Document:

Exhibit

10.6

 

THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),

AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE

REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS

MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY

RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY

SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR

HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY

REQUIREMENTS OF SUCH ACT.

 

No.:  2003-1

 

 

WARRANT

TO PURCHASE COMMON STOCK

OF

IMAGEWARE SYSTEMS, INC.

 

(void after June 13,

2009)

 

 

1.           Issuance of Warrant.  FOR VALUE RECEIVED, on and after the date of

issuance of this Warrant, and subject to the terms and conditions herein set

forth, the Holder (as defined below) is entitled to purchase from ImageWare

Systems, Inc., a California corporation (the “Company”), at any time before

5:00 p.m. New York time on June 13, 2009 (the “Termination Date”), at a price

per share equal to the Warrant Price (as defined below and subject to

adjustment as described below), the Warrant Stock (as defined below and subject

to adjustment as described below) upon exercise of this warrant (this

“Warrant”) pursuant to Section 6 hereof.

 

2.     Definitions.  As used in this Warrant, the following terms

have the definitions ascribed to them below:

 

(a)           “Business Day” means any day other

than a Saturday, Sunday or other day on which the national or state banks

located in the State of New York or the State of California or the District of

Columbia are authorized to be closed.

 

(b)           “Common Stock” means the common

stock, par value $0.01 per share, of the Company.

 

(c)           “Holder” means Laurus Master Fund,

Ltd., or its assigns.

 

(d)           “Purchase Agreement” means the Note

and Warrant Purchase Agreement dated as of May 22, 2002 by and between the

Company and Perseus 2000,L.L.C., as amended.

 

(e)           “Company Notes” means all Notes

issued to L.F. Global Holdings, LLC (“LF”), and Laurus Master Fund, Ltd.

(“Laurus”), pursuant to the Consent to Assignment and

 

 

Amendment Agreement by and among LF, Laurus and the Company dated June

13, 2003 (the “Consent Agreement”).

 

(f)            “Warrant Price” means $2.11 per

share, subject to adjustment as described in Section 3 below.

 

(g)           “Warrant Stock” means the shares of

Common Stock (or other securities) purchasable upon exercise of this Warrant or

issuable upon conversion of this Warrant. 

The total number of shares to be issued upon the exercise of this

Warrant shall be 578,313, subject to adjustment as described in Section 3

below.

 

3.           Adjustments and Notices.  The Warrant Price and the number of shares

of Warrant Stock shall be subject to adjustment from time to time in accordance

with this Section 3.

 

(a)           Subdivision, Stock Dividends or

Combinations.  In case the Company

shall at any time subdivide the outstanding shares of Common Stock or shall

issue a stock dividend with respect to the Common Stock, the Warrant Price in

effect immediately prior to such subdivision or the issuance of such dividend

shall be proportionately decreased, and in case the Company shall at any time

combine the outstanding shares of the Common Stock, the Warrant Price in effect

immediately prior to such combination shall be proportionately increased, in

each case effective at the close of business on the date of such subdivision,

dividend or combination, as the case may be.

 

(b)           Reclassification, Exchange, Substitution,

In-Kind Distribution.  Upon any

reclassifications, exchange, substitution or other event that results in a

change of the number and/or class of the securities issuable upon exercise or

conversion of this Warrant or upon the payment of a dividend in securities or

property other than shares of Common Stock, the Holder shall be entitled to

receive, upon exercise or conversion of this Warrant, the number and kind of

securities and property that the Holder would have received if this Warrant had

been exercised or converted immediately before the record date for such

reclassification, exchange, substitution, or other event or immediately prior

to the record date for such dividend. 

The Company or its successor shall promptly issue to the Holder a new warrant

for such new securities or other property. 

The new warrant shall provide for adjustments which shall be as nearly

equivalent as may be practicable to the adjustments provided for in this

Section 3 including, without limitation, adjustments to the Warrant Price and

to the number of securities or property issuable upon exercise or conversion of

the new warrant.  The provisions of this

Section 3(b) shall similarly apply to successive reclassifications, exchanges,

substitutions, or other events and successive dividends.  As used in this Section 3(b), the term

“property” shall not include cash.

 

(c)           Reorganization, Merger etc.  In case of any (i) merger or consolidation

of the Company into or with another corporation where the Company is not the

surviving corporation, (ii) sale, transfer or lease (but not including a

transfer or lease by pledge or mortgage to a bona fide lender) of all or

substantially all of the assets of the Company or (iii) sale by the

Company’s shareholders of 50% or more of the Company’s outstanding securities

in one or more related transactions, the Company, or such successor or

purchasing corporation, as the case may be, shall, as a condition to closing

any such reorganization, merger or sale, duly execute and deliver to the Holder

hereof a new warrant so that the Holder shall have

 

2

 

the right to receive, at a total purchase price not to exceed that

payable upon the exercise or conversion of the unexercised or unconverted

portion of this Warrant, and in lieu of the shares of the Common Stock

theretofore issuable upon exercise or conversion of this Warrant, the kind and

amount of shares of stock, other securities, money and property receivable upon

such reorganization, merger or sale by the Holder of the number of shares of

Common Stock then purchasable under this Warrant.  Such new warrant shall provide for adjustments that shall be as

nearly equivalent as may be practicable to the adjustments provided for in this

Section 3.  The provisions of this

subparagraph (c) shall similarly apply to successive reorganizations, mergers

and sales.

