Document:

THIS
      NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
      COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
      REQUIRED.

    

    ISI
      DETENTION CONTRACTING GROUP, INC.

    (A
      CALIFORNIA CORPORATION)

    GUARANTEED
      CONVERTIBLE PROMISSORY NOTE (M)

    

    
      	$1,500,000.00	
              January
                1, 2008

            
	 	
              San
                Antonio,
                Texas

            

    

     

    FOR
      VALUE
      RECEIVED, ISI Detention Contracting Group, Inc., a California corporation (the
      “Company”)
      promises to pay to Peterson Detention Inc., a California corporation
      (“PDI”)
      or its
      transferees (“Holder”)
      in
      lawful money of the United States of America the principal sum of ONE MILLION
      FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00), or such lesser amount as shall
      equal the outstanding principal amount hereof, together with interest from
      the
      date of this Note on the unpaid principal balance at a rate equal to 6.0% per
      annum, computed on the basis of the actual number of days elapsed and a year
      of
      365 days. All unpaid principal, together with any then unpaid and accrued
      interest and other amounts payable hereunder, shall be due and payable on the
      earlier of (i) December 31, 2012 (the “Maturity
      Date”),
      or
      (ii) when, upon or after the occurrence of an Event of Default (as defined
      below), such amounts are declared due and payable by Holder or made
      automatically due and payable in accordance with the terms hereof. Until the
      Maturity Date, and in the absence of an Event of Default whereby this Note
      becomes due and payable, payments shall be due and payable in accordance with
      the Payment Schedule attached hereto as Schedule
      A.
      This
      Note is issued pursuant to the Asset Purchase Agreement effective as of January
      1, 2008 (as previously or hereafter amended, modified or supplemented, the
      “Purchase
      Agreement”)
      between the Company and PDI, and is guaranteed by ISI Detention Contracting
      Group, a Texas corporation (“ISI
      Texas”),
      ISI
      Security Group, Inc., a Delaware corporation (“ISI”),
      and
      Argyle Security, Inc., a Delaware corporation (“Argyle”),
      (affiliates of the Company) pursuant to guaranty agreements of even date
      herewith (“Guaranty
      Agreements”),
      copies of which are attached hereto as Exhibits A, B and C. All payments due
      and
      owing under this Note shall be paid to: Peterson Detention Inc., 577 N. Batavia,
      Orange, Ca.

    

    The
      following is a statement of the rights of Holder and the conditions to which
      this Note is subject, and to which Holder, by the acceptance of this Note,
      agrees:

    

    1.
      Definitions.
      As used
      in this Note, the following capitalized terms have the following
      meanings:

    

    A. “Company”
      includes the corporation executing this Note and any Person which shall succeed
      to or is permitted to assume the obligations of the Company under this
      Note.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    B. “Event
      of Default”
has
      the
      meaning given in Section 5
      hereof.

    

    C. “Holder”
shall
      mean the Person specified in the introductory paragraph of this Note or any
      Person who shall, at any time, be the holder of this Note.

    

    D. “Purchase
      Agreement”
has
      the
      meaning given in the introductory paragraph hereof.

    

    E. “Obligations”
shall
      mean and include all loans, advances, debts, liabilities and obligations,
      howsoever arising, owed by the Company to Holder of every kind and description
      (whether or not evidenced by any note or instrument and whether or not for
      the
      payment of money), now existing or hereafter arising under or pursuant to the
      terms of this Note, including, all interest, fees, charges, expenses, attorneys’
fees and costs and accountants’ fees and costs chargeable to and payable by the
      Company hereunder, in each case, whether direct or indirect, absolute or
      contingent, due or to become due, and whether or not arising after the
      commencement of a proceeding under Title 11 of the United States Code (11
      U.S.C. Section 101 et
      seq.),
      as
      amended from time to time (including post-petition interest) and whether or
      not
      allowed or allowable as a claim in any such proceeding.

    

    F. “Person”
shall
      mean and include an individual, a partnership, a corporation (including a
      business trust), a joint stock company, a limited liability company, an
      unincorporated association, a joint venture or other entity or a governmental
      authority.

    

    G. “Securities
      Act”
shall
      mean the Securities Act of 1933, as amended.

    

    H. “Senior
      Indebtedness”
means,
      all principal of (and premium, if any) and interest on all indebtedness of
      Company, whether outstanding on the date of this Note or thereafter created,
      incurred or assumed, arising only under (i) that certain Loan and Security
      Agreement by and between LaSalle Bank, NA, Company, and the affiliates of
      Company party thereto dated as of October 21, 2004, as it has been and may
      be
      amended from time to time, and (ii) that certain Note and Warrant Purchase
      Agreement (the ”Blair Indebtedness”) by and among William Blair Mezzanine
      Capital Fund III, L.P., a Delaware limited partnership, Company, and affiliates
      of Company party thereto dated as of October 22, 2004, as it has been and may
      be
      amended from time to time (collectively, the “Senior
      Indebtedness”).
      Senior
      Indebtedness shall include any such indebtedness or any notes or other evidence
      of indebtedness issued in exchange for such Senior Indebtedness, or any
      indebtedness arising from the satisfaction of such Senior Indebtedness by a
      guarantor. No other indebtedness of the Company shall be considered Senior
      Indebtedness.

    

    2.
      Interest.
      Accrued
      interest on this Note shall be payable in accordance with Schedule A until
      the
      outstanding principal amount hereof shall be paid in full. Any accrued but
      unpaid interest on this Note shall be payable at the time this Note is to be
      paid in full.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    3.
      Prepayment.
      This
      Note may be prepaid at any time after February 28, 2008, without the consent
      of
      the Holder.

    

    4.
      Subordination.
      

    

    A. 
      LaSalle Subordination.
      The obligations evidenced hereby are subordinate in the manner and to the extent
      set forth in that certain Subordination Agreement (the “Subordination
      Agreement”) created as of January 1, 2008, among, without limitation, Peterson
      Detention, Inc. a California corporation (“Subordinated Lender”), ISI Detention
      Contracting Group, Inc., a California corporation and LaSalle Bank National
      Association, a national banking association (“Senior Lender”) to the obligations
      (including interest) owed by ISI Security Group, Inc., a Delaware corporation
      to
      the holders of all of the notes issued pursuant to that certain Loan and
      Security Agreement dated as of October 21, 2004, between ISI Security Group,
      Inc. and Senior Lender, as such Agreement may be supplemented, modified,
      restated or amended from time to time; and each holder hereof, by its acceptance
      hereof, shall be bound by the provisions of the Subordination
      Agreement.

    

    B.
       Blair
      Subordination.
      The
      indebtedness evidenced by this Note is hereby expressly subordinated in right
      of
      payment to the prior payment in full of all of the Company’s Senior Indebtedness
      relating to the Blair Indebtedness. 

    

    C. In
      addition to any other obligations of the Holder relating to the subordination
      of
      Senior Indebtedness, Holder hereby agrees to execute and deliver such documents
      as may be reasonably requested from time to time by the Company or a holder
      of
      any Senior Indebtedness, including reasonable and customary forms of
      subordination agreement requested from time to time by a holder of Senior
      Indebtedness, in order to implement Section 4 hereof, so long as such
      documentation is not in conflict with the provisions of this Section 4.

