CONVERTIBLE SUBORDINATED NOTE

US $1,200,000                                                   June 14, 2000
                                                                Denver, Colorado

     FOR VALUE RECEIVED,  the  undersigned,  DYNAMIC  MATERIALS  CORPORATION,  a
Delaware  corporation  (the  "Company"),  promises  to pay to the order of SNPE,
INC., a Delaware corporation (the "Holder"), at the office of the Holder located
at 5 Vaughn Drive,  Suite 111,  Princeton,  New Jersey 08540,  on June 14, 2005,
(the "Maturity Date") the principal amount of ONE MILLION  TWO-HUNDRED  THOUSAND
U.S. DOLLARS (U.S. $1,200,000).

     1. Interest.  The Company  promises to pay interest on the unpaid principal
amount  hereof at a rate of five  percent  (5%) per annum.  The Company will pay
interest  quarterly  in  arrears on each March 30,  June 30,  September  30, and
December  30  commencing  June 30,  2000 and on the  Maturity  Date  (whether as
stated,  by acceleration  or otherwise).  Interest on this Note will accrue from
and  including  the most recent date to which  interest  has been paid or, if no
interest has been paid, from and including the date of original issuance of this
Note through but excluding the date on which interest is paid.  Interest will be
computed  on the  basis of a  360-day  year of twelve  30-day  months.  Upon the
occurrence  and during the  continuation  of an Event of Default  (as defined in
Section  5  hereof)  and  after  the  Maturity  Date  (whether  as  stated,   by
acceleration or otherwise) this Note shall bear interest on the unpaid principal
amount hereof from time to time outstanding, payable on demand by the Holder and
upon  payment in full  hereof,  at a rate  equal to 2% above the rate  otherwise
applicable pursuant to this Section 1.

     2. Method of Payment.  The Company will pay principal and interest in money
of the United  States of America that at the time of payment is legal tender for
payment of public and private debts. The Company may, however, pay principal and
interest by its check  payable in such money by mail to the Holder's  registered
address.

     3. Subordination.

     (a) Note Subordinated to Senior  Indebtedness.  The Company agrees, and the
Holder by acceptance  hereof likewise agrees,  that the payment of the principal
of and  interest on this Note is  subordinated,  to the extent and in the manner
provided  in  this  Section  3, to the  prior  payment  in  full  of all  Senior
Indebtedness.

<PAGE>

     This Section 3 shall  constitute a continuing  offer to all persons who, in
reliance upon such  provisions,  become holders of, or continue to hold,  Senior
Indebtedness,  and such  provisions  are made for the  benefit of the holders of
Senior  Indebtedness,  and such  holders are made  obligees  hereunder  and they
and/or each of them may enforce such provisions.

     As used in this Note,  "Senior  Indebtedness"  means the  principal  of and
interest  on the  outstanding  Indebtedness  of the  Company  under (a) the Loan
Agreement  between  Fayette  County  Industrial  Development  Authority  and the
Company dated as of September 1, 1998 (as amended to the date hereof,  and as it
may be  further  amended  on and after  the date  hereof  the "Loan  Agreement")
entered  into  in  connection  with  the  Fayette  County  Industrial  Authority
Multi-Mode  Variable Rate  Industrial  Development  Revenue  Bonds,  Series 1998
(Dynamic  Materials  Corporation  Project) (the "Bonds"),  and (b) the letter of
credit in the  original  principal  amount of  $6,997,135.00  issued by  KeyBank
National  Association  ("KeyBank")  in favor of the  trustee  for holders of the
Bonds and the related  Reimbursement  Agreement  dated as of  September  1, 1998
between  KeyBank  and  the  Company  (as  amended  by  the  First  Amendment  to
Reimbursement  Agreement dated June 14, 2000, the "Reimbursement  Agreement") to
secure payment of the Bonds.