 

(d)           Dilutive

Issuances.     (i)         Subject

to obtaining shareholder approval, if required, pursuant to subsection (vii)

below, if the Company, at any time or from time to time after the date hereof,

shall issue any Additional Stock (as defined below) without consideration or

for an Effective Price less than the Warrant Price in effect immediately prior

to the issuance of such Additional Stock, other than a subdivision or

combination of shares of Common Stock or as a dividend or other distribution of

Common Stock as provided for elsewhere in this Warrant, then and in each such

case the then existing Warrant Price shall be reduced as of the close of

business on the date of such issue or sale to a price equal to the lowest such

Effective Price.  “Effective Price”

of Additional Stock means the quotient determined by dividing the total number

of shares of Additional Stock issued or sold, or deemed to have been issued or

sold by the Company under this Section, into the aggregate consideration

received, or deemed to have been received by the Company for such issue under

this Section, for such Additional Stock.

 

(ii)           In

the case of the issuance of Common Stock for cash, the consideration received

therefor shall be deemed to be the amount of cash paid therefor before

deducting any reasonable discounts, commissions or other expenses allowed, paid

or incurred by the company for any underwriting or otherwise in connection with

the issuance and sale thereof.

 

(iii)          In

the case of the issuance of Common Stock for a consideration in whole or in

part other than cash, the consideration other than cash received therefor shall

be deemed to be the fair value thereof as reasonably determined by the Board of

Directors of the Company in its good faith judgment irrespective of any

accounting treatment.

 

(iv)          In

the case of the issuance, whether before, on or after the date hereof, of

options to purchase or rights to subscribe for Common Stock, securities by

their terms convertible into or exchangeable for Common Stock or options to

purchase or rights to subscribe for such convertible or exchangeable securities

(which are not excluded from the definition of Additional Stock), the following

provisions shall apply:

 

(A)          The

aggregate maximum number of shares of Common Stock deliverable upon exercise of

such options to purchase or rights to subscribe for Common Stock shall be

deemed to have been issued at the time such options or rights were issued and

for a consideration equal to the consideration (determined in the manner

provided in clauses (ii) or (iii)), if any, received by the Company upon the

issuance of such options or rights plus the minimum purchase price provided in

such options or rights (without taking into account potential anti-dilution

adjustments) for the Common Stock covered thereby.

 

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(B)           The

aggregate maximum number of shares of Common Stock deliverable upon conversion

of or in exchange for any such convertible or exchangeable securities or upon

the exercise of options to purchase or rights to subscribe for such convertible

or exchangeable securities and subsequent conversion or exchange thereof shall

be deemed to have been issued at the time such securities were issued or such

options or rights were issued and for a consideration equal to the

consideration, if any, received by the corporation for any such securities and

related options or rights (excluding any cash received on account of accrued

interest or accrued dividends), plus the additional consideration, if any, to

be received by the Company upon the conversion or exchange of such securities

or the exercise of any related options or rights (the consideration in each case

to be determined in the manner provided in clauses (ii) or (iii)).

 

(C)           In

the event of any change in the number of shares of Common Stock deliverable or

any increase in the consideration payable to the Company upon exercise of such

options or rights or upon conversion of or in exchange for such convertible or

exchangeable securities, including, but not limited to, a change resulting from

the antidilution provisions thereof, the Warrant Price obtained with respect to

the adjustment that was made upon the issuance of such options, rights or

securities, and any subsequent adjustments based thereon, shall be recomputed

to reflect such change, but no further adjustment shall be made for the actual

issuance of Common Stock or any payment of such consideration upon the exercise

of any such options or rights or the conversion or exchange of such securities.

 

(D)          Upon

the expiration of any such options or rights, the termination of any such

rights to convert or exchange or the expiration of any options or rights related

to such convertible or exchangeable securities, the Warrant Price obtained with

respect to the adjustment which was made upon the issuance of such options,

rights or securities or options or rights related to such securities, and any

subsequent adjustments based thereon, shall be recomputed to reflect the

issuance of only the number of shares of Common Stock actually issued upon the

exercise of such options or rights, upon the conversion or exchange of such

securities or upon the exercise of the options or rights related to such

securities.  Upon the expiration of any

such options or rights, the termination of any such rights to convert or

exchange or the expiration of any options or rights related to such convertible

or exchangeable securities, only the number of shares of Common Stock actually

issued upon the exercise of such options or rights, upon the conversion or

exchange of such securities or upon the exercise of the options or rights

related to such securities shall continue to be deemed to be issued.

 

(E)           The

number of shares of Common Stock deemed issued and the consideration deemed

paid therefor pursuant to clauses (iv)(A) and (iv)(B) of this Section 3(d)

shall be appropriately adjusted to reflect any change, termination or

expiration of the type described in either clause (iv)(C) or (iv)(D) of this

Section 3(d).

 

(v)           “Additional

Stock” shall mean any shares of Common Stock issued (or deemed to have been

issued pursuant to clause (iv) of this Section 3(d)) by the Company after the

date hereof other than shares of Common Stock issued or issuable:

 

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(A)          to

employees, officers or directors of the Company, pursuant to stock purchase or

stock option plans or other arrangements that are approved by the Company’s

Board of Directors;

 

(B)           pursuant

to any rights, agreements, options or warrants outstanding as of the date

hereof and disclosed in writing to the Holder; and stock issued pursuant to any

such rights or agreements granted after the date hereof;

 

(C)           in

connection with any stock split, stock dividend or recapitalization by the

Company;

 

(D)          upon

conversion of any Company Notes or the Company’s Series B Preferred Stock or

upon exercise or conversion of the Purchaser’s Warrants or the Warrants issued

pursuant to the Purchase Agreement;

 

(E)           shares

of Common Stock (and/or options, warrants or other Common Stock purchase rights

issued pursuant to such options, warrants or other rights) issued for

consideration other than cash pursuant to a merger, consolidation, strategic

alliance, acquisition or similar business combination approved by the Board of

Directors;

 

(F)           pursuant

to any equipment leasing, real property leasing or loan arrangement, or debt

financing from a bank or similar financial or lending institution approved by

the Company’s Board of Directors, the principal purpose of which is not to

raise equity capital; or

 

(G)           by

the Company in connection with joint ventures, manufacturing, marketing or

distribution arrangements or technology transfer or development arrangements; provided

that such strategic transactions and the issuance of shares in connection

therewith have been approved by the Company’s Board of Directors and the

principal purpose thereof is not to raise equity capital.

