
                 2.17

              	
                     Insurance

              	
                8

              
	
                Section

              	
                 2.18

              	
                     Foreign
      Corrupt Practices

              	
                8

              
	
                Section

              	
                 2.19

              	
                     Private
      Placement

              	
                9

              
	
                Section

              	
                 2.20

              	
                     No
      Registration Rights

              	
                9

              
	
                Section

              	
                 2.21

              	
                     Taxes

              	
                9

              
	
                Section

              	
                 2.22

              	
                     Real
      and Personal Property

              	
                9

              
	
                Section

              	
                 2.23

              	
                     Application
      of Takeover Protections

              	
                10

              
	
                Section

              	
                 2.24

              	
                     No
      Manipulation of Stock

              	
                10

              
	
                Section

              	
                 2.25

              	
                     Related
      Party Transactions

              	
                10

              
	
                Section

              	
                 2.26

              	
                     Contracts

              	
                10

              
	
                Section

              	
                 2.27

              	
                     Sarbanes-Oxley
      Act

              	
                12

              
	
                Section

              	
                 2.28

              	
                     Books
      and Records

              	
                12

              
	
                Section

              	
                 2.29

              	
                     Employee
      Benefit Plans; Employee Matters

              	
                13

              
	
                Section

              	
                 2.30

              	
                     Environmental
      Laws

              	
                13

              
	
                Section

              	
                 2.31

              	
                     Board
      Approval

              	
                13

              
	
                Section

              	
                 2.32

              	
                     Full
      Disclosure

              	
                13

              
	
                Section

              	
                 2.33

              	
                     No
      Undisclosed Events or Liabilities

              	
                13

              
	
                Section

              	
                 2.34

              	
                     Validity
      of Lock-Ups

              	
                14

              


      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	
                ARTICLE
      III PURCHASER’S REPRESENTATIONS AND WARRANTIES

              	
                14

              
	
                Section

              	
                 3.1

              	
                     Investment
      Purpose

              	
                14

              
	
                Section

              	
                 3.2

              	
                     Purchaser
      Status; Questionnaires

              	
                14

              
	
                Section

              	
                 3.3

              	
                     Reliance
      on Exemptions

              	
                14

              
	
                Section

              	
                 3.4

              	
                     Acknowledgement
      of Risk

              	
                15

              
	
                Section

              	
                 3.5

              	
                     Transfer
      or Sale

              	
                15

              
	
                Section

              	
                 3.6

              	
                     Legends

              	
                15

              
	
                Section

              	
                 3.7

              	
                     Authorization;
      Enforcement

              	
                17

              
	
                Section

              	
                 3.8

              	
                     Residency

              	
                17

              
	
                Section

              	
                 3.9

              	
                     Brokers

              	
                17

              
	
                Section

              	
                 3.10

              	
                     Compliance
      with OFAC Rules and Regulations

              	
                17

              
	
                Section

              	
                 3.11

              	
                     Compliance
      with Certain Laws

              	
                17

              
	
                Section

              	
                 3.12

              	
                     Political
      Figures

              	
                17

              
	 	 	 	 
	
                ARTICLE
      IV COVENANTS

              	
                18

              
	
                Section

              	
                 4.1

              	
                     Reporting
      Status

              	
                18

              
	
                Section

              	
                 4.2

              	
                     Expenses

              	
                18

              
	
                Section

              	
                 4.3

              	
                     Securities
      Laws Disclosure; Publicity

              	
                18

              
	
                Section

              	
                 4.4

              	
                     Sales
      by Purchasers

              	
                18

              
	
                Section

              	
                 4.5

              	
                     Reservation
      of Common Stock

              	
                19

              
	
                Section

              	
                 4.6

              	
                     Pledge
      of the Shares or the Conversion Shares

              	
                19

              
	
                Section

              	
                 4.7

              	
                     Use
      of Proceeds

              	
                19

              
	
                Section

              	
                 4.8

              	
                     Preservation
      of Lock-Ups

              	
                19

              
	 	 	 	 
	
                ARTICLE
      V CONDITIONS TO CLOSING

              	
                20

              
	
                Section

              	
                 5.1

              	
                     Conditions
      to Obligations of the Company at the Closing

              	
                20

              
	
                Section

              	
                 5.2

              	
                     Conditions
      to Purchasers’ Obligations at Closing

              	
                20

              
	 	 	 	 
	
                ARTICLE
      VI REGISTRATION RIGHTS

              	
                22

              
	
                Section

              	
                 6.1

              	
                     [Intentionally
      Omitted]

              	
                22

              
	
                Section

              	
                 6.2

              	
                     Piggy-Back
      Registration

              	
                22

              
	
                Section

              	
                 6.3

              	
                     Holdback
      Agreements

              	
                23

              
	
                Section

              	
                 6.4

              	
                     Registration
      Procedures

              	
                24

              
	
                Section

              	
                 6.5

              	
                     Registration
      Expenses

              	
                28

              
	
                Section

              	
                 6.6

              	
                     Indemnification;
      Contribution

              	
                29

              
	
                Section

              	
                 6.7

              	
                     Additional
      Covenants and Agreements of the Company

              	
                31

              
	
                Section

              	
                 6.8

              	
                     Transfers
      of Registration Rights

              	
                31

              
	
                Section

              	
                 6.9

              	
                     Waiver
      of Registration Rights

              	
                32

              
	 	 	 	 
	
                ARTICLE
      VII ADDITIONAL AGREEMENTS

              	
                32

              
	
                Section

              	
                 7.1

              	
                     Contractual
      Preemptive Rights

              	
                32

              
	
                Section

              	
                 7.2

              	
                     Certain
      Rights of First Offer

              	
                33

              
	
                Section

              	
                 7.3

              	
                     Co-Sale
      Provisions

              	
                34

              
	
                Section

              	
                 7.4

              	
                     Right
      of First Refusal

              	
                36

              
	
                Section

              	
                 7.5

              	
                     Redemption
      of Notes

              	
                38

              
	
                Section

              	
                 7.6

              	
                     Information

              	
                38

              


      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      


      
        	
                ARTICLE
      VIII DEFINITIONS

              	
                38

              
	
                Section

              	
                 8.1

              	
                     Definitions

              	
                38

              
	
                Section

              	
                 8.2

              	
                     Certain
      Interpretations

              	
                42

              
	 	 	 	 
	
                ARTICLE
      IX GOVERNING LAW; MISCELLANEOUS

              	
                42

              
	
                Section

              	
                 9.1

              	
                     Governing
      Law; Jurisdiction; Waiver of Jury Trial

              	
                42

              
	
                Section

              	
                 9.2

              	
                     Counterparts;
      Signatures by Facsimile or .PDF

              	
                43

              
	
                Section

              	
                 9.3

              	
                     Headings

              	
                43

              
	
                Section

              	
                 9.4

              	
                     Severability

              	
                43

              
	
                Section

              	
                 9.5

              	
                     Entire
      Agreement; Amendments

              	
                43

              
	
                Section

              	
                 9.6

              	
                     Notices

              	
                43

              
	
                Section

              	
                 9.7

              	
                     Successors
      and Assigns

              	
                44

              
	
                Section

              	
                 9.8

              	
                     Third
      Party Beneficiaries

              	
                44

              
	
                Section

              	
                 9.9

              	
                     Further
      Assurances

              	
                44

              
	
                Section

              	
                 9.10

              	
                     No
      Strict Construction

              	
                44

              
	
                Section

              	
                 9.11

              	
                     Equitable
      Relief

              	
                45

              
	
                Section

              	
                 9.12

              	
                     Survival
      of Representations and Warranties

              	
                45

              
	
                Section

              	
                 9.13

              	
                     Independent
      Nature of Purchasers’ Obligations and Rights

              	
                45

              
	 	 	 	 
	
                EXHIBIT
      A SCHEDULE OF PURCHASERS FOR THE CLOSING

              	
                1

              
	 	 
	
                EXHIBIT
      B FORM OF CERTIFICATE OF DESIGNATION

              	
                1

              
	 	 
	
                EXHIBIT
      C FORM OF CLOSING LEGAL OPINION

              	
                1

              


      

       

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

    

     

    SECURITIES
PURCHASE AGREEMENT 

     

    This
Securities Purchase Agreement, dated as of January 8, 2009 (this “Agreement”),
is entered into by and among the Purchasers listed on Exhibit A,
together with their permitted transferees (each, a “Purchaser”
and collectively the “Purchasers”),
Argyle Security, Inc., a Delaware corporation (the “Company”),
and, solely for the purposes of Section 7.3
hereof, Sam Youngblood, Ron Chaimovski and Bob Marbut (together, with their
Affiliates, the “Stockholders”).

     

    RECITALS

     

    A.          The
Company has authorized 90,000,000 shares of capital stock, which includes
89,000,000 shares of common stock, par value $0.0001 per share (“Common
Stock”), and 1,000,000 shares of preferred stock, par value $0.0001 per
share (“Preferred
Stock”).

     

    B.           The
Company is willing to sell to the Purchasers shares of its Series B Convertible
Preferred Stock (“Series B
Preferred Stock”), the rights, powers and privileges of which are
contained in the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock (“Certificate of
Designation”) attached hereto as Exhibit B,
and duly authorized by the Company’s board of directors on January 6, 2009 and
filed with the Secretary of State of the State of Delaware on January 8,
2009.

     

    C.           The
Purchasers are willing to purchase from the Company the number of shares of
Series B Preferred Stock set forth on Exhibit A
(collectively, the “Shares”)
on the terms and subject to the conditions and in reliance upon the
representations, warranties, covenants and agreements of the Company set forth
herein.

     

    D.          The
Company and the Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act and Regulation D and Rule 506 promulgated
thereunder.

     

    E.           The
capitalized terms used in this Agreement and not otherwise defined have the
meanings given them in Article
VIII.

     

    In
consideration of the promises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchasers (severally and not jointly)
hereby agree as follows:

     

    ARTICLE
I

    Purchase and Sale of
Securities

     

    Section
1.1           
   Purchase and Sale of
Securities.  Subject
to the terms and conditions contained herein, on the Closing Date (as defined
below), the Company will issue and sell to each Purchaser listed on Exhibit A,
and each such Purchaser will, severally and not jointly, purchase from the
Company the number of Shares set forth opposite such Purchaser’s name on Exhibit A
in exchange for the aggregate Purchase Price set forth opposite such Purchaser’s
name on Exhibit
A.  The purchase price for each Share shall be One Hundred and
Ten Dollars ($110) (the “Purchase
Price”).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
1.2           
   Payment.  On
the Closing Date, each Purchaser will pay the aggregate Purchase Price set forth
opposite its name on Exhibit A
hereto by wire transfer of immediately available funds on behalf of the Company
to The PrivateBank in accordance with wire instructions provided by The
PrivateBank to the Purchasers prior to the Closing in partial payment of the
indebtedness of ISI to The PrivateBank as contemplated by Section
4.7.  At the Closing, the Company will deliver to each
Purchaser a certificate evidencing the number of Shares set forth opposite such
Purchaser’s name on Exhibit A,
in the name of such Purchaser, or in the name of a nominee designated by such
Purchaser, against delivery of the aggregate Purchase Price on the Closing
Date.

     

    Section
1.3           
   [Intentionally
Omitted].  

     

    Section
1.4        
      Closing
Date.  The
closing of the sale of the Shares to the Purchasers (the “Closing”)
will take place at the offices of Porter & Hedges, L.L.P., 1000 Main Street,
36th
Floor, Houston, Texas 77002, at 10:00 a.m. local time on the date hereof or at
such other date and location mutually agreed by the Purchasers and the Company
(the “Closing
Date”).

     

    ARTICLE
II

    Representations And
Warranties Of The Company

     

    The
Company hereby represents and warrants to the Purchasers that, except as set
forth on the disclosure schedules delivered by the Company to the Purchasers in
connection with this Agreement (the “Disclosure
Schedules”), which schedules shall be deemed to be part of the
representations and warranties made hereunder, the following representations are
true and correct as of the date hereof.  As used herein, the phrase
“to the Company’s knowledge” or similar statements to that effect shall mean to
the actual knowledge of the following individuals as of the date
hereof:  Bob Marbut, Don Neville, Ron Chaimovski and Sam
Youngblood.

     

    Section
2.1       
      Organization and
Qualification.  The
Company is duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to
conduct its business as currently conducted.  The Company is duly
qualified to do business and is in good standing in Texas, which is the only
jurisdiction, other than the state of its incorporation, in which the nature of
the business conducted by it or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not have a Material Adverse Effect and, to the Company’s
knowledge, no proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such corporate
power and authority or qualification.

     

    Section
2.2           
  Authorization;
Enforcement.  The
Company has all requisite corporate power and authority to enter into and to
perform its obligations under this Agreement, to consummate the transactions
contemplated hereby and to issue the Shares in accordance with the terms hereof
and to issue the Conversion Shares in accordance with the terms of the
Certificate of Designation. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company.  This Agreement has been duly executed by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or moratorium or similar Laws affecting creditors’ and
contracting parties’ rights generally, (ii) as enforceability may be subject to
general principles of equity and (iii) as rights to indemnity and contribution
may be limited by state or federal securities Laws or public policy underlying
such Laws.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Section
2.3             
Capitalization.  The
authorized capital stock of the Company, as of January 8, 2009, but immediately
prior to the Closing, consisted of 89,000,000 shares of Common Stock, par value
$0.0001 per share, of which 5,969,342 shares were issued and outstanding and
1,000,000 shares of Preferred Stock, par value $0.0001 per share, of which
18,750 were issued and outstanding and designated Series A Preferred Stock and
27,273 of which were designated Series B Preferred Stock, none of which were
issued and outstanding.  All of the issued and outstanding shares of
Common Stock and Series A Preferred Stock have been duly authorized, validly
issued, fully paid, and nonassessable, and were issued in compliance with
applicable securities Laws.  Except as set forth in Section 2.3 of the
Disclosure Schedules and the Shares, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into or exercisable or
exchangeable for, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations.  In addition, except as forth in Section 2.3 of the
Disclosure Schedules and the Common Stock issuable upon conversion of the
Shares, there are no shares of the Company’s capital stock reserved for
issuance.  The Company’s Third Amended and Restated Certificate of
Incorporation (the “Certificate of
Incorporation”), as in effect on the date hereof, and the Company’s
Bylaws (the “Bylaws”),
as in effect on the date hereof, are each filed as exhibits to the SEC
Documents. Except as set forth in Section 2.3 of the
Disclosure Schedules, or as contemplated by this Agreement, there are no
stockholder agreements, voting agreements or other similar agreements with
respect to the Common Stock to which the Company is a party or for which the
Company otherwise has knowledge.  The Company has consummated a
“Business Combination” within the meaning of Article Sixth of the Certificate of
Incorporation such that the provisions of (A) through (E) of such Article Sixth
shall have ceased to apply including, without limitation, the cessation of any
right of any holder of IPO Shares (as defined in the Certificate of
Incorporation) to require the redemption of such IPO Shares by the Company for
cash.