     As used in this Note,  "Indebtedness" of any person means any indebtedness,
contingent or otherwise,  in respect of borrowed  money,  whether  short-term or
long-term and whether recourse or non-recourse,  all obligations with respect to
letters  of credit  and  bankers'  acceptances  or  evidenced  by bonds,  notes,
debentures  or similar  instruments,  and all  obligations  to pay the  deferred
purchase price of any property (except trade payables),  and shall also include,
to the  extent  not  otherwise  included,  any  capitalized  lease  obligations,
indebtedness  (recourse or nonrecourse)  secured by a lien to which the property
or  assets  owned  or  held by  such  person  are  subject,  whether  or not the
obligations  secured  thereby shall have been assumed,  guarantees of items that
would be included within this definition, and obligations in respect of currency
agreements,  interest swap  obligations,  obligations to reimburse the issuer of
any letters of credit and  obligations  with respect to royalty or other similar
arrangements  for  purchase  in  exchange  of assets and any and all  deferrals,
renewals, extensions or modifications of same.

     (b)  Company  Not  to  Make  Payments  with  Respect  to  Note  in  Certain
Circumstances.

          (i) Upon the occurrence of an Event of Default  under,  and as defined
     in, the Loan  Agreement  or the  Reimbursement  Agreement in respect of any
     Senior  Indebtedness  by lapse of time,  acceleration  (unless  waived)  or
     otherwise,  all principal  thereof and interest thereon shall first be paid
     in  full,  or  such  payment  duly  provided  for in  cash  or in a  manner
     satisfactory to the holders of such Senior

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<PAGE>

     Indebtedness,  before any payment is made on account of the principal of or
     interest on this Note.

          (ii) In the event that, notwithstanding the provisions of this Section
     3(b),  the Company shall make any payment on account of the principal of or
     interest  on this  Note  after the  occurrence  of an Event of  Default  in
     respect  of  the  Senior  Indebtedness  under  the  Loan  Agreement  or the
     Reimbursement Agreement, then, unless and until such Event of Default shall
     have been cured or waived or shall have ceased to exist, such payment shall
     be held by the  recipient  thereof  for the  benefit  of, and shall be paid
     forthwith  over and delivered to, the holders of Senior  Indebtedness  (pro
     rata as to each of such holders on the basis of the  respective  amounts of
     Senior  Indebtedness  held by them) or their  representative or the trustee
     under the  indenture or other  agreement  (if any) pursuant to which Senior
     Indebtedness  may have  been  issued,  as their  respective  interests  may
     appear, for application to the payment of all Senior Indebtedness remaining
     unpaid to the extent  necessary to pay all Senior  Indebtedness  in full in
     accordance with its terms, after giving effect to any concurrent payment or
     distribution to or for the holders of Senior Indebtedness.

     The Company shall give prompt  written  notice to the Holder of any default
in the payment of principal of or interest on any Senior Indebtedness.

     Until  such time as the  Senior  Indebtedness  has been  paid in full,  the
Holder  shall  not  exercise  its  right  to  accelerate  the  maturity  of  the
outstanding  loans to the Company or to  terminate  its  commitments  to provide
financing  to the Company  under,  that  certain  Credit  Facility  and Security
Agreement  dated as of June 14,  2000  unless the Holder  has  furnished  to the
holders of such Senior  Indebtedness not less than three (3) days' prior written
notice of its intent to do so.

     (c) Note  Subordinated  to Prior  Payment  of All  Senior  Indebtedness  on
Dissolution, Liquidation or Reorganization of the Company. Upon any distribution
of  assets  of the  Company  in any  dissolution,  winding  up,  liquidation  or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):

          (i) the holders of all Senior  Indebtedness shall first be entitled to
     receive  payments in full of the principal  thereof,  premium,  if any, and
     interest  due thereon  before the Holder is entitled to receive any payment
     on account of the principal of or interest on this Note;

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<PAGE>

          (ii) any payment or  distribution of assets of the Company of any kind
     or character,  whether in cash, property or securities, to which the Holder
     would be entitled  except for the  provisions of this Section 3,  including
     any such payment or  distribution  which may be payable or  deliverable  by
     reason  of the  payment  of any other  Indebtedness  of the  Company  being
     subordinated to the payment of this Note,  shall be paid by the liquidating
     trustee  or agent or other  person  making  such  payment  or  distribution
     directly to the holders of the Senior Indebtedness or their representative,
     or to the trustee under any indenture under which Senior  Indebtedness  may
     have  been  issued  (pro  rata as to each such  holder,  representative  or
     trustee  on  the  basis  of  the   respective   amounts  of  unpaid  Senior
     Indebtedness  held or represented by each), to the extent necessary to make
     payment in full of all Senior Indebtedness  remaining unpaid,  after giving
     effect to any concurrent  payment or distribution or provision  therefor to
     the holders of such Senior Indebtedness; and

