Document:

Exhibit 10.1

 

EXECUTION VERSION

 

SECURITIES PURCHASE AGREEMENT

 

BY AND AMONG

 

ARGYLE SECURITY, INC.,

 

CERTAIN STOCKHOLDERS

 

AND

 

THE PURCHASERS NAMED HEREIN

 

DATED AS OF APRIL 22, 2008

 

 

TABLE OF CONTENTS

 

	
  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

  	
  Commitment Fee

  	
  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

  	
  6

  
	
  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

  	
  12

  
	
  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

  
	
   

  	
   

  	
   

  
	
  ARTICLE III PURCHASER’S REPRESENTATIONS
  AND WARRANTIES

  	
  14

  

 

i

 

	
  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

  	
  Demand Registration

  	
  22

  
	
  Section 6.2

  	
  Piggy-Back Registration

  	
  23

  
	
  Section 6.3

  	
  Holdback Agreements

  	
  24

  
	
  Section 6.4

  	
  Registration Procedures

  	
  26

  
	
  Section 6.5

  	
  Registration Expenses

  	
  30

  
	
  Section 6.6

  	
  Indemnification; Contribution

  	
  31

  
	
  Section 6.7

  	
  Additional Covenants and Agreements
  of the Company

  	
  33

  
	
  Section 6.8

  	
  Transfers of Registration Rights

  	
  34

  
	
  Section 6.9

  	
  Waiver of Registration Rights

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII ADDITIONAL AGREEMENTS

  	
  34

  
	
  Section 7.1

  	
  Contractual Preemptive Rights

  	
  34

  
	
  Section 7.2

  	
  Certain Rights of First Offer

  	
  35

  
	
  Section 7.3

  	
  Co-Sale Provisions

  	
  36

  
	
  Section 7.4

  	
  Information

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII DEFINITIONS

  	
  39

  
	
  Section 8.1

  	
  Definitions

  	
  39

  
	
  Section 8.2

  	
  Certain Interpretations

  	
  42

  

 

ii

 

	
  ARTICLE IX GOVERNING LAW; MISCELLANEOUS

  	
  42

  
	
  Section 9.1

  	
  Governing Law; Jurisdiction; Waiver
  of Jury Trial

  	
  42

  
	
  Section 9.2

  	
  Counterparts; Signatures by
  Facsimile

  	
  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

  	
  45

  
	
  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

  

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Schedule of
  Purchasers for the Closing

  
	
  Exhibit B

  	
   

  	
  Form of
  Certificate of Designation

  
	
  Exhibit C

  	
   

  	
  Form of
  Closing Legal Opinion

  

 

iii

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT, dated as of April 22,
2008 (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 A Convertible Preferred
Stock (“Series A Preferred Stock”),
the rights, powers and privileges of which are contained in the Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred
Stock (“Certificate of Designation”)
attached hereto as Exhibit B, and duly
authorized by the Company’s board of directors on April 21, 2008 and filed
with the Secretary of State of the State of Delaware on April 21, 2008.

 

C.            The Purchasers are
willing to purchase from the Company the number of shares of Series A
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
Eight Hundred Dollars ($800) (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 in accordance with wire
instructions provided by the Company to the Purchasers prior to the
Closing.  At the Closing, the Company will instruct its transfer
agent to 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             Commitment Fee.  On
the Closing Date, the Company will pay to each Purchaser a commitment fee,
equal to 1% of the aggregate Purchase Price paid by such Purchaser (the “Commitment Fee”), as set forth
opposite each Purchaser’s name on Exhibit A,
by wire transfer of immediately available funds in accordance with the wire
instructions provided by such Purchaser to the Company prior to the Closing or
as otherwise contemplated in Section 5.1(a).

 

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, Sam
Youngblood and Tim Moxon.

 

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

 

2

 

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.

