CONVERTIBLE PROMISSORY
NOTE
U.S. $250,000
October 13, 2005
For value received, Integrated
Security Systems, Inc. , a Delaware corporation (hereinafter
referred to as “Maker”), promises to pay to the order
of Frost National Bank FBO BFS US Special Opportunities Trust
PLC, Trust No. W00118000 , a public limited company registered
in England and Wales (hereinafter referred to as
“Payee”), the principal sum of U.S. $250,000. The
principal of and interest on this Note shall be due and payable in
lawful money of the United States of America by wire transfer of
immediately available funds.
1.
Interest. Interest shall accrue on
the unpaid principal balance due under this Note at an annual rate
equal to eight percent (8%). Interest shall accrue from and
including the date of this Note until, but not including, the day
on which it is paid in full. In no event shall the interest
charged hereunder exceed the maximum rate of interest allowed from
time to time by law. Interest shall be due and payable
monthly on the first (1st) day of each month.
2.
Payment of Note. The principal
balance of, and all accrued unpaid interest on, this Note shall be
due and payable on July 29, 2008 (the “Maturity
Date”).
3.
Prepayment. This Note may be
prepaid in whole or in part at any time, at the option of Maker,
without premium or penalty.
4.
Call. Maker has the right to call,
in whole or in part, the outstanding amount of the note if the
market price of the common stock of maker is above $0.60 per share,
as adjusted pursuant to Section 9 of this agreement, for a period
of 60 days. Payee will have 30 days written notice before the
note will be redeemed.
5.
Conversion. This Note shall be
convertible, at the option of Payee in its sole and absolute
discretion, in whole or in part and at any time or from time to
time, into fully paid and nonassessable shares (the
“Conversion Shares”) of Common Stock, $.01 par value
(the “Common Stock”), of Integrated Security Systems,
Inc., a Delaware corporation (the “Company”), at the
conversion price of $0.25 per share. If Payee elects to
exercise its option, then the following shall occur:
(a)
Payee shall deliver to Maker a notice of
such election (the “Conversion Notice”), indicating the
amount of principal of this Note to be converted (such amount to be
converted referred to herein as the “Converted
Amount”).
(b)
Promptly upon receipt of the Conversion
Notice, Maker shall deliver to the Company (i) a certificate
or certificates of Maker’s Common Stock representing at least
the number of shares issuable to Payee upon conversion of the
Converted Amount, duly endorsed in blank or accompanied by a stock
transfer power executed in like manner, and (ii) a copy of the
Conversion Notice.
1
(c)
Upon its receipt of Maker’s
endorsed Common Stock certificate(s) and the Conversion Notice, the
Company shall immediately issue and deliver to Payee or its
designated affiliates a certificate or certificates for the number
of shares of Common Stock, registered in Payee’s or its
designated affiliates’ name(s), to which Payee shall be
entitled upon such conversion, bearing such legends as may be
required by applicable state and federal securities laws. The
Company shall issue to Maker a certificate representing any shares
surrendered by Maker in excess of the shares issued to Payee upon
conversion.
(d)
If this Note is converted in whole, Payee
shall deliver this Note to Maker marked “Canceled,” and
Maker shall immediately pay to Payee all accrued and unpaid
interest then due and owing on the date of such conversion.
If this Note is converted in part, Maker shall immediately
pay to Payee all accrued and unpaid interest then due and owing on
the date of such conversion, and Payee shall deliver to Maker a
replacement Note for any outstanding principal amount not
converted, dated the date of such conversion, with the same
Maturity Date and provisions as contained in this Note.
(e)
No fractional shares will be issued on
conversion of this Note.
6.
Adjustment for Issuance of Shares at Less
Than the Conversion Price. If and whenever any Additional
Common Stock (herein defined) shall be issued by Maker (the
“Stock Issue Date”) for a consideration per share less
than the Conversion Price, then in each such case the initial
Conversion Price shall be reduced to a new Conversion Price in an
amount equal to the price per share for the Additional Common Stock
then issued, if issued in connection with a sale of shares, or the
value of the Additional Common Stock then issued, as determined in
accordance with generally accepted accounting principles, if issued
other than for cash, and the number of shares issuable to Payee
upon conversion shall be proportionately increased; and, in the
case of Additional Common Stock issued without consideration, the
initial Conversion Price shall be reduced in amount and the number
of shares issued upon conversion shall be increased in an amount so
as to maintain for the Payee the right to convert this Note into
shares equal in amount to the same percentage interest in the
Common Stock of the Company as existed for the Payee immediately
preceding the Stock Issue Date.
7.
Sale of Shares. In case of the
issuance of Additional Common Stock for a consideration part or all
of which shall be cash, the amount of the cash consideration
therefor shall be deemed to be the gross amount of the cash paid to
Maker for such shares, before deducting any underwriting
compensation or discount in the sale, underwriting or purchase
thereof by underwriters or dealers or others p