     

    Section
2.4        
     Issuance of
Securities.  The
Shares are duly authorized and, upon issuance in accordance with the terms of
this Agreement, will be duly and validly issued, fully paid and non-assessable
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company.  The Conversion Shares have been duly and
validly reserved and upon issuance in accordance with the Certificate of
Designation, will be duly and validly issued, fully paid and non-assessable and
will be free and clear of any liens or encumbrances (including preemption
rights) caused or created by the Company or its
Subsidiaries.  Assuming the accuracy of all representations and
warranties of the Purchasers set out in Article
III, the offer and issuance by the Company of the Shares and the
Conversion Shares are exempt from registration under the Securities Act and all
applicable state securities Laws.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Section
2.5            Subsidiaries.  Set
forth on Section
2.5 of the Disclosure Schedules is a list of each corporation,
partnership, limited liability company, joint venture or other entity, showing
as to each such entity the percentage of the total equity interest thereof which
is owned, directly or indirectly, by the Company (individually, a “Subsidiary,”
and collectively, the “Subsidiaries”).
All outstanding equity interest of such Subsidiary owned by the Company or
another Subsidiary are validly issued, fully paid, and nonassessable, and the
Company, or such other Subsidiary, as applicable, has good and marketable title
thereto free and clear of any liens or encumbrances.  Each such
Subsidiary is duly organized, validly existing and in good standing under the
Laws of the jurisdiction under which it is formed and has full requisite entity
power and authority to own its property and carry on its business as presently
conducted by it and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so qualified or licensed would not have a
Material Adverse Effect.  Neither the Company nor any such Subsidiary
has issued or sold any options, warrants, calls, or commitments of any kind
relating to any equity security in such Subsidiary which remain
outstanding.

     

    Section
2.6               No Conflicts; Government
Consents and Permits

     

    .

     

    (a)          The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, including
the issuance of the Shares, will not (i) conflict with or result in a violation
of any provision of its Certificate of Incorporation or Bylaws or similar or
comparable organizational documents of any Subsidiary, (ii) violate or conflict
with, or result in a breach of any provision of, or constitute a default (or any
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of notice, consent, termination, amendment,
acceleration or cancellation of, any agreement, indenture, or instrument to
which the Company or any Subsidiary is a party or, or (iii) except for (A) any
notice filings required to be made under federal or state securities Laws in
connection with an exemption from the registration requirements thereof and (B)
any required filings or notifications regarding quotation on the OTC Bulletin
Board,  result in a violation of any Law (including United States
federal and state securities Laws and regulations and regulations of any
self-regulatory organizations to which the Company or any Subsidiary or their
respective securities are subject) applicable to the Company or any Subsidiary,
except in the case of clauses (ii) and (iii) only, for such conflicts, breaches,
defaults, and violations as would not have a Material Adverse
Effect.  Except as set forth in Section 2.6(a) of the
Disclosure Schedules, the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby, including the issuance of the Shares, will not be deemed a
change of control under any agreement, instrument, or indenture to which the
Company or any Subsidiary is a party.

     

    (b)          Except
for filings or registrations as may be required by Article
VI, neither the Company nor any Subsidiary is required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement in accordance with the terms hereof, or to issue and sell the Shares
in accordance with the terms hereof other than such as have been made or
obtained, and any notice filings required to be made under United States federal
or state securities Laws in connection with an exemption from the registration
requirements thereof, and any required filings or notifications regarding
quotation on or to maintain good standing with the OTC Bulletin
Board.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (c)          The
business of the Company and its Subsidiaries has not been and is not being
conducted in violation of any Law of any Governmental Entity except for
violations as would not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.

     

    (d)          The
Company and its Subsidiaries have all franchises, permits, licenses, and any
similar authority necessary for the conduct of their respective businesses as
now being conducted, except for such franchises, permits, licenses or similar
authorities, the lack of which would not have a Material Adverse
Effect.  Neither the Company nor any of its Subsidiaries have received
any actual notice of any proceeding relating to revocation or modification of
any such franchise, permit, license, or similar authority.

     

    Section
2.7                SEC Documents, Financial
Statements.  Except
as set forth in Section 2.7 of the
Disclosure Schedules, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it under the
Securities Act and the Exchange Act since the Company’s initial public offering
(all of the foregoing filed at least ten (10) days prior to the date hereof and
all exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein, being
hereinafter referred to as the “SEC
Documents”).  As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and none of the SEC Documents, at the
time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.  As of their respective
dates, the financial statements of the Company (including the consolidated
financial statements of the Company and its Subsidiaries, as applicable)
included in the SEC Documents (the “Financial
Statements”) and the related notes complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto.  The Financial Statements
and the related notes have been prepared in accordance with accounting
principles generally accepted in the United States, consistently applied, during
the periods involved (except (i) as may be otherwise indicated in the Financial
Statements or the notes thereto, or (ii) in the case of unaudited interim
statements, they may be condensed or summary statements or may conform to the
SEC’s rules and instructions for reports on Form 10-Q or similar form) and
fairly present in all material respects the consolidated financial position of
the Company as of the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal and recurring year-end audit
adjustments).  All material agreements that were required to be filed
as exhibits to the SEC Documents under Item 601 of Regulation S-K (collectively,
the “Material
Agreements”) to which the Company or any Subsidiary is a party, or the
property or assets of the Company or any Subsidiary are subject, have been filed
as exhibits to the SEC Documents.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Section
2.8                Disclosure Controls and
Procedures.  The
Company has established and maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) that are
effective in all material respects to ensure that material information relating
to the Company and its Subsidiaries is made known to the Company’s chief
executive officer and chief financial officer. The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the most recently filed
quarterly or annual periodic report under the Exchange Act (such date, the
“Evaluation
Date”).  The Company presented in its most recently filed
quarterly or annual periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company’s
internal control over financial reporting (as defined in Rule 13a-15(f) or
Rule 15d-15(f) of the Exchange Act), including, but not limited to, any
material weaknesses identified by management.

     

    Section
2.9                Accounting
Controls.  The
Company maintains a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions of the Company and its Subsidiaries
are executed in accordance with management’s general or specific authorization,
(ii) transactions of the Company and its Subsidiaries are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets of the Company and its Subsidiaries is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

     

    Section
2.10              Absence of
Litigation.  Except
as set forth on Section 2.10 of the
Disclosure Schedules, as of the date hereof, there is no action, suit,
proceeding or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending, to the extent served on
the Company or any Subsidiary, or, to the Company’s knowledge, threatened
against the Company or any Subsidiary that if determined adversely to the
Company or any Subsidiary would have a Material Adverse Effect.  None
of the Company, its Subsidiaries nor any of their respective directors or
officers is, or within the last five (5) years has been, the subject of any
action involving a claim of violation of or liability under federal or state
securities Laws or a claim of breach of fiduciary duty relating to the Company
or any Subsidiary. There has not been, and to the knowledge of the Company,
there is not currently pending or contemplated, any investigation by the SEC
involving the Company or any Subsidiary or any current or former director or
officer of the Company or any Subsidiary.  The Company has not
received any stop order or other order suspending the effectiveness of any
registration statement filed by the Company under the Exchange Act or the
Securities Act and, to the Company’s knowledge, the SEC has not issued any such
order.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Section
2.11             Intellectual Property
Rights.  The
Company or its Subsidiaries have ownership of, or licensee rights to, all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names, copyrights, proprietary rights and processes necessary to enable it to
conduct its business as conducted as of the date hereof (the “Intellectual
Property”).  To the Company’s knowledge, neither the Company
nor any Subsidiary has infringed the intellectual property rights of third
parties and no third party is infringing the Intellectual Property, in each
case, which could result in a Material Adverse Effect.  Except as
disclosed in the SEC Documents, there are no material options, licenses or
agreements relating to the Intellectual Property, nor, except as disclosed in
the SEC Documents, is the Company or any Subsidiary bound by or a party to any
material options, licenses or agreements relating to the patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names, copyrights,
proprietary rights and processes of any other person or entity.  As of
the date hereof, there is no claim, action or proceeding pending or, to the
Company’s knowledge, threatened, that challenges the right of the Company or its
Subsidiaries with respect to any Intellectual Property.  All
Intellectual Property (along with application, prosecution and maintenance
status) and all contracts and understandings currently in effect relating
thereto are set forth in Section 2.11 of the
Disclosure Schedules, and there is not any breach or, to the Company’s
knowledge, basis for termination or diminution of rights under or with respect
to any such agreement of understanding which could result in a Material Adverse
Effect.  The Company has taken reasonable efforts to ensure that all
persons who have had access to trade secrets or confidential information of the
Company or any Subsidiary have signed customary non-disclosure and non-use
agreement not containing “residuals” clauses or similar provisions.

     

    Section
2.12             
Placement
Agents.  Neither
the Company nor any Subsidiary has taken any action that would give rise to any
claim by any person for brokerage commissions, placement agent’s fees or similar
payments relating to this Agreement or the transactions contemplated
hereby.

     

    Section
2.13              Investment
Company

     

    .  The
Company is not and, after giving effect to the offering and sale of the
Securities, will not be an investment company required to register under the
Investment Company Act of 1940, as amended.  The Company shall conduct
its business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.

     

    Section
2.14             
No Material Adverse
Change.  Except
(i) as set forth in Section 2.14 of the
Disclosure Schedules, (ii) for cash expenditures in the ordinary course of
business and (iii) for liabilities, limitations, restrictions and obligations
arising from or in connection with this Agreement, there has been, since the
filing date of the Company’s Form 10-Q for the quarter ended September 30, 2008,
no fact, event, circumstance, nor any change in the assets, business,
properties, prospects, financial condition or results of operations of the
Company that, individually or in the aggregate, has had, or would reasonably be
expected to have, a Material Adverse Effect.  Except as set forth in
Section 2.14 of
the Disclosure Schedules, since the filing date of the Company’s Form 10-Q for
the quarter ended September 30, 2008, (i) there has not been any dividend or
distribution of any kind declared, set aside for payment, paid or made by the
Company on any class of capital stock, (ii) the Company has not sustained any
material loss or interference with the Company’s business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
disturbance or dispute or any action, order or decree of any court or arbitrator
or governmental or regulatory authority, (iii) the Company has not incurred any
liabilities, contingent or otherwise except in the ordinary course of business,
except for liabilities arising from or in connection with this
Agreement.  The Company has not taken any steps to seek protection
pursuant to any bankruptcy Law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.  There exists no defaults or events of defaults (with or
without due notice or lapse of time or both) by maker or payor under the terms
of the Seller Notes.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Section
2.15             OTC Bulletin
Board.  The
issued and outstanding shares of Common Stock are quoted on OTC Bulletin Board,
and except as set forth on Section 2.15 of the
Disclosure Schedules, there have been no past proceedings, other than
proceedings that have been satisfactorily resolved, and there are no proceedings
pending, or, to the Company’s knowledge, threatened, to revoke or suspend the
Company’s eligibility for quotation on the OTC Bulletin Board.  The
Company is not listed on the OTC Bulletin Board’s list of filing delinquent
companies and, except as described in Section 2.15 of the
Disclosure Schedules, the Company is in compliance with the requirements of OTC
Bulletin Board for continued quotation of the Common Stock thereon and any other
OTC Bulletin Board eligibility requirements.

     

    Section
2.16             Acknowledgment Regarding
Purchasers’ Purchase of Shares.  The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereby.  The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity with respect to the Company) with respect to this
Agreement or the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents to the Company in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser’s purchase of the Shares.  The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement has been based on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.

     

    Section
2.17             Insurance.  The
Company and its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks, including fire, and in such
amounts as the Company believes are prudent and customary for a company in the
businesses and location in which the Company or its Subsidiaries are
engaged.  All such coverage is in full force and effect, and the
Company or its Subsidiaries, as applicable, have complied with all material
terms and conditions of such coverage, including premium
payments.  Neither the Company nor any of its Subsidiaries have
received any written notice that the Company or its Subsidiaries will not be
able to renew its existing insurance coverage as and when such coverage
expires.

     

    Section
2.18          
  Foreign
Corrupt Practices.  Neither
the Company, any of its Subsidiaries, nor, to the Company’s knowledge, any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary, have, in the course of his, her or its actions for,
or on behalf of, the Company or any of its Subsidiaries (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated (or is in violation of) in any material respect
any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made or received any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to or from any foreign or domestic government
official or employee.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Section
2.19             Private
Placement.  Neither
the Company, any of its Subsidiaries, any of their respective Affiliates, nor
any person acting on its or their behalf, has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause the private placement of the Shares
contemplated by this Agreement (the “Offering”)
to be integrated with any prior offering by the Company for purposes of the
Securities Act or any applicable stockholder approval provisions including,
without limitation, under the rules and regulations of any exchange or quotation
system on which any of the securities of the Company are listed, designated or
quoted.  Neither the Company, any of its Subsidiaries, any of their
respective Affiliates, nor any person acting on its or their behalf, has offered
or sold, or authorized the offer or sale of, any of the Shares by any form of
general solicitation or general advertising within the meaning of Rule 502(c)
under the Securities Act.  The Company has not publicly distributed
and will not publicly distribute any offering material in connection with the
Offering.  The Company has offered the Shares for sale only to the
Purchasers.  The Company shall not directly or indirectly take, and
shall not permit any of its Subsidiaries or their respective directors or
officers to directly or indirectly take, any action (including any offering or
sale to any person of the Shares) that will make unavailable the exemption from
registration under the Securities Act being relied upon by the Company for the
Offering.

     

    Section
2.20              No Registration
Rights.  Except
as set forth in Section 2.20 of the
Disclosure Schedules, (i) no person has the right to (x) prohibit, delay or
suspend the Company from filing a Registration Statement or fully performing its
obligations under this Agreement with respect thereto or (y) require the Company
to register any securities for sale under the Securities Act by reason of the
filing of a Registration Statement and (ii) no other registration rights exist
with respect to the issuance or registration of securities by the Company under
the Securities Act that have not been satisfied. The granting and performance of
the registration rights under this Agreement will not violate or conflict with,
or result in a breach of any provision of, or constitute a default under, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party.