 

(vi)          “Common

Stock Equivalent Share” means with respect to any security that is ultimately

convertible into shares of Common Stock or ultimately exercisable for shares of

Common Stock, the total number of shares of Common Stock that may be acquired

upon full exercise of all such rights.

 

(vii)         Notwithstanding

anything to the contrary in this Warrant, unless and until the Company obtains

shareholder approval, no adjustment will be made under Subsection (d)(i) above

if  such adjustment would cause the

maximum number of shares of Common Stock issuable pursuant to the Company

Notes, Purchaser’s Warrants (as defined in Consent Agreement)  and

the warrants issued pursuant to the Purchase Agreement (collectively the

“Convertible Securities”), to exceed the maximum number of shares of Common

Stock that the Company is permitted to issue, without such shareholder

approval, pursuant to and in compliance with the American Stock Exchange

Listing Standards, Policies and Requirements, or any successor provisions, so

long as the Common Stock is listed on such Exchange or a successor exchange.

 

5

 

(e)           Certificate of Adjustment.  In each case of an adjustment or

readjustment of the Warrant Price, the Company, at its own expense, shall cause

its Chief Financial Officer to compute such adjustment or readjustment in

accordance with the provisions hereof and prepare a certificate showing such

adjustment or readjustment, and shall mail such certificate, by first class

mail, postage prepaid, to the Holder. 

The certificate shall set forth such adjustment or readjustment, showing

in detail the facts upon which such adjustment or readjustment is based.  No adjustment of the Warrant Price shall be

required to be made unless it would result in an increase or decrease of at

least one cent, but any adjustments not made because of this sentence shall be

carried forward and taken into account in any subsequent adjustment otherwise

required hereunder.

 

(f)            Adjustment to Number of Shares of

Warrant Stock.  In the event the

Warrant Price is adjusted under any provision of this Section 3, the number of

shares of Warrant Stock shall be simultaneously adjusted by multiplying the

number of shares of Warrant Stock by a fraction, the numerator of which is the

Warrant Price in effect immediately prior to such adjustment and the

denominator of which is the Warrant Price in effect immediately after such

adjustment.

 

(g)           No Impairment.  The Company shall not, by amendment of its

Articles of Incorporation or through a reorganization, transfer of assets,

consolidation, merger, dissolution, issue, or sale of securities or any other

voluntary action, avoid or seek to avoid the observance or performance of any

of the terms to be observed or performed under this Warrant by the Company, but

shall at all times in good faith assist in carrying out all of the provisions

of this Section 3 and in taking all such action as may be necessary or

appropriate to protect the Holder’s rights under this Section 3 against

impairment.  If the Company takes any

action affecting the Common Stock or any other event occurs as to which the

provisions of this Section 3 are not strictly applicable or if strictly

applicable would not fairly protect the Holder’s rights under this Warrant,

then the Board of Directors of the Company shall make an adjustment in the

number and/or class of shares available under this Warrant, the Warrant Price,

or the application of such provisions, so as to protect the Holder’s rights

under this Warrant as aforesaid.  The

adjustment will be such as will give the Holder upon exercise for the same

aggregate Warrant Price the same number, class and kind of securities the

Holder would have owned had the Warrant been exercised prior to the occurrence

of event requiring adjustment and had the Holder continued to hold such

securities until after the occurrence of such event.

 

(h)           Fractional Shares.  No fractional shares shall be issuable upon

exercise or conversion of the Warrant and the number of shares to be issued

shall be rounded down to the nearest whole share.  If a fractional share interest arises upon any exercise or

conversion of the Warrant, the Company shall eliminate such fractional share

interest by paying the Holder an amount computed by multiplying the fractional

interest by the fair market value of a full share.

 

4.             No Shareholder Rights.  This Warrant, by itself, as distinguished

from any shares purchased hereunder, shall not entitle its Holder to any of the

rights of a shareholder of the Company.

 

6

 

5.             Reservation of Stock.  On and after the date hereof, the Company

will reserve from its authorized and unissued Common Stock a sufficient number

of shares to provide for the issuance of Warrant Stock upon the exercise or

conversion of this Warrant.  Issuance of

this Warrant shall constitute full authority to the Company’s officers who are

charged with the duty of executing stock certificates to execute and issue the

necessary certificates for shares of Warrant Stock issuable upon the exercise

or conversion of this Warrant.