          (iii) in the event that  notwithstanding  the foregoing  provisions of
     this Section 3(c), any payment or  distribution of assets of the Company of
     any kind or character,  whether in cash, property or securities,  including
     any such payment or  distribution  which may be payable or  deliverable  by
     reason  of the  payment  of any other  Indebtedness  of the  Company  being
     subordinated  to the payment of this Note,  shall be received by the Holder
     on account  of  principal  of or  interest  on this Note  before all Senior
     Indebtedness is paid in full, or effective  provision made for its payment,
     such payment or distribution (subject to the provisions of Section 3(f) and
     3(g)) shall be received  and held for and shall be paid over to the holders
     of the Senior  Indebtedness  remaining  unpaid or  unprovided  for or their
     representative,  or to the  trustee  under any  indenture  under which such
     Senior  Indebtedness  may  have  been  issued  (pro  rata  as  provided  in
     subsection  (c)(ii)  above),  for application to the payment of such Senior
     Indebtedness  until all such  Senior  Indebtedness  shall have been paid in
     full,  after giving effect to any  concurrent  payment or  distribution  or
     provision therefor to the holders of such Senior Indebtedness.

The Company shall give prompt written  notice to the Holder of any  dissolution,
winding up, liquidation or reorganization of the Company.

     (d) Holder to be  Subrogated  to Rights of Holders of Senior  Indebtedness.
Subject to the payment in full of all Senior  Indebtedness,  the Holder shall be
subrogated  equally  and  ratably  to the  rights of the  holders  of the Senior
Indebtedness  to receive  payments  or  distributions  of assets of the  Company
applicable to the Senior Indebtedness until all amounts owing on


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<PAGE>

this Note  shall be paid in full,  and for the  purpose of such  subrogation  no
payments or  distributions  to the holders of the Senior  Indebtedness  by or on
behalf of the Company or by or on behalf of the Holder by virtue of this Section
3 which  otherwise  would have been made to the  Holder  shall,  as between  the
Company,  its creditors  other than holders of the Senior  Indebtedness  and the
Holder be deemed to be  payment  by the  Company  to or on account of the Senior
Indebtedness,  it being  understood  that the  provisions  of this Section 3 are
intended  solely for the purpose of defining the relative  rights of the Holder,
on the one hand, and the holders of the Senior Indebtedness, on the other hand.

     (e)  Obligation  of the Company  Unconditional.  Nothing  contained in this
Section 3 or elsewhere in this Note is intended to or shall  impair,  as between
the Company,  its creditors  other than holders of Senior  Indebtedness  and the
Holder, the obligation of the Company,  which is absolute and unconditional,  to
pay to the Holder the  principal  of and  interest  on this Note as and when the
same shall become due and payable in accordance  with its terms,  or is intended
to or shall  affect  the  relative  rights of the Holder  and  creditors  of the
Company other than the holders of the Senior  Indebtedness,  nor shall  anything
herein prevent the Holder from  exercising all remedies  otherwise  permitted by
applicable  law upon  default  under this Note,  subject to the rights,  if any,
under this Section 3 of the holders of Senior  Indebtedness  in respect of cash,
property or  securities  of the Company  received  upon the exercise of any such
remedy.  Upon any  distribution  of assets of the  Company  referred  to in this
Section 3, the Holder shall be entitled to rely upon any order or decree made by
any court of  competent  jurisdiction  in which such  dissolution,  winding  up,
liquidation or reorganization  proceedings are pending,  or a certificate of the
liquidating  trustee or agent or other  person  making any  distribution  to the
Holder,  for the purpose of ascertaining  the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company,  the amount  thereof or payable  thereon,  the amount or amounts
paid or  distributed  thereon and all other facts  pertinent  thereto or to this
Section 3.

     Nothing  contained  in this Section 3 or elsewhere in this Note is intended
to or shall affect the obligation of the Company to make, or prevent the Company
from making, at any time except during the pendency of any dissolution,  winding
up, liquidation or reorganization  proceeding, and except during the continuance
of any default specified in Section 3(b) (not cured or waived),  payments at any
time of the principal of or interest on this Note.

