Document:

Unassociated Document

    
      Execution
Copy

    

     

    AMENDMENT
NO. 1

    to

    LOAN
AND SECURITY AGREEMENT

    

    THIS AMENDMENT NO. 1 to LOAN AND
SECURITY AGREEMENT (the “Amendment”),
dated as of January 8, 2009, between ISI SECURITY GROUP, INC. (the
“Borrower”)
and THE PRIVATEBANK AND TRUST
COMPANY (the “Bank”).

    

    WITNESSETH:

    

    WHEREAS, the Borrower and the Bank are
parties to the Loan and Security Agreement dated as of October 3, 2008 (the
“Loan
Agreement”) (capitalized terms used and not otherwise defined herein
shall have the meaning ascribed thereto in the Loan Agreement); and

    

    WHEREAS, the Borrower has requested and
the Bank has agreed to the amendments to the Loan Agreement more fully set forth
herein; and

    

    WHEREAS, such amendments shall be of
benefit, either directly or indirectly, to the Borrower;

    

    NOW THEREFORE, in consideration of the
covenants, conditions and agreements hereinafter set forth, the parties hereto
agree as follows:

    

    1.        
   Amendments.  Upon
and after the Amendment Effective Date (as defined below)

     

    (a)           The
pricing grid set forth in the defined term “Applicable Margin” of Section 1.1 of the
Loan Agreement notwithstanding, the Applicable Margin for the period commencing
January 1, 2009 through September 30, 2009 shall be as follows:

    

    (i)           for
Facility A Loans and Facility B Loans

    LIBOR +
3.50% or Prime + 1.50%, as applicable

    (ii)          for
Facility C Loans

    LIBOR + 4.00% or Prime + 2.00%, as
applicable

    (iii)         The
Letters of Credit issued pursuant Section 2.7 of the
Loan Agreement and the Master Letter of Credit Agreement shall be charged a
Letter of Credit Fee equal to 3.50% of the face amount of the Letter of
Credit.

    

    (b)           The
defined term “Facility B Letter of Credit Obligations” set forth in Section 1.1 of the
Loan Agreement is restated and amended to read in its entirety as
follows.

    

    “Facility B Letter of Credit
Obligations” means the Letter of Credit Obligations in the maximum amount
of $1,100,000.00 incurred by the Borrower under the Facility B Loan
Commitment.”

     

    (c)           The
defined term “Facility B Loan Commitment” in Section 1.1 of the
Loan Agreement is restated and amended to read in its entirety as
follows:

    

    “Facility B Loan Commitment” means
the commitment of the Bank to Advance Facility B Loans to the Borrower in the
aggregate amount of $1,100,000.00 as provided in Section
2.2.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d)           Section 10.1 of the
Loan Agreement is restated and amended in its entirety as follows:

     

    Senior Debt to
EBITDA. As of the end of each of its fiscal quarters, the Borrower and
its Subsidiaries shall maintain a ratio of consolidated Senior Debt to
consolidated trailing twelve (12)
month EBITDA of not greater than

     

    (a)           2.00
to 1.00 for the fiscal quarter ending December 31, 2008,

    (b)           2.25
to 1.00 for the fiscal quarters ending March 31, 2009 and June 30, 2009,
and

    (c)           2.00
to 1.00 for the fiscal quarter ending September 30, 2009 and the fiscal quarters
ending thereafter.

    

    (e)           Section 10.2 of the
Loan Agreement is restated and amended in its entirety as follows:

     

    Total Debt to EBITDA. As of the
end of each of its fiscal quarters, the Borrower and its Subsidiaries shall
maintain a ratio of consolidated Total Debt plus an amount equal
to undrawn Letters of Credit under the Facility A Loan Commitment and any
undrawn Letters of Credit under the Facility B Loan Commitment to consolidated trailing
twelve (12) month EBITDA of not greater than

    

    (a)           4.00
to 1.00 for the fiscal quarters ending September 30, 2008 through the fiscal
quarter ending December 31, 2008,

    (b)           5.40
to 1.00 for fiscal quarters ending March 31, 2009,

    (c)           5.25
to 1.00 for fiscal quarters ending June 30, 2009,

    (d)     
     4.00 to 1.00 for the fiscal quarter ending
September 30, 2009, and

    (e)           3.50
to 1.00 the fiscal quarters ending thereafter.

    

    (f)           Section 10.3 of the
Loan Agreement is restated and amended in its entirety to read as
follows:

     

    Fixed Charge Coverage. 

     

    (a)           While
a Payment Blockage Period is not in effect under any of the Subordination
Agreements provided under Section 3.1(i) of the
Loan Agreement, as of the end of each of its fiscal quarters, the Borrower
and its Subsidiaries shall maintain a ratio of (i) for the applicable reporting
period EBITDA minus the sum of all
income taxes paid in cash by the Borrower and its Subsidiaries and all Capital
Expenditures which are not financed with Funded Debt, to (ii) the sum for such
reporting period of (1) cash Interest Charges paid plus (2) required
payments of principal of Total Debt (including the Facility C Loans, but
excluding the Facility A Loans and Facility B Loans), of not less than 1.10 to
1.00. For the calendar year of 2008, the Fixed Charge Coverage Ratio shall be
based upon cumulative 2008 reporting until December 31, 2008, and thereafter it
shall be measured on a trailing twelve (12) month basis.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (b)           While
a Payment Blockage Period is in effect under any of the Subordination
Agreements provided under Section 3.1(i) of the
Loan Agreement, as
of the end of each of its fiscal quarters, the Borrower and its Subsidiaries
shall maintain a ratio of (i) for the applicable reporting period EBITDA minus the sum of all
income taxes paid in cash by the Borrower and its Subsidiaries and all Capital
Expenditures which are not financed with Funded Debt, to (ii) the sum for such
reporting period of (1) cash Interest Charges paid plus (2) required
payments of principal of Total Debt (including the Facility C Loans, but
excluding the Facility A Loans and Facility B Loans), provided, however, that cash Interest Charges
and principal paid by Argyle on behalf of the Borrower on Senior Debt (limited
to a $500,000.00 deduction for the period ending  December 31, 2008
and an additional $500,000.00 deduction for the period ending March 31, 2009)
and Subordinated Debt shall be deducted from the sum of cash Interest Charges
and principal payments on Total Debt, and of not less than 1.10
to 1.00. For the calendar year of 2008, the Fixed Charge Coverage Ratio shall be
based upon cumulative 2008 reporting until December 31, 2008, and thereafter it
shall be measured on a trailing twelve (12) month basis.

    

    (g)           A
new Section
10.5 is added to the Loan Agreement that shall read in its entirety as
follows:

    

    Maximum Capital
Expenditures.  For the fiscal quarters ending March 31, 2009,
June 30, 2009 and September 30, 2009 the Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures in excess of $300,000 per
fiscal quarter.

     

    (h)           Pursuant
to Section 8.12
of the Loan Agreement, the Borrower shall permit the Bank or agents engaged by
the Bank to conduct during regular business hours a process audit of the
Borrower and its Subsidiaries.  The process audit shall occur prior to
March 31, 2009.  The Bank shall define the scope and level of detail
of the process audit.  The Borrower shall provide to the Bank and its
agents access to all of the Borrower’s and Subsidiaries’
facilities.  At the request of the Bank, the Borrower shall make
available to the Bank and its agents all books and records the Bank may request
in connection with the audit. The Borrower shall make officers and employees of
the Borrower and its Subsidiaries available to the Bank to discuss the
audit.  The Borrower shall promptly pay or reimburse the Bank for the
actual cost of the process audit including all out-of-pocket expenses incurred
by the Bank and its agents for travel, food and lodging.

    

    (i)          
  On or before January 8, 2009, Argyle Security, Inc. shall contribute
to the Borrower no less than $3,000,000.00 of capital.  The capital
contribution shall be in a form acceptable to the Bank.   The
Borrower shall pay down from the proceeds of the capital contribution (a) the
outstanding balance of the Facility C Loan by $2,500,000.00, and (b) the
outstanding balance of the Facility A Loan by $500,000.00.  The
Borrower shall not be required to make the $500,000.00 Facility C Loan
installment payment that is due on March 31, 2009 as required by Section 2.3(c) of the
Loan Agreement.  Facility C Loan installment payments required
pursuant to Section
2.3(c) of the Loan Agreement shall resume with the installment payment
due June 30, 2009.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    (j)           Borrower
acknowledges that Payment Blockage Period Notices under certain Subordination
Agreements have been sent to certain holders of Subordinated Debt listed on
Schedule 7.25
of the Loan Agreement.  Borrower represents and warrants that it will
not make principal and interest payments on such Subordinated Debt until
Borrower complies with the financial covenants set forth in Sections 10.1, 10.2 and
10.3 of the Loan Agreement, before giving effect to this Amendment, that
are calculated in accordance with Section 10.3(a) of
this Amendment.

    

    2.           
 Waiver.  Pursuant
to Section 13.3
of the Loan Agreement, the Bank hereby

     

    (a)         waives
compliance with the financial covenants set forth in Sections 10.1, 10.2 and
10.3 of the Loan Agreement for the period ending December 31, 2008. This
waiver is effective only for the specific instances provided for under this
Amendment; and

     

    (b)         waives
the prohibition on the cancellation of accounts receivable for doubtful
collections to non-Affiliates in an aggregate amount not to exceed $100,000.00
per account set forth in Section 9.9 of the
Loan Agreement solely to permit the cancellation of accounts receivable
identified as (i) “Gash Electric” in the amount of $310,246 and (ii) “WCI Texas”
in the amount of $104,537. This waiver is effective only for the specific
accounts receivables provided for under this Amendment. 

