EXHIBIT 4.3
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INTEGRATED SECURITY SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED REVOLVING NOTE
FOR VALUE RECEIVED, each of INTEGRATED SECURITY SYSTEMS, INC., a
Delaware corporation (the "Parent"), and the other companies listed on Exhibit A
attached hereto (such other companies together with the Parent, each a "Company"
and collectively, the "Companies"), jointly and severally, promises to pay to
LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT,
Xxxxxx House, South Church Street, Xxxxxx Town, Grand Cayman, Cayman Islands,
Fax: 000-000-0000 (the "Holder") or its registered assigns or successors in
interest, the sum of Three Million Dollars ($3,000,000), without duplication of
any amounts owing by the Companies to the Holder under the Minimum Borrowing
Notes (as defined in the Security Agreement referred to below), or, if
different, the aggregate principal amount of all Loans (as defined in the
Security Agreement referred to below), together with any accrued and unpaid
interest hereon, on July 29, 2008 (the "Maturity Date") if not sooner
indefeasibly paid in full.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Security Agreement among the Companies
and the Holder dated as of the date hereof (as amended, modified and/or
supplemented from time to time, the "Security Agreement").
The following terms shall apply to this Secured Revolving Note
(this "Note"):
ARTICLE I
CONTRACT RATE AND MINIMUM BORROWING NOTE
1.1 Contract Rate. Subject to Sections 3.2 and 4.10, interest
payable on the outstanding principal amount of this Note (the "Principal
Amount") shall accrue at a rate per annum equal to the "prime rate" published in
The Wall Street Journal from time to time (the "Prime Rate"), plus one and one
half percent (1.50%) (the "Contract Rate"). The Contract Rate shall be increased
or decreased as the case may be for each increase or decrease in the Prime Rate
in an amount equal to such increase or decrease in the Prime Rate; each change
to be effective as of the day of the change in the Prime Rate. Subject to
Section 1.2, the Contract Rate shall not at any time be less than six percent
(6.0%). Interest shall be (i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on August 1, 2005 on the first
business day of each consecutive calendar month thereafter through and including
the Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.
1.2 Contract Rate Adjustments and Payments. The Contract Rate
shall be calculated on the last business day of each calendar month hereafter
(other than for increases or decreases in the Prime Rate which shall be
calculated and become effective in accordance with the terms of Section 1.1)
until the Maturity Date (each a "Determination Date") and shall be subject to
adjustment as set forth herein. If (i) the Parent shall have registered the
shares of the Common Stock underlying the conversion of each Minimum Borrowing
Note and each Warrant on a registration statement declared effective by the
Securities and Exchange Commission (the "SEC"), and (ii) the market price (the
"Market Price") of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) trading days immediately preceding a
Determination Date exceeds the then applicable Fixed Conversion Price by at
least twenty-five percent (25%), the Contract Rate for the succeeding calendar
month shall automatically be reduced by 200 basis points (200 b.p.) (2%) for
each incremental twenty-five percent (25%) increase in the Market Price of the
Common Stock above the then applicable Fixed Conversion Price. Notwithstanding
the foregoing (and anything to the contrary contained herein), in no event shall
the Contract Rate at any time be less than zero percent (0%).
1.3 Allocation of Principal to Minimum Borrowing Note.
Notwithstanding anything herein to the contrary, whenever during the Term the
outstanding balance on the Minimum Borrowing Note shall be less than the Minimum
Borrowing Amount (such amount being referred to herein as the "Transferable
Amount") to the extent that the outstanding balance on the Revolving Note should
equal or exceed $500,000, that portion of the balance of the Revolving Note that
exceeds $500,000, but does not exceed the Transferable Amount, shall be
segregated from the outstanding balance under the Revolving Note and allocated
to and aggregated with the then existing balance of the next unissued serialized
Minimum Borrowing Note (the "Next Unissued Serialized Note"); provided that such
segregated balance shall remain subject to the terms and conditions of such
Revolving Note until a new serialized Minimum Borrowing Note is issued as set
forth below. The Next Unissued Serialized Note shall remain in book entry form
until the balance thereunder shall equal the Minimum Borrowing Amount, at which
time a new serialized Minimum Borrowing Note in the face amount equal to the
Minimum Borrowing Amount will be issued and registered as set forth in the
Registration Rights Agreement (and the outstanding balance under the Revolving
Note shall at such time be correspondingly reduced in the amount equal to the
Minimum Borrowing Amount as a result of the issuance of such new serialized
Minimum Borrowing Note).
ARTICLE II
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
2.1 Optional Conversion. Subject to the terms of this Article
II, the Holder shall have the right, but not the obligation, at any time until
the Maturity Date, or during an Event of Default (as defined in Article III),
and, subject to the limitations set forth in Section 2.2 hereof, to convert all
or any portion of the outstanding Principal Amount and/or accrued interest and
fees due and payable into fully paid and nonassessable restricted shares of the
Common Stock at the Fixed Conversion Price (defined below). For purposes hereof,
subject to Section 2.6 hereof, the initial "Fixed Conversion Price" means $
0.25. The shares of Common Stock to be issued upon such conversion are herein
referred to as the "Conversion Shares."