 

6.           Exercise of Warrant.  This Warrant may be exercised as a whole or

part by the Holder, at any time after the date hereof prior to the termination

of this Warrant, by the surrender of this Warrant, together with the Notice of

Exercise and Investment Representation Statement in the forms attached hereto

as Attachments 1 and 2, respectively, duly completed and executed

at the principal office of the Company, specifying the portion of the Warrant

to be exercised and accompanied by payment in full of the Warrant Price in cash

or by check with respect to the shares of Warrant Stock being purchased.  This Warrant shall be deemed to have been

exercised immediately prior to the close of business on the date of its surrender

for exercise as provided above, and the person entitled to receive the shares

of Warrant Stock issuable upon such exercise shall be treated for all purposes

as the holder of such shares of record as of the close of business on such

date.  As promptly as practicable after

such date, the Company shall issue and deliver to the person or persons

entitled to receive the same a certificate or certificates for the number of

full shares of Warrant Stock issuable upon such exercise.  If this Warrant shall be exercised for less

than the total number of shares of Warrant Stock then issuable upon exercise,

promptly after surrender of this Warrant upon such exercise, the Company will

execute and deliver a new warrant, dated the date hereof, evidencing the right

of the Holder to the balance of this Warrant Stock purchasable hereunder upon

the same terms and conditions set forth herein.

 

7.           Conversion.  In lieu of exercising this Warrant or any

portion hereof, at any time the Holder hereof shall have the right to convert

this Warrant or any portion hereof into Warrant Stock by executing and

delivering to the Company at its principal office the written Notice of

Conversion and Investment Representation Statement in the forms attached hereto

as Attachments 2 and 3, specifying the portion of the Warrant to

be converted, and accompanied by this Warrant. 

The number of shares of Warrant Stock to be issued to Holder upon such

conversion shall be computed using the following formula:

 

X=(P)(Y)(A-B)/A

 

where X =                                      the

number of shares of Common Stock to be issued to the Holder for the portion of

the Warrant being converted.

 

P =                             the

portion of the Warrant being converted expressed as a decimal fraction.

 

Y =                            the

total number of shares of Common Stock issuable upon exercise of the Warrant in

full.

 

A =                          the fair

market value of one share of Warrant Stock which  means (i) the fair market value of the Warrant Stock as of the

last Business Day immediately prior to the date the notice of

 

7

 

conversion is

received by the Company, as reported in the principal market for such

securities or, if no such market exists, as determined in good faith by the

Company’s Board of Directors, or (ii) if this Warrant is being converted in

conjunction with a public offering of stock the price to the public per share

pursuant to the offering.

 

B =                              the

Warrant Price on the date of conversion.

 

Any portion of this Warrant that is converted shall be immediately

canceled.  This Warrant or any portion

hereof shall be deemed to have been converted immediately prior to the close of

business on the date of its surrender for conversion as provided above, and the

person entitled to receive the shares of Warrant Stock issuable upon such

conversion shall be treated for all purposes as the holder of such shares of

record as of the close of business on such date.  As promptly as practicable after such date, the Company shall

issue and deliver to the person or persons entitled to receive the same a

certificate or certificates for the number of full shares of Warrant Stock

issuable upon such conversion.  If the

Warrant shall be converted for less than the total number of shares of Warrant

Stock then issuable upon conversion, promptly after surrender of the Warrant

upon such conversion, the Company will execute and deliver a new warrant, dated

the date hereof, evidencing the right of the Holder to the balance of the

Warrant Stock purchasable hereunder upon the same terms and conditions set

forth herein.  If this Warrant is converted,

as a whole or in part, after the occurrence of an event as to which Section

3(c) is applicable, the Holder shall receive the consideration contemplated by

Section 3(c) in lieu of Common Stock of the Company.

 

8.           Transfer of Warrant.  This Warrant may be transferred or assigned

by the Holder hereof in whole or in part, provided that the transferor

provides, at the Company’s request, an opinion of counsel satisfactory to the

Company that such transfer does not require registration under the Securities

Act and the securities laws applicable with respect to any other applicable

jurisdiction.

 

9.           Termination.  This Warrant shall terminate on 5:00 p.m.

New York time on the Termination Date.

 

10.                        Miscellaneous. 

This Warrant shall be governed by the laws of the State of New York, as

such laws are applied to contracts to be entered into and performed entirely in

New York by New York residents. In the event of any dispute among the Holder

and the Company arising out of the terms of this Warrant, the parties hereby

consent to the exclusive jurisdiction of the federal and state courts located

in the State of New York for resolution of such dispute, and agree not to

contest such exclusive jurisdiction or seek to transfer any action relating to

such dispute to any other jurisdiction. 

The headings in this Warrant are for purposes of convenience and

reference only, and shall not be deemed to constitute a part hereof.  Neither this Warrant nor any term hereof may

be changed or waived orally, but only by an instrument in writing signed by the

Company and the Holder of this Warrant. 

All notices and other communications from the Company to the Holder of

this Warrant shall be delivered personally or by facsimile transmission or

mailed by first class mail, postage prepaid, to the address or facsimile number

furnished to the

 

8

 

Company in writing

by the last Holder of this Warrant who shall have furnished an address or

facsimile number to the Company in writing, and if mailed shall be deemed given

three days after deposit in the United States mail.

 

 

ISSUED:    June

13, 2003

 

 

	

   

  	

  IMAGEWARE

  SYSTEMS, INC.

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ S. James Miller,

  Jr.

  
	

   

  	

   

  	

   

  
	

   

  	

  Name:

  	

  S. James Miller, Jr.

  
	

   

  	

   

  	

   

  
	

   

  	

  Title:

  	

  Chairman, CEO and President

  
				

 

9

 

Attachment 1

 

 

NOTICE OF EXERCISE

 

TO:                                         

 

1.             The undersigned hereby elects to

purchase

                           

shares of the Warrant Stock of ImageWare Systems, Inc. pursuant to the terms of

the attached Warrant, and tenders herewith payment of the purchase price in

full, together with all applicable transfer taxes, if any.