    

    5.
      Events
      of Default.
      The
      occurrence of any of the following shall constitute an “Event
      of Default”
under
      this Note:

    

    A. Failure
      to Pay.
      The
      Company shall fail to pay (i) when due any principal or interest payment or
      (ii) any other payment required under the terms of this Note when due and
      such payment shall not have been made within five days after Holder’s
      written notice to the Company of such failure to pay; or

    

    B. Voluntary
      Bankruptcy or Insolvency Proceedings. The
      Company shall (i) apply for or consent to the appointment of a receiver,
      trustee, liquidator or custodian of itself or of all or a substantial part
      of
      its property, (ii) be unable, or admit in writing its inability, to pay its
      debts generally as they mature, (iii) make a general assignment for the
      benefit of its or any of its creditors, (iv) be dissolved or liquidated,
      (v) become insolvent (as such term may be defined or interpreted under any
      applicable statute), (vi) commence a voluntary case or other proceeding
      seeking liquidation, reorganization or other relief with respect to itself
      or
      its debts under any bankruptcy, insolvency or other similar law now or hereafter
      in effect or consent to any such relief or to the appointment of or taking
      possession of its property by any official in an involuntary case or other
      proceeding commenced against it, or (vii) take any action for the purpose
      of effecting any of the foregoing; or

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    C. Involuntary
      Bankruptcy or Insolvency Proceedings. Proceedings
      for the appointment of a receiver, trustee, liquidator or custodian of the
      Company or of all or a substantial part of the property thereof, or an
      involuntary case or other proceedings seeking liquidation, reorganization or
      other relief with respect to the Company or the debts thereof under any
      bankruptcy, insolvency or other similar law now or hereafter in effect shall
      be
      commenced and an order for relief entered or such proceeding shall not be
      dismissed or discharged within 30 days of commencement.

    

    6.
      Rights
      of Holder upon Default.
      Upon
      the occurrence or existence of any Event of Default (other than an Event of
      Default described in Sections 5.B
      or
5.C)
      and at
      any time thereafter during the continuance of such Event of Default, Holder
      may,
      by written notice to the Company, declare all outstanding Obligations payable
      by
      the Company hereunder to be immediately due and payable without presentment,
      demand, protest or any other notice of any kind, all of which are hereby
      expressly waived. Upon the occurrence or existence of any Event of Default
      described in Sections 5.B
      and
5.C, immediately
      and without notice, all outstanding Obligations payable by the Company hereunder
      shall automatically become immediately due and payable, without presentment,
      demand, protest or any other notice of any kind, all of which are hereby
      expressly waived. In addition to the foregoing remedies, upon the occurrence
      or
      existence of any Event of Default, without the necessity of taking any action
      against, or providing any notice to, the Company or any other Person, Holder
      may
      exercise its rights under the Guaranty Agreements and exercise any other right
      power or remedy permitted to it by law.

    

    7.
      Conversion.

    

    A. Optional
      Conversion by the Holder. On
      February 28, 2008 (the “Conversion
      Date”),
      Holder may convert up to $750,000 of the outstanding balance of this Note into
      unregistered newly issued common stock or treasury shares (“Common
      Stock”)
      of the
      parent company of the Company, Argyle Security, Inc. (“Argyle”),
      at
      the average closing price of Argyle’s common stock for the 20 trading days
      preceding the Conversion Date (the “Conversion
      Price”);
      provided
      the
      Conversion Price shall be no less than $8.00 per share. Upon such conversion
      of
      this Note, Holder hereby agrees to execute and deliver to the Company all
      transaction documents reasonably required by the Company or Argyle, including
      an
      Investor Questionnaire and other ancillary agreements, with customary
      representations and warranties and transfer restrictions (including a 180-day
      lock-up agreement in connection with any public offering by the Company or
      Argyle), and having similar terms as those agreements entered into by other
      sellers in purchase agreements entered into by the Company or Argyle. Holder
      also agrees to deliver the original of this Note (or a notice to the effect
      that
      the original Note has been lost, stolen or destroyed together with an agreement,
      in customary form reasonably acceptable to the Company, whereby Holder agrees
      to
      indemnify the Company from any loss incurred by it in connection with the loss
      of this Note) to the Company upon its election to convert for cancellation
      and,
      if any portion of this Note remains outstanding, issuance of a replacement
      note
      for the balance of the amount outstanding on substantially the same terms and
      conditions as this Note, absent the conversion provisions in this Section
      7.A,
      and
      recalculating the payment schedule such that it is paid in full on the Maturity
      Date; provided,
      however,
      that
      upon satisfaction of the conditions set forth in this Section 7.A,
      the
      portion of this Note that has been converted shall be of no further force and
      effect, whether or not it is delivered for cancellation as set forth in this
      sentence. Notwithstanding anything to the contrary contained in this
Section
      7.A,
      the
      Company may, in its sole discretion, permit Holder to exercise his conversion
      rights on dates in addition to the Conversion Date.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    B. The
      Company’s Election. At
      any
      time on or after June 1, 2009, but before November 15, 2009, the Company may,
      in
      its sole discretion, require Holder to choose one of the following options
      (the
“Company’s
      Election”)
      within
      10 days of delivery of the Company’s written notice to Holder of the Company’s
      Election (the “Election
      Notice”):
      (i)
      the conversion of $250,000 of the outstanding principal of this Note into Common
      Stock of Argyle at 95% of the average closing price of Argyle’s common stock for
      the 20 trading days preceding delivery of the Election Notice; or (ii) the
      Company’s payment to Holder of $7,500 in exchange for which the payment schedule
      of the Note shall be amended such that $250,000 of the principal due in 2010
      shall be due and payable on Monday, January 3, 2011, with interest continuing
      to
      accrue on all unpaid principal amounts. If the Holder of this Note is different
      than the holder of a second substantially similar note issued contemporaneously,
      the Holder and the holder of that note are required to choose the same option.
      In the event that they are unable to agree on the same option, the Company
      shall
      have the right to choose between options (i) and (ii) above and shall do so
      within 10 days after the expiration of the 10 day period previously referred
      to.
      In the event that this Note is converted pursuant to option (i) herein, Holder
      hereby agrees to execute and deliver to the Company all transaction documents
      reasonably required by the Company or Argyle, including an Investor
      Questionnaire and other ancillary agreements, with customary representations
      and
      warranties and transfer restrictions (including a 180-day lock-up agreement
      in
      connection with any public offering by the Company or Argyle), and having the
      similar terms to those agreements entered into by other sellers in purchase
      agreements entered into by the Company or Argyle. Holder also agrees to deliver
      the original of this Note (or a notice to the effect that the original Note
      has
      been lost, stolen or destroyed together with an agreement, in customary form,
      reasonably acceptable to the Company whereby the Holder agrees to indemnify
      the
      Company from any loss incurred by it in connection with the loss of this Note)
      to the Company for cancellation and, if any portion of this Note remains
      outstanding, issuance of a replacement note for the balance of the amount
      outstanding on substantially the same terms and conditions as this Note, absent
      the conversion provisions in this Section
      7.B,
      and
      recalculating the payment schedule such that it is paid in full on the Maturity
      Date; provided,
      however,
      that
      upon satisfaction of the conditions set forth in this Section 7.B,
      the
      portion of this Note that has been converted shall be of no further force and
      effect, whether or not it is delivered for cancellation as set forth in this
      sentence.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    C. Fractional
      Shares; Interest; Effect of Conversion. No
      fractional shares shall be issued upon conversion of this Note. In lieu of
      the
      Company issuing any fractional shares to Holder upon the conversion of this
      Note, the Company shall pay to Holder an amount equal to the product obtained
      by
      multiplying the applicable conversion price by the fraction of a share not
      issued pursuant to the previous sentence. 

    

    8.
      Successors
      and Assigns.
      Subject
      to the restrictions on transfer set forth in Section 10 below, this Note and
      the
      duties and obligations of the Company hereunder, together with the Holder’s
      rights and privileges, (A) shall be fully and freely assignable, in whole or
      in
      part, by the Holder; (B) may not be delegated or transferred by the Company
      without the prior written consent of the Holder, which consent shall not be
      unreasonably withheld; and (C) shall inure to the benefit of, and be enforceable
      by, the Holder and its successors, assigns and transferees, and its and their
      heirs, administrators, successors, assigns and transferees. The duties and
      obligations of the Company shall bind the Company and the Company’s successors
      and permitted delegatees.

