Document:

Exhibit 10.1

 

FIFTH AMENDMENT AND WAIVER

TO NOTE AND WARRANT PURCHASE
AGREEMENT

 

THIS FIFTH AMENDMENT AND WAIVER TO NOTE AND WARRANT
PURCHASE AGREEMENT (this “Amendment”) is dated as of November 13,
2008 by and among 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”).

 

RECITALS:

 

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 Omnibus First Amendment to Note and Warrant Purchase
Agreement and Warrant dated as of November 1, 2005, by that certain
Omnibus Second Amendment to Note and Warrant Purchase Agreement and Warrant,
dated as of July 31, 2007, by that certain Third Amendment to Note and
Warrant Purchase Agreement, dated as of January 2, 2008, and by that
certain Fourth Amendment to Note and Warrant Purchase Agreement, dated as of June 25,
2008 (as further amended, restated, supplemented or otherwise modified from
time to time, the “Purchase Agreement”);

 

WHEREAS, the
Company acknowledges that a certain event of default has occurred and is
continuing under the Purchase Agreement, and the Purchaser is willing to
provide a limited waiver in respect of such event of default, subject to the
terms and conditions of this Amendment;

 

WHEREAS, in
connection with the event of default, the Company wishes, and the Purchaser is
willing to, amend the Purchase Agreement, subject to the terms and conditions
of this Amendment;

 

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

 

WHEREAS, capitalized terms used
but not otherwise defined herein shall have the respective meanings given to
them in the Purchase Agreement.

 

NOW, THEREFORE, in consideration
of the above premises, the agreements contained herein and other good and
valuable consideration, the adequacy, sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree as follows:

 

Section 1.               Amendment to the
Purchase Agreement.  Section 4.7(a) of
the Purchase Agreement is hereby deleted in its entirety and restated to read
as follows:

 

(a)                                  Capital
Expenditure Limits.  The Company and
its Subsidiaries, on a consolidated bases, shall not make Capital Expenditures
in 

 

 

excess of (i) $2,300,000, in the aggregate, for the 2007 Fiscal
Year, (ii) $3,000,000, in the aggregate, for the 2008 Fiscal Year and (iii) $600,000,
in the aggregate, during each Fiscal Year thereafter.

 

Section 2.               Waiver.

 

(a)           The Company has
informed the Purchaser that as of November 12, 2008, the Company has
exceeded the Capital Expenditure limitation as set forth in Section 4.7(a) of
the Purchase Agreement prior to the effectiveness of this Amendment (the “Existing
Default”).  The Purchaser hereby
waives compliance by the Company of Section 4.7(a) of the Purchase
Agreement solely as it relates to the Existing Default.  The Purchaser’s waiver of non-compliance with
Section 4.7(a) of the Purchase Agreement is limited to the specific
instance of the Existing Default and shall not be deemed a waiver of or consent
to any other failure to comply with the terms of Section 4.7(a) of
the Purchase Agreement or any other provisions of the Purchase Agreement.  Such waiver shall not prejudice or constitute
a waiver of any right or remedies which the Purchaser may have or be entitled
to with respect to any other breach of Section 4.7(a) or any other
provision of the Purchase Agreement.  The
waiver is for this particular instance and shall not be construed as a waiver
of any other presently existing or future Event of Default.  Subsequent to the date hereof, the provisions
of Section 4.7(a) of the Purchase Agreement will apply as amended
hereby, without any further action on the part of the Purchaser.

 

(b)           Other than as
specifically set forth herein, the Purchaser reserves all of its interests,
rights and remedies under and pursuant to the Transaction Documents.

 

Section 3.               Representations
and Warranties.  To induce the
Purchaser to enter into this Amendment, the Company represents and warrants
that:

 

(a)           Representations,
Warranties; No Default.  The warranties
and representations of the Company contained in the Transaction Documents shall
be true and correct as of the effective date hereof, with the same effect as
though made on such date, except to the extent that such warranties and
representations expressly relate to an earlier date.  No Event of Default (other than the Existing
Default) or Potential Event of Default has occurred and is continuing under the
Purchase Agreement.

 

(b)           Organizational
Authority.  (i) The execution,
delivery and performance by the Company of this Amendment are within its
corporate powers and have been duly authorized by all necessary corporate
action, (ii) this Amendment is the legal, valid and binding obligation of
the Company enforceable in accordance with its terms and (iii) neither the
execution and delivery nor the performance by the Company of this Amendment (1) violates
any law or regulation, or any other decree of any governmental body, (2) conflicts
with or results in the breach or termination of, constitutes a default under or
accelerates any performance required by, any indenture, mortgage, deed of
trust, lease, agreement or other instrument to which such Person is a party or
by which such Person or any of its property is bound, (3) results in the
creation or imposition of any Lien, upon any of the Collateral (as defined in
the Senior Loan Documents) other than Liens in favor of the Senior Lender, (4) violates
or conflicts with the certificate of incorporation or bylaws of such Person, or
(5) requires the consent, approval or 

 

2

 

authorization of, or
declaration or filing with, any other Person, except for those already duly
obtained.