 

2.             Please issue a certificate or

certificates representing said shares of Warrant Stock in the name of the

undersigned or in such other name as is specified below:

 

 

	

   

  	

   

  	

   

  
	

   

  	

  (Name)

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  (Address)

  	

   

  

 

 

	

   

  	

   

  	

   

  
	

  (Date)

  	

   

  	

  (Name of Warrant Holder)

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Title:

  	

   

  
					

 

 

Attachment 2

 

INVESTMENT

REPRESENTATION STATEMENT

 

Shares of the

Common Stock

(as defined in the

attached Warrant) of

ImageWare Systems,

Inc.

 

In connection with the purchase of the above-listed

securities, the undersigned hereby represents to ImageWare Systems, Inc. (the

“Company”) as follows:

 

(a)           The

securities to be received upon the exercise of the Warrant (the “Securities”)

will be acquired for investment for its own account, not as a nominee or agent,

and not with a view to the sale or distribution of any part thereof, and the

undersigned has no present intention of selling, granting participation in or

otherwise distributing the same, but subject, nevertheless, to any requirement

of law that the disposition of its property shall at all times be within its

control.  By executing this statement,

the undersigned further represents that it does not have any contract,

undertaking, agreement or arrangement with any person to sell, transfer, or

grant participations to such person or to any third person, with respect to any

Securities issuable upon exercise of the Warrant.

 

(b)           The

undersigned understands that the Securities issuable upon exercise of the

Warrant at the time of issuance may not be registered under the Securities Act

of 1933, as amended (the “Securities Act”), and applicable state securities

laws, on the ground that the issuance of such securities is exempt pursuant to

Section 4(2) of the Securities Act and state law exemptions relating to offers

and sales not by means of a public offering, and that the Company’s reliance on

such exemptions is predicated on the undersigned’s representations set forth

herein.

 

(c)           The

undersigned agrees that in no event will it make a disposition of any

Securities acquired upon the exercise of the Warrant unless and until (i) it

shall have notified the Company of the proposed disposition and shall have

furnished the Company with a statement of the circumstances surrounding the

proposed disposition, and (ii) it shall have furnished the Company with an

opinion of counsel satisfactory to the Company and Company’s counsel to the

effect that (A) appropriate action necessary for compliance with the Securities

Act and any applicable state securities laws has been taken or an exemption

from the registration requirements of the Securities Act and such laws is

available, and (B) the proposed transfer will not violate any of said laws.

 

(d)           The

undersigned acknowledges that an investment in the Company is highly

speculative and represents that it is able to fend for itself in the

transactions contemplated by this statement, has such knowledge and experience

in financial and business matters as to be capable of evaluating the merits and

risks of its investments, and has the ability to bear the economic risks

(including the risk of a total loss) of its investment.  The undersigned represents that it has had

the opportunity to ask questions of the Company concerning the Company’s

business and assets and to obtain any additional information which it

considered necessary to verify the accuracy of or to amplify the Company’s

disclosures, and has had all questions which have been

 

 

asked by it satisfactorily answered by the Company.  The undersigned represents that it is an

“accredited investor” within the meaning of Regulation D of the Securities Act.

 

(e)           The

undersigned acknowledges that the Securities issuable upon exercise or

conversion of the Warrant must be held indefinitely unless subsequently

registered under the Securities Act or an exemption from such registration is

available.  The undersigned is aware of

the provisions of Rule 144 promulgated under the Securities Act which permit

limited resale of shares purchased in a private placement subject to the

satisfaction of certain conditions, including, among other things, the

existence of a public market for the shares, the availability of certain current

public information about the Company, the resale occurring not less than one

year after a party has purchased and paid for the security to be sold from the

Company or any affiliate of the Company, the sale being through a “broker’s

transaction” or in transactions directly with a “market maker” (as provided by

Rule 144(f)) and the number of shares being sold during any three month period

not exceeding specified limitations.

 

 

	

   

  	

  Dated:

  	

   

  	

   

  	

   

  
	

   

  	

   

  	 

	

   

  	

   

  
	

   

  	

  (Typed or Printed Name)

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

  (Signature)

  
	

   

  	

   

  
	

   

  	

  (Title)

  
								

 

2

 

Attachment 3

 

 

NOTICE OF CONVERSION

 

TO:                                                

 

1.             The undersigned hereby elects to

acquire

                              

shares of the Warrant Stock of ImageWare Systems, Inc. pursuant to the terms of

the attached Warrant, by conversion of

                 

percent (             %)

of the Warrant.

 

2.             Please issue a certificate or

certificates representing said shares of Warrant Stock in the name of the

undersigned or in such other name as is specified below:

 

	

   

  	

   

  	

   

  
	

   

  	

  (Name)

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  (Address)

  	

   

  

 

 

	

   

  	

   

  	

   

  
	

  (Date)

  	

   

  	

  (Name of Warrant Holder)

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Title:

  	

   

  
	

   

  	

   

  	

  (Title and signature of

  authorized person)EXHIBIT 10.20

NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOT HAVE
BEEN REGISTERED WITH THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"'33 ACT'"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE '33 ACT OR PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

$1,575,000                                                         June 19, 2003

                         BIOSPECIFICS TECHNOLOGIES CORP.
                       12% SENIOR SECURED CONVERTIBLE NOTE

     For value received, BIOSPECIFICS TECHNOLOGIES CORP., a Delaware corporation
(the "Company"), promises to pay to the order of BIO PARTNERS LP, a Delaware
limited partnership (the "Investor"), the principal sum of ONE MILLION FIVE
HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($1,575,000) with interest as described
below. Said principal and accrued interest shall be paid by the undersigned in
lawful money of the United States of America pursuant to the terms of this note
(this "Note") as follows. A Definitions section appears as Section 9 of this
Note.