(f) Subordination Rights Not Impaired by Acts or Omissions of Company or Holders
of Senior Indebtedness.  No right of any present or future holders of any Senior
Indebtedness  to enforce  subordination  as provided herein shall at any time in
any way be  prejudiced  or  impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good


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<PAGE>

faith, by any such holder, or by any noncompliance by the Company with the terms
of this Note, regardless of any knowledge thereof which any such holder may have
or be otherwise  charged with.  The holders of Senior  Indebtedness  may extend,
renew,  modify or amend the terms of the  Senior  Indebtedness  or any  security
therefor and release,  sell or exchange such security and otherwise  deal freely
with the Company,  all without  affecting the liabilities and obligations of the
parties to this Note.

     (g)  Section 3 Not to  Prevent  Events of  Default.  The  failure to make a
payment on account of principal  or interest by reason of any  provision in this
Section 3 shall not be construed as  preventing  the  occurrence  of an Event of
Default under Section 5.

     4. Conversion of Note.

     (a)  Conversion  Privilege.   Subject  to  and  upon  compliance  with  the
provisions of this Section 4, at the option of the Holder, this Note may, at any
time until and including Maturity, be converted, in whole or in part, at 100% of
the  principal  amount  hereof  (or  portion   hereof),   into  fully  paid  and
non-assessable shares of common stock, par value $0.05 per share, of the Company
(the "Company Common Stock"),  at the conversion  price in effect at the Date of
Conversion (as hereinafter defined).

(b)  Exercise  of  Conversion  Privilege.  In order to exercise  the  conversion
privilege,  the  Holder  shall  surrender  this Note to the  Company at any time
during usual business hours at its office accompanied by written notice that the
Holder  elects to convert  this Note or a stated  portion  thereof.  Such notice
shall also state the name or names (with  address) in which the  certificate  or
certificates for shares of Company Common Stock shall be issued.  As promptly as
practicable  after the receipt of such notice and the  surrender of this Note as
aforesaid,  the Company shall,  subject to the provisions of Section 4(h), issue
and deliver at such office or agency to the Holder,  or on its written  order, a
certificate  or  certificates  for the number of full  shares of Company  Common
Stock  issuable on such  conversion  in accordance  with the  provisions of this
Section 4 and cash, as provided in Section 4(c), in respect of any fraction of a
share of Company  Common Stock  otherwise  issuable upon such  conversion.  Such
conversion shall be deemed to have been effected  immediately prior to the close
of business on the date (herein called the "Date of  Conversion")  on which such
notice  shall have been  received  by the  Company and this Note shall have been
surrendered  as aforesaid,  and the person or persons in whose name or names any
certificate or certificates for shares of Company Common Stock shall be issuable
upon such  conversion  shall be deemed to have become on the Date of  Conversion
the holder or holders of record of the  shares  represented  thereby;  provided,
however,  that any such  surrender on any date when the stock  transfer books of
the Company shall be closed shall constitute the person or persons in whose name
or

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<PAGE>

names the  certificate or  certificates  for such shares are to be issued as the
record holder or holders  thereof for all purposes at the opening of business on
the next  succeeding  day on which such stock  transfer  books are open but such
conversion shall  nevertheless be at the conversion price in effect at the close
of business on the date when this Note shall have been so  surrendered  with the
conversion notice. In the case of conversion of a portion, but less than all, of
this Note,  the Company shall execute and deliver to the Holder,  at the expense
of the Company,  a Note in the form hereof in the aggregate  principal amount of
the unconverted  portion of this Note. Except as otherwise expressly provided in
this Note, no payment or adjustment  shall be made for interest  accrued on this
Note (or portion  thereof)  converted or for dividends or  distributions  on any
Company Common Stock issued upon conversion of this Note.

     (c)  Fractional  Interests.  No fractions  of shares or scrip  representing
fractions of shares  shall be issued upon any  conversion  of this Note.  If any
fraction of a share of Company Common Stock would,  except for the provisions of
this Section 4(c) be issuable on the  conversion of this Note, the Company shall
make  payment  in lieu  thereof  in an amount of cash equal to the value of such
fraction computed on the basis of the current market price of the Company Common
Stock on the last business day prior to the Date of Conversion.

     (d)  Conversion  Price.  The  conversion  price per share of Company Common
Stock  issuable  upon  conversion  of  this  Note  shall  initially  be $6  (the
"Conversion Price").