 

Section 2.3             Capitalization.  The
authorized capital stock of the Company, as of April 21, 2008, consisted
of 89,000,000 shares of Common Stock, par value $0.0001 per share, of which
5,964,342 shares were issued and outstanding and 1,000,000 shares of Preferred
Stock, par value $0.0001 per share, of which 18,750 were designated Series A
Preferred Stock and none of which were issued and outstanding.  All of the issued and outstanding shares of
Common 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.  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 by the Company (individually, a “Subsidiary,” and collectively, the “Subsidiaries”). All outstanding
equity interest of such Subsidiary owned by the Company are validly issued,
fully paid, and nonassessable, and the Company has good and marketable title
thereto free and clear of any liens or encumbrances.  Each such Subsidiary is 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 

 

4

 

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.

 

(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.

 

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 

 

6

 

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.  Other
than pursuant to the agreement with Rodman & Renshaw, LLC dated December 18,
2007, 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) as disclosed in the Company’s Current
Reports on Forms 8-K filed January 8, 2008, and February 6, 2008, (iii) for
cash expenditures in the ordinary course of business and (iv) 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-K for the year ended December 31, 2007, 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-K for the year ended December 31,
2007, (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 or in connection with the transactions reported on the Current
Reports on Forms 8-K filed January 8, 

 

7

 

2008 and February 6,
2008.  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.

 

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 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, 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 the
transactions that are not required to be disclosed.

 

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.

 

(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, 

 

10

 

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, 2003, has been under any administrative, civil or
criminal investigation, indictment or audit by any Governmental Entity or under

 

11

 

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.

 

(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.

 

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 

 

12

 

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 fair to,
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-K for the year ended December 31,
2007, (C) incurred since the date of such balance sheet in the ordinary
course of business consistent with past practice, (D) disclosed in the
Company’s Current Reports on Form 8-K filed January 8, 2008 and February 6,
2008, and (E) 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 Purchaser 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 

 

15

 

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.

 

(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 $150,000 in the aggregate for
all of the 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. On or before
9:30 a.m., EDT, on the first Business Day after the Closing Date (but in
any event not prior to the Closing Date), the Company shall issue a press
release disclosing the transactions contemplated hereby.  Such initial press release shall be approved
by Mezzanine Management LLC.  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, in the form required by the Exchange Act.  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 or the transactions contemplated
hereby 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 

 

18

 

disposition of the
Shares or the Conversion Shares in violation of United States federal or state
securities Laws or the terms of this Agreement.

 

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.  Following
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, the Company shall
use the net proceeds from the Closing for general corporate purposes, including
for working capital purposes; provided however,
that such proceeds shall not be used by the Company for (i) the strategic acquisition
of the assets of or a controlling equity interest in any corporation,
partnership, limited liability company, joint venture or other entity or (ii) repayment
of debt or for bonus payments by the Company to any Affiliate or its management  other than business expense reimbursement in accordance
with the Company’s past practices, until after the Company has secured from a
reputable bonding company reasonably acceptable to Purchasers a line of bonding
capacity of not less than $50 million for the issuance of performance and
payment bonds for the benefit of customers of the Company and its
Subsidiaries.  The Company shall use
Lockton, Inc. as its agent for the purposes of securing this line of
bonding capacity.

 

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.  The Company shall have received immediately available
funds in the full amount of the Purchase Price (less the Commitment Fee payable
by the Company to the Purchasers and the reimbursable transaction expenses of
the Purchasers pursuant to Section 4.2)
for the Shares being purchased at the Closing as set forth opposite such
Purchaser’s name 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 (1) Lancaster, Helling, Martin &
Grable, L.L.P., counsel to the Company, and (2) Kirkpatrick &
Lockhart Preston Gates Ellis LLP, counsel to 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)                                     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.

 

(j)                                     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 incumbency and signatures of the officers
executing this Agreement and the resolutions of the Company’s board of
directors approving this Agreement and the transactions contemplated hereby.