     

    3.           Representations and
Warranties.  In order to induce the Bank to agree to the
amendments and waivers to the Loan Agreement described in Sections 1 and 2 of
this Amendment, the Borrower makes the following representations and warranties,
which shall survive the execution and delivery of this Amendment:

     

    (a)         No
Event of Default will exist immediately after giving effect to the amendment
contained herein;

    

    (b)         Each
of the representations and warranties set forth in Section 7 of the Loan
Agreement are true and correct as though such representations and warranties
were made at and as of the Amendment Effective Date, except to the extent that
any such representations or warranties are made as of a specified date or with
respect to a specified period of time, in which case such representations and
warranties shall be made as of such specified date or with respect to such
specified period.  Each of the representations and warranties made
under the Loan Agreement shall survive to the extent provided therein and not be
waived by the execution and delivery of this Amendment;

    

    (c)         The
Borrower is a duly organized, validly existing Delaware corporation and has the
power and authority to execute, deliver and carry out the terms and provisions
of this Amendment, and has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this
Amendment;

    

    (d)         No
consent of any other Person or filing or action by any governmental authorities,
is required to authorize the execution, delivery and performance of this
Amendment;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    (e)         This
Amendment has been duly executed by a duly authorized signatory on behalf of the
Borrower and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, except as enforcement
thereof may be subject to the effect of any applicable (i) bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors’
rights generally and (ii) general principals of equity; and

    

    (f)           The
execution and delivery and performance of the agreements in this Amendment will
not violate any law, statute or regulation applicable to the Borrower or any
order or decree of any governmental authorities, or conflict with or result in
the breach or any contractual obligation of the Borrower.

     

    4.        
    Consent to Amendment of
Subordinated Debt.  The Bank consents to the Borrower entering
into Sixth Amendment to the Note and Warrant Purchase Agreement with William
Blair Mezzanine Capital Fund III, L.P. in the form of the attached Exhibit
A.

     

    5.          
  Conditions
Precedent to Effectiveness of the Amendment.  This Amendment is
subject to the satisfaction of (or waiver by the Bank in its sole discretion)
the following conditions precedent:

     

    (a)         The
Borrower shall have paid to the Bank an amendment fee of
$90,500.00;

     

    (b)         The
Borrower shall have executed and delivered to the Bank an Amended and Restated
Facility B Loan Note in the form of the attached Exhibit
B;

     

    (c)         Argyle
Security, Inc. shall have entered into a Guaranty Agreement in the form of the
attached Exhibit
C;

     

    (d)         The
Guarantors shall have executed and delivered to the Bank a Reaffirmation of
Guaranty Agreement in the form attached to this Amendment;

     

    (e)         The
Borrower shall have executed and delivered such other documents and instruments
that the Bank may reasonably request to effect the purposes of this
Amendment.

     

    5.          
  Effectiveness.  The
amendments and waivers to the Loan Agreement contained in Sections 1 and 2 of
this Amendment shall become effective as of the date first referenced above
after the Bank shall have received this Amendment, executed and delivered by the
Borrower and the Bank and all of the conditions precedent have been satisfied
(the  “Amendment
Effective Date”).

    

    6.        
    Expenses.  The
Borrower agrees to pay on demand all reasonable costs and expenses, including
filing and recording fees, incurred by the Bank in connection with the
preparation, execution and delivery of this Amendment, and any other documents
or instruments which may be delivered in connection herewith, including without
limitation, the reasonable fees and expenses of Davis Graham & Stubbs LLP,
counsel for the Bank.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    7.           
 Counterparts.  This
Amendment may be executed in counterparts and by different parties hereto in
separate counterparts, each of which, when so executed and delivered, shall be
deemed to be an original and all of which, when taken together, shall constitute
one and the same instrument.  Faxed or emailed signatures of this
Agreement shall be binding on the parties.  Each party shall promptly
send to the other party signed originals of faxed or emailed signatures to this
Agreement.

     

    8.       
     Ratification.  The
Loan Agreement, as amended by this Amendment, is and shall continue to be in
full force and effect and is hereby in all respects confirmed, approved and
ratified.  Except as amended or waived hereby, all terms and
conditions of the Loan Agreement remain the same.

     

    9.        
    Release.  In
consideration of the amendments provided herein, the Borrower releases and
discharges the Bank, and its directors, officers, employees, agents, successors
and assigns from all claims and causes of action of any nature whatsoever, which
the Borrower, its successors and assigns ever had or have as of the date hereof
against the Bank that arise, directly or indirectly, out of or are related to
the Loan Agreement. The Borrower acknowledges that the Obligations arising under
the Loan Agreement are not subject to any such counterclaim, offset, defense or
rights of recoupment against the Bank.

    

    10.        
    Governing
Law.  The rights and duties of the Borrower and the Bank under
this Amendment shall be governed by the law of the State of
Illinois.

     

    11.    
        Reference to Loan
Agreement.  From and after the Amendment Effective Date, each
reference in the Loan Agreement to "this Loan Agreement", "hereof", "hereunder"
or words of like import, and all references to the Loan Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature, shall be deemed to mean the Loan Agreement as modified
and amended by this Amendment.

     

    IN WITNESS WHEREOF, the
parties have caused this Amendment to be duly executed by their authorized
officers as of the date first written above.

    

    ISI
SECURITY GROUP, INC.

    

    

    By:   
/s/ Sam
Youngblood                             

    Sam Youngblood

    President

    

    THE
PRIVATEBANK AND TRUST COMPANY

    

    

    By: _/s/ Darren L.
Lemkau                            

    Darren L.
Lemkau

    Managing Director

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    REAFFIRMATION OF GUARANTY
AGREEMENT

    

    The
undersigned (a) acknowledges receipt of a copy of (i) Amendment No. 1 to Loan
and Security Agreement, dated January 8, 2009, between ISI Security Group, Inc.
and The PrivateBank and Trust Company, (b) consents to such amendments and
waivers and all prior amendments and each of the transactions referenced
therein, and (c) hereby reaffirms its obligations under its Unconditional
Continuing Guaranty Agreement, dated as of October 3, 2008 in favor of The
PrivateBank and Trust Company.

    

    Dated as
of January 8, 2009

     

    
      
        
          
            	
                    
                      DETENTION
      CONTRACTING GROUP, LTD.,

                      a
      Texas limited partnership

                    

                  	 	 	 
	 	 	 	 	 	 
	By: 	
                    ISI DETENTION CONTRACTING
      GROUP, INC., a Texas
      corporation, its
      general partner

                  	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	/s/ Sam Youngblood	 	 	
                     

                  	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

          

        

         

         

      

      
        
          	
                  
                    ISI
      DETENTION CONTRACTING

                    GROUP, INC., a Texas
      corporation

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

    

     

     

    
      
        
          	
                  
                    ISI
      DETENTION CONTRACTING

                    GROUP, INC., a
      California corporation

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

       

      
        
          	
                  
                    ISI
      DETENTION CONTRACTING

                    GROUP, INC., a New
      Mexico corporation

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      
        
          	
                  
                    
                      ISI
      DETENTION SYSTEMS, INC.,

                      a
      Texas corporation

                    

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

       

      
        
          	
                  
                    ISI
      SYSTEMS, LTD.,

                    
                      a
      Texas limited partnership

                    

                  

                	 	 	 
	 	 	 	 	 	 
	By: 	
                  ISI DETENTION SYSTEMS, INC.,
      

                  a
      Texas corporation, its general
partner

                	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

         

      

      
        	
                
                  
                    
                      METROPLEX
      CONTROL SYSTEMS, INC.,

                      a
      Texas corporation, (f/k/a ISI Metroplex Controls,
      Inc.)

                    

                  

                

              	 	 	 	 
	 	
              	 	 	
                 

              	 
	By:  	/s/ Sam Youngblood 	 	 	
                 

              	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

      

    

    
       

       

      
        
          	
                  
                    
                      ISI CONTROLS,
      LTD.,

                      a
      Texas limited partnership

                    

                  

                	 	 	 
	 	 	 	 	 	 
	By: 	
                  METROPLEX CONTROL SYSTEMS,
      INC.,

                  a
      Texas corporation, its general
      partner

                	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

      

        
          	
                  
                    
                      
                        
                          METROPLEX
      COMMERCIAL FIRE AND

                          SECURITY ALARMS, INC., a
      Texas corporation

                        

                      

                    

                  

                	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	/s/ Sam Youngblood 	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	
              
                MCFSA,
      LTD.,

                
                  
                    a
      Texas limited partnership

                  

                

              

            	 	 	 
	 	 	 	 	 	 
	By: 	
              METROPLEX COMMERCIAL FIRE AND
      SECURITY ALARMS, INC., a
      Texas corporation,
      its general partner

            	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	/s/ Sam Youngblood 	 	 	
               

            	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

    

      	
              
                
                  
                    
                      
                        COM-TEC
      SECURITY, LLC,

                        a
      Wisconsin limited
partnership

                      

                    

                  

                

              

            	 	 	 
	 	
            	 	 	
               

            	 
	By:  	/s/ Sam Youngblood 	 	 	
               

            	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

    

     

     

    
      	
              
                
                  
                    
                      
                        COM-TEC
      CALIFORNIA LIMITED

                        PARTNERSHIP, a
      Wisconsin

                        limited
      partnership

                      

                    

                  

                

              

            	 	 	 
	 	
            	 	 	
               

            	 
	By:  	/s/ Sam Youngblood 	 	 	
               

            	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      
        	
                 Execution
      Copy

              

      

    

     

    EXHIBIT
A

     

    SIXTH
AMENDMENT

     

    TO

     

    NOTE
AND WARRANT PURCHASE AGREEMENT

     

    THIS
SIXTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT, dated as of
January 8, 2009 (the “Amendment”),
by and between ISI Security Group, Inc., a Delaware corporation formerly known
as ISI Detention Contracting Group, Inc. and d/b/a “Argyle Security USA”
(successor-by-merger to ISI Security Group, Inc., an unrelated entity) (the
“Company”),
and William Blair Mezzanine Capital Fund III, L.P., a Delaware limited
partnership (the “Purchaser”),
and Com-Tec Security, LLC, a Wisconsin limited liability company, and Com-Tec
California Limited Partnership, a Wisconsin limited partnership, solely for
purposes of becoming a “Guarantor” under the Purchase Agreement (as defined
below).

     

    WITNESSETH:

     

    WHEREAS,
the Company, the Purchaser and the Guarantors (as such term is defined in the
Purchase Agreement (as defined below)) (such Guarantors are parties to the
Purchase Agreement solely for the purposes of Section 8 thereof) previously
entered into that certain Note and Warrant Purchase Agreement, dated as of
October 22, 2004, as amended by that certain (a) Omnibus First
Amendment to Note and Warrant Purchase Agreement and Warrant dated as of
November 1, 2005, (b) Omnibus Second Amendment to Note and Warrant
Purchase Agreement and Warrant, dated as of July 31, 2007, (c) Third
Amendment to Note and Warrant Purchase Agreement, dated as of January 2,
2008, (d) Fourth Amendment to Note and Warrant Purchase Agreement, dated as
of June 25, 2008, and (e) Fifth Amendment to Note and Warrant Purchase
Agreement, dated as of November 13, 2008 (as further amended, restated,
supplemented or otherwise modified from time to time, the “Purchase
Agreement”) (capitalized terms used and not otherwise defined herein
shall have the meaning ascribed thereto in the Purchase Agreement);
and

     

    WHEREAS,
the Company has requested and the Purchaser has agreed to the amendments to the
Purchase Agreement more fully set forth herein;

     

    WHEREAS,
this Amendment shall constitute a Transaction Document, and these Recitals shall
be construed as part of this Amendment; and

     

    WHEREAS,
such amendments shall be of benefit, either directly or indirectly, to the
Company.