     

    Section
2.21              Taxes.  The
Company and its respective Subsidiaries have filed (or have obtained an
extension of time within which to file) all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes required to be paid,
whether or not shown as due on such tax returns, except where the failure to so
file or the failure to so pay would not have a Material Adverse
Effect.  The Company and its respective Subsidiaries have complied in
all material respects with all applicable legal requirements relating to the
payment and withholding of taxes and, within the time and in the manner
prescribed by Law, have withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts
required.

     

    Section
2.22             Real and Personal
Property.  Except
as set forth in Section 2.22 of the
Disclosure Schedules, the Company or its Subsidiaries, as applicable, have good
and marketable title to, or have valid rights to lease or otherwise use, all
items of real and personal property that are material to the business of the
Company and its Subsidiaries free and clear of all liens, encumbrances, claims
and defects and imperfections of title except those that do not materially
interfere with the use or marketability of such property by the Company or its
Subsidiaries, as appropriate.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Section
2.23            Application of Takeover
Protections.  The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not impose any restriction on any
Purchaser, or create in any party (including any current stockholder of the
Company) any rights under any share acquisition, business combination, poison
pill (including any distribution under a rights agreement), or other similar
anti-takeover provision under the Certificate of Incorporation, Bylaws or the
Laws of the State of Delaware.

     

    Section
2.24             No Manipulation of
Stock.  The
Company has not taken, nor will it take, directly or indirectly, any action
designed to stabilize or manipulate the price of the Common Stock or any
security of the Company to facilitate the sale or resale of any of the
Conversion Shares.

     

    Section
2.25             Related Party
Transactions.  Except
as set forth in Section 2.25 of the
Disclosure Schedules, (i) all transactions that have occurred between or among
the Company or any Subsidiary, on the one hand, and any of their officers or
directors, or any Affiliate of any such officer or director, on the other hand,
prior to the date hereof have been disclosed in the SEC Documents in accordance
with Regulation S-K under the Securities Act, except with respect to
transactions that not required to be disclosed and (ii) any and all contracts or
agreements between or among the Company or any Subsidiary, on the one hand, and
any of their officers or directors, or any Affiliate of any such officer or
director, on the other hand.

     

    Section
2.26              Contracts

     

    (a)          Except
for Material Agreements, this Agreement and those agreements as set forth in
Section 2.26(a)
of the Disclosure Schedules (such agreements so set forth, the “Other Material
Agreements”), neither the Company nor any Subsidiary have any agreements,
contracts and commitments that are material to the business, financial
condition, assets, prospects or operations of the Company. All Material
Agreements and Other Material Agreements are valid and enforceable against the
Company or its Subsidiaries, as applicable, in accordance with their respective
terms, except (i) as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or moratorium or similar Laws affecting creditors’
rights generally, (ii) as enforceability may be subject to general principles of
equity and (iii) as rights to indemnity and contribution may be limited by state
or federal securities Laws or public policy underlying such
Laws.  Except for Government Contracts (which are subject to the
provisions of clauses (d) through (g) of this Section 2.26), neither the Company
nor any of its Subsidiaries is in breach of or default under any of the Material
Agreements or Other Material Agreements, and to the Company’s knowledge, no
other party to a Material Agreement or Other Material Agreement is in breach of
or default under such Material Agreement or Other Material Agreements, except in
each case, for such breaches or defaults as would not have a Material Adverse
Effect.  Except for Government Contracts (which are subject to the
provisions of clauses (d) through (g) of this Section 2.26), neither the Company
nor any of its Subsidiaries have received any notice of breach or termination of
any of the Material Agreements or Other Material Agreements.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (b)          Except
as set forth in Section 2.26(b) of
the Disclosure Schedules, neither the Company nor any Subsidiary has any debt
obligations for borrowed money, including any guarantee of or agreement to
acquire any such debt obligations of others, or any power of attorney
outstanding or any obligation or liability (whether absolute, accrued,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise with respect to the obligation of any corporation,
partnership, joint venture, association, organization or other
entity.

     

    (c)          Neither
the Company nor any Subsidiary is restricted by agreement from carrying on its
business anywhere in the world.

     

    (d)          Except
as set forth on Section 2.26(d) of
the Disclosure Schedules, with respect to each contract, agreement, bid or
proposal between the Company or any of its Subsidiaries and any (i) Governmental
Entity, including any facilities contract for the use of government-owned
facilities or (ii) third party relating to a contract between such third party
and any domestic or foreign government or governmental agency (each a “Government
Contract”), (A) the Company and each of its Subsidiaries have complied in
all material respects with all terms and conditions of such Government Contract,
including all clauses, provisions and requirements incorporated expressly by
reference, or by operation of law therein, (B) the Company and each of its
Subsidiaries have complied in all material respects with all requirements of all
Laws, or agreements pertaining to such Government Contract, including where
applicable the “Cost Accounting Standards” disclosure statement of the Company
or such Subsidiary, (C) all representations and certifications executed,
acknowledged or set forth in or pertaining to such Government Contract were
complete and correct as of their effective dates and the Company and its
Subsidiaries have complied with all such representations and certifications, (D)
neither the United States government nor any prime contractor, subcontractor or
other person or entity has notified the Company or any of its Subsidiaries, in
writing or orally, that the Company or any of its Subsidiaries has breached or
violated any law, certification, representation, clause, provision or
requirement pertaining to such Government Contract, (E) neither the Company nor
any of its Subsidiaries has received any notice of termination for convenience,
notice of termination for default, cure notice or show cause notice pertaining
to such Government Contract, (F) other than in the ordinary course of business,
no cost incurred by the Company or any of its Subsidiaries pertaining to such
Government Contract has been questioned or challenged, is the subject of any
audit or investigation or has been disallowed by any Governmental Entity, and
(G) no payments due to the Company or any of its Subsidiaries pertaining to such
Government Contract have been withheld or set off, nor has any claim been made
to withhold or set off money, and the Company and its Subsidiaries are entitled
to all progress or other payments received with respect thereto, except for any
such failure, noncompliance, inaccuracy, breach, violation, termination, cost,
investigation, disallowance or payment contemplated by subsection (A) through
(G) above that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     

    (e)          To
the Company’s knowledge, neither the Company nor any of its Subsidiaries or any
of their respective directors, officers, employees, consultants or agents is or
since December 31, 2004, has been under any administrative, civil or criminal
investigation, indictment or audit by any Governmental Entity or under
investigation by the Company or any of its Subsidiaries with respect to any
alleged improper act or omission arising under or relating to any Government
Contract.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (f)          Except
as set forth on Section 2.26(f) of
the Disclosure Schedules, there exist (i) no material outstanding claims against
the Company or any of its Subsidiaries, either by any Governmental Entity or by
any prime contractor, subcontractor, vendor or other person or entity, arising
under or relating to any Government Contract, and (ii) no material disputes
between the Company or any of its Subsidiaries and the United States government
under the Contract Disputes Act, as amended, or any other federal statute, or
between the Company or any of its Subsidiaries and any prime contractor,
subcontractor or vendor arising under or relating to any Government
Contract.  Neither the Company nor any of its Subsidiaries has (i) any
interest in any pending claim against any prime contractor, subcontractor or
vendor arising under or relating to any Government Contract, which, if adversely
determined against the Company or any Subsidiary would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, or (ii) any
interest in any pending or potential material claim against any Governmental
Entity.

     

    (g)          Neither
the Company nor any of its Subsidiaries has been debarred or suspended from
participation in the award of contracts with the United States government or any
other Governmental Entity (excluding for this purpose ineligibility to bid on
certain contracts due to generally applicable bidding
requirements).  To the Company’s knowledge, there exist no facts or
circumstances that would warrant the institution of suspension or debarment
proceedings or the finding or nonresponsibility or ineligibility on the part of
the Company, any of its Subsidiaries or any of their respective directors,
officers or employees.  No payment has been made by or on behalf of
the Company or any of its Subsidiaries in connection with any Government
Contract in violation of applicable procurement laws, rules and regulations or
in violation of, or requiring disclosure pursuant to, the Foreign Corrupt
Practices Act of 1977, as amended, or similar foreign, state or local
Law.

     

    Section
2.27              Sarbanes-Oxley
Act.  The
Company (and to the extent applicable, each of its Subsidiaries) is in
compliance with any and all applicable requirements of the Sarbanes-Oxley Act of
2002, as amended, that are effective as of the date hereof, and any and all
applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof, except where such noncompliance would not have
a Material Adverse Effect.

     

    Section
2.28        
     Books and
Records.  The
books of account, minute books, stock record books and other records of the
Company and its Subsidiaries are complete and correct in all material respects
and have been maintained in accordance with sound business practices and, in the
case of the Company, the requirements of Section 13(b)(2) of the Exchange Act,
including an adequate system of internal controls.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
2.29              Employee Benefit Plans;
Employee Matters.  The
consummation of the transactions effected by this Agreement will not (i) entitle
any current or former employee or other service provider of the Company or any
Subsidiary to severance benefits or any other payment, compensation or benefit
(including forgiveness of indebtedness), except as expressly provided by this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation or benefit due any such employee or service provider,
alone or in conjunction with any other possible event (including termination of
employment).  The Company is in compliance in all material respects
with all currently applicable Laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, employee
benefit plans, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice.  To the
Company’s knowledge, no employees of the Company or any Subsidiary are in
violation of any term of any material employment contract, patent disclosure
agreement, noncompetition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company or any Subsidiary because of the nature of the business conducted or
presently proposed to be conducted by the Company or any Subsidiary or to the
use of trade secrets or proprietary information of others. No key employee of
the Company or any Subsidiary has given written notice to the Company or any
Subsidiary, and the Company is not otherwise aware, that any such key employee
intends to terminate his or her employment with the Company or any
Subsidiary.

     

    Section
2.30              Environmental
Laws.  Neither
the Company nor any Subsidiary is in violation in any material respect with any
applicable statute, Law or regulation relating to the
environment.  Except as set forth on Section 2.30 of the
Disclosure Schedules, none of the premises or any properties owned, occupied or
leased by the Company or any Subsidiary have been used by the Company or any
Subsidiary, or to the Company’s knowledge, by any other Person to manufacture,
treat, store, or dispose of any substance that have been designated to be a
“hazardous substance” under applicable environmental Laws in violation of any
applicable environmental Laws, violation of which would have a Material Adverse
Effect.

     

    Section
2.31              Board
Approval.  Prior
to the date of this Agreement, the Company’s board of directors, at a meeting
duly called and held, has (a) determined that the Offering is advisable and in
the best interests of the Company and its stockholders, and (b) approved the
transactions contemplated by this Agreement, including the
Offering.

     

    Section
2.32             Full
Disclosure.  To
the knowledge of the Company, neither this Agreement nor any certificate
delivered in connection with this Agreement contains any untrue statement of a
material fact or omits any material fact necessary to make the statements
contained therein not misleading in view of the circumstances under which they
were made.

     

    Section
2.33             No Undisclosed Events or
Liabilities.  Except
for liabilities or obligations (A) otherwise disclosed in this Agreement or the
Disclosure Schedules, (B) reflected on the balance sheet in the Company’s Form
10-Q for the quarter ended September 30, 2008, (C) incurred since the date of
such balance sheet in the ordinary course of business consistent with past
practice, and (D) that have not caused and are not reasonably likely to cause,
individually or in the aggregate, a Material Adverse Effect, neither the
Company, nor any of its Subsidiaries has any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Section
2.34              Validity of
Lock-Ups.  Except
as set forth in Section 2.34 of the
Disclosure Schedules, each of the lock-up agreements between the Company and
certain of its stockholders pursuant to Section 8.5 of the Merger Agreement
dated as of December 8, 2006, as amended, by and among Argyle Security
Acquisition Corporation, a Delaware corporation, ISI Security Group, Inc., a
Delaware corporation, and ISI Detention Contracting Group, Inc., a Delaware
corporation (the “Merger
Agreement”), is in full force and effect and is valid and enforceable
against each stockholder party thereto.   In addition, the Stock
Escrow Agreement between the Company and certain of its stockholders dated
January 24, 2006 (the “Escrow
Agreement”), is in full force and effect and is valid and enforceable
against each stockholder party thereto.

     

    ARTICLE
III

    Purchaser’s Representations
And Warranties

     

    Each
Purchaser represents and warrants to the Company, severally and not jointly,
with respect to itself and its purchase hereunder, that:

     

    Section
3.1               Investment
Purpose.  The
Purchaser is purchasing the Shares for its own account for investment and not
with a present view toward the public sale or distribution thereof and has no
intention of selling or distributing or any arrangement or understanding with
any other persons regarding the sale or distribution of the Shares or Conversion
Shares, except as contemplated by this Agreement and in compliance with the
Securities Act.  The Purchaser will not, directly or indirectly,
offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Shares or
Conversion Shares except in accordance with the provisions of Article VI
of this Agreement or pursuant to and in accordance with the Securities Act. In
making the representation herein, however, the Purchaser does not agree to hold
any of the Shares or Conversion Shares for any minimum or other specified term
and reserves the right to dispose of the Shares or Conversion Shares at any time
in compliance with the Securities Act.

     

    Section
3.2                Purchaser Status;
Questionnaires.  At
the time Purchaser was offered the Shares, it was, and at the date hereof it is,
an “accredited investor” as defined in Rule 501(a) under the Securities Act. All
information provided by the Purchaser to the Company (including the
Questionnaire provided by the Purchasers to the Company) or a representative
thereof in connection with the Purchaser’s purchase of the Shares was accurate
and correct when provided or delivered and is accurate and correct as of the
date hereof.

     

    Section
3.3                Reliance on
Exemptions.  The
Purchaser understands that the Shares are being offered and sold to it in
reliance upon specific exemptions from or non-application of the registration
requirements of United States federal and state securities Laws and that the
Company is relying upon the truth and accuracy of, and the Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Shares.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    Section
3.4               Acknowledgement of
Risk.

     

    (a)          The
Purchaser acknowledges and understands that its investment in the Shares
involves a significant degree of risk, including, without limitation, (i) the
Company’s limited operating history; (ii) an investment in the Company is
speculative, and only Purchasers who can afford the loss of their entire
investment should consider investing in the Company and the Shares; (iii) the
Purchaser may not be able to liquidate its investment; (iv) transferability of
the Shares is limited; (v) in the event of a disposition of the Shares, the
Purchaser could sustain the loss of its entire investment; and (vi) the Company
has not paid any dividends on its Common Stock since inception and does not
anticipate the payment of dividends in the foreseeable future; and

     

    (b)          The
Purchaser is able to bear the economic risk of holding the Shares and the
Conversion Shares for an indefinite period, and has knowledge and experience in
financial and business matters such that it is capable of evaluating the risks
of the investment in the Shares and the Conversion Shares.