 

(k)                                  Commitment
Fee.  Contemporaneously with the Closing, the Company shall have
paid the Commitment Fee to the Purchasers in accordance with Section 1.3.

 

21

 

ARTICLE VI

REGISTRATION RIGHTS

 

Section 6.1                                      Demand
Registration.

 

(a)                                  Request
for Registration.

 

(i)                                     At
any time after the Closing, the Purchasers holding not less than 50% of the
Registrable Securities then outstanding may make a written request of the
Company (a “Demand Request”) to have the
Company effect a registration under the Securities Act (a “Demand
Registration”) for the sale of all or part of their Registrable
Securities. Following receipt of such Demand Request, the Company shall be
required to use its reasonable best efforts to effect such Demand Registration
subject to the terms of this Article VI;
provided further that the Purchasers
shall be entitled to make no more than two Demand Requests in the aggregate
pursuant to the foregoing provisions.

 

(ii)                                  Each
Demand Request shall specify the amount of Registrable Securities proposed to
be sold.  Subject to Section 6.4(c),
the Company shall use reasonable best efforts to file under the Securities Act
a registration statement on an appropriate form to effect the Demand
Registration within 30 days if eligible to use Form S-3, otherwise within
60 days if not so eligible, after receiving a Demand Request (the “Required Filing Date”), and shall
use its reasonable best efforts to cause the same to be declared effective by
the SEC as promptly as practicable after such filing.

 

(b)                                 Effective
Registration and Expenses.  A registration will not count as a
Demand Registration until it has become effective. If the Purchasers withdraw
their Demand Request, such demand will count as a Demand Registration unless:

 

(i)                                     the
Purchasers pay all Registration Expenses in connection with such withdrawn
registration;

 

(ii)                                  during
the registration process, material adverse information regarding the Company is
disclosed that was not known by the Purchasers at the time the request for such
Demand Registration was made; or

 

(iii)                               the
Company has not complied in all material respects with its obligations
hereunder required to have been taken prior to such withdrawal; provided, however, if, after a Demand Registration has
become effective, and such Demand Registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other
governmental agency or court, which interference is not subsequently removed,
such registration will be deemed not to have been effected and will not count
as a Demand Registration so long as such interference is not attributable to
Purchasers.

 

22

 

(c)                                  Selection
of Underwriters.  The offering of Registrable Securities pursuant
to a Demand Registration requested at such time as the Company is ineligible to
register the sale of Registrable Securities requested by such Demand
Registration on a Form S 3 registration statement (or a successor form)
may be in the form of an underwritten offering if requested by the Purchasers
making such Demand Request. The Company shall select the book-running managing
underwriter and such additional underwriters to be used in connection with the
offering; provided that such selections shall be subject to the approval of the
Purchasers, which approval shall not be unreasonably withheld, conditioned or
delayed.

 

(d)                                 Priority
on Demand Registrations.  No securities to be sold for the
account of any Person (including the Company) other than the Purchasers shall
be included in a Demand Registration if the managing underwriter(s) shall
advise the Purchasers that the inclusion of such securities will materially and
adversely affect the price or success of the offering. If the managing
underwriter(s) shall advise the Purchasers that the inclusion of all of
the Registrable Securities that are contemplated to be included in the Demand
Registration will materially and adversely affect the price or success of the
offering, the number of shares to be registered will be reduced proportionally
among the holders of Registrable Securities.

 

(e)                                  Multiple
Demands.  If the Company had received, prior to receiving a
Demand Request, a demand request from a different group of its stockholders and
is proceeding with reasonable diligence to comply with such request, the Demand
Request of the Purchasers shall not be considered a Demand Request for purposes
of determining the number of Demand Requests made by the Purchasers, but shall
be considered a Demand Request for all other purposes under this Section 6.1.  Notwithstanding the foregoing, in the event
that such other group of stockholders withdraws its demand request, then the
Demand Request shall be considered a Demand Request for purposes of determining
the number of Demand Requests made by the Purchasers.