     

    NOW,
THEREFORE, in consideration of the covenants, conditions and agreements
hereinafter set forth and other good and valuable consideration, the adequacy,
sufficiency and receipt of which are hereby acknowledged, the parties hereto
agree as follows:

     

    1.          
 Amendments to
Purchase Agreement.  Upon and after the Sixth Amendment
Effective Date (as defined below):

     

    (a)           Section 1.1
of the Purchase Agreement is hereby amended by adding the following new
definitions of the “Sixth Amendment Effective
Date” and “Total Debt” in its
proper alphabetical order to read as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ““Sixth Amendment Closing
Date” shall mean January 8, 2009.

     

    “Total Debt” shall
mean all Indebtedness of the Company and its Subsidiaries, determined on a
consolidated basis, excluding (a) Contingent Obligations (except to the
extent constituting Contingent Obligations in respect of the Indebtedness of a
Person other than the Company or any Subsidiary), (b) Hedging Obligations
(as defined in the Loan and Security Agreement), (c) Indebtedness of the
Company to Subsidiaries and Indebtedness of Subsidiaries to the Company or to
other Subsidiaries, and (d) contingent obligations in respect to undrawn
Letters of Credit (as defined in the Loan and Security Agreement).”

     

    (b)           Section 1.1
of the Purchase Agreement is hereby amended by amending and restating the
following definitions in their entirety:

     

    ““Interest Expense”
shall mean, for any period, the sum of:  (a) all interest,
charges and related expenses payable with respect to that fiscal period to a
lender in connection with borrowed money or the deferred purchase price of
assets that are treated as interest in accordance with GAAP, plus (b) the
portion of Capitalized Lease Obligations with respect to that fiscal period that
should be treated as interest in accordance with GAAP, plus (c) all charges
paid or payable (without duplication) during that period with respect to any
Hedging Agreements (as defined in the Loan and Security Agreement).

     

    “Note” means that
certain Third Amended and Restated Senior Subordinated Promissory Note dated
January 8, 2009, in the aggregate original principal amount of Five Million
Nine Hundred Fifty-One Thousand Six Hundred Nine and 00/100
Dollars ($5,951,609), made payable by the Company in favor of the
Purchaser, in substantially the form as set forth in Exhibit A
attached hereto, with appropriate insertions, as may be amended, restated,
substituted, replaced  or otherwise modified from time to
time.

     

    “Note A” means
that certain Third Amended and Restated Senior Subordinated Promissory Note
dated January 8, 2009, in the aggregate original principal amount of Five
Million and 00/100 Dollars ($5,000,000), made payable by the Company in
favor of the Purchaser, in substantially the form as set forth in Exhibit A-1
attached hereto, with appropriate insertions, as may be amended, restated,
substituted, replaced or otherwise modified from time to time.”

     

    (c)           Section 1.1
of the Purchase Agreement is hereby amended by deleting the definitions of
“Fixed Charge Coverage Ratio” and “Fixed Charges” in their
entirety.

     

    (d)           Section 4.7(a)
of the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

     

    
      	
               
      

            	
              “(a)

            	
              Maximum Capital
      Expenditures.  For the fiscal quarters ending
      March 31, 2009, June 30, 2009 and September 30, 2009, the
      Company and its Subsidiaries, on a consolidated basis, shall not make
      Capital Expenditures in excess of $330,000 per fiscal
    quarter.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (e)           Section 4.7(b)
of the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

     

    “(b)  Minimum Fixed Charge
Coverage.

     

    
      	
               
      

            	
              (i)

            	
              While
      a payment blockage period is not in effect under the Senior Subordination
      Agreement or any other subordination agreement, as of the end of each of
      its fiscal quarters, the Company and its Subsidiaries shall maintain, on a
      consolidated basis, a ratio (the “Fixed Charge Coverage
      Ratio”) of (A) for the applicable reporting period EBITDA
      minus the
      sum of all income taxes paid in cash by the Company and its Subsidiaries
      and all Capital Expenditures which are not financed with Funded Debt, to
      (B) the sum for such reporting period of (1) cash Interest
      Expense paid plus
      (2) required payments of principal of Total Debt (including the
      Facility C Loans (as defined in the Loan and Security Agreement), but
      excluding the Facility A Loans and Facility B Loans (each as defined in
      the Loan and Security Agreement)), of not less than 1.10 to
      1.00.  For the calendar year of 2008, the Fixed Charge
      Coverage Ratio shall be based upon cumulative 2008 reporting until
      December 31, 2008, and thereafter it shall be measured on a trailing
      twelve (12) month basis; provided, however, that in the event the Fixed
      Charge Coverage Ratio for the applicable reporting period is at or between
      .90 to 1.00 and 1.09 to 1.00, the Company shall have the option (the
      “Coverage Option”), exercisable one (1) time during the term of this
      Agreement, to accrue the Current Interest and default interest due and
      payable under the Note (but not under Note A or any other note) “in
      kind” for two (2) successive quarterly periods prior to any Event of
      Default being declared by the Purchaser
  hereunder.

            

    

     

    
      	
               
      

            	
              (ii)

            	
              While
      a payment blockage period is in effect under the Senior Subordination
      Agreement or any other subordination agreement, as of the end of each
      of its fiscal quarters, the Company and its Subsidiaries shall maintain a
      ratio of (A) for the applicable reporting period EBITDA minus the sum
      of all income taxes paid in cash by the Company and its Subsidiaries and
      all Capital Expenditures which are not financed with Funded Debt, to
      (B) the sum for such reporting period of (1) cash Interest
      Expense paid plus
      (2) required payments of principal of Total Debt (including the
      Facility C Loans (as defined in the Loan and Security Agreement), but
      excluding the Facility A Loans and Facility B Loans (each as defined in
      the Loan and Security Agreement)), provided, however, that cash Interest
      Expense and principal paid by Parent on behalf of the Company on Senior
      Debt (limited to a $500,000.00 deduction for the period ending
      December 31, 2008 and an additional $500,000.00 deduction for the
      period ending March 31, 2009) and Subordinated Debt shall be deducted
      from the sum of cash Interest Expense and principal payments on Total
      Debt, of not less
      than 1.10 to 1.00. For the calendar year of 2008, the Fixed Charge
      Coverage Ratio shall be based upon cumulative 2008 reporting until
      December 31, 2008, and thereafter it shall be measured on a trailing
      twelve (12) month basis.”

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (f)           Section 4.7(c)
of the Purchase Agreement is hereby amended and restated in its entirety to read
as follows:

     

    
      
        	
              	
                “(c)(i) 

              	
                Senior Debt to
      EBITDA.  As of the end of each of its fiscal quarters,
      the Company and its Subsidiaries shall maintain a ratio of consolidated
      Senior Debt to consolidated trailing twelve
      (12) month EBITDA of not greater
than

              

      

    

     

    (a)           2.20
to 1.00 for the fiscal quarter ending December 31, 2008,

    (b)           2.50
to 1.00 for the fiscal quarters ending March 31, 2009 and June 30,
2009, and

    (c)           2.20
to 1.00 for the fiscal quarter ending September 30, 2009 and the fiscal
quarters ending thereafter.

    

    
      	
               
      

            	
              (ii)

            	
              Total Debt to
      EBITDA.  As of the end of each of its fiscal quarters,
      the Company and its Subsidiaries shall maintain a ratio of consolidated
      Total Debt plus an amount
      equal to undrawn Letters of Credit (as defined in the Loan and Security
      Agreement) under the Facility A Loan Commitment (as defined in the Loan
      and Security Agreement) and any undrawn Letters of Credit under the
      Facility B Loan Commitment (as defined in the Loan and Security
      Agreement) to
      consolidated trailing twelve (12) month EBITDA of not greater
      than

            

    

     

    (a)           4.40
to 1.00 for the fiscal quarters ending September 30, 2008 through the
fiscal quarter ending December 31, 2008,

    (b)           5.94
to 1.00 for fiscal quarters ending March 31, 2009,

    (c)           5.78
to 1.00 for fiscal quarters ending June 30, 2009,

    (d)           4.40
to 1.00 for the fiscal quarter ending September 30, 2009, and

    (e)           3.85
to 1.00 the fiscal quarters ending thereafter.”

     

    ;
provided, however, that in the event the Company has not exercised the Coverage
Option, the Company shall have the option, exercisable one (1) time during
the term of this Agreement, to accrue the Current Interest and default interest
due and payable under the Note (but not under Note A or any other note) “in
kind” for two (2) successive quarterly periods prior to any Event of
Default being declared by the Purchaser hereunder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.           
 Additional
Provisions.

     

    (a)           On
or before January 8, 2009, Argyle Security, Inc. shall contribute to the
Company no less than $3,000,000.00 of capital.  The capital
contribution shall be in a form acceptable to the Purchaser.  The
Company shall pay down from the proceeds of the capital contribution
(a) the outstanding balance of the Facility C Loan (as defined in the Loan
and Security Agreement) under the Loan and Security Agreement by $2,500,000.00,
and (b) the outstanding balance of the Facility A Loan (as defined in the
Loan and Security Agreement) under the Loan and Security Agreement by
$500,000.00.  The Company shall not be required to make the
$500,000.00 Facility C Loan (as defined in the Loan and Security Agreement)
installment payment that is due on March 31, 2009 as required by Section 2.3(c)
of the Loan and Security Agreement.  Facility C Loan (as defined in
the Loan and Security Agreement) installment payments required pursuant to Section 2.3(c)
of the Loan and Security Agreement shall resume with the installment payment due
June 30, 2009.