     (e) Adjustment of Conversion  Price.  The Conversion Price shall be subject
to adjustment from time to time as follows:

          (i)  In  case  the  Company  shall  (1)  pay  a  dividend  or  make  a
     distribution  in  shares  of  Company  Common  Stock,   (2)  subdivide  its
     outstanding  shares of Company Common Stock into a greater number of shares
     or (3)  combine  its  outstanding  shares of  Company  Common  Stock into a
     smaller number of shares,  the Conversion Price in effect immediately prior
     to such action shall be adjusted so that the Holder,  as holder of the Note
     thereafter  surrendered  for  conversion,  shall be entitled to receive the
     number  of  shares  of  Company  Common  Stock  which it would  have  owned
     immediately  following such action had the Note been converted  immediately
     prior  thereto.  An adjustment  made pursuant to this  subsection (i) shall
     become  effective  immediately  after  the  record  date  in the  case of a
     dividend and shall become effective immediately after the effective date in
     the case of a subdivision or combination.

          (ii) In case the Company shall issue rights or warrants to all holders
     of Company Common Stock

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<PAGE>

     entitling them to subscribe for or purchase  shares of Company Common Stock
     at a price  per  share  less than the  current  market  price per share (as
     determined  pursuant to subsection  (iv) below) of the Company Common Stock
     on the record date mentioned  below, the Conversion Price shall be adjusted
     so that the same  shall  equal  the price  determined  by  multiplying  the
     Conversion  Price in effect  immediately  prior to the date of  issuance of
     such rights or warrants by a fraction of which the  numerator  shall be the
     number  of  shares  of  Company  Common  Stock  outstanding  on the date of
     issuance of such rights or warrants,  immediately  prior to such  issuance,
     plus the number of shares which the aggregate  offering  price of the total
     number of shares so offered for  subscription or purchase would purchase at
     such current market price, and of which the denominator shall be the number
     of shares of Company  Common Stock  outstanding  on the date of issuance of
     such  rights or  warrants,  immediately  prior to such  issuance,  plus the
     number of  additional  shares of Company  Common Stock which are so offered
     for  subscription  or purchase.  Such  adjustment  shall  become  effective
     immediately  after the record date for the  determination  of  stockholders
     entitled to receive such rights or warrants.

          (iii)  In case the  Company  shall  distribute  to  substantially  all
     holders of Company Common Stock  evidences of  indebtedness or other assets
     (other than cash  dividends),  or shall  distribute  to  substantially  all
     holders of  Company  Common  Stock  rights or  warrants  to  subscribe  for
     securities (other than those referred to in subsection (ii) above), then in
     each such case the  Conversion  Price  shall be  adjusted  so that the same
     shall equal the price  determined by multiplying  the  Conversion  Price in
     effect  immediately prior to the date of such distribution by a fraction of
     which the numerator shall be the current market price per share (determined
     as provided in  subsection  (iv) below) of the Company  Common Stock on the
     record date mentioned  below less the then fair market value (as determined
     by the Board of Directors, whose determination shall be conclusive evidence
     of such fair market value) of the portion of the assets so  distributed  or
     of such subscription  rights or warrants applicable to one share of Company
     Common Stock,  and of which the  denominator  shall be such current  market
     price per share of the Company Common Stock.  Such adjustment  shall become
     effective  immediately  after  the  record  date for the  determination  of
     stockholders entitled to receive such distribution.

          (iv) For the purpose of any  computation  under  subsections  (ii) and
     (iii) above,  the current market price per share of Company Common Stock on
     any date

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<PAGE>

     shall be deemed  to be the  average  of the  current  market  prices on the
     NASDAQ  [National  Association of Securities  Dealers  Automated  Quotation
     System] for the 30  consecutive  trading  days  commencing  45 trading days
     before the date in question.

          (v) In any case in which  this  Section  4(e)  shall  require  that an
     adjustment  be made  immediately  following a record date,  the Company may
     elect to defer the  effectiveness of such adjustment (but in no event until
     a date  later  than the  effective  time of the event  giving  rise to such
     adjustment),  in  which  case  the  Company  shall,  with  respect  to  any
     conversion  of this Note or any portion  thereof after such record date and
     before such  adjustment  shall have become  effective  (A) defer paying any
     cash  payment  pursuant to Section 4(c) or issuing to the Holder the number
     of shares of Company Common Stock  issuable upon such  conversion in excess
     of the number of shares of Company Common Stock issuable  thereupon only on
     the basis of the Conversion  Price prior to  adjustment,  and (B) not later
     than five business days after such adjustment shall have become  effective,
     pay to the Holder the appropriate cash payment pursuant to Section 4(c) and
     issue to the Holder the additional  shares of Company Common Stock issuable
     on such conversion.