    

    9.
      Waiver
      and Amendment.
      Any
      provision of this Note may be amended, waived or modified upon the written
      consent of the Company and Holder.

    

    10.
      Transfer
      of the Note or the Securities Issuable on Conversion
      Hereof.
      With
      respect to any offer, sale or other disposition of this Note or the securities
      into which this Note may be converted, Holder will give written notice to the
      Company and Argyle prior thereto, describing briefly the manner thereof,
      together with, a written opinion of Holder’s counsel, or other evidence
      reasonably satisfactory to the Company, to the effect that such offer, sale
      or
      other distribution may be effected without registration or qualification (under
      any federal or state law then in effect). Upon receiving such written notice
      and
      reasonably satisfactory opinion, if so requested, or other reasonably
      satisfactory evidence, the Company, as promptly as practicable, shall notify
      Holder that Holder may sell or otherwise dispose of this Note or such
      securities, in accordance with the terms of the notice delivered to the Company
      and Argyle. If a determination has been made pursuant to this Section 10
      that the
      opinion of counsel for Holder, or other evidence, is not reasonably satisfactory
      to the Company or Argyle, the Company shall so notify Holder promptly after
      such
      determination has been made, stating with reasonable specificity the reason(s)
      for such determination. Each Note thus transferred and each certificate
      representing the securities thus transferred shall bear the following legend
      (or
      a substantially similar legend) unless in the opinion of counsel for the Company
      and Argyle, such legend is not required in order to ensure compliance with
      the
      Securities Act:

    

    THIS
      NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
      COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
      REQUIRED.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    The
      Company or Argyle may issue stop transfer instructions to its transfer agent
      in
      connection with such restrictions. Notwithstanding
      the forgoing, Holder (or any assignee of the Holder permitted pursuant to the
      Section 10) may, after the expiration of six months following the Closing Date
      of the Purchase Agreement, transfer or assign all or any portion of this Note,
      upon 5 days advance written notice to the Company, to any of the following
      entities, without securing prior approval from the Company: (i) the Company;
      (ii) any affiliate of the Holder; or (iii) any Immediate Family Member of
      Holder's assignee. As used herein the term "Immediate Family Member" shall
      mean,
      with respect to a natural person, any spouse, sibling, or child of such natural
      person, and any trust, custodianship, guardianship, family limited partnership
      or similar entity created for the primary benefit of one or more of the forgoing
      individuals.

    

    11.
      Notices.
      All
      notices, requests, demands, consents, instructions or other communications
      and
      determinations under this Note must be in writing and will be deemed duly given
      (a) when delivered by hand, (b) two days after being given to an
      express courier with a reliable system for tracking delivery, (c) one day
      after being sent by confirmed facsimile with a copy sent by another means
      specified in this provision or ((d) five days after the day of mailing,
      when mailed by registered or certified mail, return receipt requested, postage
      prepaid, and addressed as set forth below. A party may from time to time change
      its address or designee for notification purposes by giving the other written
      notice of the new address or designee and the date upon which it will become
      effective.

    

    
      	If to the Company:	ISI
              Detention Contracting Group, Inc. 
              12903
                Delivery Drive

              San
                Antonio, TX 78247

              Attention:
                Sam Youngblood

              Facsimile:
                (210) 495-5613

              email:
                syoungblood@isidet.com

            
	 	 
	with a copy to:	
              Hughes
                & Luce LLP

              111
                Congress Avenue, Suite 900

              Austin,
                Texas 78701

              Attention:
                D. Hull Youngblood, Jr.

              Facsimile:
                (512) 482-6859

              email:
                hyoungblood@hughesluce.com

            
	 	 
	If to Holder:	Peterson Detention Inc.
              577
                North Batavia

              Orange,
                CA 92868

            

    

     

    12.
      Usury.
      In the
      event any interest is paid on this Note which is deemed to be in excess of
      the
      then legal maximum rate, then that portion of the interest payment representing
      an amount in excess of the then legal maximum rate shall be deemed a payment
      of
      principal and applied against the principal of this Note.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    13.
      Waivers.
      The
      Company hereby waives notice of default, presentment or demand for payment,
      protest or notice of nonpayment or dishonor and all other notices or demands
      relative to this instrument and any defenses, cross complaints or counterclaims
      of any kind, other than indefeasible payment in full.

    

    14.
      Governing
      Law and Venue
      THIS
      AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF TEXAS WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS OR
      ANY
      OTHER PRINCIPLE THAT COULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER
      JURISDICTION. ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
      THIS
      AGREEMENT MUST BE INSTITUTED IN THE STATE OR FEDERAL COURTS LOCATED IN BEXAR
      COUNTY, TEXAS, TO THE JURISDICTION OF WHICH EACH OF THE PARTIES HEREBY EXPRESSLY
      AND IRREVOCABLY AGREES TO SUBMIT. THE PARTIES AGREE TO ENTER INTO MEDIATION
      PRIOR TO TRIAL IN ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR RELATING
      TO
      THIS AGREEMENT. THE PARTIES HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUIT,
      ACTION, OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

    

    15.
      Miscellaneous.
      

    

    (a)
      Costs
      and Expenses. The Company shall pay to Holder all reasonable costs and expenses
      (including court costs and reasonable attorneys’ fees) incurred by Holder in the
      preservation or enforcement of Holder’s rights and remedies
      hereunder.

    

    (b)
      Amendment. Neither this Note nor any provision hereof may be amended, altered,
      modified, changed, waived, discharged or terminated, except by an instrument
      in
      writing signed by the Company and Holder.

    

    (c)
      Severability. Whenever possible this Note and each of its provisions shall
      be
      interpreted in such manner as to be effective, valid and enforceable under
      applicable law. Any provisions of this Note which are prohibited or
      unenforceable shall be ineffective to the extent of such prohibition or
      unenforceability without invalidating its remaining provisions

    

    (d)
      Relinquishment. Failure to insist upon strict compliance with any of the terms
      hereof shall not be deemed a waiver of such terms, nor shall any waiver or
      relinquishment of, or failure to insist upon strict compliance with, any right
      or power hereunder be deemed a waiver or relinquishment of such right or
      power.

    

    (e)
      Number and Gender. Where the context requires, the singular shall include the
      plural, the plural shall include the singular, and any gender shall include
      all
      other genders.

    

    (f)
      Section Headings. The section headings in this Note are for the purpose of
      convenience only and shall not limit or otherwise affect any of the terms
      hereof.

    

    (g)
      Further Assurances. The Company agrees to execute and deliver additional
      documents, including any documents or instruments reasonably requested by the
      Holder, and take other actions that the Holder may reasonably request for
      purposes of carrying out this Note.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    (h)
      Cumulative Remedies. No failure on the part of any party hereto to exercise,
      no
      course of dealing with respect to, and no delay in exercising any right, power
      or remedy hereunder shall operate as a waiver. No single or partial exercise
      of
      any rights, power or remedy shall preclude any other or further exercise thereof
      or the exercise of any other right, power or remedy. The rights and remedies
      provided in this Note are cumulative, and are in addition to any rights or
      remedies provided by any other document or by law.

    

    (i)
      Entire Instrument. This Note, including the attachments hereto, embodies the
      entire agreement of the parties respecting the matters within its scope. It
      supersedes all prior agreements of the parties hereto on the subject matter
      hereof. 

    

    (j)
      Time
      of Essence. Time is expressly made of the essence of each and every provision
      of
      this Note.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    The
      Company has caused this Note to be issued as of the date first written
      above.