 

Section 4.               Conditions
Precedent.  The effectiveness of this
Amendment is subject to the following conditions precedent:

 

(a)           No Default.  No Potential Event of Default or Event of
Default (other than the Existing Default) under the Purchase Agreement shall
have occurred and be continuing.

 

(b)           Warranties and
Representations.  The warranties and
representations of the Company contained in the Transaction Documents shall be
true and correct as of the effective date hereof, with the same effect as
though made on such date, except to the extent that such warranties and
representations expressly relate to an earlier date.

 

(c)           Execution and
Delivery.  The Company and the
Purchaser shall have executed and delivered this Amendment.

 

(d)           Initial
Amendment Fee.  The Company shall
have paid to the Purchaser an initial amendment fee in the amount of $25,000.

 

Section 5.               Reference and
Effect on Operative Documents.

 

(a)           Ratification.  Except as specifically amended above, the
Purchase Agreement and the other Transaction Documents, as amended, shall
remain in full force and effect. 
Notwithstanding anything contained herein, the terms of this Agreement
are not intended to and do not effect a novation of the Purchase Agreement or
any other Transaction Document.  The
Company hereby ratifies and reaffirms each of the terms and conditions of the
Transaction Documents to which it is a party and all of its obligations
thereunder.

 

(b)           References.  Upon the effectiveness of this Amendment,
each reference in (i) the Purchase Agreement to “this Agreement,” “hereunder,”
“hereof,” or words of similar import, and (ii) any other Transaction
Document to “the Agreement” or “the Purchase Agreement” shall, in each case and
except as otherwise specifically stated therein, mean and be a reference to the
Purchase Agreement or such other Transaction Documents, as applicable, as
amended hereby.

 

Section 6.               Miscellaneous.

 

(a)           Additional Fee and
Expenses.  In connection with this
Amendment, the Company shall pay to the Purchaser an additional amendment fee
in the amount of $25,000 on December 31, 2008.  Pursuant to Section 9.1 of the
Purchase Agreement, the Company further agrees to pay on demand all reasonable
legal fees and out-of-pocket costs and expenses of or incurred by the Purchaser
in connection with the instruments and agreements contemplated hereby.  The failure of the Company to comply with the
foregoing requirements shall constitute an immediate Event of Default under the
Purchase Agreement.

 

(b)           Binding Effect.  This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns.

 

3

 

(c)           Counterparts.  This Amendment may be executed in one or more
counterparts, each of which when so executed and delivered, shall be an
original, and all of which together shall constitute one and the same
instrument.

 

(d)           Governing Law.  This Amendment shall be governed by the laws
of the State of Illinois, without giving effect to its conflict of laws
principles.

 

[Remainder of page intentionally
left blank.]

 

4

 

Signature Page to Fifth Amendment and
Waiver to Note and Warrant Purchase Agreement

 

	
  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

  
	
  By:

  	
  /s/ Tim Moxon

  	
   

  	
   

  	
  Partners III,
  L.L.C.,

  
	
  Name:

  	
  Tim Moxon

  	
   

  	
   

  	
  its General
  Partner

  
	
  Title:

  	
  Chief Financial Officer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Marc J. Walfish

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Marc J. Walfish

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Managing DirectorExhibit 10.28

 

AMENDMENT NO. 6

 

TO

 

FINANCING AGREEMENT

 

THIS AMENDMENT NO. 6 (this “Amendment”)
is entered into as of September 30, 2008, by and among RAFAELLA APPAREL
GROUP, INC., a Delaware corporation (“Borrower”), VERRAZANO, INC., a New York
corporation (“Verrazano”), HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”) and the
other financial institutions which are now or which hereafter become a party
hereto (each a “Lender” and collectively, the “Lenders”) and
HSBC, as agent for the Lenders (in such capacity, the “Agent”).

 

BACKGROUND

 

Borrower, Verrazano, Agent
and Lenders are parties to a Financing Agreement dated June 20, 2005 (as
amended by Amendment No. 1 to Financing Agreement dated as of March 31,
2006, Amendment No. 2 to Financing Agreement effective as of December 31,
2006, Consent and Amendment No. 3 dated as of March 4, 2008,
Amendment No. 4 dated as of March 28, 2008, and Amendment No. 5
to Financing Agreement dated as of May 14, 2008, and as hereafter further
amended, restated, supplemented or otherwise modified from time to time, the “Financing
Agreement”) pursuant to which Agent and Lenders provide Borrower with certain
financial accommodations.