          (vi) No adjustment in the  Conversion  Price shall be required  unless
     such adjustment  would require an increase or decrease of at least $.10 per
     share of Company  Common Stock;  provided,  that any  adjustments  which by
     reason of this subsection (vi) are not required to be made shall be carried
     forward  and  taken  into  account  in  any  subsequent   adjustment.   All
     calculations  under this  Section 4 shall be made to the nearest cent or to
     the nearest  one-hundredth of a share, as the case may be. Anything in this
     Section 4(e) to the contrary notwithstanding, the Company shall be entitled
     to make such  reductions  in the  Conversion  Price,  in  addition to those
     required by this Section 4(e), as it in its discretion  shall  determine to
     be  advisable  in order  that any stock  dividend,  subdivision  of shares,
     distribution  of rights or  warrants to purchase  stock or  securities,  or
     distribution of other assets (other than cash dividends)  hereafter made by
     the Company to its stockholders shall not be taxable.

          (vii)  Whenever the Conversion  Price is adjusted as herein  provided,
     the Company  shall  promptly  mail to the Holder an  Officers'  Certificate
     setting  forth  (A) the  Conversion  Price  after  such  adjustment,  (B) a
     calculation  of the  adjustment  and (C) a  brief  statement  of the  facts
     requiring such adjustment.

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<PAGE>

     (f)  Continuation  of  Conversion  Privilege  in Case of  Reclassification,
Change,  Merger,  Consolidation or Sale of Assets. If any of the following shall
occur,  namely:  (a) any  reclassification  or change of  outstanding  shares of
Company Common Stock issuable upon  conversion of this Note (other than a change
in par  value,  or from par value to no par  value,  or from no par value to par
value, or as a result of a subdivision or combination), (b) any consolidation or
merger to which the  Company is a party other than a merger in which the Company
is the continuing  corporation and which does not result in any reclassification
of, or change (other than a change in name,  or par value,  or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination)  in,  outstanding  shares of the Company Common Stock or (c) any
sale or  conveyance of all or  substantially  all of the property or business of
the Company as an entirety,  then the Company,  or such  successor or purchasing
corporation,  as the  case  may be,  shall,  as a  condition  precedent  to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Holder,  a note in  substantially  the form hereof providing that
such Holder  shall have the right to convert  such note into the kind and amount
of shares  of stock  and  other  securities  or  property  receivable  upon such
reclassification,  change,  consolidation,  merger,  sale or  conveyance  by the
holder of the number of shares of Company Common Stock issuable upon  conversion
of this Note immediately prior to such reclassification,  change, consolidation,
merger, sale or conveyance. Such newly issued note shall provide for adjustments
which shall be as nearly  equivalent as may be  practicable  to the  adjustments
provided  for in this  Section  4. If,  in the  case of any such  consolidation,
merger,  sale  or  conveyance,  the  stock  or  other  securities  and  property
receivable  thereupon  by a holder of shares of Company  Common  Stock  includes
shares of stock or other securities and property of a corporation other than the
successor or purchasing corporation,  as the case may be, in such consolidation,
merger,  sale or conveyance,  then such newly issued note shall also be executed
by such other  corporation  and shall  contain  such  additional  provisions  to
protect the interests of the holder of this Note as the Board of Directors shall
reasonably  consider necessary,  in good faith, by reason of the foregoing.  The
provisions of this Section 4 shall similarly apply to successive consolidations,
mergers, sales or conveyances.

     Notice of the  execution  of each such newly issued note shall be mailed to
the Holder.