    

    This
      Note
      is guaranteed by the Guaranty Agreements of ISI Texas, ISI and Argyle, copies
      of
      which are attached to this Note, and as the same shall exist from time to
      time.

     

    
      	 	 	 
	 	
              THE
                COMPANY:

            
	 	 
	 	
              ISI
                DETENTION CONTRACTING

              GROUP,
                INC.

            
	 	
              a
                California corporation

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Sam
              Youngblood 
	 	
              
Sam
              Youngblood, CEO

    

    
      	 	 	 	 
	 	 	 	 
	
              AGREED
                AND ACCEPTED BY:

              

              HOLDER:

            	 	 	 
	 	 	 	 
	
              PETERSON
                DETENTION INC., 

              a
                California corporation

            	 	 	 
	 	 	 	 
	By:
/s/
              Michael Peterson	 	 	
            
	
              
                

              

              Michael
                Peterson, President

            	 	 	
            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
      A

    (2
      pages)

    

    Payment
      Schedule

    

    1.
      Interest only payments made quarterly beginning with the last day of the first
      quarter on March 31, 2008 and continuing on the last day of the succeeding
      eight
      calendar quarters as set forth below: 

        

    
      	
              Due Date

            	 	
              Amount

            	 	
              Prin
                Bal

            	 
	
              March
                31, 2008

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              June
                30, 2008

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              September
                30, 2008

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              December
                31, 2008

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              March
                31, 2009

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              June
                30, 2009

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              September
                30, 2009

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 
	
              December
                31, 2009

            	 	
              $

            	
              22,500

            	 	
              $

            	
              1,500,000

            	 

    

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    2.
      Thereafter, level principal and interest payments on the 28th
      day of
      each month for 24 consecutive months, in the cumulative amount of $66,480.92
      due
      monthly beginning on the 28th
      day of
      the 25th
      month
      and ending on the 28th
      day of
      the 48th
      month:

     

    
      	
              Payment

              Number

            	 	
              Payment

            	 	
              Interest

            	 	
              Principal

            	 	
              Cumulative

              Interest

            	 	
              Cumulative

              Principal

            	 	
              Remaining

              Balance

            	 
	
              1

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              7,500.00

            	 	
              $

            	
              58,980.92

            	 	
              $

            	
              7,500.00

            	 	
              $

            	
              58,980.92

            	 	
              $

            	
              1,441,019.08

            	 
	
              2

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              7,205.10

            	 	
              $

            	
              59,275.82

            	 	
              $

            	
              14,705.10

            	 	
              $

            	
              118,256.74

            	 	
              $

            	
              1,381,743.26

            	 
	
              3

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              6,908.72

            	 	
              $

            	
              59,572.20

            	 	
              $

            	
              21,613.81

            	 	
              $

            	
              177,828.95

            	 	
              $

            	
              1,322,171.05

            	 
	
              4

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              6,610.86

            	 	
              $

            	
              59,870.06

            	 	
              $

            	
              28,224.67

            	 	
              $

            	
              237,699.01

            	 	
              $

            	
              1,262,300.99

            	 
	
              5

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              6,311.50

            	 	
              $

            	
              60,169.42

            	 	
              $

            	
              34,536.17

            	 	
              $

            	
              297,868.43

            	 	
              $

            	
              1,202,131.57

            	 
	
              6

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              6,010.66

            	 	
              $

            	
              60,470.26

            	 	
              $

            	
              40,546.83

            	 	
              $

            	
              358,338.69

            	 	
              $

            	
              1,141,661.31

            	 
	
              7

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              5,708.31

            	 	
              $

            	
              60,772.61

            	 	
              $

            	
              46,255.14

            	 	
              $

            	
              419,111.30

            	 	
              $

            	
              1,080,888.70

            	 
	
              8

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              5,404.44

            	 	
              $

            	
              61,076.48

            	 	
              $

            	
              51,659.58

            	 	
              $

            	
              480,187.78

            	 	
              $

            	
              1,019,812.22

            	 
	
              9

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              5,099.06

            	 	
              $

            	
              61,381.86

            	 	
              $

            	
              56,758.64

            	 	
              $

            	
              541,569.64

            	 	
              $

            	
              958,430.36

            	 
	
              10

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              4,792.15

            	 	
              $

            	
              61,688.77

            	 	
              $

            	
              61,550.79

            	 	
              $

            	
              603,258.41

            	 	
              $

            	
              896,741.59

            	 
	
              11

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              4,483.71

            	 	
              $

            	
              61,997.21

            	 	
              $

            	
              66,034.50

            	 	
              $

            	
              665,255.62

            	 	
              $

            	
              834,744.38

            	 
	
              12

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              4,173.72

            	 	
              $

            	
              62,307.20

            	 	
              $

            	
              70,208.22

            	 	
              $

            	
              727,562.82

            	 	
              $

            	
              772,437.18

            	 

    

    
      	
              Payment

              Number

            	 	 	
              Payment

            	
               

            	
               

            	
              Interest

            	
               

            	
               

            	
              Principal

            	
               

            	
               

            	
              Cumulative

              Interest

            	
               

            	
               

            	
              Cumulative

              Principal

            	
               

            	
               

            	
              Remaining

              Balance

            	 
	
              13

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              3,862.19

            	 	
              $

            	
              62,618.73

            	 	
              $

            	
              74,070.41

            	 	
              $

            	
              790,181.55

            	 	
              $

            	
              709,818.45

            	 
	
              14

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              3,549.09

            	 	
              $

            	
              62,931.83

            	 	
              $

            	
              77,619.50

            	 	
              $

            	
              853,113.38

            	 	
              $

            	
              646,886.62

            	 
	
              15

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              3,234.43

            	 	
              $

            	
              63,246.49

            	 	
              $

            	
              80,853.93

            	 	
              $

            	
              916,359.87

            	 	
              $

            	
              583,640.13

            	 
	
              16

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              2,918.20

            	 	
              $

            	
              63,562.72

            	 	
              $

            	
              83,772.13

            	 	
              $

            	
              979,922.59

            	 	
              $

            	
              520,077.41

            	 
	
              17

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              2,600.39

            	 	
              $

            	
              63,880.53

            	 	
              $

            	
              86,372.52

            	 	
              $

            	
              1,043,803.12

            	 	
              $

            	
              456,196.88

            	 
	
              18

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              2,280.98

            	 	
              $

            	
              64,199.94

            	 	
              $

            	
              88,653.51

            	 	
              $

            	
              1,108,003.05

            	 	
              $

            	
              391,996.95

            	 
	
              19

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              1,959.98

            	 	
              $

            	
              64,520.94

            	 	
              $

            	
              90,613.49

            	 	
              $

            	
              1,172,523.99

            	 	
              $

            	
              327,476.01

            	 
	
              20

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              1,637.38

            	 	
              $

            	
              64,843.54

            	 	
              $

            	
              92,250.87

            	 	
              $

            	
              1,237,367.53

            	 	
              $

            	
              262,632.47

            	 
	
              21

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              1,313.16

            	 	
              $

            	
              65,167.76

            	 	
              $

            	
              93,564.03

            	 	
              $

            	
              1,302,535.29

            	 	
              $

            	
              197,464.71

            	 
	
              22

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              987.32

            	 	
              $

            	
              65,493.60

            	 	
              $

            	
              94,551.36

            	 	
              $

            	
              1,368,028.88

            	 	
              $

            	
              131,971.12

            	 
	
              23

            	 	
              $

            	
              66,480.92

            	 	
              $

            	
              659.86

            	 	
              $

            	
              65,821.06

            	 	
              $

            	
              95,211.21

            	 	
              $

            	
              1,433,849.95

            	 	
              $

            	
              66,150.05

            	 
	
              24*

            	 	
              $

            	
              66,480.80

            	 	
              $

            	
              330.75

            	 	
              $

            	
              66,150.05

            	 	
              $

            	
              95,541.96

            	 	
              $

            	
              1,500,000.00

            	 	
              $

            	
              0.00

            	 

    

    

    *The
      final payment has been adjusted to account for payments having been rounded
      to
      the nearest cent.