     

    (b)           The
Company acknowledges that payment blockage period notices under certain
subordination agreements in connection with certain subordinated notes have been
sent by the Senior Lender to certain subordinated debt holders listed on the
Indebtedness Schedule of the Purchase Agreement.  The Company
represents and warrants that it will not make principal and interest payments on
such subordinated Indebtedness until the Company complies with the financial
covenants set forth in Sections 4.7 of
the Purchase Agreement (before giving effect to this Amendment) that are
calculated in accordance with Section 4.7 of
the Purchase Agreement.

     

    (c)           Pursuant
to the provisions and in satisfaction of the terms set forth in the Waiver dated
December 24, 2008 (the “Waiver”), the Company
hereby withdraws its Option Election (as defined in the Waiver).  By
signing below, the Purchaser acknowledges that the provisions of the Waiver are
satisfied and that the Option Election is no longer in effect and shall, in the
future, be available to the Company pursuant to the terms and conditions of this
Amendment and the Purchaser waives compliance with the financial covenants set
forth in Sections
4.7(c) of the Purchase Agreement for the period ending on each of
September 30, 2008 and December 31, 2008. This waiver is effective only for the
specific instances provided for under this Amendment.

     

    3.        
   Joinder of
Guarantors.  Each of Com-Tec Security, LLC, a Wisconsin limited
liability company, and Com-Tec California Limited Partnership, a Wisconsin
limited partnership, hereby agrees to become a party to the Purchase Agreement
and agrees to be bound by all of the terms, conditions, obligations and
covenants contained therein that apply to “Guarantors” thereunder, including,
without limitation, the provisions of Section 8 of the Purchase
Agreement.

     

    4.      
     Representations and
Warranties.  In order to induce the Purchaser to agree to the
amendments to the Purchase Agreement described in Section 1 of this
Amendment, the Company makes the following representations and warranties, which
shall survive the execution and delivery of this Amendment:

     

    (a)           No
Event of Default has occurred and is continuing and no Event of Default will
exist immediately after giving effect to the amendments contained
herein;

     

    (b)           Each
of the representations and warranties set forth in Section 5 of the
Purchase Agreement are true and correct as though such representations and
warranties were made at and as of the Amendment Effective Date, except to the
extent that any such representations or warranties are made as of a specified
date or with respect to a specified period of time, in which case such
representations and warranties shall be made as of such specified date or with
respect to such specified period.  Each of the representations and
warranties made under the Purchase Agreement shall survive to the extent
provided therein and not be waived by the execution and delivery of this
Amendment;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)           The
Company is a duly organized, validly existing Delaware corporation and has the
power and authority to execute, deliver and carry out the terms and provisions
of this Amendment, and has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this
Amendment;

     

    (d)           No
consent of any other Person or filing or action by any governmental authorities,
is required to authorize the execution, delivery and performance of this
Amendment;

     

    (e)           This
Amendment has been duly executed by a duly authorized signatory on behalf of the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforcement thereof may be
subject to the effect of any applicable (i) bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors’ rights generally
and (ii) general principals of equity; and

     

    (f)           The
execution and delivery and performance of the agreements in this Amendment will
not violate any law, statute or regulation applicable to the Company or any
order or decree of any governmental authorities, or conflict with or result in
the breach or any contractual obligation of the Company.

     

    5.            Conditions Precedent to
Effectiveness of the Amendment.  The amendments described in
Section 1
above are subject to the satisfaction of (or waiver by the Purchaser in its sole
discretion) the following conditions precedent:

     

    (a)           The
Company shall have entered into an amendment to the Loan and Security Agreement
on terms satisfactory to the Purchaser;

     

    (b)           The
Company shall have executed and delivered to the Purchaser this
Amendment;

     

    (c)           The
Company shall have executed and delivered to the Purchaser a Third Amended and
Restated Senior Subordinated Promissory Note and an Amended and Restated Senior
Subordinated Promissory Note, in the forms of the attached Exhibit A and
Exhibit A-1,
respectively;

     

    (d)           The
Guarantors shall have executed and delivered to the Purchaser a Reaffirmation of
Guaranty Agreement in the form attached to this Amendment; and

     

    (e)           The
Company shall have executed and delivered such other documents and instruments
that the Purchaser may reasonably request to effect the purposes of this
Amendment.

     

    6.      
      Effectiveness.  The
amendments to the Purchase Agreement contained in Section 1 of
this Amendment shall become effective as of the Sixth Amendment Effective Date
(as defined in the Purchase Agreement) after the Purchaser shall have received
this Amendment, executed and delivered by the Company and the Purchaser and all
of the conditions precedent have been satisfied.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.           
 Expenses.  The
Company agrees to pay on demand all reasonable costs and expenses, including
filing and recording fees, incurred by the Purchaser in connection with the
preparation, execution and delivery of this Amendment, and any other documents
or instruments which may be delivered in connection herewith, including without
limitation, the reasonable fees and expenses of Vedder Price P.C., counsel for
the Purchaser.

     

    8.         
   Counterparts.  This
Amendment may be executed in counterparts and by different parties hereto in
separate counterparts, each of which, when so executed and delivered, shall be
deemed to be an original and all of which, when taken together, shall constitute
one and the same instrument.  Faxed or emailed signatures of this
Agreement shall be binding on the parties.  Each party shall promptly
send to the other party signed originals of faxed or emailed signatures to this
Agreement.

     

    9.         
   Ratification.  The
Purchase Agreement, as amended by this Amendment, is and shall continue to be in
full force and effect and is hereby in all respects confirmed, approved and
ratified.  Except as amended hereby, all terms and conditions of the
Purchase Agreement remain the same.

     

    10.           Release.  In
consideration of the amendments provided herein, the Company releases and
discharges the Purchaser, and its directors, officers, employees, agents,
successors and assigns from all claims and causes of action of any nature
whatsoever, which the Company, its successors and assigns ever had or have as of
the date hereof against the Purchaser that arise, directly or indirectly, out of
or are related to the Purchase Agreement.  The Company acknowledges
that the Obligations arising under the Purchase Agreement are not subject to any
such counterclaim, offset, defense or rights of recoupment against the
Purchaser.

     

    11.           Governing
Law.  The rights and duties of the Company and the Purchaser
under this Amendment shall be governed by the law of the State of
Illinois.

     

    12.           Reference to Purchase
Agreement.  From and after the Amendment Effective Date, each
reference in the Purchase Agreement to “this Purchase Agreement”, “hereof”,
“hereunder” or words of like import, and all references to the Purchase
Agreement in any and all agreements, instruments, documents, notes, certificates
and other writings of every kind and nature, shall be deemed to mean the
Purchase Agreement as modified and amended by this Amendment.

     

    [The
remainder of this page is left blank intentionally.]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      Signature
Page to Sixth Amendment to Note and Warrant Purchase
Agreement

    IN WITNESS WHEREOF, the
parties have caused this Amendment to be duly executed by their authorized
officers as of the date first written above.

     

    
       

      
        
          
            	COMPANY:	 	
                    PURCHASER:

                  	 
	 	 	 	 	 	 
	ISI SECURITY GROUP,
      INC., a Delaware corporation formerly known as ISI Detention
      Contracting Group, Inc. and d/b/a “Argyle Security USA”	 	WILLIAM BLAIR MEZZANINE CAPITAL
      FUND III, L.P.	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	
                  	 	By:  	
                    
                      William
      Blair Mezzanine Capital

                              Partners III,
      L.L.C.,

                    

                  	 
	By:  	 	 	 	
                    its
      General Partner

                  	 
	Name:  	Sam
      Youngblood 	 	 	 	 
	Title:  	President	 	 	 	 
	 	 	 	By:       	 
      	 
	 	 	 	Name:  	
                    Terrance
      M. Shipp

                  	 
	 	
                     

                  	 	Title:   	
                    Managing
      Director

                  	 

          

        

      

       

       

      
        
          
            	
                    GUARANTORS:

                  	 	 	 
	 	 	 	 	 	 
	 	 	 	 
	
                    COM-TEC
      SECURITY, LLC,

                    a
      Wisconsin limited liability company

                  	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  Metroplex
      Control Systems, Inc., its General Partner	 	 	 	 
	 	
                  	 	 	
                     

                  	 
	By:  	  	 	 	
                     

                  	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

          

        

         

         

        
          
            
              
                	
                        COM-TEC
      CALIFORNIA LIMITED

                        PARTNERSHIP,
      a Wisconsin limited partnership

                      	 	 	 
	 	
                      	 	 	
                         

                      	 
	By:  	  	 	 	
                         

                      	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

              

               

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

            

          

        

      

    

     

    
 

    REAFFIRMATION OF GUARANTY
AGREEMENT

     

    The
undersigned (a) acknowledges receipt of a copy of the Sixth Amendment to
Note and Warrant Purchase Agreement, dated January 8, 2009, by and between
ISI Security Group, Inc. and William Blair Mezzanine Capital Fund III,
L.P., a Delaware limited partnership, (b) consents to such amendments and
all prior amendments and each of the transactions referenced therein, and
(c) hereby reaffirms its obligations as a Guarantor under the Purchase
Agreement in favor of William Blair Mezzanine Capital Fund III, L.P., a
Delaware limited partnership.

    

    Dated as
of January 8, 2009

     

    
       

      
        
          
            	
                    DETENTION
      CONTRACTING GROUP, LTD.,

                    
                      a
      Texas limited partnership

                    

                  	 	 	 
	 	 	 	 	 	 
	By: 	
                    ISI DETENTION
      CONTRACTING GROUP, INC.,
      

                    a
      Texas corporation, 

                    its
      general partner

                  	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	  	 	 	
                     

                  	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

          

        

         

         

      

      
        
          	
                  
                    ISI
      DETENTION CONTRACTING

                    GROUP, INC., a Texas
      corporation

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	  	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      
        
          	
                  
                    ISI
      DETENTION CONTRACTING

                    GROUP, INC., a
      California corporation

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	  	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        Signature
Page to Reaffirmation of Guaranty Agreement

      

       

      
        
          	
                  
                    ISI
      DETENTION CONTRACTING

                    GROUP, INC., a New
      Mexico corporation

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	   	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

         

         

      

      
        
          	
                  
                    
                      ISI
      DETENTION SYSTEMS, INC.,

                      a
      Texas corporation

                    

                  

                	 	 	 	 
	 	
                	 	 	
                   

                	 
	By:  	   	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

       

      
        
          	
                  
                    ISI
      DETENTION SYSTEMS, LTD.,

                    a
      Texas limited partnership

                  

                	 	 	 
	 	 	 	 	 	 
	By: 	
                  ISI DETENTION SYSTEMS, INC.,
      

                  a
      Texas corporation,  its
      general partner

                	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	   	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

      

       

      

      
        	
                
                  
                    METROPLEX
      CONTROL SYSTEMS, INC.,

                    
                      a
      Texas corporation, (f/k/a ISI Metroplex Controls,
      Inc.)