 

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, subject to the last sentence in Section 6.1(e),
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 

 

23

 

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:

 

(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.

 

24

 

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).

 

(c)                                  Deferral
of Filing.  The Company may defer the filing (but not the
preparation) of a registration statement required by Section 6.1
if (i) at the time the Company receives the Demand Request, the Company or
any of its subsidiaries are engaged in confidential negotiations or other
confidential business activities, disclosure of which would be required in such
registration statement (but would not be required if such registration
statement were not filed) and the Board determines in good faith that such
disclosure would be materially detrimental to the Company, until a date not
later than 45 days after the Required Filing Date or (ii) prior to
receiving such Demand Request, the Board had determined to effect a registered
underwritten public offering of the Company’s equity securities for the Company’s
account and the Company had taken substantial steps (including, but not limited
to, selecting or entering into a letter of intent with the managing underwriter(s) for
such offering) and is proceeding with reasonable diligence to effect such
offering, until a date not later than the end of the holdback period referred
to in Section 6.3(a) above
with respect to such offering.  A
deferral of the filing of a registration statement pursuant to this Section 6.3(c) shall be
lifted, and the requested registration statement shall be filed as soon as
reasonably practicable, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations
or other activities are disclosed or terminated, or, in the case of a deferral
pursuant to clause (ii) of the preceding
sentence, the proposed registration for the Company’s account is abandoned. In
order to defer the filing of a registration statement pursuant to this Section 6.3(c), the Company
shall promptly, upon determining to seek such deferral, deliver to the
Purchasers a certificate signed by the Chief Executive Officer of the Company
stating that the Company is deferring such filing pursuant to this Section 6.3(c) 

 

25

 

and the basis
therefor in reasonable detail.  Within 20 days after receiving such
certificate, the Purchasers may withdraw such request by giving notice to the
Company.  If withdrawn, the Demand
Request shall be deemed not to have been made for all purposes of this
Agreement.  The Company may defer the filing of a Demand Registration
pursuant to this Section 6.3(c) only
one time during any 12 month period.

 

(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 Section 6.1
hereof, the Company will, at its expense, and except as otherwise provided in
this Agreement, use its reasonable best efforts to effect the registration of
such Registrable Securities under the Securities Act prior to the Required
Filing Date, and in connection with any such request, the Company will 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; provided
further that in connection with a Demand Registration, the Company
shall not file any registration statement or prospectus, or any amendments or
supplements thereto, if the Purchasers or their counsel shall reasonably object
on a timely basis (provided the time period for which the filing of a Demand
Registration is 

 

26

 

delayed pursuant
to the objection of the Purchasers shall be added to the Required Filing Date);

 

(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 pursuant to Section 6.1
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;

 

27

 

(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

 

(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 

 

28

 

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;

 

(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

 

29

 

(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.

 

Notwithstanding anything contained herein to the
contrary, the Company hereby agrees that any Demand Registration that is a “shelf”
registration pursuant to Rule 415 under the Securities Act shall contain
all language in the selling stockholders’ table and the plan of distribution as
may reasonably be requested by a holder of Registrable Securities.  The Company may require the Purchasers to
promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as it may from time to time
reasonably request and such other information as may be legally required in
connection with such registration.

 

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.  Subject to the provisions in Section 6.1(b) above
with respect to a withdrawn Demand Registration, 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);

 

30

 

(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.

 

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.

 

31

 

(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

 

(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, 

 

32

 

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.

 

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

 

33

 

(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.

 

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 

 

34

 

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).

 

(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 or sale of up to 1,000,000
shares of Common Stock (or options therefor) to employees, directors,
consultants and other service providers for the primary purpose of soliciting
or retaining their services pursuant to the Company’s 2007 Omnibus Securities
and Incentive Plan, (ii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities outstanding as
of the date hereof, and (iii) the issuance of Series A Preferred
Stock pursuant to this Agreement.