     

    
      
        
        

      

      
        3EMPLOYMENT
      AGREEMENT

    OF

    MICHAEL
      PETERSON

    

    This
      EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of January 1, 2008
      (the “Effective Date”), by and between ISI
      Detention Contracting Group, Inc.,
      a
      corporation organized under the laws of California (“Employer”), and
Michael
      Peterson,
      an
      individual residing in Orange, CA, (“Executive”) on the following terms and
      conditions:

    

    RECITALS:

     

    This
      Agreement is entered into with reference to the following facts:

    

    A. Employer
      has acquired substantially all of the assets of Peterson Detention Inc. (“PDI”)
      pursuant to an Asset Purchase Agreement of even date herewith (the “Asset
      Purchase Agreement”) ;

    

    B. Prior
      to
      the consummation of the transactions contemplated by the Asset Purchase
      Agreement, Executive was employed by PDI pursuant to an employment arrangement
      pursuant to which Executive was entitled to certain compensation and
      benefits;

    

    C. Executive
      is a principal shareholder in PDI and will receive significant benefits from
      the
      consummation of the transactions contemplated by the Asset Purchase Agreement;
      

    

    D The
      execution and delivery of this Agreement are conditions precedent to the
      consummation of the transactions contemplated by the Asset Purchase Agreement,
      and are inducements to ISI Security Group, Inc., a Delaware Corporation (“ISI
      Delaware”), Argyle Security, Inc., a Delaware corporation (“Argyle”), both of
      which are parent entities of the Employer, to facilitate the Asset Purchase
      Agreement; 

    

    E.
       The
      execution and delivery of this Agreement benefits ISI Detention Contracting
      Group, Inc., a Texas corporation (“ISI Texas”), an Affiliate of Employer, and to
      facilitate this Agreement, ISI Texas enters into the Guaranty Agreement attached
      to this Agreement;

    

    F. Employer
      desires to employ Executive in the capacity hereinafter stated, and Executive
      desires to be employed by Employer in such capacity for the period and on the
      terms and conditions set forth herein; and

    

    G. All
      capitalized terms, not otherwise defined in this Agreement, shall have the
      meanings set forth in the Asset Purchase Agreement.

    

    AGREEMENT

    

    THEREFORE,
      in consideration of the mutual covenants and agreements below, it is covenanted
      and agreed by Employer and Executive as follows:

    

    1. Recitals
      Incorporated. The preceding Recitals are incorporated in the this Agreement
      by this reference.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    2. Employment
      Period.
      Employer hereby agrees to employ Executive as its General Manager, and
      Executive, in such capacity, agrees to provide services to Employer for the
      period beginning on the Effective Date and ending on the third anniversary
      of
      the Effective Date (the “Employment Period”). Thereafter, Executive’s employment
      shall be at-will. For the entire Employment Period, and while he is employed
      by
      the Employer, Executive’s office will be located exclusively in Orange County,
      California.

    

    3. Performance
      of Duties.

    

    
      	 	
              (a)

            	
              Executive
                agrees that during the Employment Period, and while he is employed
                by
                Employer, he shall devote his full normal and customary working time,
                energies and talents exclusively to serving in the capacity of General
                Manager of Employer and will perform the duties set out in 2(b) below,
                and
                such other duties consistent with his position, as may be properly
                assigned to him by the Chief Executive Officer and/or the Board of
                Directors of Employer (the “Board”). He will carry out such duties
                faithfully, efficiently and in a professional
                manner.

            

    

    

    
      	 	
              (b)

            	
              The
                duties of Employee shall include the following: Administration, Sales
                and
                Marketing, Engineering and Business
                Oversight.

            

    

    

    
      	 	
              (c)

            	
              Subject
                to Subparagraph 3(d) below, and in addition to the limitations imposed
                upon Executive by the Restrictive Covenants contained in Paragraph
                5,
                Executive shall not during the Employment Period and while he is
                employed
                by the Employer, without prior written consent from the
                Board:

            

    

    

    
      	 	
              (i)

            	
              serve
                as, be a consultant to or employee, officer, manager, agent, or director
                of, any corporation, partnership or other entity other than Employer
                (other than civic, charitable, or other public service organizations)
                if,
                as determined at the reasonable discretion of the Board, such service,
                employment, or position would have a material adverse effect upon
                the
                ability of Executive to perform his duties hereunder and Executive
                is so
                advised in writing and given a period of not less than ninety (90)
                days to
                cease; or

            

    

    

    
      	 	
              (ii)

            	
              have
                more than a five percent (5%) ownership interest in any enterprise
                other
                than Employer if such ownership interest would have a material adverse
                effect upon the ability of Executive to perform his duties hereunder,
                and
                the Executive is so advised in writing and given a period of not
                less than
                ninety (90) days to divest the
                interest..

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	 	
              (d)

            	
              Notwithstanding
                the generality of the foregoing, Executive may own all or any part
                of PDI,
                Employer, ISI Delaware, and Argyle or any other Affiliate of ISI
                Delaware
                or Argyle, and act as an officer or director of any of them, and
                none of
                such activities shall be deemed to violate any duty of trust,
                confidentiality or non-usurpation of corporate opportunity, nor shall
                they
                violate any term or provision of this
                Agreement.

            

    

    

    4. Compensation.
      Subject
      to the terms and conditions of this Agreement, during the Employment Period,
      Executive shall be compensated by Employer for his services as
      follows:

    

    
      	 	
              (a)

            	
              Executive
                shall receive, for each consecutive twelve (12) month period beginning
                on
                the Effective Date and ending on each anniversary thereof, a rate
                of pay
                equal to $291,000.00 per year. Such compensation shall be payable
                in
                substantially equal monthly or more frequent installments and subject
                to
                customary tax withholding. During the Employment Period, Executive’s
                annual salary rate shall be increased by the Board, effective on
                or before
                each anniversary of the Effective Date, by an amount of at least
                the
                amount of change in the Consumer Price Index for “Los Angeles - Riverside
                - Orange County, CA - All Items (not seasonally adjusted)”, during the
                immediately preceding year, when compared to the same index for the
                same
                region for the calendar year two years prior, as published by the
                U.S.
                Department of Labor Bureau of Labor
                Statistics.

            

    

    

    
      	 	
              (b)

            	
              Executive
                shall be entitled to receive incentive compensation payments in accordance
                with the discretionary bonus plan of Employer or ISI Texas, whichever
                is
                more beneficial to Executive.

            

    

    

    
      	 	
              (c)

            	
              Executive
                shall be entitled to participate in all executive benefit plans maintained
                by Employer (or ISI Texas, whichever is more beneficial to Executive)
                on
                substantially the same terms and conditions as other executives of
                Employer (or ISI Texas, whichever is more beneficial to Executive)
                including, but not limited to all health plans, insurance, retirement,
                deferred compensation and other plans and programs generally available
                to
                such executives of Employer (or ISI Texas, whichever is more beneficial
                to
                Executive).

            

    

    

    
      	 	
              (d)

            	
              Executive
                shall receive at least three (3) weeks paid vacation per year, provided,
                however, that such vacation shall be scheduled and taken in accordance
                with Employer’s standard vacation policies applicable to Employer’s other
                executives (or those of ISI Texas, whichever is more beneficial to
                Executive). Executive shall also be entitled to all other holiday
                and
                leave pay generally available to Employer’s other executives (or the
                executives of ISI Texas, whichever is more beneficial to
                Executive).