                    

                  

                

              	 	 	 
	 	
              	 	 	
                 

              	 
	By:  	   	 	 	
                 

              	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

      

       

       

      
        
          	
                  
                    
                      ISI CONTROLS,
      LTD.,

                      a
      Texas limited partnership

                    

                  

                	 	 	 
	 	 	 	 	 	 
	By: 	
                  METROPLEX
      CONTROL SYSTEMS, INC., 

                  a
      Texas corporation, its general partner

                	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	   	 	 	
                   

                	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

        

         

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
         

        Signature
Page to Reaffirmation of Guaranty Agreement

         

      

      
        	
                
                  
                    
                      METROPLEX
      COMMERCIAL FIRE AND

                      SECURITY ALARMS, INC., a
      Texas corporation

                    

                  

                

              	 	 	 
	 	
              	 	 	
                 

              	 
	By:  	  	 	 	
                 

              	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

      

    

     

    
      

      
        	
                
                  
                    MCFSA,
      LTD.,

                    
                      a
      Texas limited partnership

                    

                  

                

              	 	 	 
	 	 	 	 	 	 
	By: 	
                
                  METROPLEX COMMERCIAL FIRE
      AND

                  SECURITY ALARMS, INC., a
      Texas

                  corporation,
      its general partner

                

              	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 
	By:  	   	 	 	
                 

              	 
	Name:  	Sam
      Youngblood	 	 	 	 
	Title:  	CEO	 	 	 	 

      

       

      

      
        	
                
                  
                    
                      
                        ARGYLE
      SECURITY, INC.,

                        a
      Delaware corporation

                      

                    

                  

                

              	 	 	 
	 	
              	 	 	
                 

              	 
	By:  	   	 	 	
                 

              	 
	Name:  	Donald F.
    Neville	 	 	 	 
	Title:  	Chief
      Financial Officer	 	 	 	 

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    EXHIBIT A

     

    Third
Amended and Restated Senior Subordinated Promissory Note

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A-1

     

    Amended
and Restated Senior Subordinated Promissory Note

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
B

     

    AMENDED
AND RESTATED

    FACILITY
B LOAN NOTE

    

    
      	 
      	
              No.
      _____________

            
	
              $1,100,000.00

            	
              Date:
      as of January 8 2009

            
	
              Chicago,
      Illinois

            	
              Due
      Date: October 3, 2011

            

    

    

    This
Note is given in replacement of but not extinguishing the indebtedness evidenced
by that Facility B Loan Note dated October 3, 2008, executed by ISI Security
Group, Inc. in the original principal amount of $5,000,000.00.

    

    FOR VALUE
RECEIVED, ISI SECURITY GROUP,
INC., a Delaware corporation, (f/k/a ISI DETENTION CONTRACTING GROUP,
INC.)    (the “Borrower”),
whose address is 12903 Delivery Drive, San Antonio, Texas 78247, promises
to pay to the order of THE
PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation
(hereinafter, together with any holder hereof, the “Bank”),
whose address is 70 W. Madison, 2nd floor,
Chicago, Illinois 60602, on or before October 3, 2011 (the “Facility B
Loan Scheduled Maturity Date”), the lesser of (i) one million on
hundred thousand and 00/100 dollars ($1,100,000.00), or (ii) the aggregate
principal amount of the Facility B Loan
outstanding under and pursuant to that certain Loan and Security Agreement dated
as of October 3, 2008, as amended, executed by and between the Borrower and the
Bank, as amended from time to time (as amended, supplemented or modified from
time to time, the “Loan
Agreement”), and made available by the Bank to the Borrower at the
maturity or maturities and in the amount or amounts stated on the records of the
Bank, together with interest (computed on the actual number of days elapsed on
the basis of a 360 day year) on the aggregate principal amount of the Facility B Loan
outstanding from time to time as provided in the Loan Agreement. Capitalized
words and phrases not otherwise defined herein shall have the meanings assigned
thereto in the Loan Agreement.

     

    This
Facility B Loan Note evidences the Facility B Loan,
Letters of Credit and other indebtedness incurred by the Borrower under and
pursuant to the Loan Agreement, to which reference is hereby made for a
statement of the terms and conditions under which the Facility B Loan
Scheduled Maturity Date or any payment hereon may be accelerated. The holder of
this Facility B Loan Note is entitled to all of the benefits and security
provided for in the Loan Agreement. The Facility B Loan
shall be repaid by the Borrower on the Facility B Loan Scheduled Maturity
Date, unless payable sooner pursuant to the provisions of the Loan
Agreement.

     

    Principal
and interest shall be paid to the Bank at its address set forth above, or at
such other place as the holder of this Facility B Loan Note shall designate
in writing to the Borrower. The Facility B Loan
made, and all Letters of
Credit issued by the Bank, and all payments on account of the principal and
interest thereof shall be recorded on the books and records of the Bank and the
principal balance as shown on such books and records, or any copy thereof
certified by an officer of the Bank, shall be rebuttably presumptive evidence of
the principal amount owing hereunder.

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

     

    Except
for such notices as may be required under the terms of the Loan Agreement, the
Borrower waives presentment, demand, notice, protest, and all other demands, or
notices, in connection with the delivery, acceptance, performance, default, or
enforcement of this Facility B Loan Note, and assents to any extension or
postponement of the time of payment or any other indulgence.

     

    The Facility B Loan
and the Letters of Credit evidenced hereby have been made and/or issued and this
Facility B Loan Note has been delivered at the Bank’s main office set forth
above. This Facility B Loan Note shall be governed and construed in
accordance with the laws of the State of Illinois, in which state it shall be
performed, and shall be binding upon the Borrower, and its legal
representatives, successors, and assigns. Wherever possible, each provision of
the Loan Agreement and this Facility B Loan Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of the Loan Agreement or this Facility B Loan Note shall be
prohibited by or be invalid under such law, such provision shall be severable,
and be ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of the Loan Agreement or this
Facility B Loan Note. The term “Borrower” as used herein shall mean all
parties signing this Facility B Loan Note, and each one of them, and all
such parties, their respective successors and assigns, shall be jointly and
severally obligated hereunder.

     

    This Note
is given in replacement, renewal, and/or extension of, but not extinguishing the
indebtedness evidenced by that promissory note dated October 3, 2008, as
amended, executed by ISI SECURITY GROUP, INC., in the original principal amount
of $5,000,000.00.  This Note is a modification only and not a
novation.  All interest evidenced by the note being replaced, renewed,
and/or extended by this instrument shall continue to be due and payable until
paid.

     

    IN
WITNESS WHEREOF, the Borrower has executed this Facility B Loan Note as of
the date set forth above.

     

    ISI
SECURITY GROUP, INC.,

    a
Delaware Corporation

     

    
      	By:   	    
      
	Name:  	 Sam
      Youngblood
	Title:   	 President

    

     

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
C

     

    UNCONDITIONAL
CONTINUING GUARANTY

    

    This
UNCONDITIONAL CONTINUING
GUARANTY (“Guaranty”)
is executed as of January 8 2009, by ARGYLE SECURITY, INC., a
Delaware corporation, (“Guarantor”),
for the benefit of THE
PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“Bank”).

     

    R E C I T A L
S

    

    A.           ISI
Security Group, Inc., a Delaware corporation (“Borrower”)
and Bank have entered into that certain Loan and Security Agreement dated
October 3, 2008, (the “Loan
Agreement”), pursuant to which the Bank has agreed to make two (2)
revolving loans and a term loan in the original aggregate amount of twenty-five
million and no/100 dollars ($25,000,000.00) (the “Loans”).
All capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in the Loan Agreement.

     

    B.           The
Borrower has requested that the Bank agree to certain amendments to the Loan
Agreement set forth in Amendment No. 1 to Loan and Security Agreement, dated as
of January 8, 2009 (the “Amendment”).

     

    C.           The
Bank is willing to agree to the Amendment only if the Guarantor unconditionally
guarantees payment and performance to Bank of the Obligations; and

     

    D.           The
Guarantor is an affiliate of the Borrower, and the Guarantor will directly
benefit from the Amendment.

     

    NOW
THEREFORE, as an inducement to the Bank to make the Amendment, and for other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, Guarantor agrees with Bank, as follows:

     

    A G R E E M E N
T:

    

    
      	
              Section
      1.

            	
              GUARANTY OF
      OBLIGATIONS.

            

    

     

    Guarantor
hereby absolutely, irrevocably and unconditionally guarantees to Bank the
payment and performance of the obligations, as defined in the Loan Agreement
(the “Obligations”),
as and when the same shall be due and payable, whether by lapse of time, by
acceleration of maturity or otherwise. Guarantor hereby absolutely, irrevocably
and unconditionally covenants and agrees that it is liable, jointly and
severally, for the Obligations as a primary obligor, and that Guarantor shall
fully perform each and every term and provision hereof. This Guaranty is a
guaranty of payment and not of collection only. Bank shall not be required to
exhaust any right or remedy or take any action against Borrower or any other
person or entity or any collateral. Guarantor agrees that, as between the
Guarantor and Bank, the Obligations may be declared to be due and payable for
the purposes of this Guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any declaration as regards
Borrower and that in the event of a declaration or attempted declaration, the
Obligations shall immediately become due and payable by Guarantors for the
purposes of this Guaranty.

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      2.

            	
              GUARANTY
      ABSOLUTE.

            

    

     

    Guarantor
guarantees that the Obligations shall be paid strictly in accordance with the
terms of the Loan Documents. The liability of the Guarantor under this Guaranty
is absolute and unconditional irrespective of: (a) any change in the time,
manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from any of the terms of any Loan Document, including any increase or decrease
in the rate of interest thereon; (b) any release or amendment or waiver of,
or consent to departure from, or failure to act by Bank with respect to, any
other guaranty or support document, or any exchange, release or non-perfection
of, or failure to act by Bank with respect to, any Collateral, for all or any of
the Obligations; (c) any present or future law, regulation or order of any
jurisdiction (whether of right or in fact) or of any agency thereof purporting
to reduce, amend, restructure or otherwise affect any term of the Obligations or
any Loan Document; (d) any change in the corporate existence, structure, or
ownership of Borrower; (e) without being limited by the foregoing, any lack
of validity or enforceability of any Loan Document; and (f) any other
setoff, recoupment, defense or counterclaim whatsoever (in any case, whether
based on contract, tort or any other theory) with respect to the Loan Documents
or the transactions contemplated thereby which might constitute a legal or
equitable defense available to, or discharge of, Borrower or a
Guarantor.