     (g) Notice of Certain Events. In case:

          (i) the Company shall  declare a dividend (or any other  distribution)
     payable to the holders of Company Common Stock otherwise than in cash; or

          (ii) the  Company  shall  authorize  the  granting  to the  holders of
     Company Common Stock of rights to

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<PAGE>

     subscribe  for or purchase any shares of stock of any class or of any other
     rights; or

          (iii) the Company shall  authorize any  reclassification  or change of
     the Company  Common Stock (other than a subdivision  or  combination of its
     outstanding shares of Company Common Stock), or any consolidation or merger
     to which the Company is a party and for which approval of any  stockholders
     of  the  Company  is  required,  or  the  sale  or  conveyance  of  all  or
     substantially all the property or business of the Company; or

          (iv) there shall be proposed any voluntary or involuntary dissolution,
     liquidation or winding-up of the Company;

then,  the  Company  shall  cause to be mailed to the  Holder,  at least 20 days
before the date hereinafter  specified (or the earliest of the dates hereinafter
specified, in the event that more than one date is specified),  a notice stating
the date on which (1) a record is  expected  to be taken for the purpose of such
dividend, distribution or rights, or if a record is not to be taken, the date as
of which the  holders of Company  Common  Stock of record to be entitled to such
dividend,   distribution   or  rights  are  to  be   determined,   or  (2)  such
reclassification,  change, consolidation, merger, sale, conveyance, dissolution,
liquidation  or winding-up is expected to become  effective and the date, if any
is to be fixed,  as of which it is expected that holders of Company Common Stock
of record shall be entitled to exchange their shares of Company Common Stock for
securities or other property  deliverable  upon such  reclassification,  change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up.

     (h) Taxes on  Conversion.  The  Company  will pay any and all  documentary,
stamp or similar  taxes payable to the United States of America or any political
subdivision  or taxing  authority  thereof or therein in respect of the issue or
delivery of shares of Company  Common Stock on  conversion of this Note pursuant
hereto; provided, however, that the Company shall not be required to pay any tax
which  may be  payable  in  respect  of any  transfer  involved  in the issue or
delivery  of shares of  Company  Common  Stock in a name  other than that of the
Holder and no such issue or  delivery  shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established,  to the  satisfaction of the Company,  that such tax has
been paid.  The Company  extends no  protection  with respect to any other taxes
imposed in connection with conversion of this Note.

     (i)  Company  to  Provide  Stock.  The  Company  shall  reserve,  free from
pre-emptive rights, out of its authorized but unissued shares, sufficient shares
to provide for the  conversion of this Note,  provided,  that nothing  contained
herein shall be

                                       11
<PAGE>

construed to preclude the Company from  satisfying its obligations in respect of
the conversion of this Note by delivery of repurchased  shares of Company Common
Stock which are held in the treasury of the Company.

     If any shares of Company  Common  Stock to be  reserved  for the purpose of
conversion of the Note hereunder  require  registration  with or approval of any
governmental  authority under any Federal or State law before such shares may be
validly issued or delivered upon conversion,  then the Company covenants that it
will in good faith and as  expeditiously  as  possible  endeavor  to secure such
registration or approval, as the case may be, provided, however, that nothing in
this  Section 4(i) shall be deemed to affect in any way the  obligations  of the
Company to convert  this Note into  Company  Common  Stock as  provided  in this
Section 4.

     Before  taking any action  which would  cause an  adjustment  reducing  the
Conversion  Price below the then par value, if any, of the Company Common Stock,
the Company will take all corporate action which may, in the opinion of counsel,
be necessary in order that the Company may validly and legally  issue fully paid
and  non-assessable  shares of Company Common Stock at such adjusted  Conversion
Price.

     The Company  covenants that all shares of Company Common Stock which may be
issued  upon  conversion  of this  Note  will upon  issuance  be fully  paid and
non-assessable by the Company.

     5. Defaults and Remedies.

     In the case of the  happening  of any of the  following  events  (each such
event an, "Event of Default"):

     (a) the payment of the  principal of, or interest on, this Note is not paid
within five  business  days of the date the same shall  become due and  payable,
whether  on the  Maturity  Date,  at a date fixed for  prepayment  thereof or by
acceleration thereof or otherwise;

     (b) default shall be made with respect to any evidence of  Indebtedness  or
liability for borrowed money of the Company (other than this Note) if the effect
of such default is to accelerate the maturity of such  Indebtedness or liability
or to permit the holder or obligee  thereof to cause any  Indebtedness to become
due prior to its stated maturity,  or any such Indebtedness shall not be paid as
and when due and payable;