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	 	
              (e)

            	
              Employer
                will provide Executive with a company credit card to be used by Executive
                to pay for expenses incurred in connection with the performance of
                his
                duties for the Company. Such expenses shall include, but not be limited
                to, hotels, meals, airline tickets (on a business class basis), other
                transportation, automobile rentals and other similar charges. Said
                credit
                card will be issued to Executive after he has executed the standard
                reimbursement agreement required of an
                executive.

            

    

    

    
      	 	
              (f)

            	
              In
                the event Executive consents to a relocation requiring a move of
                residence, Employer shall advance or reimburse Executive, on a grossed-up
                basis at Executive’s marginal tax rate, for all moving, house-hunting,
                temporary housing, and real estate transaction costs for both sale
                and
                purchase on a fully grossed-up, after-tax
                basis.

            

    

    

    
      	 	
              (g)

            	
              Executive
                shall be reimbursed by Employer for all reasonable business, promotional,
                travel and entertainment expenses incurred or paid by Executive during
                the
                Employment Period in the performance of his services under this Employment
                Agreement. In order that Employer reimburse Executive for such allowable
                expenses, Executive shall furnish to Employer, in a timely fashion,
                appropriate documentation required by the Internal Revenue Code in
                connection with such expenses and shall furnish such other documentation
                and accounting as Employer may from time to time reasonably request.
                As
                used herein the term “Internal Revenue Code” shall mean the Internal
                Revenue Code of 1986, as now or hereafter amended, and the regulations
                and
                revenue rulings and procedures issues pursuant thereto from time
                to
                time.

            

    

    

    5. Restrictive
      Covenants.
      Executive acknowledges and agrees that:

    

    
      	 	
              (a)

            	
              After
                this Agreement is signed by both parties, Employer shall disclose
                to
                Executive certain of Employer’s confidential,
                proprietary, and/or trade secret information in
                connection with the performance of his
                duties.

            

    

    

    
      	 	
              (b)

            	
              Executive
                is a principal shareholder and senior executive officer of PDI with
                major
                responsibility for the operation, development, and growth of its
                business
                prior to its sale of substantially all of its assets, including its
                substantial goodwill, to Employer. Executive, acknowledges and agrees
                that
                his employment by Employer in a similar capacity, effective immediately
                as
                of the closing of the Asset Purchase Agreement, is intended to preserve
                and maintain such goodwill;

            

    

    

    
      	 	
              (c)

            	
              Employer
                has agreed to disclose to Executive, and Executive’s work for Employer
                will routinely bring him into close contact with, confidential,
                proprietary, and/or trade secret information of Employer and its
                customers; and

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    
      	 	
              (d)

            	
              The
                agreements and covenants contained in this Paragraph 5 are essential
                to
                protect the business interests of Employer and Employer will not
                enter
                into this Agreement but for such agreements and covenants. Accordingly,
                Executive covenants and agrees to the
                following:

            

    

    

    
      	 	
              (i)

            	
              Confidential
                Information. Except as may be required by the lawful order of a court,
                regulatory body or similar agency of competent jurisdiction, and
                at the
                sole cost and expense of the Employer, if any, unless disclosed with
                the
                Employer’s permission, Executive agrees to keep secret and confidential,
                during the Employment Period and while he is employed by Employer,
                all
                confidential non-public information of Employer, and its respective
                Affiliates that was acquired by, or disclosed to, Executive during
                the
                course of his employment by Employer or any of its Affiliates, including
                information relating to customers (including, without limitation,
                credit
                history, repayment history, financial information and financial
                statements), costs, operations, financial data and plans, and employee
                information, whether past, current or planned, and not to disclose
                the
                same, either directly or indirectly, to any other person, firm or
                business
                entity, or to use it in any way; provided, however, that the provisions
                of
                this Subparagraph 5(d)(i) shall not apply to information that: (A)
                was, is
                now, or becomes generally available to the public (but not as a result
                of
                a breach of any duty of confidentiality by which Executive is bound);
                (B)
                was disclosed to Executive by a third party (other than PDI) not
                subject
                to any duty of confidentiality to Employer prior to its disclosure
                to
                Executive; (C)  was known to Executive prior to his employment from a
                source other than his employment, ownership of, or relationship with
                PDI,
                (D) is disclosed by Executive in the ordinary course of Employer’s
                business as a proper part of his employment in connection with
                communications with customers, vendors and other proper parties,
                provided
                that it is for a proper business purpose solely for the benefit of
                Employer. During the Employment Period and while he is employed by
                Employer, Executive further agrees that he shall not make any statement
                or
                disclosure that is intended by Executive to be detrimental to Employer
                or
                any of its Affiliates.

            

    

    

    
      	 	
              (ii)

            	
              Non-Competition.

            

    

    

    
      	 	
              (A)

            	
              Executive
                agrees that for the period commencing on the Effective Date and ending
                on
                the date on which Executive’s employment with Employer is terminated for
                any reason or no reason (the “Non-Competition Period”), Executive shall
                not directly or indirectly, alone or as a partner, officer, director,
                manager, employee, consultant, agent, independent contractor, member
                or
                stockholder of any person or entity (“Person”), engage in any business
                activity in North America that is directly or indirectly in competition
                with the Business of Employer or which is known by Executive to be
                detrimental to the Business or business plans of Employer or its
                Affiliates; provided, however, that the record or beneficial ownership
                by
                Executive or his immediate family members of five percent (5%) or
                less of
                the outstanding publicly traded capital stock of any company for
                investment purposes shall not be deemed to be in violation of this
                Subparagraph 5(d)(ii) so long as Executive is not an officer, director,
                manager, employee or consultant of such Person. The “Business” of Employer
                shall mean providing construction materials, design, engineering,
                procurement, installation, maintenance and related goods and services
                to:
                (x) the detention facilities construction and renovation industry;
                (y) the
                industrial/commercial controls and fire and security alarm industry;
                and
                (z) the access control and security observation industry, and other
                related businesses. Executive further agrees that during the
                Non-Competition Period, he shall not in any capacity, either separately
                or
                in association with others: (1) employ or solicit for employment
                or
                endeavor in any way to entice away from employment with Employer
                or its
                Affiliates (a) any current employee of Employer or its Affiliates
                or (b)
                any Person who was employed by Employer or its Affiliates in any
                preceding
                12-month period; (2) solicit, induce or influence any supplier, customer,
                agent, consultant or other Person that has a business relationship
                with
                Employer to discontinue, reduce or modify such relationship with
                Employer;
                nor (3) solicit or enter into negotiations with any of Employer’s
                identified potential acquisition
                candidates.

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    
      	 	
              (B)

            	
              Executive
                understands that the foregoing restrictions may limit his ability
                to
                engage in a business similar to Employer’s Business for the duration of
                the Non-Competition Period, but acknowledges that he will receive
                sufficiently high remuneration and other benefits to justify such
                restriction as an employee of Employer pursuant to this
                Agreement.

            

    

    

    
      	 	
              (C)

            	
              Notwithstanding
                the generality of any other provision of this Agreement, during the
                Non-Competition Period, it shall not be a violation of Subparagraph
                3(c)
                or this Paragraph 5 for Executive to (i) be an owner, partner, officer,
                director, manager, employee, consultant, agent, independent contractor,
                member or stockholder of any person or entity that does not compete
                with
                the Business of Employer or (ii) make unlimited investments with
                other
                family members in any person or entity that does not compete with
                the
                Business of Employer.

            

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    
      	 	
              (iii)

            	
              Remedies.
                If Executive breaches any of the provisions contained in Subparagraphs
                5(d)(i) or 5(d)(ii) (the “Restrictive Covenants”), Employer shall have the
                following rights and remedies, each of which shall be enforceable,
                and
                each of which is in addition to, and not in lieu of, any other rights
                and
                remedies available to Employer at law or in
                equity.