     

    
      	
              Section
      3.

            	
              GUARANTY
      IRREVOCABLE.

            

    

     

    This
Guaranty is a continuing guaranty of the payment of all Obligations now or
hereafter existing and shall remain in full force and effect until payment in
full of all Obligations and other amounts payable under this Guaranty and until
the Loan Documents are no longer in effect.

     

    
      	
              Section
      4.

            	
              REINSTATEMENT.

            

    

     

    This
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any of the Obligations is rescinded or must otherwise
be returned by the Bank on the insolvency, bankruptcy or reorganization of
Borrower or otherwise, all as though the payment had not been made, whether or
not Bank is in possession of the Guaranty.

     

    
      	
              Section
      5.

            	
              SUBROGATION.

            

    

     

    Guarantor
shall not exercise any rights which it may acquire by way of subrogation, by any
payment made under this Guaranty or otherwise, until all the Obligations have
been paid in full and the Loan Documents are no longer in effect. If any amount
is paid to Guarantor on account of subrogation rights under this Guaranty at any
time when all the Obligations have not been paid in full, the amount shall be
held in trust for the benefit of the Bank and shall be promptly paid to Bank to
be credited and applied to the Obligations, whether matured or unmatured or
absolute or contingent, in accordance with the terms of the Loan Documents. If
Guarantors make payment to Bank of all or any part of the Obligations and all
the Obligations are paid in full and the Loan Documents are no longer in effect,
Bank shall, at Guarantor's request, execute and deliver to Guarantor appropriate
documents, without recourse and without representation or warranty, necessary to
evidence the transfer by subrogation to Guarantor of the interest in the
Obligations resulting from the payment.

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      6.

            	
              SUBORDINATION.

            

    

     

    Without
limiting Bank’s rights under any other agreement, any liabilities owed by
Borrower to Guarantor in connection with any extension of credit or financial
accommodation by Guarantor to or for the account of Borrower, including but not
limited to interest accruing at the agreed contract rate after the commencement
of a bankruptcy or similar proceeding, are hereby subordinated to the
Obligations, and such liabilities of Borrower to Guarantor, if Bank so requests,
shall be collected, enforced and received by a Guarantor as trustee for the Bank
and shall be paid over to Bank on account of the Obligations but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.

     

    
      	
              Section
      7.

            	
              REPRESENTATIONS AND
      WARRANTIES.

            

    

     

    Guarantor
represents and warrants that: (a) this Guaranty (i) has been
authorized by all necessary action; (ii) does not violate any agreement,
instrument, law, regulation or order applicable to any Guarantor;
(iii) does not require the consent or approval of any person or entity,
including but not limited to any governmental authority, or any filing or
registration of any kind; and (iv) is the legal, valid and binding
obligation of Guarantors enforceable against Guarantors, jointly and severally,
in accordance with its terms, except to the extent that enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally; and (b) in executing and delivering this
Guaranty, Guarantor has (i) without reliance on Bank or any information
received from Bank and based upon such documents and information it deems
appropriate, made an independent investigation of the transactions contemplated
hereby and Borrower, Borrower’s business, assets, operations, prospects and
condition, financial or otherwise, and any circumstances which may bear upon
such transactions, Borrower or the obligations and risks undertaken herein with
respect to the Obligations; (ii) adequate means to obtain from Borrower on
a continuing basis information concerning Borrower; (iii) full and complete
access to the Loan Documents and any other documents executed in connection with
the Loan Documents; and (iv) not relied and will not rely upon any
representations or warranties of Bank not embodied herein or any acts heretofore
or hereafter taken by Bank (including but not limited to any review by Bank of
the affairs of Borrower).

     

    
      	
              Section
      8.

            	
              FINANCIAL REPORTS AND
      COVENANTS.

            

    

     

    (a)                      Guarantor
shall keep adequate books and records of account in accordance with GAAP,
consistently applied and furnish to Bank the financial statements described in
the Loan Agreement.

     

    (b)                      Bank
and its accountants shall have the right to examine the records, books,
management and other papers of Guarantor which reflect upon its financial
condition, at any office regularly maintained by Guarantor where the books and
records are located. Bank and its accountants shall have the right to make
copies and extracts from the foregoing records and other papers. In addition,
Bank and its accountants shall have the right to examine and audit the books and
records of Guarantor pertaining to the income, expenses and operation of
Guarantor during reasonable business hours at any office of Guarantor where the
books and records are located.

     

    
      
        
        

      

      
        C-3

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      9.

            	
              REMEDIES
      GENERALLY.

            

    

     

    The
remedies provided in this Guaranty are cumulative and not exclusive of any
remedies provided by law.

     

    
      	
              Section
      10.

            	
              SETOFF.

            

    

     

    If an
Event of Default as defined in Section 11 of the
Loan Agreement shall have occurred and be continuing, Bank is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, and
to the extent permitted under the Loan Agreement, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other obligations at any time owing by Borrower to or for the
credit or the account of Guarantor against any of and all the Obligations held
by Bank, irrespective of whether or Bank shall have made any demand under this
Guaranty and although such Obligations may be unmatured. The rights of Bank
under this Section are in addition to other rights and remedies (including other
rights of setoff) which Bank may have.

     

    
      	
              Section
      11.

            	
              FORMALITIES.

            

    

     

    Guarantor
waives presentment, demand, notice of dishonor, protest, notice of acceptance of
this Guaranty or incurrence of any of the Obligations and any other formality
with respect to any of the Obligations or this Guaranty.

     

    
      	
              Section
      12.

            	
              AMENDMENTS AND
      WAIVERS.

            

    

     

    No
amendment or waiver of any provision of this Guaranty, nor consent to any
departure by Guarantor therefrom, shall be effective unless it is in writing and
signed by Bank, and then the waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of Bank to exercise, and no delay in exercising, any right under this
Guaranty shall operate as a waiver or preclude any other or further exercise
thereof or the exercise of any other right.

     

    
      	
              Section
      13.

            	
              WAIVER OF SURETYSHIP
      DEFENSES.

            

    

     

    Guarantor,
to the fullest extent permitted by law, hereby irrevocably waives any defenses
given to Guarantor at law or in equity, other than actual payment and
performance of the Obligations, including all defenses based upon suretyship or
impairment of collateral pursuant to § 80 I.L.C.S.
5/3-605.

     

    
      	
              Section
      14.

            	
              EXPENSES.

            

    

     

    Guarantor
shall reimburse Bank on demand for all costs, expenses and charges (including
without limitation fees and charges of external legal counsel for Bank and costs
allocated by its internal legal department) incurred by Bank in connection with
the performance or enforcement of this Guaranty. The obligations of Guarantor
under this Section shall survive the termination of this Guaranty.

     

    
      
        
        

      

      
        C-4

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      15.

            	
              ASSIGNMENT.

            

    

     

    This
Guaranty shall be binding on, and shall inure to the benefit of Guarantor and
Bank and their respective successors and
assigns;  provided  that Guarantor may not assign or
transfer its rights or obligations under this Guaranty. Without limiting the
generality of the foregoing: (a) the obligations of Guarantor under this
Guaranty shall continue in full force and effect and shall be binding on any
successor partnership and on previous partners and their respective estates if
any Guarantor is a partnership, regardless of any change in the partnership as a
result of death, retirement or otherwise; and (b) Bank may assign, sell
participations in or otherwise transfer its rights under the Loan Documents to
any other person or entity in accordance with the terms of the Loan Agreement,
and the other person or entity shall then become vested with all the rights
granted to Bank, as applicable, in this Guaranty or otherwise.

     

    
      	
              Section
      16.

            	
              CAPTIONS.

            

    

     

    The
headings and captions in this Guaranty are for convenience only and shall not
affect the interpretation or construction of this Guaranty.

     

    
      	
              Section
      17.

            	
              NOTICES.

            

    

     

    All
notices or other written communications hereunder shall be in writing and shall
be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

     

    
      	
              To
      Guarantor:

            	
              Argyle
      Security, Inc.

              12903
      Delivery Drive

              San
      Antonio, Texas 78247

              Attention:
      Donald F. Neville

            
	 
      	 
      
	
              With
      a copy to:

            	
              Argyle
      Security, Inc.

              156
      West 56th
      Street, Suite1605

              New
      York, New York 10019

              Attention:
      Matthew A. Kepke, Esq.

            
	 
      	 
      
	
              To
      the Lender:

            	
              The
      PrivateBank and Trust Company

              70
      W. Madison, 2nd
      Floor

              Chicago,
      Illinois 60602

            
	 
      	 
      
	
              With
      copy to:

            	
              Davis
      Graham & Stubbs LLP

              1550
      17th
      Street, Suite 500

              Denver,
      CO 80202

              Attention:
      Ted R. Sikora II

            

    

    

    Guarantor
and Bank may change their address or telecopy number for notices and other
communications hereunder by notice to the other party. All notices and other
communications given to Guarantor or Bank in accordance with the provisions of
this Guaranty shall be deemed to have been given on the date of
receipt.

     

    
      
        
        

      

      
        C-5

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      18.

            	
              GOVERNING LAW;
      JURISDICTION; CONSENT TO SERVICE OF
  PROCESS.

            

    

     

    (a)                      This
Guaranty shall be construed in accordance with and governed by the law of the
State of Illinois.

     

    (b)                      Guarantor
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any United States Federal or Illinois State
court sitting in Chicago, Illinois, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Guaranty, or for
recognition or enforcement of any judgment, and Guarantor hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Illinois State or, to the extent
permitted by law, in such Federal court. Guarantor hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Guaranty shall affect any right that Bank may
otherwise have to bring any action or proceeding relating to this Guaranty
against any Guarantor or its properties in the courts of any
jurisdiction.

     

    (c)                      Guarantor
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Guaranty in any court referred to in subsection (b)
above. Guarantor hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.