1. TERMS.

(a) Payment of Principal and Interest. The Company shall pay interest to the
Investor on the aggregate unconverted and then outstanding principal amount of
this Note at the rate of Twelve Percent (12%) per annum, payable monthly in
arrears on the first day of each calendar month (or if such day is not a
business day, on the next succeeding business day), commencing on July 1, 2003.
The outstanding principal amount of this Note and any remaining interest or
other payments due hereunder shall be due and payable on or before June 19, 2005
(the "Maturity Date").

(b) Late Fee. If the Company does not make any payment under this Note when due,
the Company shall be required to pay a late fee equal to five percent (5%) of
the amount of such late payment.

(c) No Pre-Payment Penalty. This Note may be prepaid in part or in full with
accrued interest without penalty at any time.

<PAGE>

2. EVENTS OF DEFAULT.

(a) "Event of Default" means the occurrence of any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body) and for which no notice or demand shall be required on the part of the
Investor:

                  (i) any default in the payment of principal, interest or any
other payment due under this Note as and when the same becomes due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise) and such failure is not cured within ten (10) days;

                  (ii) a Bankruptcy Event;

                  (iii) the Company fails for any reason to deliver a
certificate evidencing any Conversion Shares to the Investor within the time
provided in Section 5(c) hereof or the exercise or conversion rights of the
Investor pursuant to the Transaction Documents are otherwise suspended
(including by reason of public document filed by the Company of its intention to
no longer honor conversions of the Note) for any reason;

                  (iv) the Company fails to have available a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock
available to issue Conversion Shares upon any conversion hereunder;

                  (v) the Company fails to make any cash payment required under
the Transaction Documents and such failure is not cured within ten (10) days;

                  (vi) the Company or any direct or indirect Subsidiary has
breached any representation or warranty, as of the date such representation or
warranty was made or covenant under any Transaction Document in any material
respect (other than those covered by clauses (i), (ii), (v), (viii); (ix) and
(x) of this Section, for which no materiality standard shall apply) or otherwise
defaults in the timely performance of any other obligation under the Transaction
Documents and such default continues uncured for a period of fifteen (15) days.
Notwithstanding the foregoing, the foregoing "material respect" standard for
such a breach shall not apply to any representation, warranty or covenant which
is qualified by a materiality or "Material Adverse Effect" standard;

                  (vii) the Company (for itself or for any direct or indirect
Subsidiary, as the case may be) fails to inform the Investor promptly but in no
event more than three business days after the occurrence of an Event of Default
or event requiring cure to avoid an Event of Default;

                  (viii) Edwin Wegman or Thomas Wegman has breached any
representation or warranty contained in that certain representation letter of
even date herewith from them to Investor concerning intellectual property
issues;

                  (ix) Any default occurs with respect to the Korpodeko Loan
that remains uncured for ten (10) days; or

                                       2
<PAGE>

                  (x) a default by the Company under Section 4.18 of the
Purchase Agreement.

         (b) At any time or times following the occurrence of an Event of
Default, the Investor shall have the option to elect, by notice to the Company
(an "Event Notice"), to accelerate the unpaid and unconverted principal and
interest due hereunder and require the Company to pay an amount equal to the
then outstanding principal amount of the Note plus any accrued and unpaid
interest thereon. The Company shall pay such relevant amount to the Investor no
later than the third Trading Day following the date of delivery of the Event
Notice.

         (c) Subsequent to the delivery of an Event Notice pursuant to the terms
hereof, the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Investor may immediately and without expiration of
any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Any Event Notice may be
rescinded and annulled by the Investor at any time prior to payment hereunder.
No such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereto.

3. SECURITY INTERESTS AND GUARANTIES. The Company's obligations under this Note
shall be secured by: (i) a guaranty from Edwin Wegman in favor of the Investor,
subject to certain limitations described in the Guaranty, which in turn shall be
secured by a first priority perfected security interest of the Investor in One
Hundred Ninety-Six Thousand Six Hundred Sixty-Nine (196,669) Shares of Common
Stock owned by Edwin Wegman, (ii) a first priority perfected security interest
in all assets of the Company and its direct and indirect Domestic Subsidiaries
and (iii) a full guaranty from ABCNY, subject to shareholder approval.

 4. PROHIBITION AGAINST STOCK OR SECURITY PRIORITIES. Except as disclosed in
Schedule 3.19 of the Purchase Agreement, so long as there are any obligations
outstanding under this Note, no indebtedness of the Company is or shall become
senior to this Note in right of payment, whether with respect of interest,
damages or upon liquidation or dissolution or otherwise. The Company will not,
and will not permit any Person to, directly or indirectly, enter into, create,
incur or assume any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom, that is senior in any respect to the Company's
obligations under this Note.

5.  CONVERSION RIGHTS AND PROCEDURES.

         (a) At any time prior to the Maturity Date, the Investor shall be
entitled, at its option, subject to the terms of this Note, to have up to One
Million One Hundred Forty-One Thousand Eight Hundred Seventy-Five Dollars
($1,141,875) (the "Conversion Cap") of the outstanding principal amount of this
Note converted into shares of Common Stock. The number of shares of Common Stock
to be received by the Investor upon conversion shall equal to the principal
amount of the Note to be converted (not to exceed in the aggregate for all such
conversions the Conversion Cap) divided by the Conversion Price, subject to
adjustment as provided herein.