            

    

    

    
      	 	
              (A)

            	
              Executive
                shall account for and pay over to Employer all compensation, profits,
                and
                other benefits which inure to Executive’s benefit which are derived or
                received by Executive or any person or business entity controlled
                by
                Executive, resulting from any action or transactions constituting
                a breach
                of any of the Restrictive
                Covenants.

            

    

    

    
      	 	
              (B)

            	
              Notwithstanding
                the provisions of Subparagraph 5(d)(iii)(A) above, Executive acknowledges
                and agrees that in the event of a violation or Executive’s threatened
                violation of any of the Restrictive Covenants, Employer shall have
                no
                adequate remedy at law and shall therefore be entitled to enforce
                each
                such provision by temporary or permanent injunction or mandatory
                relief
                obtained in any court of competent jurisdiction without the necessity
                of
                proving damages, posting any bond or other security, and without
                prejudice
                to any other rights and remedies that may be available at law or
                in
                equity, and Employer shall also be entitled to recover its attorneys’ fees
                and costs incurred to enforce any of the Restrictive Covenants from
                Executive.

            

    

    

    
      	 	
              (iv)

            	
              Severability.
                If any of the Restrictive Covenants, or any part thereof, are held
                to be
                invalid or unenforceable, the same shall not affect the remainder
                of the
                covenant or covenants, which shall be given full effect, without
                regard to
                the invalid or unenforceable portions. Without limiting the generality
                of
                the foregoing, if any of the Restrictive Covenants, or any part thereof,
                are held to be unenforceable because of the duration of such provision
                or
                the area covered thereby, the parties hereto agree that the court
                making
                such determination shall have the power to reduce the duration and/or
                area
                of such provision and, in its reduced form, such provision shall
                then be
                enforceable.

            

    

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    
      	 	
              (v)

            	
              Proprietary
                Rights. Executive acknowledges and agrees that all know-how, documents,
                reports, plans, proposals, marketing and sales plans, client lists,
                employee files, client files, and any materials made by Executive
                or by
                Employer during the period of Executive’s employment are the property of
                Employer and shall not be used by Executive in any way adverse to
                Employer’s interests while he is so employed by Employer.
                

            

    

    

    6. Termination
      and Compensation Due Upon Termination. Executive’s right to compensation for
      the period after the date Executive’s employment with Employer terminates shall
      be determined in accordance with the following:

    

    
      	 	
              (a)

            	
              Termination
                Without Cause. In the event Employer terminates Executive’s employment
                during the Employment Period without Cause, Employer shall pay Executive
                compensation, incentive compensation and benefits as specified in
                Paragraph 4 through the earlier of eighteen (18) months or the balance
                of
                the Employment Period, during which time Executive shall be entitled
                to:
                

            

    

    

    
      	 	
              (i)

            	
              receive
                payment of his salary in accordance with the provisions of Subparagraph
                4(a) ;

            

    

    

    
      	 	
              (ii)

            	
              receive
                payment of any incentive compensation payments that otherwise would
                have
                been payable to Executive under Subparagraph 4(b); and
                

            

    

    

    
      	 	
              (iii)

            	
              continued
                participation in the group health insurance plans of Employer as
                specified
                in Subparagraph 4(c) at Employer’s
                expense.

            

    

    

    
      	 	
              (b)

            	
              Voluntary
                Resignation. Executive may terminate his employment with Employer
                for any
                reason (or no reason at all) at any time by giving Employer ninety
                (90)
                days prior written notice of voluntary resignation; provided, however,
                that Employer may decide that Executive’s voluntary resignation be
                effective immediately upon notice of such resignation. Employer shall
                have
                no obligation to make payments to Executive in accordance with the
                provisions of Paragraph 3 for periods after the date on which Executive’s
                employment terminates due to Executive’s voluntary resignation, including
                in the event Employer accelerates the effectiveness of the resignation
                in
                accordance with this Subparagraph 6(b).

            

    

    

    
      	 	
              (c)

            	
              However,
                for purposes of this Paragraph 6, if Executive resigns within 90
                days
                following the occurrence of one of the following events, Executive
                shall
                be deemed to be Terminated without Cause in accordance with Subparagraph
                6(a):

            

    

    

    
      	 	
              (i)

            	
              Executive’s
                duties are materially reduced from those described in Paragraph 3;
                

            

    

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    
      	 	
              (ii)

            	
              the
                relocation of Executive’s office outside Orange County, California without
                Executive’s consent; 

            

    

    

    
      	 	
              (iii)

            	
              a
                material breach of any of the provisions of this Agreement by the
                Employer; 

            

    

    
      	 	 	 

    

    
      	 	
              (d)

            	
              Termination
                for Cause. Employer shall have no obligation to make payments to
                Executive
                in accordance with the provisions of Paragraph 4 or otherwise for
                periods
                after Executive’s employment with Employer is terminated because of
                Executive’s termination for Cause. For purposes of this Paragraph 6,
                Executive shall be considered terminated for “Cause” if he is discharged
                by Employer on account of the occurrence of one or more of the following
                events:

            

    

    

    
      	 	
              (i)

            	
              Executive
                becomes habitually addicted to drugs or alcohol, as confirmed by
                the
                written opinion of a medical doctor;

            

    

    

    
      	 	
              (ii)

            	
              Executive
                intentionally discloses confidential information in violation of
                Subparagraph 5(d)(i) or engages in any action in violation of Subparagraph
                5(d)(ii). 

            

    

    

    
      	 	
              (iii)

            	
              Employer
                is directed by regulatory or governmental authorities to terminate
                the
                employment of Executive or Executive intentionally engages in activities
                that cause actions to be taken by regulatory or governmental authorities
                that have a material adverse effect on
                Employer;

            

    

    

    
      	 	
              (iv)

            	
              Executive
                is convicted of a felony crime (other than a felony resulting from
                a minor
                traffic violation);

            

    

    

    
      	 	
              (v)

            	
              Executive
                flagrantly disregards his duties under this Agreement after (A) written
                notice has been given to Executive by the Board that it views Executive
                to
                be flagrantly disregarding his duties under this Agreement and (B)
                Executive has been given a period of ten (10) days after such notice
                to
                cease such misconduct. However, no notice or cure period shall be
                required
                hereunder if Executive’s disregard of his duties has materially and
                adversely affected Employer or is illegal
                ;

            

    

    

    
      	 	
              (vi)

            	
              Executive
                commits an act of fraud against Employer, violates a duty of loyalty
                to
                Employer, or violates an obligation owed to Employer pursuant to
                Paragraphs 3 or 5 hereof. 

            

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    
      	 	
              (d)

            	
              In
                the event Employer attempts to terminate Executive’s employment pursuant
                to Subparagraph 6(c) and it is ultimately determined that the Employer
                lacked Cause, the provisions of Subparagraph 6(a) shall apply and,
                in
                addition to any other remedies that Executive may have, Executive
                shall be
                entitled to receive the payments called for by Subparagraph 6(a)
                with
                interest on any past due payments at the rate of ten percent (10%)
                per
                year from the date on which the applicable payment would have been
                made,
                plus Executive’s costs and expenses (including but not limited to
                reasonable attorneys’ fees) incurred in connection with such dispute and
                interest thereon at the rate of ten percent (10%) per year from the
                date
                incurred by the Executive. 

            

    

    

    
      	 	
              (e)

            	
              Employer
                shall have no obligation to make payments to Executive in accordance
                with
                the provisions of Paragraph 4 for periods after the date of Executive’s
                employment with Employer terminates on account of disability, except
                payments due and owing through the effective date of termination.
                For
                purposes of this Subparagraph 6(e), determination of whether Executive
                is
                disabled shall be determined in accordance with Employer’s long term
                disability plan (if any) and applicable
                law.