     

    (d)                      Guarantor
irrevocably consents to service of process in the manner provided for notices in
Section 16
hereof. Nothing in this Guaranty will affect the right of Bank to serve process
in any other manner permitted by law.

     

    
      	
              Section
      19.

            	
              INVALID
      PROVISIONS.

            

    

     

    If any
provision of this Guaranty is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term of this Guaranty, such
provision shall be fully severable and this Guaranty shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Guaranty, and the remaining provisions of this Guaranty
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance from this Guaranty,
unless such continued effectiveness of this Guaranty, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.

     

    Section
20.              ENTIRETY.  THIS
GUARANTY AND THE OTHER LOAN DOCUMENTS WHICH MAY BE EXECUTED BY GUARANTOR EMBODY
THE FINAL, ENTIRE AGREEMENT OF GUARANTORS AND BANK WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND THEREOF AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS GUARANTY AND THE OTHER
LOAN DOCUMENTS WHICH MAY BE EXECUTED BY GUARANTOR IS INTENDED BY GUARANTOR AND
BANK AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS HEREOF AND THEREOF, AND NO
COURSE OF DEALING AMONG GUARANTORS AND BANK, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY OR ANY
OTHER LOAN DOCUMENT WHICH MAY BE EXECUTED BY ANY GUARANTOR. THERE ARE NO ORAL
AGREEMENTS BETWEEN GUARANTOR AND BANK.

     

    
      
        
        

      

      
        C-6

        
          

        

      

      
        
        

      

    

     

    Section
21.              WAIVER OF RIGHT TO TRIAL BY
JURY.  GUARANTOR AND BANK HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). GUARANTOR AND BANK EACH (A) CERTIFY THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGE THAT IT AND SUCH OTHER
PARTY HAVE BEEN INDUCED TO EXECUTE OR ACCEPT THIS GUARANTY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21.

     

    Section
22.              JOINT AND SEVERAL
OBLIGATIONS.

     

    The
obligations of the Guarantor hereunder and any other Guarantors, sureties or
pledgors as may exist from time to time are joint and
several.  Accordingly, the Guarantor is liable for the full amount of
the Obligations notwithstanding the existence of other Guarantors, sureties or
pledgors.

     

    Section
23.             
TERMINATION OF
GUARANTY AGREEMENT.

     

    This Guaranty will terminate on the
earlier of (a) the payment in full of all Obligations under the Loan Agreement,
and (b) at the time the Bank determines in its sole judgment that the Borrower’s
financial statements issued pursuant to Section 8.8 of the
Loan Agreement for the fiscal year ended December 31, 2009 establish that the
Borrower is in compliance with the financial covenants set forth in Sections 10.1, 10.2 and
10.3(a) of the Loan Agreement, as amended.

    

    Section
24.              LIMITATION ON INCREASE IN
THE OBLIGATIONS.   

     

    The
definition of the term "Obligations" notwithstanding, the Guaranty hereunder is
limited to $18,100,000 with respect to the principal amount of the Loans
evidenced by the Notes.  The Bank and Borrower may enter into amendments to
the Loan Agreement or additional loan agreements increasing the principal
amount of the Obligations without the consent of the Guarantor, provided, however, that this
Guaranty shall not guaranty any increase in the principal amount of $18,100,000
guaranteed by the Guarantor without the express written consent of the
Guarantor.  

     

    [Signature pages
follow]

     

    
      
        
        

      

      
        C-7

        
          

        

      

      
        
        

      

    

     

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

                    

    
      
        
          	
                  GUARANTOR:

                
	 	 
	By:  	
                  ARGYLE SECURITY,
      INC.,

                  a
      Delaware corporation

                
	 	 
	 	 
	By:   	      
	Name:  	Donald F.
      Neville
	Title:   	CFO

        

         

        
          
            
            

          

          
            C-8Unassociated Document

    Execution Copy

     

    UNCONDITIONAL
CONTINUING GUARANTY

    

    This
UNCONDITIONAL CONTINUING
GUARANTY (“Guaranty”)
is executed as of January 8, 2009, by ARGYLE SECURITY, INC., a
Delaware corporation, (“Guarantor”),
for the benefit of THE
PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“Bank”).

     

    R E C I T A L
S

    

    A.           ISI
Security Group, Inc., a Delaware corporation (“Borrower”)
and Bank have entered into that certain Loan and Security Agreement dated
October 3, 2008, (the “Loan
Agreement”), pursuant to which the Bank has agreed to make two (2)
revolving loans and a term loan in the original aggregate amount of twenty-five
million and no/100 dollars ($25,000,000.00) (the “Loans”).
All capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in the Loan Agreement.

     

    B.           The
Borrower has requested that the Bank agree to certain amendments to the Loan
Agreement set forth in Amendment No. 1 to Loan and Security Agreement, dated as
of January 8, 2009 (the “Amendment”).

     

    C.           The
Bank is willing to agree to the Amendment only if the Guarantor unconditionally
guarantees payment and performance to Bank of the Obligations; and

     

    D.           The
Guarantor is an affiliate of the Borrower, and the Guarantor will directly
benefit from the Amendment.

     

    NOW
THEREFORE, as an inducement to the Bank to make the Amendment, and for other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, Guarantor agrees with Bank, as follows:

     

    A G R E E M E N
T:

    

    
      	
              Section
      1.

            	
              GUARANTY OF
      OBLIGATIONS.

            

    

     

    Guarantor
hereby absolutely, irrevocably and unconditionally guarantees to Bank the
payment and performance of the obligations, as defined in the Loan Agreement
(the “Obligations”),
as and when the same shall be due and payable, whether by lapse of time, by
acceleration of maturity or otherwise. Guarantor hereby absolutely, irrevocably
and unconditionally covenants and agrees that it is liable, jointly and
severally, for the Obligations as a primary obligor, and that Guarantor shall
fully perform each and every term and provision hereof. This Guaranty is a
guaranty of payment and not of collection only. Bank shall not be required to
exhaust any right or remedy or take any action against Borrower or any other
person or entity or any collateral. Guarantor agrees that, as between the
Guarantor and Bank, the Obligations may be declared to be due and payable for
the purposes of this Guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any declaration as regards
Borrower and that in the event of a declaration or attempted declaration, the
Obligations shall immediately become due and payable by Guarantors for the
purposes of this Guaranty.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      2.

            	
              GUARANTY
      ABSOLUTE.

            

    

     

    Guarantor
guarantees that the Obligations shall be paid strictly in accordance with the
terms of the Loan Documents. The liability of the Guarantor under this Guaranty
is absolute and unconditional irrespective of: (a) any change in the time,
manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from any of the terms of any Loan Document, including any increase or decrease
in the rate of interest thereon; (b) any release or amendment or waiver of,
or consent to departure from, or failure to act by Bank with respect to, any
other guaranty or support document, or any exchange, release or non-perfection
of, or failure to act by Bank with respect to, any Collateral, for all or any of
the Obligations; (c) any present or future law, regulation or order of any
jurisdiction (whether of right or in fact) or of any agency thereof purporting
to reduce, amend, restructure or otherwise affect any term of the Obligations or
any Loan Document; (d) any change in the corporate existence, structure, or
ownership of Borrower; (e) without being limited by the foregoing, any lack
of validity or enforceability of any Loan Document; and (f) any other
setoff, recoupment, defense or counterclaim whatsoever (in any case, whether
based on contract, tort or any other theory) with respect to the Loan Documents
or the transactions contemplated thereby which might constitute a legal or
equitable defense available to, or discharge of, Borrower or a
Guarantor.

     

    
      	
              Section
      3.

            	
              GUARANTY
      IRREVOCABLE.

            

    

     

    This
Guaranty is a continuing guaranty of the payment of all Obligations now or
hereafter existing and shall remain in full force and effect until payment in
full of all Obligations and other amounts payable under this Guaranty and until
the Loan Documents are no longer in effect.

     

    
      	
              Section
      4.

            	
              REINSTATEMENT.

            

    

     

    This
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any of the Obligations is rescinded or must otherwise
be returned by the Bank on the insolvency, bankruptcy or reorganization of
Borrower or otherwise, all as though the payment had not been made, whether or
not Bank is in possession of the Guaranty.

     

    
      	
              Section
      5.

            	
              SUBROGATION.

            

    

     

    Guarantor
shall not exercise any rights which it may acquire by way of subrogation, by any
payment made under this Guaranty or otherwise, until all the Obligations have
been paid in full and the Loan Documents are no longer in effect. If any amount
is paid to Guarantor on account of subrogation rights under this Guaranty at any
time when all the Obligations have not been paid in full, the amount shall be
held in trust for the benefit of the Bank and shall be promptly paid to Bank to
be credited and applied to the Obligations, whether matured or unmatured or
absolute or contingent, in accordance with the terms of the Loan Documents. If
Guarantors make payment to Bank of all or any part of the Obligations and all
the Obligations are paid in full and the Loan Documents are no longer in effect,
Bank shall, at Guarantor's request, execute and deliver to Guarantor appropriate
documents, without recourse and without representation or warranty, necessary to
evidence the transfer by subrogation to Guarantor of the interest in the
Obligations resulting from the payment.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      6.

            	
              SUBORDINATION.

            

    

     

    Without
limiting Bank’s rights under any other agreement, any liabilities owed by
Borrower to Guarantor in connection with any extension of credit or financial
accommodation by Guarantor to or for the account of Borrower, including but not
limited to interest accruing at the agreed contract rate after the commencement
of a bankruptcy or similar proceeding, are hereby subordinated to the
Obligations, and such liabilities of Borrower to Guarantor, if Bank so requests,
shall be collected, enforced and received by a Guarantor as trustee for the Bank
and shall be paid over to Bank on account of the Obligations but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.

     

    
      	
              Section
      7.

            	
              REPRESENTATIONS AND
      WARRANTIES.