 

Borrower has requested that
Agent and Lenders amend certain provisions of the Financing Agreement, and
Agent and Lenders are willing to do so on the terms and conditions hereafter
set forth.

 

NOW, THEREFORE, in
consideration of any loan or advance or grant of credit heretofore or hereafter
made to or for the account of Borrower by Agent and Lenders, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

1.             Definitions.  All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Financing Agreement.

 

2.             Amendments to
Financing Agreement.  Subject to
satisfaction of the conditions precedent set forth in Section 3 below, the
Financing Agreement is hereby amended effective as of September 30, 2008
as follows:

 

(a)           The definitions
of the terms “Availability Reserve”, “Base Rate”, “Inventory Advance Cap”, “Maximum
Direct Debt Sublimit”, “Maximum Loan Amount” and “Revolving Interest Rate”
appearing in Section 1.2 of the Financing Agreement are hereby amended and
restated in their entireties as follows:

 

“Availability Reserve”
shall mean (a) $5,000,000 from April 1, 2006 through May 31,
2008, (b) $10,000,000 from June 1, 2008 through October 31,
2008, (c) $7,500,000 from November 1, 2008 through

 

 

September 30, 2009 and (d) $10,000,000
from October 1, 2009 through June 20, 2010.

 

“Base Rate” shall
mean, on any date, a variable rate of interest per annum equal to the greater
of (a) the highest of the “prime rate,” “reference rate,” “base rate” or
other similar rate as determined by Agent (or any successor to Agent) announced
from time to time by HSBC (or any successor to HSBC) (with the understanding
that any such rate may merely be a reference rate and may not necessarily
represent the lowest or best rate actually charged to any customer by such
bank), (b) the Federal Funds Rate plus 1⁄2 of 1% and (c) the equivalent
of the Eurodollar Rate for a one month period plus 100 basis points (1%) (for
the avoidance of doubt, with such Eurodollar Rate under this clause (c) being
determined pursuant to the definitions of “Eurodollar Rate” and “Adjusted LIBO
Rate”, each as set forth in this Agreement, with respect to a Eurodollar Rate
Loan and an Interest Period beginning on such date).

 

“Inventory Advance Cap”
shall mean $20,000,000.

 

“Maximum Direct Debt
Sublimit” shall mean $20,000,000.

 

“Maximum Loan Amount”
shall mean $45,000,000.

 

“Revolving Interest Rate”
shall mean an interest rate per annum equal to (a) the Base Rate with
respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus
two and three quarters percent (2.75%) per annum with respect to Eurodollar
Rate Loans.

 

(b)           Section 1.2
of the Financing Agreement is hereby further amended by inserting a definition
of the term “Direct Debt Overadvance Amount” in appropriate alphabetical order
to read as follows:

 

“Direct Debt Overadvance
Amount” shall mean (a) $0 from April 1, 2006 through November 30,
2008, (b) $5,000,000 from December 1, 2008 through February 28,
2009 and (c) $0 from March 1, 2009 through June 20, 2010.

 

(c)           Section 2.1(a) of
the Financing Agreement is hereby amended by deleting the phrase “such Lender’s
Commitment Percentage of the Maximum Direct Debt Sublimit” appearing at the end
of the first sentence thereof and by inserting, in lieu thereof, the following:

 

such Lender’s Commitment Percentage of an amount equal to the lesser of
(x) the Maximum Direct Debt Sublimit and (y) an amount equal to the
sum of (i) the Direct Debt Overadvance Amount plus (ii) the sum,
subject to the provisions of Section 2.1(c), of 85% of Eligible
Receivables.

 

(d)           Section 3.2(a) of
the Financing Agreement is hereby amended (i) by deleting the phrase “multiplied
by two and one-quarter percent (2.25%) per annum” and by

 

2

 

inserting “multiplied by two and
three-quarters percent (2.75%) per annum” in lieu thereof and (ii) by
deleting the phrase “a fee of $75 for each Air Release/Steamship Guarantee
issued” and by inserting “a fee of $95 for each Air Release/Steamship Guarantee
issued or cancelled” in lieu thereof.

 

(e)           Section 6.8(a) of
the Financing Agreement is hereby amended and restated in its entirety as
follows:

 

(a)           Minimum Working
Capital.  Maintain at all times on and
after September 30, 2008 Working Capital in an amount of not less than
$25,000,000.