     

    Section
3.5                Transfer or
Sale.  The
Purchaser understands that:

     

    (a)          the
Shares and Conversion Shares have not been and are not being registered under
the Securities Act (other than as contemplated in Article VI
of this Agreement) or any applicable state securities Laws and, consequently,
the Purchaser may have to bear the risk of owning the Shares or Conversion
Shares for an indefinite period of time because the Shares or Conversion Shares
may not be transferred unless (i) the sale of the Shares or Conversion Shares is
registered pursuant to an effective registration statement under the Securities
Act, as contemplated in Article VI
of this Agreement; (ii) the Purchaser has delivered to the Company an opinion of
counsel (in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that the Shares or Conversion Shares to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration; or (iii) the Shares or Conversion Shares are sold or
transferred pursuant to Rule 144; and

     

    (b)          except
as set forth in Article VI
of this Agreement, neither the Company nor any other person is under any
obligation to register the sale of the Shares or Conversion Shares under the
Securities Act or any state or foreign securities Laws or to comply with the
terms and conditions of any exemption thereunder.

     

    Section
3.6                Legends.  

     

    (a)          The
Purchaser understands the certificates representing the Shares and Conversion
Shares will bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Shares or Conversion Shares, as applicable):

     

      
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OF
THE UNITED STATES IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR REGULATIONS
THEREUNDER, AND ACCORDINGLY, MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (b)          The
Purchaser may request that the Company remove, and the Company agrees to
authorize the removal of any legend from the Shares and Conversion Shares
(i) following any sale of the Conversion Shares pursuant to an effective
registration statement, or (ii) if such Conversion Shares are eligible for sale
under Rule 144 without volume limitations or under any no-action letter issued
by the SEC (it being understood that the Company may obtain an opinion of
counsel with respect to such removal of legend).  Following the time a
legend is no longer required for the Conversion Shares hereunder, the Company
will, no later than five (5) Business Days following the delivery by a Purchaser
to the Company or the Company’s transfer agent of a legended certificate
representing such shares, accompanied by such additional information as the
Company or the Company’s transfer agent may reasonably request, deliver or cause
to be delivered to such Purchaser a certificate representing such shares that is
free from all restrictive and other legends.

     

    (c)          Notwithstanding
anything herein to the contrary, the Company acknowledges and agrees that the
Company will not require an opinion of counsel in connection with the transfer
of any Shares or Conversion Shares by a Purchaser to a Person that is an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
which transfer involves (i) a partnership transferring to its partners or former
partners in accordance with partnership interests; (ii) a corporation
transferring to a wholly-owned subsidiary or a parent corporation that owns all
of the capital stock of such Purchaser; (iii) a limited liability company
transferring to its members or former members in accordance with their interest
in the limited liability company; or (iv) an affiliated investment fund
transferring to another affiliated investment fund; provided that in each case
the transfer is effected in accordance with applicable securities Laws and the
transferee agrees in writing to be subject to the terms of this Agreement to the
same extent as if the transferee were an original Purchaser
hereunder.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Section
3.7                Authorization;
Enforcement.  The
Purchaser has the requisite power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby.  The Purchaser has
taken all necessary action to authorize the execution, delivery and performance
of this Agreement.  Upon the execution and delivery of this Agreement,
this Agreement shall constitute a valid and binding obligation of the Purchaser
enforceable in accordance with its terms, except (i) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting creditors’ and contracting parties’ rights generally,
(ii) as enforceability may be subject to general principles of equity and (iii)
as rights to indemnity and contribution may be limited by applicable securities
Laws or public policy underlying such Laws.

     

    Section
3.8               Residency.  The
Purchaser is a resident of the jurisdiction set forth immediately below such
Purchaser’s name on Exhibit A
hereto.

     

    Section
3.9               Brokers.  The
Purchaser has not engaged any brokers, finders or agents and has not incurred,
and will not incur, directly or indirectly, any liability for brokerage for
finder’s fees or agent’s commissions or any similar charges in connection with
this Agreement.

     

    Section
3.10            
Compliance with OFAC
Rules and Regulations.  The
rules and regulations administered by the United States Treasury Department’s
Office of Foreign Assets Control (“OFAC”)
prohibit, among other things, the engagement in transactions with, and the
provision of services to, certain countries, territories, entities and
individuals. The lists of OFAC prohibited countries, territories, persons and
entities can be found on the OFAC website at
http://www.treas.gov/offices/enforcement/ofac/.  In addition, the
programs administered by OFAC (“OFAC
Programs”) prohibit dealing with individuals or entities in certain
countries regardless of whether such individuals or entities appear on the OFAC
lists. The Purchaser represents and warrants that, to their knowledge, none of:
(a) the Purchaser; (b) any Person controlling or controlled by the Purchaser;
(c) any Person having a beneficial interest in the Purchaser; (d) if the
Purchaser is not the beneficial owner of all of the Shares, any Person having a
beneficial interest in the Shares; or (e) any Person for whom the Purchaser is
acting as agent or nominee in connection with this investment in the Shares is a
country, territory, individual or entity named on any OFAC list, or is a person
or entity prohibited under the OFAC Programs.

    


    Section
3.11             
Compliance with
Certain Laws.  The
Purchaser hereby acknowledges that the Company seeks to comply with all
applicable Laws concerning money laundering and related activities. In
furtherance of those efforts, the Purchaser hereby represents, warrants and
agrees that, to the Purchaser’s knowledge, none of the cash or property that the
Purchaser has paid, will pay or will contribute to the Company has been or shall
be derived from, or related to, any activity that is deemed criminal under
United States Law.

    


    Section
3.12              Political
Figures.  To
the knowledge of the Purchaser, none of: (a) the Purchaser; (b) any Person
controlling or controlled by the Purchaser; (c) any Person having a beneficial
interest in the Purchaser; (d) if the Purchaser is not the beneficial owner of
all of the Shares, any Person having a beneficial interest in the Shares; or (e)
any Person for whom the Purchaser is acting as agent or nominee in connection
with this investment in the Interest is a senior foreign political figure or any
immediate family member or close associate of a senior foreign political
figure.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    ARTICLE
IV

    Covenants

     

    Section
4.1                Reporting
Status.  The
Common Stock is registered under Section 12 of the Exchange Act.  The
Company will not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.

     

    Section
4.2                Expenses.  On
the Closing Date, the Company shall pay the Purchasers reasonable out-of-pocket
fees and expenses associated with the preparation, negotiation, execution and
delivery of this Agreement and related exhibits and the transactions
contemplated hereby and thereby (including reasonable attorneys’, accountants’
and consultant fees) but in no event in excess of $250,000 in the aggregate for
all of the Purchasers.  Notwithstanding such reimbursement, the
Company acknowledges that it has no ownership right to any diligence materials
produced or related advice provided by such attorneys, accountants or
consultants to Purchasers.  Except as provided above, the Company is
not liable for, and each Purchaser is severally but not jointly liable for, and
will pay, its own additional expenses incurred in connection with the
negotiation, preparation, execution and delivery of this Agreement, including,
without limitation, additional attorneys’ fees and consultants’ fees and
expenses.

     

    Section
4.3                Securities Laws Disclosure;
Publicity.  Except
as may be required by Law or the rules of the SEC or OTC Bulletin Board, the
Company shall not use the name of, or make reference to, any Purchaser or any of
its Affiliates in any press release or in any public manner (including any
reports or filings made by the Company under the Exchange Act) without such
Purchaser’s prior written consent.  As soon as practicable after
Closing, the Company shall issue a press release disclosing the transaction
contemplated hereby.  Such initial press release shall be approved by
MML Capital Partners.  On or before the fourth Business Day after the
Closing Date (but in any event not prior to the Closing Date), the Company shall
file a Current Report on Form 8-K with the SEC describing the terms of the
transactions contemplated by this Agreement and including as exhibits to such
Current Report on Form 8-K this Agreement and the initial press release, in the
form required by the Exchange Act, which Current Report and related exhibits
will be submitted to MML Capital Partners for review and
comment.  Thereafter, so long as this Agreement is in effect, neither
the Company nor the Purchasers (whether individually or collectively) shall
issue any press release or otherwise make any public statements with respect to
this Agreement, the transactions contemplated hereby or the parties hereto
without the prior consent of the other party; provided, however, that the
Company, on the one hand, and the Purchasers, on the other hand, may, without
the prior consent of the other party, issue a press release or make such public
statement or such other disclosures as may, upon the advice of counsel, be
required by Law or the rules of the SEC or the OTC Bulletin Board if it has used
reasonable efforts to consult with the other party.

     

    Section
4.4                Sales by
Purchasers.  Except
as otherwise provided herein and except for transfers to Affiliates, no
Purchaser will make any sale, transfer or other disposition of the Shares
without the prior written consent of the Company. Each Purchaser agrees that it
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with the sale of Registrable Securities pursuant
to the Registration Statement or otherwise comply with the requirements for an
exemption from registration under the Securities Act and the rules and
regulations promulgated thereunder.  No Purchaser will make any sale,
transfer or other disposition of the Shares or the Conversion Shares in
violation of United States federal or state securities Laws or the terms of this
Agreement.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    Section
4.5               Reservation of Common
Stock.  As
of the date hereof, the Company has reserved, and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, a sufficient
number of shares of Common Stock to enable issuance of the Conversion
Shares.

     

    Section
4.6               
Pledge of the Shares
or the Conversion Shares.  The
Company acknowledges and agrees that the Shares or the Conversion Shares may be
pledged by a Purchaser in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Shares or Conversion
Shares.  The pledge of Shares or Conversion Shares shall not be deemed
to be a transfer, sale or assignment of the Shares or the Conversion Shares
hereunder, and no Purchasers effecting a pledge of the Shares or the Conversion
Shares shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement; provided that a Purchaser and
its pledgee shall comply with the provisions of this Agreement in order to
effect a sale, transfer, or assignment of any such Shares or Conversion Shares
to such pledgee, including the pledgee making the representations and warranties
in Article
III hereof to the Purchaser and/or the Company, as the case may
be.  At the expense of the Purchaser pledging such Shares or
Conversion Shares, the Company hereby agrees to execute and deliver such
documentation as the pledgee of the Shares or Conversion Shares may reasonably
request in connection with a pledge of the Shares or Conversion Shares to such
pledgee by a Purchaser, so long as such documentation is reasonably
satisfactorily to the Company.

     

    Section
4.7                Use of
Proceeds.  The
Company shall use the gross proceeds of this Offering to pay down $2.5 million
of the term loan balance, and $0.5 million of the revolver balance (based upon a
$0.5 million drawdown on the revolver on December 31, 2008 and related $0.5
payment on the term loan balance as of the same date) with respect to
indebtedness of ISI pursuant to the Loan and Security Agreement dated October 3,
2008, as amended, between ISI and The PrivateBank.  In addition, the
payment of expenses in connection with the transactions contemplated hereby,
including without limitation any expenses paid by the Company pursuant to Section
4.2, shall be paid for by the Company on the Closing Date out of its
existing cash balances prior to the Closing.

     

    Section
4.8               Preservation of
Lock-Ups.  Each
of the lock-up agreements between the Company and certain of its stockholders
pursuant to Section 8.5 of the Merger Agreement and pursuant to Section 4.3 of
the Escrow Agreement shall remain in full force and effect until expiring
pursuant to the terms thereof and the Company shall not waive any of the
provisions thereof without the prior written consent of the holders of at least
two-thirds (2/3) of the aggregate number of Shares then held by the
Purchasers.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    ARTICLE
V

    Conditions To
Closing

     

    Section
5.1             Conditions to Obligations of
the Company at the Closing

     

    .  The
Company’s obligation to complete the purchase and sale of the Shares and deliver
stock certificate(s) to the Purchasers at the Closing is subject to the
fulfillment or waiver as of the Closing Date of the following
conditions:

     

    (a)           Receipt of
Funds.  As
directed by the Company and consistent with Sections
1.2 and 4.7, The
PrivateBank shall have received from the Purchasers on behalf of the Company in
payment of a portion of the Company’s outstanding indebtedness to The
PrivateBank under the Company’s senior credit facility and in the full amount of
the Purchase Price for the Shares being purchased at the Closing, in immediately
available funds, the aggregate amount for the Purchasers set forth on Exhibit
A.

     

    (b)           Representations and
Warranties; Investor Questionnaire.  The
representations and warranties made by the Purchasers in (i) Section
3.7 or (ii) Article
III that are qualified by materiality or Material Adverse Effect shall be
true and correct in all respects as of the Closing Date.  All other
representations and warranties made by the Purchasers in Article
III shall be true and correct in all material respects as of the Closing
Date.  Further, each Purchaser shall have delivered to the Company a
fully completed and executed investor questionnaire in a form reasonably
satisfactory to the Company.

     

    (c)           Covenants.  All
covenants, agreements and conditions contained in this Agreement to be performed
by the Purchasers on or prior to the Closing Date shall have been performed or
complied with in all material respects.

     

    (d)           No Governmental Prohibition
or Third Party Approval.  The
sale of the Shares by the Company shall not be prohibited by any Law or
governmental order or regulation and any government regulatory consents or
approvals, if any, necessary for the sale of the Shares shall have been
received.

     

    Section
5.2            
Conditions to
Purchasers’ Obligations at Closing.  Each
Purchaser’s obligation to complete the purchase and sale of the Shares at the
Closing is several and not joint and is subject to the fulfillment or waiver as
of the Closing Date of the following conditions:

     

    (a)           Representations and
Warranties.  The
representations and warranties made by the Company in (i) Sections
2.2, 2.3, 2.4 and
(ii) in Article II
that are qualified by materiality or Material Adverse Effect shall be true and
correct in all respects as of the Closing Date.  All other
representations and warranties made by the Company in Article II
shall be true and correct in all material respects as of the Closing
Date.

     

    (b)           Covenants.  All
covenants, agreements and conditions contained in this Agreement to be performed
by the Company on or prior to the Closing Date shall have been performed or
complied with in all material respects.

     

    (c)           Blue Sky.  The
Company shall have obtained all necessary blue sky law permits and
qualifications, or secured exemptions therefrom, required by any state or
foreign or other jurisdiction for the Offering.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (d)           Compliance with
Laws.  The
purchase and issuance of the Shares to each Purchaser hereunder shall be legally
permitted by all Laws and regulations to which each Purchaser or the Company is
subject, including all applicable federal, state and foreign securities
Laws.