            

    

     

    Guarantor
represents and warrants that: (a) this Guaranty (i) has been
authorized by all necessary action; (ii) does not violate any agreement,
instrument, law, regulation or order applicable to any Guarantor;
(iii) does not require the consent or approval of any person or entity,
including but not limited to any governmental authority, or any filing or
registration of any kind; and (iv) is the legal, valid and binding
obligation of Guarantors enforceable against Guarantors, jointly and severally,
in accordance with its terms, except to the extent that enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally; and (b) in executing and delivering this
Guaranty, Guarantor has (i) without reliance on Bank or any information
received from Bank and based upon such documents and information it deems
appropriate, made an independent investigation of the transactions contemplated
hereby and Borrower, Borrower’s business, assets, operations, prospects and
condition, financial or otherwise, and any circumstances which may bear upon
such transactions, Borrower or the obligations and risks undertaken herein with
respect to the Obligations; (ii) adequate means to obtain from Borrower on
a continuing basis information concerning Borrower; (iii) full and complete
access to the Loan Documents and any other documents executed in connection with
the Loan Documents; and (iv) not relied and will not rely upon any
representations or warranties of Bank not embodied herein or any acts heretofore
or hereafter taken by Bank (including but not limited to any review by Bank of
the affairs of Borrower).

     

    
      	
              Section
      8.

            	
              FINANCIAL REPORTS AND
      COVENANTS.

            

    

     

    (a)           Guarantor
shall keep adequate books and records of account in accordance with GAAP,
consistently applied and furnish to Bank the financial statements described in
the Loan Agreement.

     

    (b)           Bank
and its accountants shall have the right to examine the records, books,
management and other papers of Guarantor which reflect upon its financial
condition, at any office regularly maintained by Guarantor where the books and
records are located. Bank and its accountants shall have the right to make
copies and extracts from the foregoing records and other papers. In addition,
Bank and its accountants shall have the right to examine and audit the books and
records of Guarantor pertaining to the income, expenses and operation of
Guarantor during reasonable business hours at any office of Guarantor where the
books and records are located.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      9.

            	
              REMEDIES
      GENERALLY.

            

    

     

    The
remedies provided in this Guaranty are cumulative and not exclusive of any
remedies provided by law.

     

    
      	
              Section
      10.

            	
              SETOFF.

            

    

     

    If an
Event of Default as defined in Section 11 of the
Loan Agreement shall have occurred and be continuing, Bank is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, and
to the extent permitted under the Loan Agreement, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other obligations at any time owing by Borrower to or for the
credit or the account of Guarantor against any of and all the Obligations held
by Bank, irrespective of whether or Bank shall have made any demand under this
Guaranty and although such Obligations may be unmatured. The rights of Bank
under this Section are in addition to other rights and remedies (including other
rights of setoff) which Bank may have.

     

    
      	
              Section
      11.

            	
              FORMALITIES.

            

    

     

    Guarantor
waives presentment, demand, notice of dishonor, protest, notice of acceptance of
this Guaranty or incurrence of any of the Obligations and any other formality
with respect to any of the Obligations or this Guaranty.

     

    
      	
              Section
      12.

            	
              AMENDMENTS AND
      WAIVERS.

            

    

     

    No
amendment or waiver of any provision of this Guaranty, nor consent to any
departure by Guarantor therefrom, shall be effective unless it is in writing and
signed by Bank, and then the waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of Bank to exercise, and no delay in exercising, any right under this
Guaranty shall operate as a waiver or preclude any other or further exercise
thereof or the exercise of any other right.

     

    
      	
              Section
      13.

            	
              WAIVER OF SURETYSHIP
      DEFENSES.

            

    

     

    Guarantor,
to the fullest extent permitted by law, hereby irrevocably waives any defenses
given to Guarantor at law or in equity, other than actual payment and
performance of the Obligations, including all defenses based upon suretyship or
impairment of collateral pursuant to § 80 I.L.C.S.
5/3-605.

     

    
      	
              Section
      14.

            	
              EXPENSES.

            

    

     

    Guarantor
shall reimburse Bank on demand for all costs, expenses and charges (including
without limitation fees and charges of external legal counsel for Bank and costs
allocated by its internal legal department) incurred by Bank in connection with
the performance or enforcement of this Guaranty. The obligations of Guarantor
under this Section shall survive the termination of this Guaranty.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
      15.

            	
              ASSIGNMENT.

            

    

     

    This
Guaranty shall be binding on, and shall inure to the benefit of Guarantor and
Bank and their respective successors and
assigns;  provided  that Guarantor may not assign or
transfer its rights or obligations under this Guaranty. Without limiting the
generality of the foregoing: (a) the obligations of Guarantor under this
Guaranty shall continue in full force and effect and shall be binding on any
successor partnership and on previous partners and their respective estates if
any Guarantor is a partnership, regardless of any change in the partnership as a
result of death, retirement or otherwise; and (b) Bank may assign, sell
participations in or otherwise transfer its rights under the Loan Documents to
any other person or entity in accordance with the terms of the Loan Agreement,
and the other person or entity shall then become vested with all the rights
granted to Bank, as applicable, in this Guaranty or otherwise.

     

    
      	
              Section
      16.

            	
              CAPTIONS.

            

    

     

    The
headings and captions in this Guaranty are for convenience only and shall not
affect the interpretation or construction of this Guaranty.

     

    
      	
              Section
      17.

            	
              NOTICES.

            

    

     

    All
notices or other written communications hereunder shall be in writing and shall
be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

     

    
      	
              To
      Guarantor:

            	
              Argyle
      Security, Inc.

              12903
      Delivery Drive

              San
      Antonio, Texas 78247

              Attention:
      Donald F. Neville

            
	 
      	 
      
	
              With
      a copy to:

            	
              Argyle
      Security, Inc.

              156
      West 56th
      Street, Suite1605

              New
      York, New York 10019

              Attention:
      Matthew A. Kepke, Esq.

            
	 
      	 
      
	
              To
      the Lender:

            	
              The
      PrivateBank and Trust Company

              70
      W. Madison, 2nd
      Floor

              Chicago,
      Illinois 60602

            
	 
      	 
      
	
              With
      copy to:

            	
              Davis
      Graham & Stubbs LLP

              1550
      17th
      Street, Suite 500

              Denver,
      CO 80202

              Attention:
      Ted R. Sikora II

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    Guarantor
and Bank may change their address or telecopy number for notices and other
communications hereunder by notice to the other party. All notices and other
communications given to Guarantor or Bank in accordance with the provisions of
this Guaranty shall be deemed to have been given on the date of
receipt.

     

    
      	
              Section
      18.

            	
              GOVERNING LAW;
      JURISDICTION; CONSENT TO SERVICE OF
  PROCESS.

            

    

     

    (a)           This
Guaranty shall be construed in accordance with and governed by the law of the
State of Illinois.

     

    (b)           Guarantor
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any United States Federal or Illinois State
court sitting in Chicago, Illinois, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Guaranty, or for
recognition or enforcement of any judgment, and Guarantor hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Illinois State or, to the extent
permitted by law, in such Federal court. Guarantor hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Guaranty shall affect any right that Bank may
otherwise have to bring any action or proceeding relating to this Guaranty
against any Guarantor or its properties in the courts of any
jurisdiction.

     

    (c)           Guarantor
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Guaranty in any court referred to in subsection (b)
above. Guarantor hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.

     

    (d)           Guarantor
irrevocably consents to service of process in the manner provided for notices in
Section 16
hereof. Nothing in this Guaranty will affect the right of Bank to serve process
in any other manner permitted by law.

     

    
      	
              Section
      19.

            	
              INVALID
      PROVISIONS.

            

    

     

    If any
provision of this Guaranty is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term of this Guaranty, such
provision shall be fully severable and this Guaranty shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Guaranty, and the remaining provisions of this Guaranty
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance from this Guaranty,
unless such continued effectiveness of this Guaranty, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Section
20.             ENTIRETY.  THIS
GUARANTY AND THE OTHER LOAN DOCUMENTS WHICH MAY BE EXECUTED BY GUARANTOR EMBODY
THE FINAL, ENTIRE AGREEMENT OF GUARANTORS AND BANK WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND THEREOF AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS GUARANTY AND THE OTHER
LOAN DOCUMENTS WHICH MAY BE EXECUTED BY GUARANTOR IS INTENDED BY GUARANTOR AND
BANK AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS HEREOF AND THEREOF, AND NO
COURSE OF DEALING AMONG GUARANTORS AND BANK, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY OR ANY
OTHER LOAN DOCUMENT WHICH MAY BE EXECUTED BY ANY GUARANTOR. THERE ARE NO ORAL
AGREEMENTS BETWEEN GUARANTOR AND BANK.

     

    Section
21.              WAIVER OF RIGHT TO TRIAL BY
JURY.  GUARANTOR AND BANK HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). GUARANTOR AND BANK EACH (A) CERTIFY THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGE THAT IT AND SUCH OTHER
PARTY HAVE BEEN INDUCED TO EXECUTE OR ACCEPT THIS GUARANTY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21.

     

    Section
22.              JOINT AND SEVERAL
OBLIGATIONS.

     

     

    The
obligations of the Guarantor hereunder and any other Guarantors, sureties or
pledgors as may exist from time to time are joint and
several.  Accordingly, the Guarantor is liable for the full amount of
the Obligations notwithstanding the existence of other Guarantors, sureties or
pledgors.

     

    Section
23.              TERMINATION OF GUARANTY
AGREEMENT.

     

    This Guaranty will terminate on the
earlier of (a) the payment in full of all Obligations under the Loan Agreement,
and (b) at the time the Bank determines in its sole judgment that the Borrower’s
financial statements issued pursuant to Section 8.8 of the
Loan Agreement for the fiscal year ended December 31, 2009 establish that the
Borrower is in compliance with the financial covenants set forth in Sections 10.1, 10.2 and
10.3(a) of the Loan Agreement, as amended.

    

    Section
24.              LIMITATION ON INCREASE IN
THE OBLIGATIONS.   

     

    The
definition of the term "Obligations" notwithstanding, the Guaranty hereunder is
limited to $18,100,000 with respect to the principal amount of the Loans
evidenced by the Notes.  The Bank and Borrower may enter into amendments to
the Loan Agreement or additional loan agreements increasing the principal
amount of the Obligations without the consent of the Guarantor, provided, however, that this
Guaranty shall not guaranty any increase in the principal amount of $18,100,000
guaranteed by the Guarantor without the express written consent of the
Guarantor.  

     

     

    [Signature pages
follow]

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

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

     

    
      	

              GUARANTOR:

            
	 	 
	By:  	
              ARGYLE SECURITY,
      INC.,

              a
      Delaware corporation

            
	 	 
	 	 
	By:   	/s/ Donald F.
      Neville  
	Name:  	Donald F.
      Neville
	Title:   	CFO

    
      
        
        

      

      
        8

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