            

    

    

    
      	 	
              (f)

            	
              Employer
                shall have no obligation to make payments to Executive in accordance
                with
                the provisions of Paragraph 4 for periods after the date of Executive’s
                death, except payments due and owing as of such
                date.

            

    

    

    7. Indemnification.
      Executive shall be defended, held harmless by and indemnified by Employer to
      the
      fullest extent permitted by applicable law (including, but not limited to
      payment of all legal fees and costs and by counsel reasonably satisfactory
      to
      him) against claims asserted against him by third parties, arising out of,
      or
      related to, the business of the Employer or Executive’s services for Employer or
      its Affiliates, where such services were within the scope of authority of
      Employee, or specifically authorized in advance by Employer. However, Employer
      shall have no obligation to defend, indemnify or hold Executive harmless from
      any claims relying in whole or in part upon any intentionally tortious, grossly
      negligent or fraudulent conduct by Executive. This duty of indemnification
      shall
      survive the termination of this Agreement for a period of two years.

    

    8. Assignment
      and Successors.
      This
      Agreement is personal in its nature and neither of the parties shall, without
      the written consent of the other, which may be given or withheld in the absolute
      discretion of each, assign, delegate or otherwise transfer this Agreement or
      any
      rights or obligations hereunder; provided, however, that in the event of a
      merger, consolidation, transfer or sale of all or substantially all of the
      assets or other reorganization of the Employer with or to any other
      individual(s) or entity, this Agreement shall, subject to the provisions hereof,
      be binding upon and inure to the benefit of such successor and such successor
      shall discharge and perform all the promises, covenants, duties and obligations
      of the Employer hereunder; provided, however, Employer shall continue to remain
      obligated hereunder.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    

    9. Governing
      Law.
      THIS
      AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF TEXAS WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS OR
      ANY
      OTHER PRINCIPLE THAT COULD RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER
      JURISDICTION. ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
      THIS
      AGREEMENT MUST BE INSTITUTED IN THE STATE OR FEDERAL COURTS LOCATED IN BEXAR
      COUNTY, TEXAS, TO THE JURISDICTION OF WHICH EACH OF THE PARTIES HEREBY EXPRESSLY
      AND IRREVOCABLY AGREES TO SUBMIT. THE PARTIES AGREE TO ENTER INTO MEDIATION
      PRIOR TO TRIAL IN ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR RELATING
      TO
      THIS AGREEMENT. 

    

    10. Entire
      Agreement.
      This
      Agreement embodies the entire agreement of the parties respecting the matters
      within its scope. This Agreement supersedes all prior agreements of the parties
      on this subject matter . Any prior negotiations, correspondence, agreements,
      proposals or understandings relating to the subject matter shall be deemed
      to be
      merged into this Agreement and to the extent inconsistent herewith, such
      negotiations, correspondence, agreements, proposals or understandings shall
      be
      deemed to be of no force or effect. There are no representations, warranties
      or
      agreements, whether express or implied, or oral or written, with respect to
      the
      subject matter , except as set forth herein.

    

    11. Modifications.
      This
      Agreement shall not be modified by any oral agreement, either express or
      implied, and all modifications shall be in writing and signed by the parties
      .

    

    12. Waiver.
      Failure
      to insist upon strict compliance with any of the terms, covenants or conditions
      shall not be deemed a waiver of such terms, covenant or condition, nor shall
      any
      waiver or relinquishment of, or failure to insist upon strict compliance with,
      any right or power at any one or more times be deemed a waiver or relinquishment
      of such right or power at any other time or times. All waivers shall be in
      writing and signed by Executive and Employer.

    

    13. Number
      and Gender.
      Where
      the context requires, the singular shall include the plural, the plural shall
      include the singular, and any gender shall include all other
      genders.

    

    14. Headings.
      The
      section and paragraph headings in this Agreement are for the purpose of
      convenience only and shall not limit or otherwise affect any of its terms
      .

    

    15. Waiver
      of Jury Trial.
      The
      parties acknowledge that they are hereby waiving any right to trial by jury
      in
      any action, proceeding or counterclaim brought by either of the parties against
      the other in connection with any matter whatsoever arising out of or in any
      way
      connected with this Agreement or Executive’s Employment.

    

    16. Attorneys’
      Fees.
      Executive and the Employer agree that in any dispute resolution proceedings
      arising out of this Agreement, the prevailing party shall be entitled to its
      or
      his reasonable attorneys’ fees and costs incurred by it or him in connection
      with resolution of the dispute, in addition to any other relief
      granted.

    

    17. Severability.
      In the
      event that it is determined that any portion of this Agreement is in violation
      of any statute or public policy, then only the portions of this Agreement which
      violate such statute or public policy shall be stricken, and all portions of
      this Agreement which do not violate any statute or public policy shall continue
      in full force and effect. Furthermore, any determination striking any portion
      of
      this Agreement shall be done as narrowly as possible so as to give as much
      effect as possible to the intentions of the parties under this
      Agreement.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    

    18. Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original and all of which together shall constitute one and the same
      document .

    

    19. Notices.
      All
      notices and other communications provided for in the Agreement shall be in
      writing and will be deemed duly given (a) when delivered by hand, (b) two
      days after being given to an express courier with a reliable system for tracking
      delivery, (c) when sent by confirmed facsimile with a copy sent by another
      means specified in this provision or ((d) five days after the day of
      mailing, when mailed by registered or certified mail, return receipt requested,
      postage prepaid, and addressed as set forth below. A party may from time to
      time
      change its address or designee for notification purposes by giving the other
      written notice of the new address or designee and the date upon which it will
      become effective.. The addresses for such notices shall be:(a) If
      to
      Executive, at the address set forth in the preamble immediately following
      Executive’s name.

    

    
      	 	
              (b)

            	
              If
                to Employer, to it at:

            

    

    

    ISI
      Detention Contracting Group, Inc., a California
      corporation

    Attention:
      Sam Youngblood and the Board of Directors

    12903
      Delivery Drive

    San
      Antonio, Texas 78297

    Tel:
      210.495.5245

    Fax:
      210.495.5613

    

    20. Time
      of the Essence.
      Time is
      expressly made of the essence with respect to each and every provision of the
      Agreement.

    

    21. 
      Inurement.
      Except
      as otherwise specified herein, no Person, other than the parties (and
      Executive’s estate upon his death, including his personal representative,
      administrator or heirs), shall have any rights under or interest in this
      Agreement or its subject matter.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    

    Executive
      and Employer have executed this Agreement as of the Effective Date.

    
      	 	 	 
	 	“EXECUTIVE”
	 
 	 
 	 
 
	
            	        	/s/
              Michael Peterson
	 	
              
Michael
              Peterson
	 	
            

      	 	 	 
	 	
              “EMPLOYER”

              

              ISI
                Detention Contracting Group, Inc.

              a
                California corporation

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Sam
              Youngblood
	 	
              
                

              

              Sam Youngblood, 

              CEO

            

    

    

    Guaranty
      Agreement

    

    ISI
      Detention Contracting Group, Inc., a Texas corporation, an Affiliate of
      Employer, and which benefits from the Asset Purchase Agreement and the
      Employment Agreement, guarantees each and every promise and covenant, and the
      performance of each and every duty and obligation of Employer contained in
      the
      Employment Agreement.

    
      	 	 	 
	 	
              ISI
                Detention Contracting Group, Inc.

              a
                Texas corporation

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Sam
              Youngblood
	 	
              
                

              

              Sam Youngblood, 

              CEO

            

    

    

    

    (Signature
      page to Michael Peterson Employment Agreement)

    
      
         

      

      
        13

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