     

    (e)           Legal
Opinion.  The
Company shall have delivered to each Purchaser an opinion, dated as of the
Closing Date, from Cox Smith Matthews Incorporated, counsel to the Company and
the Subsidiaries, in substantially the form attached hereto as Exhibit
C.

     

    (f)           Transfer Agent
Instructions.  The
Company shall have delivered to its transfer agent irrevocable instructions to
issue to each Purchaser or in such nominee name(s) as designated by each such
Purchaser in writing one or more certificates representing the number of Shares
set forth opposite such Purchaser’s name on Exhibit A
hereto.

     

    (g)           Absence of
Litigation.  No
proceeding challenging this Agreement or the transactions contemplated hereby,
or seeking to prohibit, alter, prevent or materially delay the Closing, shall
have been instituted or be pending before any court, arbitrator, governmental
body, agency or official.

     

    (h)           No Governmental
Prohibition.  The
sale and issuance of the Shares by the Company at the Closing shall not be
prohibited by any Law or governmental order or regulation consents or approvals,
if any, necessary for the sale of the Shares shall have been
received.

     

    (i)           The PrivateBank
Amendment.  The
Company shall have delivered to the Purchasers a fully executed copy of the
amendment to the Loan and Security Agreement dated October 3, 2008 between ISI
and The PrivateBank, on terms no less favorable to the Company and its
Subsidiaries than those set forth in the letter agreement between ISI and The
PrivateBank dated December 19, 2008.

     

    (j)           Blair
Amendment

     

    
      	
               
      

            	
              .  The
      Company shall have delivered to the Purchasers a fully executed copy of
      the amendment to the Note and Warrant Purchase Agreement dated October 22,
      2004 by and among ISI Detention Contracting Group, Inc., Blair and the
      guarantors from time to time parties thereto, as amended, which amendment
      shall reflect the covenant relief set forth in The PrivateBank amendment
      contemplated by Section
      5.2(i) above, but including not less than an additional 10% cushion
      and such other terms and conditions as are reasonably acceptable to
      Purchasers.

            


    

    


    (k)           Notice of Note
Redemption.  The
Company shall have delivered to the Purchasers evidence, which shall be in a
form reasonably satisfactory to the Purchasers, of delivery of the notice of
redemption of the Notes for shares of Common Stock pursuant to the “Redemption
of Note by Maker” provision of each of the Notes.

    


    (l)           No Stop
Order.  No
stop order or suspension of trading shall have been imposed by the SEC or any
other governmental or regulatory body with respect to public trading in the
Common Stock.

     

    (m)           Officers’
Certificates.  The
Company shall have delivered to each Purchaser (i) a certificate of the Chief
Executive Officer of the Company, dated as of the Closing Date, confirming the
satisfaction of the conditions set forth in clauses (a) and (b) of this Section
5.2, and (ii) a certificate of the Secretary of the Company, dated as of
the Closing Date, certifying as to the (i) Certificate of Incorporation, (ii)
Bylaws, (iii) incumbency and signatures of the officers executing this Agreement
and (iv) resolutions of the Company’s board of directors approving this
Agreement and the transactions contemplated hereby.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    ARTICLE
VI

    Registration
Rights

     

    Section
6.1            [Intentionally
Omitted].

     

    Section
6.2            Piggy-Back
Registration

     

    (a)           Piggyback Registration
Rights.  If
the Company proposes to file a registration statement under the Securities Act
with respect to an offering of any shares of Common Stock by the Company for its
own account or for the account of any holder of Common Stock other than the
Purchasers (other than a registration statement on Forms S-8 or S-4, or any
substitute forms that may be adopted by the SEC or any registration statement
filed), then the Company shall give written notice of such proposed filing to
the Purchasers as soon as practicable (but in no event less than 15 days before
the anticipated filing date of such registration statement), and such notice
shall offer the Purchasers the opportunity to register such number of
Registrable Securities as the Purchasers may request (a “Piggyback
Registration”).  Subject to Section
6.2(b) hereof, the Company shall include in each such Piggyback
Registration all Registrable Securities requested to be included in the
registration for such offering by written notice to the Company within 10 days
of receipt of the Company’s notice referred to above; provided, however, that the
Company may at any time withdraw or cease proceeding with any such registration
for its own account prior to effectiveness of such registration whether or not
the Purchasers have elected to include any Registrable Securities in such
registration.  In addition, the Purchasers shall be permitted to
withdraw all or part of the Registrable Securities from a Piggyback Registration
at any time prior to the effective date thereof.

     

    (b)           Priority on Piggyback
Registration.  The
Company shall use reasonable best efforts to cause the managing underwriter(s)
of a proposed underwritten offering to permit the Registrable Securities
requested to be included in the registration statement for such offering under
Section
6.2(a) (such Registrable Securities referred to as “Piggyback
Securities”) to be included on the same terms and conditions as any
similar securities included therein.  Notwithstanding the foregoing,
the Company shall not be required to include any Piggyback Securities in such
offering unless the Purchasers accept the terms of the underwriting agreement
between the Company and the managing underwriter(s) and otherwise comply with
the provisions of Section
6.8 below.  If the managing underwriter(s) of a proposed
underwritten offering advise(s) the Company that in their opinion the total
amount of securities, including Piggyback Securities, to be included in such
offering is sufficiently large to materially and adversely affect the price or
success of the offering, then in such event the securities to be included in
such offering shall be allocated:

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (i)           If
the registration is undertaken for the Company’s account: (A) first, the
securities that the Company desires to sell that can be sold without exceeding
the maximum number of shares suggested by the underwriters (the “Maximum Number of
Shares”); (B) second, to the extent that the Maximum Number of Shares has
not been reached under the foregoing clause (A), the securities (including the
Registrable Securities) as to which registration has been requested pursuant to
written contractual piggy-back registration rights (pro rata in accordance with
the number of securities which each such person has actually requested to be
included in such registration) that can be sold without exceeding the Maximum
Number of Shares; and

     

    (ii)           If
the registration is a “demand” registration undertaken at the demand of persons
other than the holders of Registrable Securities pursuant to written contractual
arrangements with such persons, (A) first, the securities for the account of the
demanding persons that can be sold without exceeding the Maximum Number of
Shares; (B) second, to the extent that the Maximum Number of Shares has not been
reached under the foregoing clause (A), the securities that the Company desires
to sell that can be sold without exceeding the Maximum Number of Shares; and (C)
third, to the extent that the Maximum Number of Shares has not been reached
under the foregoing clauses (A) and (B), the securities (including the
Registrable Securities) as to which registration has been requested pursuant to
written contractual piggy-back registration rights (pro rata in accordance with
the number of securities which each such person has actually requested to be
included in such registration) that can be sold without exceeding the Maximum
Number of Shares.

     

    Section
6.3              Holdback
Agreements

     

    (a)           Restrictions on Public Sale
of Registrable Securities.  Following
any underwritten public offering of equity securities by the Company or the
Purchasers effected pursuant to this Agreement, the Purchasers agree not to
effect any public sale or distribution of securities similar to those being
registered or of any securities convertible into or exchangeable or exercisable
for such securities or hedging transactions relating to the Registrable
Securities, including a sale pursuant to Rule 144, during the 10 days prior to
the expected date of “pricing” of such offering and during a period not to
exceed 90 days with respect to any such offering, beginning on the date of such
final prospectus (or prospectus supplement if the offering is made pursuant to a
“shelf” registration) as shall be reasonably requested by the managing
underwriter(s) except as part of such registration, and, if and to the extent
requested by the managing underwriter(s), the Purchaser agrees to execute an
agreement to the foregoing effect with the underwriters for such offering on
such terms as the managing underwriter(s) shall reasonably request.

     

    (b)           Restrictions on Public Sale
by the Company.  Following
any underwritten public offering of equity securities by the Purchasers effected
pursuant to this Agreement, the Company agrees not to effect any public sale or
distribution of any securities similar to those being registered, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 10 days prior to the expected date of “pricing” of such offering and
during a period not to exceed 60 days with respect to any such offering,
beginning on the date of such final prospectus (or prospectus supplement if the
offering is made pursuant to a “shelf” registration) as shall be reasonably
requested by the managing underwriter(s).

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (c)           [Intentionally
Omitted].  

     

    (d)           Suspension of Use of Shelf
Registration Statement.  If
the Company has filed a “shelf” registration statement and has included
Registrable Securities therein, the Company shall be entitled to suspend (but
not more than an aggregate of 90 days in any 12-month period), for a reasonable
period of time not in excess of 90 days, the offer or sale of Registrable
Securities pursuant to such registration statement by any holder of Registrable
Securities if (i) a “road show” is not then in progress with respect to a
proposed offering of Registrable Securities by such holder pursuant to such
registration statement and such holder has not executed an underwriting
agreement with respect to a pending sale of Registrable Securities pursuant to
such registration statement and (ii) the Company or any of its subsidiaries are
engaged in confidential negotiations or other confidential business activities,
disclosure of which would be required if such registration statement were used
(but would not be required if such registration statement were not used) and the
Board determines in good faith that such disclosure would be materially
detrimental to the Company.  In order to suspend the use of the
registration statement pursuant to this Section
6.3(d), the Company shall promptly, upon determining to seek such
suspension, deliver to the holders of Registrable Securities included in such
registration statement, a certificate signed by the Chief Executive Officer of
the Company stating that the Company is suspending use of such registration
statement pursuant to this Section
6.3(d) and the basis therefor in reasonable detail.

     

    Section
6.4            Registration
Procedures.  Whenever
the Purchasers have requested that any Registrable Securities be registered
pursuant to this Article
VI, the Company will, in connection with any such request, as
expeditiously as practicable:

     

    (a)        prepare
and file with the SEC a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and which
form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use its reasonable best efforts and proceed diligently and in good
faith to cause such filed registration statement to become effective under the
Securities Act; provided
that at least five business days before filing a registration statement
or prospectus or any amendments or supplements thereto, the Company will furnish
to the Purchasers and to one counsel reasonably acceptable to the Company
selected by the Purchasers, copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel;

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (b)        prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective until all Registrable Securities
covered by such registration statement have been sold and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended method of disposition by the Purchasers thereof set
forth in such registration statement; provided however that the
Purchasers that have been included on a “shelf” registration statement may
request that their Registrable Securities be removed from such registration
statement, in which event the Company shall as promptly as practicable either
withdraw such registration statement or file a post-effective amendment to such
registration statement removing such Registrable Securities;

     

    (c)        furnish
to the Purchasers such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as the Purchasers may
reasonably request in order to facilitate the disposition of the Registrable
Securities;

     

    (d)        notify
the Purchasers promptly, and confirm such notice in writing:

     

    (i)          when
a prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a registration statement or any post-effective
amendment, when the same has become effective under the Securities Act and each
applicable state Law;

     

    (ii)           of
any request by the SEC or any other federal or state governmental authority for
amendments or supplements to a registration statement or related prospectus or
for additional information;

     

    (iii)           of
the issuance by the SEC of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that
purpose;

     

    (iv)           if
at any time the representations or warranties of the Company or any Subsidiary
contained in any agreement (including any underwriting agreement) contemplated
by Section
6.4(i) below cease to be true and correct in any material
respect;

     

    (v)           of
the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose;

     

    (vi)           of
the happening of any event that requires the making of any changes in such
registration statement, prospectus or any document incorporated or deemed to be
incorporated therein by reference so that, in the case of the registration
statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the prospectus,
it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (vii)           of
the Company’s reasonable determination that a post-effective amendment to a
registration statement would be appropriate;

     

    (e)        use
its reasonable best efforts to obtain the withdrawal of any order suspending the
effectiveness of a registration statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable
moment;

     

    (f)        cooperate
with the Purchasers and the managing underwriter(s) to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, which certificates shall not bear any restrictive legends and shall be
in a form eligible for deposit with The Depositary Trust Company;

     

    (g)       use
its reasonable best efforts to register or qualify such Registrable Securities
as promptly as practicable under such other securities or blue sky laws of such
jurisdictions as the Purchasers or managing underwriter reasonably (in light of
the intended plan of distribution) requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable the Purchasers
or managing underwriter to consummate the disposition in such jurisdictions of
the Registrable Securities owned by the Purchasers; provided that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (g)
or (ii) subject itself to taxation in any such jurisdiction, and notify the
Purchasers in writing of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities Laws of any jurisdiction in
the United States or its receipt of actual notice of the initiation or
threatening of any proceeding for such purpose;

     

    (h)        use
its reasonable best efforts to cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities,
if any, as may be required of the Company to enable the Purchasers to consummate
the disposition of such Registrable Securities;

     

    (i)        enter
into customary agreements (including an underwriting agreement in customary form
with customary indemnification provisions) and take such other actions as are
reasonably required or advisable in order to expedite or facilitate the
disposition of such Registrable Securities, including providing reasonable
availability of appropriate members of senior management of the Company to
provide customary due diligence assistance in connection with any offering and
to participate in customary “road show” presentations in connection with any
underwritten offerings in substantially the same manner as they would in an
underwritten primary registered public offering by the Company, after taking
into account the reasonable business requirements of the Company in determining
the scheduling and duration of any road show;

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (j)          make
available for inspection by any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
professional retained by the underwriter, all financial and other records,
pertinent corporate documents and properties of the Company as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s officers, directors and employees to
supply all information reasonably requested in connection with such registration
statement; provided,
however, that the Purchasers agree that information obtained as a result
of such inspections shall be deemed confidential and shall not be used as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such information is made generally available to the
public;

     

    (k)        at
the reasonable request of the managing underwriter(s) as to form and content,
use its reasonable best efforts to obtain a comfort letter or comfort letters
from the Company’s independent public accountants in customary form and covering
such matters of the type customarily covered by comfort letters;

     

    (l)        otherwise
use its reasonable best efforts to comply with all applicable rules and
regulations of the SEC, and make available to the Purchasers, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;

     

    (m)        use
its reasonable best efforts to cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed or quoted on any inter-dealer quotation system on which
similar securities issued by the Company are then quoted;

     

    (n)         if
any event contemplated by Section
6.4(d) above shall occur, as promptly as practicable prepare a supplement
or amendment or post-effective amendment to such registration statement or the
related prospectus or any document incorporated therein by reference or promptly
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and

     

    (o)        cooperate
and assist in any filing required to be made with the Financial Industry
Regulatory Authority and in the performance of any due diligence investigation
by any underwriter, including any “qualified independent underwriter,” or the
Purchaser.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    The
Purchasers agree that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section
6.4(d) hereof, the Purchasers will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until receipt of the copies of the supplemented or
amended prospectus contemplated by Section
6.4(n) hereof, and, if so directed by the Company, the Purchasers will
deliver to the Company all copies, other than permanent file copies, then in
such their possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice.