     (c) (i) the Company shall  commence a voluntary  case under Title 11 of the
United States Code entitled  "Bankruptcy," as now or hereafter in effect, or any
successor  thereto or any similar state law for the relief of debtors  (each,  a
"Bankruptcy Law"); (ii) any case, proceeding or other action against the Company
or any  guarantor  of the  Company's  obligations  hereunder  shall be commenced
seeking to have an order for relief

                                       12
<PAGE>

entered  against it as debtor or to adjudicate  it a bankrupt or  insolvent,  or
seeking reorganization,  arrangement,  adjustment,  liquidation,  dissolution or
composition of it or its debts under any  Bankruptcy Law or seeking  appointment
of a receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property,  and such case, proceeding or other action
(A)  results  in the  entry  of an  order  for  relief  against  it which is not
controverted  within  10 days  after  the  entry  thereof  or (B)  shall  remain
undismissed  for a period of 60 days;  (iii) the Company shall be  adjudicated a
bankrupt or insolvent by, or any order for relief under any Bankruptcy Law shall
be granted by, a court of competent jurisdiction;  (iv) the Company shall make a
general  assignment  for the benefit of creditors;  or (v) any corporate  action
shall be taken by the Company to effect any of the foregoing;

     (d) one or more  judgments  or  decrees  is  entered  against  the  Company
(involving  a  liability  of  $50,000  or  more)  or  any  attachment,  levy  or
restraining  notice  against its  property  for an amount of $50,000 or more (in
either  case,  in excess of the  amount  covered  by  insurance  as to which the
insurance company has acknowledged  coverage) which remains unpaid,  unstayed on
appeal, undischarged, unbonded or undismissed for a period of 30 days;

then, and in any such Event of Default,  and at any time  thereafter  during the
continuation  of such Event of  Default,  the  Holder by  written  notice to the
Company may declare this Note to be forthwith  due and payable,  whereupon  this
Note shall become forthwith due and payable,  both as to principal and interest,
without  presentment,  demand,  protest or any other notice of any kind,  all of
which are hereby expressly  waived.  Notwithstanding  the foregoing,  payment of
principal of and interest on this Note to the Holder upon such declaration shall
remain subject to the subordination provisions herein contained.

     6. Prepayment.

     The Company  reserves the right to repay in whole or in part the  principal
of and  accrued  interest  on this Note  without  premium or penalty at any time
beginning on or after the date hereof and prior to the maturity hereof.

     7. Assignment.

     Whenever  used in this  Note,  the term  "the  Holder"  shall be  deemed to
include the  respective  successors  and assignees of the Holder.  Except as set
forth below,  each of the Company and the Holder  agrees that it will not assign
or negotiate  its  obligations  or rights  hereunder  without the prior  written
consent of the other party hereto and any  assignment  or  negotiation  shall be
void  unless so  consented  to.  Subject  to the  foregoing,  this Note shall be
binding  upon and shall  enure to the  benefit of the  parties  hereto and their
respective successors and permitted assigns.  Notwithstanding the foregoing, the
Holder may assign

                                       13
<PAGE>

this Note  without  the consent of the Company to an  affiliate  of Holder.  For
purposes of the foregoing,  the term "affiliate"  means any person  controlling,
controlled by or under common control with Holder.

     8. Severability.

     In the event any one or more of the  provisions  of this Note shall for any
reason be held to be invalid,  illegal or  unenforceable  in any  respect,  such
invalidity,  illegality or unenforceability shall not affect any other provision
of this Note,  but this Note shall be construed as if such  invalid,  illegal or
unenforceable provision had never been contained herein.

     9. Amendment.

     This Note may not be changed,  amended or modified  except by  agreement in
writing signed by each of the Company and Holder.

     10. GOVERNING LAW.

     THE  PROVISIONS  OF THIS NOTE SHALL BE CONSTRUED  AND  INTERPRETED  AND ALL
RIGHTS AND OBLIGATIONS  HEREUNDER  DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.

     11. Headings.

     The  section  headings  in this Note are for  convenience  only and are not
intended to effect the construction of the provisions of this Note.

                                       14
<PAGE>

     IN WITNESS WHEREOF,  the Company has caused this  Convertible  Subordinated
Note to be executed on the date first written above.

                                       DYNAMIC MATERIALS CORPORATION


                                       By: /s/ Richard A. Santa
                                          --------------------------
                                          Name:  Richard A. Santa
                                          Title: Vice President-Finance,
                                                 Chief Financial Officer

                                       15