                                       3
<PAGE>

         (b) The Investor may convert principal under this Note into Common
Stock at any time from and after the date hereof, by delivering to the Company a
completed and signed form of conversion notice (the "Conversion Notice") in the
form of Schedule 1 attached hereto and this original Note (or any original Note
hereafter delivered to Investor as contemplated by Section 5(d) of this Note).
The business day next succeeding the date on which the Company receives the
Conversion Notice and the appropriate original Note shall be the "Conversion
Date."

         (c) Upon conversion of all or any portion of this Note, the Company
shall promptly (but in no event later than five (5) Trading Days after the
Conversion Date): issue or cause to be issued and cause to be delivered to or
upon the written order of the Investor and in such name or names as the Investor
may designate a certificate for the Conversion Shares issuable upon such
conversion which, unless required by the Purchase Agreement or applicable law,
shall be free of any restrictive legend. The Investor shall be deemed to have
become holder of record of such Conversion Shares as of the Conversion Date.

         (d) To effect conversions hereunder, the Investor shall be required to
physically surrender this Note to the Company, at which time the Company shall
reissue a new note reflecting the lowering of the outstanding principal amount
of this Note in an amount equal to the applicable conversion.

         (e) The Company's obligations to issue and deliver Conversion Shares
upon conversion of this Note in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by the Investor to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Investor or any other person of any obligation
to the Company or any violation or alleged violation of law by the Investor or
any other Person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Investor in connection
with the issuance of such Conversion Shares.

         (f) If by the seventh Trading Day after a Conversion Date the company
fails to deliver to the Investor such certificate or certificates in the manner
required pursuant to Section 6(b), then the Company shall pay to the Investor,
in cash, as liquidated damages and not as a penalty, five one- hundredths of one
percent (.05%) of the principal amount being converted for each Trading Day
thereafter until such certificates are delivered. Nothing herein shall limit the
Investor's right to pursue actual damages or declare an Event of Default
pursuant to Section 2 of this Note concerning the non-delivery of such
certificates after seven (7) Trading Days, and the Investor shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of such rights shall not prohibit the Investor from seeking to enforce
damages pursuant to any other Section of this Note or under applicable law.

         (g) No fractional shares or scrip shall be issued upon conversion of
this Note. The value of any fractional shares shall be paid in cash to the
Investor.

         (h) The certificates representing shares of Common Stock issuable upon
conversion, if any, shall have endorsed thereon any legend required under the
federal or state securities laws.

                                       4
<PAGE>

6. RESERVATION OF CONVERSION SHARES. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Conversion Shares as required hereunder, the number of
Conversion Shares that are then issuable and deliverable upon the conversion of
this Note (taking into account the adjustments made in Section 7), free from
preemptive rights or any other contingent purchase rights of Persons other than
the Investor. The Company covenants that all Conversion Shares so issuable and
deliverable shall, upon issuance in accordance with the terms hereof, be duly
and validly authorized, issued and fully paid and nonassessable.

7. CERTAIN ADJUSTMENTS.

         (a) Stock Dividends and Splits. If the Company, at any time while this
Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise
makes a distribution on any class of capital stock that is payable in shares of
Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, or (iii) combines outstanding shares of Common Stock into a
smaller number of shares, then in each such case the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event.

         (b) Pro Rata Distributions. If the Company, at any time while this Note
is outstanding, distributes to all holders of Common Stock and not to the
Investor (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph), (iii) rights
or warrants to subscribe for or purchase any security, or (iv) any other asset
(in which case, "Distributed Property"), then upon any conversion of this Note
that occurs after such record date, the Investor shall be entitled to receive,
in addition to the Conversion Shares otherwise issuable upon such conversion,
the Distributed Property that the Investor would have been entitled to receive
in respect of such number of Conversion Shares had the Investor been the record
holder of such Conversion Shares immediately prior to such record date.

          (c) Fundamental Transactions. If, at any time while this Note is
outstanding: (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, (iv) the
Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, or (v) a Change of Control
occurs (in any such case, a "Fundamental Transaction"), then upon any subsequent
conversion of this Note, the Investor shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion absent such

                                       5
<PAGE>

Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the "Alternative
Consideration"). For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Investor shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Investor a new note consistent with the foregoing
provisions and evidencing the Investor's right to convert such note into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that this Note (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

         (d) Notice of Corporate Events. If the Company: (i) declares a dividend
or any other distribution of cash, securities or other property in respect of
its Common Stock, including without limitation any granting of rights or
warrants to subscribe for or purchase any capital stock of the Company, (ii)
authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Investor a notice describing the material
terms and conditions of such transaction, at least ten (10) business days prior
to the applicable record or effective date on which a Person would need to hold
Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Investor is given the practical opportunity to convert this
Note prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice. In addition, the Company shall promptly notify (
but in any case no less than ten (10) days) the Investor prior to the date a
Change of Control is likely to occur.

         (e) Change of Control. In addition to any other rights the Investor may
have after receiving notice that a Change of Control is likely to occur, the
Investor shall have ten (10) days to notify the Company that all amounts
outstanding under this Note are immediately due and payable.

8.  MISCELLANEOUS.

         (a) Severability. Whenever possible, each provision of this Note shall
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Note shall be prohibited by or invalid under

                                       6
<PAGE>

applicable law, such provisions shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.

         (b) Parties in Interest. All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective legal representatives, successors and assigns of
the parties hereto whether so expressed or not.

         (c) Notices. Any notice, demand, request or other communication
required to be given pursuant to this Note shall be in writing and shall be
delivered in accordance with the notice provisions of the Purchase Agreement to
the addressees listed therein.