 

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
for the purpose of either (x) funding all or a portion of the
purchase price of its acquisition of FocusMicro, Inc. or (y) refinancing
or restructuring its outstanding debt obligations to William Blair
Mezzanine Capital Fund III, L.P., 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 

 

35

 

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).

 

(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 than
those 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 with the
Company, 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, 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)                                  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) 

 

36

 

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.”

 

(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 

 

37

 

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.

 

(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.

 

Section 7.4                                      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.

 

38

 

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.

 

“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.

 

“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 1,875,000 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 

 

39

 

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.

 

“Demand Request”
has the meaning set forth in Section 6.1(a)(i).

 

“Demand Registration”
has the meaning set forth in Section 6.1(a)(i).

 

“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.

 

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

 

“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).

 

40

 

“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.

 

“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 the “Rodman Warrants” issued by
the Company pursuant to the December 18, 2007 letter agreement between the
Company and Rodman and Renshaw, LLC.

 

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

 

“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.

 

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

 

41

 

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

 

“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.

 

“Required Filing Date”
has the meaning set forth in Section 6.1(a)(ii).

 

“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.

 

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

 

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

 

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

 

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

 

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 

 

42

 

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.

 

Section 9.2             Counterparts;
Signatures by Facsimile.  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 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;

 

43

 

(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.

 

The addresses for such communications are:

 

	
  If to the Company

  	
   

  
	
  or to the Stockholders:

  	
  Argyle Security, Inc.

  
	
   

  	
  200 Concord Place, Suite 700

  
	
   

  	
  San Antonio, Texas 78216

  
	
   

  	
  Attention: Don Neville

  
	
   

  	
   

  
	
  With a copy to:

  	
  Lancaster, Helling, Martin & Grable, L.L.P.

  
	
   

  	
  2100 Ross Ave., Suite 950

  
	
   

  	
  Dallas, Texas 75201

  
	
   

  	
  Attention: Chris Helling

  
	
   

  	
  Facsimile: (214) 692-6255

  

 

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 

 

44

 

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.

 

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:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STOCKHOLDERS

  
	
   

  	
  (solely for purposes of Section 7.3)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sam Youngblood

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Bob Marbut

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Ron Chaimovski

  
					

 

SECURITIES PURCHASE
AGREEMENT

COMPANY AND STOCKHOLDER
SIGNATURE PAGE

 

 

	
   

  	
  PURCHASERS

  
	
   

  	
   

  
	
   

  	
  MEZZANINE MANAGEMENT
  FUND IV A

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  MEZZANINE MANAGEMENT FUND IV

  COINVEST A

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

SECURITIES PURCHASE
AGREEMENT

PURCHASER SIGNATURE PAGE

 

 

EXHIBIT A

 

SCHEDULE OF PURCHASERS FOR THE CLOSING

 

	
  Purchaser

  	
   

  	
  Shares

  	
   

  	
  Purchase

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name: Mezzanine
  Management Fund IV A

  	
   

  	
  18,466

  	
   

  	
  $

  	
  14,772,800.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address: 

  	
  c/o Mezzanine Management Limited

  333 Ludlow Street

  North Tower, Second Floor

  Stamford, Connecticut 06902

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Residency:      Bermuda

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name: Mezzanine
  Management Fund IV Coinvest A

  	
   

  	
  284

  	
   

  	
  $

  	
  227,200.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address: 

  	
  c/o Mezzanine Management Limited

  333 Ludlow Street

  North Tower, Second Floor

  Stamford, Connecticut 06902

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Residency:      Bermuda

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  18,750

  	
   

  	
  $

  	
  15,000,000.00

  	
   

  

 

 

EXHIBIT B

 

FORM OF CERTIFICATE OF DESIGNATION

 

 

EXHIBIT C

 

FORM OF CLOSING LEGAL OPINIONExhibit 10.1

 

AMENDMENT

TO

AMENDMENT NO. 2 TO PROFESSIONAL
AND MANAGEMENT SERVICES 

AGREEMENT AND LICENSE

 

THIS AMENDMENT TO AMENDMENT NO. 2 TO PROFESSIONAL
AND MANAGEMENT SERVICES AGREEMENT AND LICENSE (this “Amendment”) is made and
entered into by and between Virtual Radiologic Professionals, LLC, a Delaware
Limited Liability Company (the “VRP”) and Virtual Radiologic Corporation, a
Delaware corporation (“VRC”). The VRP and VRC are referred to herein each
individually as a “party,” and together the “parties.”

