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Exhibit 4.1
CONVERTIBLE PROMISSORY NOTE
U.S. $375,000
November 21, 2006
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 Renaissance US Growth Investment Trust PLC, Trust
No. W00740100 (hereinafter referred to as " Payee "),
the principal sum of U.S. $375,000. The principal of and
interest on this Convertible Promissory Note (the "
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
six percent (6%). 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 to be accrued during the twelve (12)
month period beginning on the date of issuance of this Note, as set
forth above (the " Issuance Date "), shall be prepaid
in cash to Payee on the Issuance Date. Thereafter, accrued
interest shall be due and payable quarterly beginning on January 1,
2008 and continuing on each April 1, July 1, October 1 and January
1 thereafter until the entire principal balance and all accrued and
unpaid interest hereunder is paid in full.
2.
Payment of Note . The principal balance of, and all
accrued unpaid interest on, this Note shall be due and payable on
November 23, 2009 (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. If this Note is fully prepaid on or before November
21, 2007, then any prepaid interest shall be refunded to Maker.
4.
Conversion . The outstanding principal balance of
this Note shall be convertible, at the option of Payee in its sole
and absolute discretion, in whole or in part, (i) upon the
occurrence of a Recapitalization (as defined below), or (ii) in
connection with and immediately prior to a Change of Control (as
defined below), in each case into fully paid and nonassessable
shares (the " Conversion Shares ") of common stock of
the Company, par value $0.01 per share (the " Common
Stock ") at the Conversion Price (as defined below) in
effect on the date of such Recapitalization or Change of Control,
as the case may be. If Payee elects to exercise its option to
convert this Note, the following shall occur:
(a)
Payee shall deliver to Maker a written notice of such election
(the " Conversion Notice "), indicating the amount of
principal of this Note to be converted.
(b)
Upon its receipt of the Conversion Notice, the Maker 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.
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(c)
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.
(d)
No fractional shares will be issued on conversion of this
Note.
5.
Conversion Price; Adjustment for Issuance of Shares at Less
Than the Fair Market Value . The " Conversion
Price " shall equal the Fair Market Value (as defined
below) of the Common Stock on the date of such Recapitalization or
Change of Control, as the case may be. However, if Maker has
issued (such date of issuance, the " Stock Issue Date
") any Additional Common Stock (as defined below) for a
consideration per share less than the Fair Market Value on the date
of such conversion, then (subject to Sections 6 , 7 ,
8 and 9 below) the Conversion Price shall equal the
lowest price per share at which any such shares of Additional
Common Stock were issued. In the case of Additional Common
Stock issued without consideration, the Conversion Price shall be
reduced to an amount, and the number of shares issued upon such
conversion shall be increased in an amount, so as to maintain for
the Payee the right to convert this Note into shares of Common
Stock equal in amount to the same percentage interest in the Common
Stock of the Company as this Note was convertible immediately
preceding the Stock Issue Date.
6.
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 performing similar services or for any expenses
incurred in connection therewith. In case of the issuance of
any shares of Additional Common Stock for a consideration part or
all of which shall be other than cash, the amount of the
consideration therefor, other than cash, shall be deemed to be the
then fair market value of the property received, as determined in
good faith by Maker’s Board of Directors.
7.
Stock Dividends . Shares of Common Stock issued as
a dividend or other distribution on any class of capital stock of
Maker shall be deemed to have been issued without
consideration.
8.
Stock Splits, Subdivisions or Combinations . In the
event of a stock split or subdivision of shares of Common Stock
into a greater number of shares, the Conversion Price shall be
proportionately decreased, and in the event of a combination of
shares of Common Stock into a smaller number of shares, the
Conversion Price shall be proportionately increased, such increase
or decrease, as the case may be, becoming effective at the record
date.
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9.
Exceptions . The term " Additional Common
Stock " herein shall mean all shares of Common Stock
hereafter issued by Maker (including Common Stock held in the
treasury of Maker), except (a) Common Stock issued upon the
conversion of this Note; (b) Common Stock issued upon conversion or
exercise of any warrants, options or convertible instruments
outstanding on the date hereof; and (c) Common Stock issued upon
exercise of stock options or similar purchase rights to employees,
directors or consultants of Maker. Any adjustment to the
Conversion Price to be made pursuant to Section 5 above may
be waived (either retroactively or prospectively and either
generally or in a particular instance) in writing by Payee.
10.
Adjustments for Mergers, Sales and Consolidations .
In the event of any consolidation or merger of the Maker
with
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