         (d) No Waiver. No failure to exercise and no delay in exercising any
right, power or privilege granted under this Note by the Investor shall operate
as a waiver of such right, power or privilege. No single or partial exercise of
any right, power or privilege granted to the Investor under this Note shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies of the Investor provided in
this Note are cumulative and are not exclusive of any rights or remedies
provided by law.

         (e) No Amendment. This Note may be modified or amended only by a
writing signed by the Company and by the Investor.

         (f) Construction. This Note shall be governed by and construed in
accordance with the procedural and substantive laws of the State of New York
without regard for its conflicts-of-laws rules. The Company agrees that it may
be served with process in the State of New York and any action for breach of
this Note prosecuted against it in the courts of that State.

         (g) Assignment. This Note and the obligations hereunder shall not be
assignable or transferable by the Investor. Subject to the preceding sentence,
this Note shall be binding upon, inure to the benefit of and be enforceable by
the Company and ACNY and the Investor and their respective permitted successors
and assigns.

         (h) Specific Performance. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Investor will be entitled to specific performance of the obligations of the
Company hereunder. The Company agrees and acknowledges that monetary damages may
not be adequate compensation for any loss incurred by the Investor by reason of
breach of its obligations described herein and hereby agrees to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.

         (i) Costs. In case any principal of or interest on this Note is not
paid when due, the Company shall be liable for all costs of enforcement and
collection of this Note incurred by the Investor, including reasonable attorney
fees, disbursements, and court costs.

         (j) Usury. Notwithstanding any provision to the contrary contained in
this Note, it is expressly agreed and provided that the total liability of the
Company under this Note for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),

                                       7
<PAGE>

and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under this Note
exceed such Maximum Rate. It is agreed that if the maximum contract rate of
interest allowed by law and applicable to this Note is increased or decreased by
statute or any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the Maximum Rate of
interest applicable to this Note from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to the
Investor with respect to indebtedness evidenced by this Note, such excess shall
be applied by the Investor to the unpaid principal balance of any such
indebtedness.

9. DEFINITIONS. In addition to any terms defined elsewhere in this note (this
"Note") capitalized terms that are not otherwise defined herein that are defined
in the Securities Purchase Agreement, of even date herewith (the "Purchase
Agreement"), between the Investor and the Company have the meanings given to
such terms in the Purchase Agreement .

         "Bankruptcy Event" means any of the following events: (a) the Company
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company; (b)
there is commenced against the Company any such case or proceeding that is not
dismissed within 30 days after commencement; (c) the Company is adjudicated
insolvent or bankrupt or any order of relief or other order approving any such
case or proceeding is entered; (d) the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property that is not
discharged or stayed within 30 days; (e) the Company makes a general assignment
for the benefit of creditors; or (g) the Company, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing. For purposes of this definition only, "Company"
shall refer to the Company and any of its direct or indirect Subsidiaries.

         "Change of Control" means the occurrence of any of the following in one
or a series of related transactions or events: (i) the sale transfer or
assignment (other than pursuant to a pledge so long as such pledge has not been
foreclosed upon, in which event a Change of Control shall be deemed to have
occurred) of substantially all Shares of Common Stock owned by Edwin H. Wegman
(other than as a result of his death); (ii) individuals who, as of the date
hereof, constitute the Company's board of directors (the "Board"), together with
any other director whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of a majority of the directors
then in office who were either directors as of the date hereof, or whose
election or nomination was previously so approved, cease for any reason to
constitute a majority of the board; (iii) a merger, consolidation or business
combination of the Company or a sale of all or substantially all of the assets
of the Company in connection with which the Company is not the surviving entity
of or if following such transaction or series of transactions, the holders of
the Company's securities prior to the first such transaction do not continue to
hold at least half of the voting rights and equity interests in of the surviving
entity or acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company that constitutes or results in a

                                       8
<PAGE>

transfer of more than 50% of the voting rights or equity interests in the
Company; or (v) the execution by the Company or Edwin H. Wegman of an agreement
providing for any of the foregoing events.

         "Conversion Price" means Two and Fifty One-Hundredths Dollars ($2.50).

         "Trading Day" means (a) any day on which the Common Stock is traded in
its primary Trading Market, or (b) if the Common Stock is not then listed or
quoted for trading on a Trading Market, then a day on which trading occurs on
the New York Stock Exchange (or any successor thereto).

                                       9
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above written.

                       BIOSPECIFICS TECHNOLOGIES CORP.

                       By:
                           --------------------------
                           Edwin H. Wegman, President

                                       10
<PAGE>

                          EXHIBIT A -CONVERSION NOTICE

The undersigned hereby elects to convert the principal amount of the Note set
forth below into shares of common stock, $.001 par value per share (the "Common
Stock"), of BioSpecifics Technologies Corp. according to the conditions hereof,
as of the date written below. No fee will be charged to the undersigned for any
conversion.

                         Conversion Calculations:

                         --------------------------------------------------
                         Date to Effect Conversion

                         --------------------------------------------------
                         Principal amount of Note owned prior to conversion

                         --------------------------------------------------
                         Principal amount of Note to be Converted

                         --------------------------------------------------
                         Number of shares of Common Stock to be issued

                         --------------------------------------------------
                         Applicable Conversion Price

                         --------------------------------------------------
                         Principal amount of Note owned
                         subsequent to Conversion under this Notice

                         --------------------------------------------------
                         BIO  PARTNERS LP, a Delaware limited partnership

                         By: Bio Management, Inc. a Delaware corporation

                             By:
                                   ----------------------------------------
                             Name:
                                   ----------------------------------------
                             Title:
                                   ----------------------------------------

                                       11

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