     

    Section
6.5             Registration
Expenses.  In
connection with any registration statement required to be filed hereunder, the
Company shall pay the following registration expenses (the “Registration
Expenses”):

     

    (a)         all
registration and filing fees (including, without limitation, with respect to
filings to be made with the Financial Industry Regulatory
Authority);

     

    (b)         fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities);

     

    (c)         printing
expenses;

     

    (d)         its
own internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting
duties);

     

    (e)         the
fees and expenses incurred in connection with the listing on an exchange of the
Registrable Securities if the Company shall choose, or be required pursuant to
Section
6.4(m), to list such Registrable Securities;

     

    (f)          reasonable
fees and disbursements of counsel for the Company and customary fees and
expenses for independent certified public accountants retained by the Company
(including the expenses of any comfort letters requested pursuant to Section 6.4(k)
hereof);

     

    (g)         the
reasonable fees and expenses of any special experts retained by the Company in
connection with such registration;

     

    (h)         reasonable
fees and expenses of one counsel (up to $15,000.00) reasonably acceptable to the
Company selected by the Purchasers incurred in connection with the registration
of such Registrable Securities hereunder; and

     

    (i)         fees
and expenses of any “qualified independent underwriter” or other independent
appraiser participating in any offering pursuant to the rules of the Financial
Industry Regulatory Authority.

     

    The
Company shall not have any obligation to pay any underwriting fees, discounts,
or commissions attributable to the sale of Registrable Securities or, except as
provided by clause (b), (h) or (i) above, any out-of-pocket expenses of the
Purchasers (or the agents who manage their accounts) or the fees and
disbursements of any underwriter.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Section
6.6            Indemnification;
Contribution.

     

    (a)           Indemnification by the
Company.  The
Company agrees to indemnify and hold harmless the Purchasers, each Person, if
any, who controls the Purchasers within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers, directors,
agents, general and limited partners, and employees of the Purchasers and each
such controlling Person from and against any and all losses, claims, damages,
liabilities (joint or several), and expenses (including reasonable costs of
investigation and attorneys’ fees) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon and in conformity with,
any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by the Purchasers or on the
Purchasers’ behalf expressly for use therein.

     

    (b)           Indemnification by the
Purchasers.  The
Purchasers agree to indemnify and hold harmless the Company, and each Person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers, directors,
agents and employees of the Company and each such controlling Person to the same
extent as the foregoing indemnity from the Company to the Purchasers, but only
with respect to information furnished in writing by the Purchasers or on the
Purchasers’ behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities.  The liability of the
Purchasers under this Section
6.6(b) shall be limited to the aggregate cash and property received by
the Purchasers pursuant to the sale of Registrable Securities covered by such
registration statement or prospectus.

     

    (c)           Conduct of Indemnification
Proceedings.  If
any action or proceeding (including any governmental investigation) shall be
brought or asserted against any Person entitled to indemnification under Sections
6.6(a) or 6.6(b)
above (an “Indemnified
Party”) in respect of which indemnity may be sought from any Person who
has agreed to provide such indemnification under Sections
6.6(a) or 6.6(b)
above (an “Indemnifying
Party”), the Indemnified Party shall give prompt written notice to the
Indemnifying Party and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such defense.
Such Indemnified Party shall have the right to employ separate counsel in any
such action or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless:

     

    (i)           the
Indemnifying Party has agreed to pay such fees and expenses; or

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (ii)           the
Indemnifying Party fails promptly to assume the defense of such action or
proceeding or fails to employ counsel reasonably satisfactory to such
Indemnified Party; or

     

    (iii)           the
named parties to any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an Affiliate of
the Indemnifying Party), and such Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to the
Indemnified Party that are different from or additional to those available to
the Indemnifying Party, or there is a conflict of interest on the part of
counsel employed by the Indemnifying Party to represent such Indemnified Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense of such action or proceeding on behalf of such Indemnified
Party).

     

    Notwithstanding
the foregoing, the Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable at any time for the fees and expenses of more than
one separate firm of attorneys (together in each case with appropriate local
counsel). The Indemnifying Party shall not be liable for any settlement of any
such action or proceeding effected without its written consent (which consent
will not be unreasonably withheld), but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action or proceeding,
the Indemnifying Party shall indemnify and hold harmless such Indemnified Party
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment.  The Indemnifying Party shall not consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release, in form and substance reasonably satisfactory to
the Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to indemnification
hereunder.

     

    (d)           Contribution.  If
the indemnification provided for in this Section
6.6 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Parties, shall
contribute to the amount paid or payable by such Indemnified Parties as a result
of such losses, claims, damages, liabilities and judgments as between the
Company on the one hand and the Purchasers on the other, in such proportion as
is appropriate to reflect the relative fault of the Company and of the
Purchasers in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations.  The relative fault of the Company on the
one hand and of the Purchasers on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such Person, and such Persons’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    The
Company and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section
6.6(d) were determined by any method of allocation which does not take
into account the equitable considerations referred to in the immediately
preceding paragraph.  The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim.  Notwithstanding the provisions
of this Section
6.6(d), the Purchasers shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities were offered to the public (less any underwriting discounts or
commissions) exceeds the amount of any damages which the Purchasers have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.  No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

     

    Section
6.7              Additional Covenants and
Agreements of the Company.  With
a view to making available to the Purchasers the benefits of certain rules and
regulations of the SEC which at any time permit the sale of the Registrable
Securities to the public without registration, so long as the Purchasers still
own Registrable Securities, the Company shall use its reasonable best efforts
to:

     

    (a)         make
and keep public information available, as those terms are understood and defined
in Rule 144, at all times;

     

    (b)         file
with the SEC in a timely manner all reports and other documents required of the
Company under the Exchange Act; and

     

    (c)         so
long as a Purchaser owns any Registrable Securities, furnish to such Purchaser,
upon any reasonable request, a written statement by the Company as to its
compliance with Rule 144 and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company if not publicly available, and such other
reports and documents of the Company as such Purchaser may reasonably request in
availing itself of any rule or regulation of the SEC allowing a Purchaser to
sell any such securities without registration.

     

    Section
6.8              Transfers of Registration
Rights.  The
provisions of this Article VI
hereof will inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto, except as otherwise provided herein;
provided, however, that
the registration rights granted hereby may be transferred only (i) by operation
of Law or (ii) to any Person to whom the Purchasers transfer Registrable
Securities, provided
that any such transferee shall not be entitled to rights pursuant to this
Article
VI unless such transferee of registration rights hereunder agrees to be
bound by the terms and conditions of this Article VI
and executes and delivers to the Company an acknowledgment and agreement to such
effect.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    Section
6.9              Waiver of Registration
Rights.  The
rights of any Purchaser under any provision of this Article VI
may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) or amended by an instrument in writing signed by the Purchasers
holding not less than a majority of the Registrable Securities; provided, however, that no
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of this Article VI
unless the same consideration also is offered to all Purchasers that hold
Registrable Securities.

     

    ARTICLE
VII

    Additional
Agreements

     

    Section
7.1              
Contractual Preemptive
Rights

     

    .  Subject
to (i) the terms and conditions specified in this Section
7.1 and (ii) subject to Section
7.2 below regarding certain specific financing transactions, the Company
hereby grants to the Purchasers a right of first offer with respect to future
sales by the Company of New Securities.  Each Purchaser shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and Affiliates in such proportions as it deems
appropriate.

     

    Each time
the Company proposes to offer any New Securities, the Company shall first make
an offering of such New Securities to Purchasers in accordance with the
following provisions:

     

    (a)          The
Company shall deliver a notice in accordance with Section
9.6 (“New Security
Notice”) to the Purchasers stating (i) its bona fide intention to offer
such New Securities, (ii) the number of such New Securities to be offered and
(iii) the price and terms upon which it proposes to offer such New
Securities.

     

    (b)          By
written notification received by the Company within twenty (20) calendar days
after the giving of New Security Notice, each Purchaser may elect to purchase,
at the price and on the terms specified in the New Security Notice, up to that
portion of such New Securities that equals the proportion that the number of
shares of Common Stock issued and held by such Purchaser (assuming full
conversion and exercise of all convertible and exercisable securities then
outstanding) bears to the total number of shares of Common Stock then
outstanding (assuming full conversion and exercise of all convertible and
exercisable securities then outstanding).  The Company shall promptly,
in writing, inform each Purchaser that elects to purchase all the shares
available to it (a “Fully Exercising
Purchaser”) of any other Purchaser’s failure to do
likewise.  During the ten (10) day period commencing after such
information is given, each Fully Exercising Purchaser may elect to purchase that
portion of the New Securities for which Purchasers were entitled to subscribe,
but which were not subscribed for by the Purchasers, that is equal to the
proportion that the number of shares of Common Stock issued and held by such
Fully Exercising Purchaser (assuming full conversion and exercise of all
convertible and exercisable securities then outstanding) bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible and exercisable securities then
outstanding).

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    (c)          If
all New Securities that Purchasers are entitled to obtain pursuant to Section
7.1(b) are not elected to be obtained as provided in Section
7.1(b) hereof, the Company may, during the thirty (30) day period
following the expiration of the period provided in Section
7.1(b) hereof, offer the remaining unsubscribed portion of such New
Securities to any person or persons at a price not less than that, and upon
terms no more favorable to the offeree than those, specified in the New Security
Notice.  If the Company does not enter into an agreement for the sale
of the New Securities within such period, or if such agreement is not
consummated within fifteen (15) days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such New Securities shall
not be offered unless first reoffered to the Purchasers in accordance
herewith.

     

    (d)          The
right of first offer in this Section
7.1 shall not be applicable to (i) the issuance of (A) options to
purchase up to 300,000 shares of Common Stock to employees, directors,
consultants and other service providers, at an exercise price per share not less
than the greater of (x) Series B Conversion Price (as defined in the Certificate
of Designation) or (y) the Market Price (as defined in the Certificate of
Designation), in each case, as in effect immediately prior to such issuance, and
(B) up to 150,000 shares of restricted Common Stock, in each case under clauses
(A) and (B), pursuant to the Company’s 2007 Omnibus Securities and Incentive
Plan and for the primary purpose of soliciting or compensation for their past or
future services, (ii) the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities outstanding as of the date
hereof (including the Series A Preferred Stock), (iii) issuance of shares of
Common Stock pursuant to the redemption Notes as described and in accordance
with Section
7.5 and (iv) the issuance of Series B Preferred Stock pursuant to this
Agreement (collectively, the “Excluded
Issuances”).

     

    Section
7.2               
Certain Rights of
First Offer.

     

    (a)          Notwithstanding
Section
7.1 above regarding the right of first offer of the Purchasers, if at any
point the Company or any of its Subsidiaries proposes, directly or indirectly,
an equity or debt financing (other than with respect to the Excluded Issuances
and The PrivateBank senior secured indebtedness or any refinancing or
replacement of such bank senior secured indebtedness), the Company shall deliver
to the Purchasers written notice in accordance with Section
9.6 (the “Financing
Notice”) setting forth the total amount (which can be a range of amounts)
that the Company proposes to raise for purposes of completing one or both of the
transactions set forth above and any other proposed terms and conditions of the
proposed financing.

     

    (b)          The
Purchasers shall have the exclusive right (unless waived in writing by the
Purchasers), for a period of 30 days after receipt of the Financing Notice, to
deliver a proposed term sheet to the Company and to negotiate the proposed terms
and conditions of the proposed financing for the transactions set forth in Section
7.2(a).

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (c)          If
the Company and the Purchasers have not executed a letter of intent with respect
to the financing proposed by this Section
7.2 within such 30-day period, then the Company shall have the right, for
a period of an additional 30 days after the expiration of such 30-day period, to
solicit third party offers from, and negotiate with, any Person other than the
Purchasers to enter into the proposed financing on terms no more favorable to
the third party than those offered to the Purchasers as set forth in the
Financing Notice delivered by the Company to the Purchasers with respect to such
proposed financing.  If, within such additional 30-day period, the
Company obtains a bona fide offer from a third party to enter into the financing
proposed by this Section
7.2 on terms no more favorable to the third party than those offered to
the Purchasers with the Company as set forth in the Financing Notice, then the
Company shall deliver written notice thereof to the Purchasers.  In
the event the Company does not obtain a third party offer within such 30-day
period or such offer is on terms that are more favorable to the third party than
those offered to the Purchaser as set forth in the Financing Notice, the Company
shall not thereafter enter into any such financing without first delivering a
new Financing Notice to the Purchasers and complying with the other provisions
of this Section
7.2.

     

    Section
7.3               Co-Sale
Provisions.

     

    (a)          Subject
to subsection (g) below, any of the following transfers for value (for purposes
of this Section 7.3
referred to as a “sale”) of
shares of Common Stock or Preferred Stock shall be subject to this Section
7.3: (i) a sale by each of the Stockholders together in one transaction
or a series of related transactions; (ii) a sale by any Stockholder (other than
Sam Youngblood) of any of the shares of Common Stock held by such Stockholder
that are subject to the lock-up agreements referred in Section
2.34 and Section 4.8
hereof; provided,
however, that the Purchasers shall not have any rights pursuant to this
Section
7.3(a)(ii) with respect to any such shares of Common Stock until such
Stockholder (or any permitted transferee under clauses (A), (B), (C) or (D)
below) sells in one or more transactions (whether or not related) more than 25%
of such shares of Common Stock held by such Stockholder as of the date hereof;
(iii) a sale by any Stockholder (other than Sam Youngblood) of shares of Common
Stock held by such Stockholder to Argyle Joint Venture; (iv) a sale of
Contributed Shares by Argyle Joint Venture as a result of the application of
clause (C) below; or (v) in connection with a Co-Sale Control
Event.  Notwithstanding anything to the contrary, the restrictions on
transfer contained in this Section
7.3 shall not apply to (A) any sales of shares of Common Stock by the
Stockholders pursuant to Rule 144 under the Securities Act; provided, however, that this
in no way limits the registration rights of the Purchasers pursuant to Article
VI, including, but not limited to, the piggy-back rights described in
Section
6.2; (B) the transfer of any or all of the shares of Common Stock owned
by a Stockholder, either during their lifetime or on death, by gift, will or
intestate succession, to the immediate family of such Stockholder or to a trust
the beneficiaries of which are exclusively such Stockholder and/or a member or
members of such Stockholder’s immediate family; (C) the transfer of shares of
Common Stock by any Stockholder (other than Sam Youngblood) by capital
contribution to Argyle Joint Venture (the “Contributed
Shares”); or (D) the transfer by a Stockholder to an Affiliate; provided, however, that in
the case of clauses (B), (C) and (D) above, it shall be a condition to such
transfer that the transferee executes and delivers to the Purchasers an
agreement stating that the transferee is receiving and holding the shares of
Common Stock subject to the provisions of this Section
7.3, and there shall be no further transfer of such shares of Common
Stock, except in accordance with this Section
7.3.  Shares to be transferred in connection with the
transactions described in this Section
7.3 are referred to as the “Co-Sale
Shares” and any Persons participating in such transaction are
collectively referred to as the “Co-Seller.”