 

(f)            Section 6.8(b) of
the Financing Agreement is hereby amended and restated in its entirety as
follows:

 

(b)           Net Income.  Maintain (i) Net Income in excess of $0
during each period of two consecutive fiscal quarters (on a rolling basis)
ending on or after September 30, 2008; provided, further, for each period
of two consecutive fiscal quarters (on a rolling basis) ending on or after September 30,
2008, for purposes of determining compliance with this Section 6.8(b), Net
Income shall be calculated so that, to the extent in calculating Net Income for
such period Net Income was decreased by noncash expenses consisting of (i) amortization
for customer relationships and non-compete agreements, (ii) original issue
discount on the Senior Secured Notes, (iii) deferred financing costs, and (iv) reduction
in value of intangible assets, the amounts which were deducted in calculating
Net Income for such period for the items described in clauses (i) through (iv) above
shall be added back to Net Income as calculated in accordance with GAAP.

 

(g)           The first
sentence of Section 9.12 of the Financing Agreement is hereby amended and
restated in its entirety as follows:

 

Furnish Agent, no later than May 31 of each year, a month by month
projected operating budget and cash flow of Loan Parties on a Consolidated
Basis for the fiscal year to commence on the succeeding July 1 (including
an income statement for each month and a balance sheet as at the end of the
last month in each fiscal quarter and proposed business plan for such fiscal
year including, without limitation, Letter of Credit anticipated to be required
during each such period), such projections to be accompanied by a certificate
signed by the President or Chief Financial Officer of each Loan Party to the
effect that such projections have been prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and
that such officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared.

 

3

 

(h)           Section 16.9(b) of
the Financing Agreement is hereby amended by deleting the phrase “limited to
two (2) such field examinations in any calendar year” and by inserting “limited
to one (1) such field examination in any calendar year” in lieu thereof.

 

3.             Condition of
Effectiveness.  This
Amendment shall become effective upon satisfaction of the following conditions
precedent:

 

(a)           Agent shall
have received four (4) copies of this Amendment executed by Borrower,
Verrazano, Agent and Lenders.

 

(b)           Agent shall
have received an administrative fee equal to $50,000 which shall be charged by
Agent to Borrower’s Account and shall be shared pro rata by Lenders based upon
their respective Commitment Percentages.

 

(c)           Agent shall
have received the projections required under Section 9.12 for the fiscal
year of Borrower ending June 30, 2009 and such projections shall be
determined by Agent to be satisfactory in all respects.

 

(d)           All reasonable
out-of-pocket costs and expenses incurred by Agent in connection with this
Amendment or with the Financing Agreement, including without limitation
attorneys fees and disbursements, shall have been paid by Borrower.

 

4.             Representations
and Warranties.  Borrower
and Verrazano each hereby represents and warrants as follows:

 

(a)           This Amendment
and the Financing Agreement, as amended hereby, constitute its legal, valid and
binding obligations and are enforceable against it in accordance with their respective
terms.

 

(b)           Upon the
effectiveness of this Amendment, it hereby reaffirms, in all material respects,
all representations, warranties and covenants made in the Financing Agreement
on and as of the date hereof except:  (i) to
the extent such representation, warranties or covenants are limited by their
terms to a specific date in which case they shall be true and correct in all
material respects as of such date or (ii) for changes in the nature of its
business or operations that may occur after the Closing Date in the ordinary
course of business so long as Agent has consented to such changes or such
changes are not in violation of any provision of the Financing Agreement or any
Other Document.

 

(c)           No Event of
Default or Default has occurred and is continuing or would exist after giving
effect to this Amendment.

 

(d)           It does not
have any defense, counterclaim or offset with respect to the Financing
Agreement.

 

4

 

5.             Effect on the
Financing Agreement.

 

(a)           Upon the
effectiveness of Section 2 hereof, each reference in the Financing
Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like
import shall mean and be a reference to the Financing Agreement as amended
hereby.

 

(b)           Except as specifically
amended herein, the Financing Agreement, and all other documents, instruments
and agreements executed and/or delivered in connection therewith, shall remain
in full force and effect, and are hereby ratified and confirmed.

 

(c)           The execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of Agent or Lenders, nor constitute a waiver of any
provision of the Financing Agreement, or any other documents, instruments or
agreements executed and/or delivered under or in connection therewith.

 

6.             Governing Law.  This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of New York.

 

7.             Headings.  Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.

 

8.             Counterparts;
Facsimile.  This
Amendment may be executed by the parties hereto in one or more counterparts,
each of which shall be deemed an original and all of which when taken together
shall constitute one and the same agreement. 
Any signature delivered by a party by facsimile or electronic transmission,
including via “pdf” format, shall be deemed to be an original signature hereto.

 

5

 

IN WITNESS WHEREOF, this
Amendment has been duly executed as of the day and year first written above.

 

	
   

  	
  RAFAELLA APPAREL GROUP, INC., as

  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VERRAZANO, INC., as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  as Agent and as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ISRAEL DISCOUNT BANK OF NEW YORK, as

  a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

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