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2.2 Conversion Limitation. Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert pursuant to
the terms of this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between (i) 4.99% of the
issued and outstanding shares of Common Stock and (ii) the number of shares of
Common Stock beneficially owned by the Holder. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The
Conversion Shares limitation described in this Section 2.2 shall automatically
become null and void following notice to any Company upon the occurrence and
during the continuance of an Event of Default, or upon 75 days prior notice to
the Parent. Notwithstanding anything contained herein to the contrary, the
provisions of this Section 2.2 are irrevocable and may not be waived by the
Holder or any Company.
2.3 Mechanics of Xxxxxx's Conversion. In the event that the
Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion in substantially the form of Exhibit B hereto (appropriately
completed) ("Notice of Conversion") to the Parent and such Notice of Conversion
shall provide a breakdown in reasonable detail of the Principal Amount, accrued
interest and fees that are being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
the Parent within two (2) Business Days after the Conversion Date. Each date on
which a Notice of Conversion is delivered or telecopied to the Parent in
accordance with the provisions hereof shall be deemed a Conversion Date (the
"Conversion Date"). Pursuant to the terms of the Notice of Conversion, the
Parent will issue instructions to the transfer agent accompanied by, to the
extent reasonably requested by the Holder, an opinion of counsel within one (1)
Business Day of the date of the delivery to the Parent of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
Business Days after receipt by the Parent of the Notice of Conversion (the
"Delivery Date"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Parent of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of the Conversion
Shares, unless the Holder provides the Parent written instructions to the
contrary.
2.4 Late Payments. Each Company understands that a delay in
the delivery of the Conversion Shares in the form required pursuant to this
Article beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, in addition to all other rights and
remedies which the Holder may have under this Note, applicable law or otherwise,
the Companies shall, jointly and severally, pay late payments to the Holder for
any late issuance of Conversion Shares in the form required pursuant to this
Article II upon conversion of this Note, in the amount equal to $250 per
Business Day after the Delivery Date. The Companies shall, jointly and
severally, make any payments incurred under this Section in immediately
available funds upon demand.
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2.5 Conversion Mechanics. The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal and interest and fees to be converted, if
any, by the then applicable Fixed Conversion Price.
2.6 Adjustment Provisions. The Fixed Conversion Price and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1 shall be subject to adjustment from time to
time upon the occurrence of certain events during the period that this
conversion right remains outstanding, as follows:
(a) Reclassification. If the Parent at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock (i) immediately prior to or (ii) immediately after,
such reclassification or other change at the sole election of the Holder.
(b) Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
or any preferred stock issued by the Parent in shares of Common Stock, the Fixed
Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
(c) Share Issuances. Subject to the provisions of this
Section 2.6, if the Parent shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of Common Stock or
securities convertible into Common Stock to a Person other than the Holder
(except (i) pursuant to Sections 2.6(a) or (b) above; (ii) pursuant to options,
warrants, or other obligations to issue shares outstanding on the date hereof as
disclosed to the Holder in writing (including, without limitation, the options,
warrants or other obligations expressly set forth in the Disclosure Schedules to
the Security Agreement); or (iii) pursuant to options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Parent) for a consideration per share (the "Offer Price") less
than the Fixed Conversion Price in effect at the time of such issuance, then the
Fixed Conversion Price shall be immediately reset pursuant to the formula below.
For purposes hereof, the issuance of any security of the Parent convertible into
or exercisable or exchangeable for Common Stock shall result in an adjustment to
the Fixed Conversion Price upon the issuance of such securities pursuant to the
formula below.
If the Parent issues any additional shares of Common
Stock for a consideration per share less than the then-applicable Fixed
Conversion Price pursuant to this Section 3.6 then, and thereafter successively
upon each such issue, the Fixed Conversion Price shall be adjusted by
multiplying the then applicable Fixed Conversion Price by the following
fraction:
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______________________________________
A + B
______________________________________
(A + B) + [((C - D) x B) / C]
______________________________________
A = Total amount of shares convertible pursuant to the Notes
B = Actual shares sold in the offering
C = Fixed Conversion Price
(d) D = Offer Price
(e) Computation of Consideration. For purposes of any
computation respecting consideration received pursuant to Section 2.6(c) above,
the following shall apply:
(i) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Parent for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Parent (irrespective
of the accounting treatment thereof); and
(iii) upon any such exercise, the aggregate consideration
received for such securities shall be deemed to be the consideration received by
the Parent for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Parent upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in subsections (i) and (ii) of this Section 2.6(d)).
2.7 Reservation of Shares. During the period the conversion
right exists, the Parent will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Conversion
Shares upon the full conversion of this Note and the Warrant. The Parent
represents that upon issuance, the Conversion Shares will be duly and validly
issued, fully paid and non-assessable. The Parent agrees that its issuance of
this Note shall constitute full authority to its officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for the Conversion Shares upon
the conversion of this Note.
ARTICLE III
EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS
3.1 Events of Default. The occurrence of an Event of Default
under the Security Agreement shall constitute an event of default ("Event of
Default") hereunder.