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (b)          In
connection with any proposed transfer that is subject to this Section
7.3, the Company shall give written notice to the Purchasers in
accordance with Section
9.6 (the “Co-Sale
Notice”) at least twenty (20) days prior to any proposed transfer that is
subject to this Section
7.3.  The Co-Sale Notice shall specify the proposed transferee,
whether such proposed transferee is willing to purchase shares of Common Stock
or Preferred Stock then held by the Purchasers and, if so, the maximum number of
shares of Common Stock or Preferred Stock such proposed transferee is willing to
purchase from the Purchasers, the number of Co-Sale Shares to be transferred to
such proposed transferee, the amount and type of consideration to be received
therefor, and the place and date on which the transfer is expected to be
consummated.  The Co-Sale Notice shall include an offer (the “Participation
Offer”) by the Co-Seller to include in the proposed transfer on the terms
described in paragraph (c) below a number of
shares of Common Stock or Preferred Stock designated by the Purchasers, not to
exceed, the product of (A) the sum of the aggregate number of Co-Sale Shares to
be sold to the proposed transferee plus the maximum number of shares of Common
Stock or Preferred Stock such proposed transferee is willing to purchase from
the Purchasers and (B) a fraction with a numerator equal to the number of shares
of Fully-Diluted Common Stock held by the Purchasers and a denominator equal to
the number of shares of Fully-Diluted Common Stock held by the Co-Seller and the
Purchasers.

     

    (c)          Except
as set forth herein and in paragraph (b) above, the per share consideration to
be received for any shares of Common Stock or Preferred Stock included in a
proposed transfer hereunder shall be the same per share consideration to be
received as set forth in the Participation Offer.  The Purchasers
shall notify the Company not more than five (5) business days after the date of
the Co-Sale Notice, failing which the Purchasers shall not be entitled to
participate in the proposed transfer.

     

    (d)          The
Participation Offer shall be conditioned upon the actual transfer of Co-Sale
Shares pursuant to the transactions contemplated in the Co-Sale Notice with the
transferee named therein.  If the Purchasers accept the Participation
Offer, the number of Co-Sale Shares shall be reduced to the extent necessary so
as to permit the Purchasers to sell the number of shares that they are entitled
to sell under this Section
7.3, and the Co-Seller and the Purchasers shall sell the number of shares
specified in the Participation Offer to the proposed transferee in accordance
with the terms of such sale as set forth in the Co-Sale Notice.  If
the proposed transferee refuses to purchase from the Purchasers the number of
shares that they are entitled to sell under this Section
7.3, then (i) the Co-Seller shall be entitled to sell up to the number of
shares specified in the Participation Offer to the proposed transferee in
accordance with the terms of such sale as set forth in the Co-Sale Notice and
(ii) the Co-Seller shall then purchase from the Purchasers, on the terms set
forth in the Co-Sale Notice, up to the number of shares that they would have
been entitled to sell under this Section
7.3 had the proposed transferee purchased such shares directly from the
Purchasers in accordance with the terms of this Section
7.3.  The Purchasers shall not be liable under this Section
7.3 for any transaction costs associated with such a transfer other than
the legal costs incurred by the Purchasers.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    (e)          The
Purchasers shall not be required to make any representations or warranties in
connection with a transfer pursuant to this Section
7.3 other than representations and warranties as to (i) the Purchasers’
ownership of the shares of Common Stock or Preferred Stock to be transferred
free and clear of all liens, claims and other encumbrances other than those
arising under this Agreement or the constituent documents of the Company, (ii)
the Purchasers’ power and authority to effect such transfer, and (iii) such
matters pertaining to compliance with securities Laws as the transferee may
reasonably require; provided,
however, for the avoidance of doubt the parties acknowledge that the
consideration to be received by the Co-Seller and the Purchasers may consist of,
among other things, an interest in an escrow account, a security or other
consideration, the ultimate value of which may be dependent upon, among other
things, the accuracy of representations and warranties relating to the Company
and its business or the future performance of the Company; provided, however, any
liability with respect of the Purchasers to any indemnification claim relating
to representations and warranties, covenants or other agreements relating to the
Company or any Co-Seller shall be several (and not joint and several) and the
Purchasers’ liability with respect to such claims shall not exceed their
proportionate share thereof based on their Fully-Diluted Common Stock ownership
percentage relative to the Co-Seller.

     

    (f)          The
closing of such purchase by the transferee shall be on the same date that the
transferee acquires the Co-Sale Shares, provided that the Purchasers
have been given twenty (20) days advance notice of such closing; provided further, however, that any such
closing shall be delayed, to the extent required, until the next succeeding
business day after the obtaining of all other governmental approvals reasonably
deemed necessary by a party to the transfer.

     

    (g)          Nothing
in this Section
7.3 shall restrict or in any way inhibit the rights of the Purchasers to
exercise their rights under the right of first refusal agreements described in
Section
7.4.

     

    Section
7.4                Right of First
Refusal.

     

    (a)          If,
on or after the date hereof through January 31, 2010 (the “ROFR
Period”), any Stockholder desires to, directly or indirectly, sell,
assign, transfer, pledge, encumber, hypothecate, convey in trust, transfer by
gift, bequest or descent, or otherwise dispose of, whether voluntarily or by
operation of law (in any such case, a “Transfer”),
any shares of capital stock of the Company (“Stock”),
such Stockholder shall promptly deliver to the Purchasers a written notice
signed by the Stockholder (the “ROFR
Notice”) stating (a) the Stockholder’s bona fide intention to Transfer
such Stock; (b) the name and address of each proposed transferee; (c) the number
of shares of Stock to be Transferred to each transferee (the “ROFR Shares”)
and (d) the cash purchase price per share.  A copy of any written
offer, if available, shall be attached to the Notice. If a copy of a written
offer is not available, a statement of the terms of the offer and any material
facts shall be attached to the Notice.  The consideration for any
proposed Transfer of Stock by a Stockholder during the ROFR Period shall be for
cash only, unless otherwise previously consented to in writing by the
Purchasers.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    (b)          Each
of the Purchasers shall have the irrevocable and exclusive option to purchase up
to that number of the ROFR Shares equal to the product of (A) the number of ROFR
Shares multiplied by (B) the respective pro rata share of such Purchaser based
upon the ratio that the number of shares of Fully-Diluted Common Stock held by
each of such Purchaser bears to the number of shares of Fully-Diluted Common
Stock held by all of the Purchasers.  Within 10 days after delivery of
the ROFR Notice, any of the Purchasers may deliver a written notice (the “Purchaser ROFR
Notice”) to the Stockholder and each other Purchaser.  To the
extent any Purchaser does not elect to purchase its full pro rata share of such
remaining ROFR Shares or fails to deliver a notice within the applicable period,
the other Purchasers, if they have elected to purchase their full pro rata
share, shall be entitled, by delivering written notice to the Stockholder within
five days following the expiration of such period, to purchase up to all of the
remaining ROFR Shares based upon their respective pro rata holdings of
Fully-Diluted Common Stock.  If there is an oversubscription, the
oversubscribed amount shall be allocated among the Purchasers pro rata based
upon the number of shares of Fully-Diluted Common Stock owned by each of
them.  The delivery of the Purchaser ROFR Notice shall constitute an
irrevocable commitment to purchase such ROFR Shares for the per share cash
purchase price set forth in the  Notice and on the other terms set
forth in this Agreement.

     

    (c)          The
purchase price for the ROFR Shares to be purchased by the exercising Purchasers
pursuant to this Agreement shall be paid within 15 days after expiration of all
applicable periods set forth above. Payment of the purchase price shall be made
in cash by wire transfer of immediately available funds.  Upon
delivery of the purchase price, the Stockholder shall have no further rights as
a holder of the ROFR Shares, and the Stockholders shall immediately cause all
certificate(s) evidencing such ROFR Shares to be surrendered for transfer to the
purchasing Purchaser, duly endorsed for transfer or accompanied by duly executed
stock powers.

     

    (d)          If
the Purchasers have not elected to purchase all of the ROFR Shares, then the
Stockholder shall not be required to sell any of the ROFR Shares to the
Purchasers and may transfer all of the ROFR Shares to any person named as a
transferee in the Notice at the cash purchase price set forth in the Notice or a
higher cash price, provided
that such Transfer (i) is consummated within 60 days after the expiration
of all applicable periods set forth above, (ii) is on terms no more favorable
than the terms proposed in the Notice, and (iii) is in accordance with all the
terms of this Agreement.  If the ROFR Shares are not so Transferred
during such period, then the Stockholder may not Transfer any of such ROFR
Shares without complying again in full with the provisions of this
Agreement.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    Section
7.5              Redemption of
Notes.  As
soon as practicable after the Closing, but in no event later than January 23,
2009, the Company shall have consummated the redemption of Notes for shares of
Common Stock pursuant to the “Redemption of Note by Maker” provision of each of
the Notes.

     

    Section
7.6              Information.  At
the request of the Purchasers, the Company shall provide to the Purchasers all
information which is delivered to the Company’s board of directors, provided, however, that the
Company shall not be required to provide any information which (i) would
cause a breach of an attorney-client privilege or (ii) is information which the
Company deems to be material non-public information, in which case, the
Purchasers may in its sole discretion execute a confidentiality agreement in
form and substance agreeable to the Company and the Purchasers with respect to
such material non-public information, and thereafter, the Company shall provide
such information to the Purchasers.

     

    ARTICLE
VIII

    Definitions

     

    Section
8.1              Definitions.  The
following capitalized terms have the following meanings:

     

    “Affiliate”
means, with respect to any Person, any other Person controlling, controlled by
or under direct or indirect common control with such Person (for the purposes of
this definition “control,” when used with respect to any specified Person, shall
mean the power to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms “controlling”
and “controlled”
shall have meanings correlative to the foregoing); provided, however, for
purposes of Section
7.3 hereof, Argyle New Ventures shall be deemed an Affiliate of Bob
Marbut, but Argyle Joint Venture shall not be deemed an Affiliate of any
Stockholder.

     

    “Argyle Joint
Venture” means Argyle Joint Venture, a joint venture between Argyle
Global Opportunities, LP, and Argyle Global Opportunities II, LP, each of which
is a Texas limited partnership.

     

    “Argyle New
Ventures” means Argyle New Ventures, LP, a Texas limited
partnership.

     

    “Blair”
means William Blair Mezzanine Capital Fund III, L.P., a Delaware limited
partnership.

     

    “Business
Day” means a day Monday through Friday on which banks are generally open
for business in San Antonio, Texas.

     

    “Bylaws”
has the meaning set forth in Section
2.3.

     

    “Certificate of
Designation” has the meaning set forth in the recitals to this
Agreement.

     

    “Certificate of
Incorporation” has the meaning set forth in Section
2.3.

     

    “Closing”
has the meaning set forth in Section
1.4.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    “Closing
Date” has the meaning set forth in Section
1.4.

     

    “Commitment
Fee” has the meaning set forth in Section
1.3.

     

    “Common
Stock” has the meaning set forth in the recitals to this
Agreement.

     

    “Company”
means Argyle Security, Inc., a Delaware corporation.

     

    “Contributed
Shares” has the meaning set forth in Section
7.3(a).

     

    “Conversion
Shares” means the shares of Common Stock issuable upon conversion of the
Shares, up to a maximum of 2,727,300 Shares, subject to adjustments under (i)
the anti-dilution provisions of the Certificate of Designation or (ii) upon a
Liquidation (as defined in the Certificate of Designation).

     

    “Co-Sale Control
Event” means the consummation of (i) the transfer (in one or a series of
related transactions) of 50% or more of the consolidated assets of the
Corporation and its Subsidiaries, taken as a whole, to a Person or a group of
Persons acting in concert, (ii) the transfer or issuance (in one or a series of
related transactions) of securities of the Company to one Person or a group of
Persons acting in concert, or (iii) an amalgamation, merger, consolidation,
reorganization or similar transaction involving the Company, in the case of
clauses (ii) and (iii) above, under circumstances in which immediately following
such transaction, a Person or group of Persons collectively own a majority in
voting power of the then outstanding voting power or equity securities, other
than a Person or group of Persons who holds a majority interest as of the date
hereof.  A sale (or multiple related sales) of one or more
Subsidiaries of the Company (whether by way of amalgamation, merger,
consolidation, reorganization or sale of all or substantially all assets or
securities) which constitutes 50% or more of the consolidated assets of the
Company will be deemed a “Co-Sale Control
Event.”

     

    “Co-Sale
Notice” has the meaning set forth in Section
7.3(b).

     

    “Co-Sale
Shares” has the meaning set forth in Section
7.3(a).

     

    “Co-Seller”
has the meaning set forth in Section
7.3(a).

     

    “Delaware
Court” has the meaning set forth in Section
9.1.

     

    “Disclosure
Schedules” has the meaning set forth in the introductory paragraph to
Article II.

     

    “Escrow
Agreement” has the meaning set forth in Section
2.34.

     

    “Evaluation
Date” has the meaning set forth in Section
2.8.

     

    “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

     

    “Excluded
Issuances” has the meaning set forth in Section
7.1(d).

     

    “Financial
Statements” has the meaning set forth in Section
2.7.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    “Financing
Notice” has the meaning set forth in Section
7.2(a).

     

    “Fully-Diluted
Common Stock” means, at any time, the then outstanding Common Stock of
the Company plus (without duplication) all shares of Common Stock issuable,
whether at such time or upon the passage of time or the occurrence of future
events, upon the exercise, conversion or exchange of all then outstanding
rights, warrants, options, convertible securities, or exchangeable securities or
indebtedness, or other rights, exercisable for or convertible or exchangeable
into, directly or indirectly, Common Stock or securities convertible or
exchangeable into Common Stock, whether at the time of issuance or upon the
passage of time or the occurrence of some future event.

     

    “Fully Exercising
Purchaser” has the meaning set forth in Section
7.1(b).

     

    “Governmental
Contract” has the meaning set
forth in Section
2.26(d).