 

WHEREAS, VRP and VRC entered into that certain Professional
and Management Services Agreement and License effective January 1, 2006
(the “Agreement”);

 

WHEREAS,  on January 30,
2008 the parties entered into the Amendment No. 2 to Professional and Management
Services Agreement and License (the “Second Amendment”) in order to modify the
Diagnostic Compensation Fee (“DCF”) effective as of September 1, 2007 in
order to ensure that the DCF remains an equitable and fair market value for the
professional services that VRP provides to the VRC and the systems
infrastructure and management and administrative services that VRC provides to
VRP;

 

WHEREAS,  due solely to
a clerical error, the Second Amendment modified the last sentence of the first
paragraph of Article 7 of the Agreement to state that “VRC shall pay
Practice for all professional services provided during all periods after December 31,
2007 a DCF equal to [INFORMATION SUBJECT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] % of total charges that VRC bills to physician groups and
other customers.”

 

WHEREAS,  each of the
parties acknowledges this clerical error and agrees that each of the parties
intended that the Second Amendment should state that “VRC shall pay Practice
for all professional services provided during all periods after December 31,
2007 a DCF equal to [INFORMATION SUBJECT TO
A REQUEST FOR CONFIDENTIAL TREATMENT ]% of total charges that VRC
bills to physician groups and other customers;” and

 

WHEREAS, the parties now wish to correct the clerical error
in the Second Amendment so that effective during all periods after December 31,
2007 the DCF equals [INFORMATION SUBJECT TO
A REQUEST FOR CONFIDENTIAL TREATMENT ]% of total charges that VRC
bills to physician groups and other customers.

 

NOW, THEREFORE, for and in consideration of the premises
and the mutual covenants and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and on the terms and 

 

1

 

subject
to the conditions herein set forth, the parties have agreed and do hereby agree
as follows:

 

1.                                       Second
Amendment.

 

The Second Amendment is hereby modified, effective
as of the effective date of the Second Amendment, such that the Second
Amendment replaces the last sentence in the first paragraph of Article 7
of the Agreement in its entirety with the following:

 

VRC shall pay Practice for all professional services
provided during all periods after December 31, 2007 a DCF equal to [INFORMATION SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT ]% of total charges that VRC bills to physician groups and
other customers.

 

2.                                       Miscellaneous.

 

A.                                   This Amendment
is hereby integrated into the Second Amendment such that the terms of this Amendment
are valid and binding on the parties as of the effective date of the Second
Amendment.

 

B.                                     Capitalized
terms used herein and not defined have the meanings ascribed to them in the
Agreement.

 

C.                                     All other
provisions of the Second Amendment and the Agreement  remain in full force and effect.

 

IN WITNESS WHEREOF, the parties have duly
executed this Amendment.

 

	
   

  	
  VIRTUAL RADIOLOGIC

  
	
   

  	
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  /s/ Leonard Purkis

  
	
   

  	
  By:

  	
  Leonard Purkis

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  April 22, 2008

  
	
   

  	
   

  	
   

  
	
   

  	
  VIRTUAL RADIOLOGIC

  
	
   

  	
  PROFESSIONALS, LLC

  

 

2

 

	
   

  	
  /s/ Eduard Michel

  
	
   

  	
  By:

  	
  Eduard Michel

  
	
   

  	
  Title:

  	
  Medical Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  April 22, 2008

  

 

3

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