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3.2 Default Interest. Following the occurrence and during the
continuance of an Event of Default, the Companies shall, jointly and severally,
pay additional interest on the outstanding principal balance of this Note in an
amount equal to one percent (1%) per month, and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest at such additional
interest rate from the date of such Event of Default until the date such Event
of Default is cured or waived.
3.3 Default Payment. Following the occurrence and during the
continuance of an Event of Default, the Holder, at its option, may elect, in
addition to all rights and remedies of the Holder under the Security Agreement
and the other Ancillary Agreements and all obligations and liabilities of each
Company under the Security Agreement and the other Ancillary Agreements, to
require the Companies, jointly and severally, to make a Default Payment
("Default Payment"). The Default Payment shall be one hundred twenty percent
(120%) of the outstanding principal amount of the Note, plus accrued but unpaid
interest, all other fees then remaining unpaid, and all other amounts payable
hereunder. The Default Payment shall be applied first to any fees due and
payable to the Holder pursuant to the Notes, the Security Agreement and/or the
Ancillary Agreements, then to accrued and unpaid interest due on the Notes and
then to the outstanding principal balance of the Notes. The Default Payment
shall be due and payable immediately on the date that the Holder has exercised
its rights pursuant to this Section 3.3.
ARTICLE IV
MISCELLANEOUS
4.1 Conversion Privileges. The conversion privileges set
forth in Article II shall remain in full force and effect immediately from the
date hereof until the date this Note is indefeasibly paid in full and
irrevocably terminated.
4.2 Cumulative Remedies. The remedies under this Note shall
be cumulative.
4.3 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.4 Notices. Any notice herein required or permitted to be
given shall be in writing and shall be deemed effective given (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
respective Company at the address provided for such Company in the Security
Agreement executed in connection herewith, and to the Holder at the address
provided in the Security Agreement for the Holder, with a copy to Xxxx X.
Xxxxxx, Esq., 000 Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx
number (000) 000-0000, or at such other address as the respective Company or the
Holder may designate by ten days advance written notice to the other parties
hereto.
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4.5 Amendment Provision. The term "Note" and all references
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
4.6 Assignability. This Note shall be binding upon each
Company and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder in
accordance with the requirements of the Security Agreement. No Company may not
assign any of its obligations under this Note without the prior written consent
of the Holder, any such purported assignment without such consent being null and
void.
4.7 Cost of Collection. In case of any Event of Default under
this Note, the Companies shall, jointly and severally, pay the Holder's
reasonable costs of collection, including reasonable attorneys' fees.
4.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN ANY COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE, THE SECURITY
AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS; PROVIDED, THAT EACH COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE
HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT
THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL
BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
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(c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED
BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH
COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION
WITH THIS NOTE, THE SECURITY AGREEMENT, ANY OTHER ANCILLARY AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
4.9 Severability. In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Note.
4.10 Maximum Payments. Nothing contained herein shall be
deemed to establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law. In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum rate permitted by such law, any payments in excess of such maximum rate
shall be credited against amounts owed by the Companies to the Holder and thus
refunded to the Companies.
4.11 Security Interest. The Holder has been granted a security
interest (i) in certain assets of the Companies as more fully described in the
Security Agreement and (ii) pursuant to the Stock Pledge Agreement dated as of
the date hereof.
4.12 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, each Company has caused this Secured
Revolving Note to be signed in its name effective as of this 29th day of July
2005.
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ C. A. Xxxxxxx, Xx.
__________________________________
Name: C. A. Xxxxxxx, Xx.
Title: Chairman and CEO
WITNESS:
_________________________________
B&B ARMR CORPORATION
By: /s/ Xxxxx Xxxxx
__________________________________
Name: Xxxxx Xxxxx
Title: Chairman and CEO
WITNESS:
_________________________________
INTELLI-SITE, INC.
By: /s/ C. A. Xxxxxxx, Xx.
__________________________________
Name: C. A. Xxxxxxx, Xx.
Title: Chairman
WITNESS:
_________________________________
DOORTEK CORPORATION
By: /s/ C. A. Xxxxxxx, Xx.
__________________________________
Name: C. A. Xxxxxxx, Xx.
Title: Chairman and CEO
WITNESS:
_________________________________
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EXHIBIT A
OTHER COMPANIES
B&B ARMR Corporation, a Delaware corporation
Intelli-Site, Inc., a Texas corporation
DoorTek Corporation, a Texas corporation
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EXHIBIT B
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Secured Revolving Note)
The undersigned hereby elects to convert $_________ of the
principal and $_________ of the interest due on the Secured Revolving Note dated
as of July __, 2005 (the "Note") issued by Integrated Security Systems, Inc.
(the "Parent") and the other Companies named and as defined therein into shares
of Common Stock of the Parent ("Shares) in accordance with the terms and
conditions set forth in the Note, as of the date written below.
Date of Conversion: __________________________________________________
Conversion Price: __________________________________________________
Shares To Be Delivered: __________________________________________________
Signature: __________________________________________________
Print Name: __________________________________________________
Address: __________________________________________________
Holder DWAC instructions __________________________________________________
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