     

    “Governmental
Entity” means any government or any agency, bureau, board, commission,
court, department, official, political subdivision, tribunal or other
instrumentality of any Government, whether federal, state or local, domestic or
foreign.

     

    “Indemnified
Party” has the meaning set forth in Section
6.6(c).

     

    “Indemnifying
Party” has the meaning set forth in Section
6.6(c).

     

    “Intellectual
Property” has the meaning set forth in Section
2.11.

     

    “ISI” means
ISI Security Group, Inc., a Delaware corporation and wholly-owned subsidiary of
the Company.

     

    “Law” means
any applicable statute, law, code, ordinance, rule, regulation, order, permit,
license, certificate, writ, judgment, injunction or decree promulgated by any
governmental authority having jurisdiction.

     

     “Material Adverse
Effect” means a material adverse effect on (a) the business, operations,
assets, financial condition or prospects of the Company and the Subsidiaries,
taken as a whole, or (b) the ability of the Company to perform its obligations
pursuant to the transactions contemplated by this Agreement.

     

    “Material
Agreements” has the meaning set forth in Section
2.7.

     

    “Maximum Number of
Shares” has the meaning set forth in Section
6.2(b)(i).

     

    “Merger
Agreement” has the meaning set forth in Section
2.34.

     

    “New
Securities” means any shares of, or securities convertible into or
exchangeable or exercisable for any shares of, the Company’s capital stock which
are issued after the Closing Date, but shall not include (i) the Series A
Preferred Stock or (ii) the “Rodman Warrants” issued by the Company pursuant to
the December 18, 2007 letter agreement between the Company and Rodman and
Renshaw, LLC.

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    “New Security
Notice” has the meaning set forth in Section
7.1(a).

     

    “Notes”
means the Subordinated Convertible Promissory Notes dated July 31, 2007 between
the Company and each of Don Carr, Sam Youngblood, Mark McDonald, Tim Moxon,
Robert Roller, Neal Horman, Youngblood Charitable Remainder Unitrust and
Blair.

     

    “Offering”
has the meaning set forth in Section
2.19.

     

    “Other Material
Agreements” has the meaning set forth in Section
2.26.

     

    “Participation
Offer” has the meaning set forth in Section
7.3(b).

     

    “Person”
means any person, individual, corporation, limited liability company,
partnership, trust or other nongovernmental entity or any governmental agency,
court, authority or other body (whether foreign, federal, state, local or
otherwise).

     

    “Preferred
Stock” has the meaning set forth in the recitals to this
Agreement.

     

    “Purchase
Price” has the meaning set forth in Section
1.1.

     

    “Purchaser”
or “Purchasers”
mean the Purchasers whose names are set forth on the signature pages of this
Agreement, and their permitted transferees.

     

    “Purchaser ROFR
Notice” has the meaning set forth in Section
7.4(b).

     

    “Registrable
Securities” means the Conversion Shares held by the Purchasers as of the
date of the filing of a Registration Statement.

     

    “Registration
Expenses” has the meaning set forth in Section
6.5.

     

    “ROFR
Notice” has the meaning set forth in Section
7.4(a).

     

    “ROFR
Period” has the meaning set forth in Section
7.4(a).

     

    “Rule 144”
means Rule 144 promulgated under the Securities Act, or any successor
rule.

     

    “SEC” means
the United States Securities and Exchange Commission.

     

    “SEC
Documents” has the meaning set forth in Section
2.7.

     

    “Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute.

     

    “Seller
Notes” means collectively, (i) the Notes, (ii) Guaranteed Convertible
Promissory Note dated January 1, 2008, issued by ISI Detention Contracting
Group, Inc. in favor of Peterson Detention, Inc., in the original principal
amount $1,500,000 (executed by Michael Peterson), (iii) Guaranteed Convertible
Promissory Note dated January 1, 2008, issued by ISI Detention Contracting
Group, Inc. in favor of Peterson Detention, Inc., in the original principal
amount $1,500,000 (executed by Leonard Peterson), (iv) the Subordinated
Promissory Note dated January 31, 2008, issued by ISI Controls, Ltd. in favor of
Jeffrey E. Corcoran and Janell D. Corcoran, in the original principal amount of
$3,515,000.

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    “Series A
Preferred Stock” means the 18,750 shares of Series A Convertible
Preferred Stock issued in the transactions contemplated by that certain
Securities Purchase Agreement between the Company, the Stockholders and the
Purchasers dated April 22, 2008.

     

    “Series B
Preferred Stock” has the meaning set forth in the recitals to this
Agreement.

     

    “Shares”
has the meaning set forth in the recitals to this Agreement.

     

    “Stock” has
the meaning set forth in Section
7.4(a).

     

    “Stockholders”
has the meaning set forth in the introductory paragraph to this
Agreement.

     

    “Subsidiary”
or “Subsidiaries”
has the meaning set forth in Section
2.5.

     

    “The
PrivateBank” means the PrivateBank and Trust Company, an Illinois banking
corporation.

     

    “Transfer”
or “Transferred”
has the meaning set forth in Section
7.4(a).

     

    Section
8.2             Certain
Interpretations.  Except
where expressly stated otherwise in this Agreement, the following rules of
interpretation apply to this Agreement: (i) “or” is not exclusive and “include”,
“includes” and “including” are not limiting; (ii) definitions contained in this
Agreement are applicable to the singular as well as the plural forms of such
terms; (iii) references to an agreement or instrument mean such agreement
or instrument as from time to time amended, modified or supplemented; (iv)
references to a Person are also to its permitted successors and assigns; (v)
references to an “Article,” “Section,” “Subsection,” “Exhibit” or “Schedule”
refer to an Article of, a Section or Subsection of, or an Exhibit or Schedule
to, this Agreement; and (vi) words importing the masculine gender include the
feminine or neuter and, in each case, vice versa.

     

    ARTICLE
IX

    Governing Law;
Miscellaneous

     

    Section
9.1            Governing Law; Jurisdiction;
Waiver of Jury Trial.  This
Agreement will be governed by and interpreted in accordance with the laws of the
State of Delaware without regard to the principles of conflict of
laws.  Each of the parties hereto hereby irrevocably and
unconditionally (i) agree that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in the Chancery Court of
the State of Delaware (the “Delaware
Court”), and not in any other state or federal court in the United States
of America or any court in any other country, (ii) consent to submit to the
exclusive jurisdiction of the Delaware Court for purposes of any action or
proceeding arising out of or in connection with this Agreement, (iii) waive any
objection to the laying of venue of any such action or proceeding in the
Delaware Court, and (iv) waive, and agree not to plead or to make, any claim
that any such action or proceeding brought in the Delaware Court has been
brought in an improper or inconvenient forum..  EACH OF THE PARTIES
HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    Section
9.2             Counterparts; Signatures by
Facsimile or .PDF.  This
Agreement may be executed in two or more counterparts, all of which are
considered one and the same agreement and will become effective when
counterparts have been signed by each party and delivered to the other
parties.  This Agreement, once executed by a party, may be delivered
to the other parties hereto by facsimile transmission or .pdf of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.

     

    Section
9.3             Headings.  The
headings of this Agreement are for convenience of reference only, are not part
of this Agreement and do not affect its interpretation.

     

    Section
9.4             Severability.  If
any provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision will be deemed modified in order to
conform with such statute or rule of law.  Any provision hereof that
may prove invalid or unenforceable under any law will not affect the validity or
enforceability of any other provision hereof.

     

    Section
9.5             Entire Agreement;
Amendments.  This
Agreement (including all schedules and exhibits hereto) and any confidentiality
agreement entered into between the Company and a Purchaser (which
confidentiality agreement shall continue to be in full force and effect)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein.  This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.  No provision of this Agreement may be amended or waived other
than by an instrument in writing signed by the Company and the holders of at
least two-thirds (2/3) of the aggregate number of Shares then held by the
Purchasers under this Agreement.  Any amendment or waiver effected in
accordance with this Section
9.5 shall be binding upon each holder of any Shares purchased under this
Agreement at the time outstanding (including securities into which such Shares
are convertible), each future holder of all such securities, and the
Company.

     

    Section
9.6             Notices.  All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:

     

    (a)        upon
personal delivery to the party to be notified;

     

    (b)        when
sent by confirmed email, telex or facsimile if sent during normal business hours
of the recipient, if not, then on the next business day;

     

    (c)         five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or

     

    (d)        one
(1) business day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    The
addresses for such communications are:

     

    If to the
Company

    
      	
            	
              or
      to the
    Stockholders:       

            	
              Argyle
      Security, Inc.

            
	 	 	12903
      Delivery Drive
	 	 	 San
      Antonio, Texas 78216
	 	 	 Attention:
      Donald F. Neville
	 	 	 Facsimile:
      (210) 495-5613
	 	 	 
	 	
              With
      a copy to: 

            	
              Cox
      Smith Matthews Incorporated

            
	 	 	 112
      E. Pecan Street, Suite 1800
	 	 	 San
      Antonio, Texas 78205
	 	 	
              Attention:
      William J. McDonough, Jr.

            
	 	 	
              Facsimile:
      (210) 226-8395

            


    

     

    If to a
Purchaser:  To the address set forth immediately below such
Purchaser’s name on Exhibit A
hereto.

     

    
      	
            	
              With
      a copy to: 

            	
              Porter
      & Hedges, L.L.P.

            
	 	 	
              1000
      Main Street, 36th
      Floor

            
	 	 	Houston,
      Texas 77002
	 	 	Attention:
      Chris A. Ferazzi
	 	 	
              Facsimile:
      (713) 226-6626

            
	 	 	 


    

    Each
party will provide ten (10) days’ advance written notice to the other parties of
any change in its address.

     

    Section
9.7              Successors and
Assigns.  This
Agreement is binding upon and inures to the benefit of the parties and their
successors and assigns. The Company will not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the Purchasers,
and no Purchaser may assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Company, except as permitted
in accordance with Section
6.8 hereof.

     

    Section
9.8             Third Party
Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto, their respective
permitted successors and assigns and the Placement Agents, and is not for the
benefit of, nor may any provision hereof be enforced by, any other
person.

     

    Section
9.9       
     Further
Assurances.  Each
party will do and perform, or cause to be done and performed, all such further
acts and things, and will execute and deliver all other agreements,
certificates, instruments and documents, as another party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.

     

    Section
9.10           No Strict
Construction.  The
language used in this Agreement is deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    Section
9.11           Equitable
Relief.  The
Company recognizes that if it fails to perform or discharge any of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the Purchasers. The Company therefore agrees that the Purchasers are
entitled to seek temporary and permanent injunctive relief in any such
case.  Each Purchaser also recognizes that, if it fails to perform or
discharge any of its obligations under this Agreement, any remedy at law may
prove to be inadequate relief to the Company.  Each Purchaser
therefore agrees that the Company is entitled to seek temporary and permanent
injunctive relief in any such case.

     

    Section
9.12           Survival of Representations
and Warranties.  Notwithstanding
any investigation made by any party to this Agreement, all representations and
warranties made by the Company and the Purchasers herein shall survive until the
date 90 days after the expiration of the applicable statute of
limitations.

     

    Section
9.13           Independent Nature of
Purchasers’ Obligations and Rights.  Except
as otherwise provided herein, the obligations of each Purchaser under this
Agreement are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under this Agreement. Nothing contained
herein and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group, or are deemed Affiliates with respect to
such obligations or the transactions contemplated by this
Agreement.  Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose.

     

     

    [Signature
Page Follows]

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the undersigned Purchasers, the Company and the Stockholders
have caused this Agreement to be duly executed as of the date first above
written.

     

    
      
        	 	
                COMPANY

                 

                ARGYLE
      SECURITY, INC.

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Donald
      F. Neville	 
	 	Name:   
      	Donald
      F. Neville	 
	 	 	 	 
	 	Title:  	Chief
      Financial Officer	 
	 	 	 	 
	 	 	 	 
	 	
                 STOCKHOLDERS

                (solely
      for purposes of Sections 7.3 and 7.4)

              	 
	 	 	 
	 	/s/
      Sam Youngblood 	 
	 	Sam
      Youngblood	 
	 	 	 
	 	/s/
      Bob Marbut	 
	 	Bob
      Marbut	 
	 	 	 
	 	/s/
      Ron
      Chaimovski  	 
	 	
                Ron
      Chaimovski

              	 


      

    

     

    
      
        
          Securities
Purchase Agreement

          Company
and Stockholder Signature Page

        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    
      
        	 	
                PURCHASERS

              	 
	 	 	 
	 	 	 
	 	MEZZANINE MANAGEMENT
      FUND IV A, L.P.	 
	 	 	 	 
	 	
                By:
      

              	/s/ S.
      Arthur Morris	 
	 	Name:	S.
      Arthur Morris	 
	 	Title:    	Authorized Signatory	 


      

    

    
 

    
      
        
          
            	 	MEZZANINE MANAGEMENT
      FUND IV COINVEST A, L.P.	 
	 	 	 
	 	 	 	 
	 	
                    By:
      

                  	/s/ S.
      Arthur Morris	 
	 	Name:	S.
      Arthur Morris	 
	 	Title:    	Authorized Signatory	 


          

        

      

      
 

    

    
      
        
          Securities
Purchase Agreement

          Purchaser
Signature Page

        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

     

     

    SCHEDULE
OF PURCHASERS FOR THE CLOSING

     

    
      	
              Purchaser

            	 	
              Shares

            	 	 	
              Purchase

              Price

            	 
	 
      	 	 	 	 	 	 
	
              Name: Mezzanine Management Fund
      IV A, L.P.

            	 	 	26,860	 	 	$	2,954,600.00	 
	 
      	 	 	 	 	 	 	 	 
	
              Address: c/o MML Capital
      Partners

                                 
           333 Ludlow Street

                                 
           North Tower, Second Floor

                                 
           Stamford, Connecticut 06902

            	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
              Residency:                           Bermuda

            	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
              Name: Mezzanine Management Fund
      IV Coinvest A, L.P.

            	 	 	413	 	 	$	45,430.00	 
	 
      	 	 	 	 	 	 	 	 
	
              Address: c/o MML Capital
      Partners

                                    
        333 Ludlow Street

                                   
         North Tower, Second Floor

                                   
         Stamford, Connecticut 06902

            	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
              Residency:                           Bermuda

            	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
              Total

            	 	 	27,273	 	 	 	3,000,030.00	 
	 
      	 	 	 	 	 	 	 	 


    

     

    
      
        Exhibit
A

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
B


     

    FORM
OF CERTIFICATE OF DESIGNATION

     

    
      
        Exhibit B

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
C

     

    FORM
OF CLOSING LEGAL OPINION 

     

    
      
        
          Exhibit C