**EXHIBIT 4.1**

 

**THISNOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OFFEREDFOR SALE OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO: (A) THE RESTRICTIONSSET FORTH HEREIN AND (B) AN EFFECTIVE REGISTRATION STATEMENT UNDER THESECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OFCOUNSEL REASONABLY SATISFACTORY TO TRI-S SECURITY CORPORATION THAT SUCHREGISTRATION IS NOT REQUIRED.**

 

**10% CALLABLE, CONVERTIBLE PROMISSORYNOTE**

 
| No. [                  ] | Issue Date:  [          ], 2005 |
|-------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|
|                                                                                                                    | Alpharetta,  Georgia                                                              |

 

Tri-SSecurity Corporation, a Georgia corporation (“Payor”), hereby promises to payto [                      ](“Holder”), at the address listed on the signature page hereto or suchaddress as Holder may from time to time designate in writing to Payor, theprincipal sum of [            ] DOLLARS($                  ),together with interest thereon as provided herein, in such coin or currency ofthe United States of America as at the time of payment shall be legal tenderfor the payment of public and private debts, in accordance with the terms andconditions of this promissory note (the “Note”).

 

# 1.                                       Series of Notes.  This Note is issued as part of a series ofsimilar notes issued pursuant to Payor’s Confidential Private OfferingMemorandum dated July 26, 2005 (the “Memorandum”), and the terms of thatcertain Subscription Agreement entered into between Payor and Holder, acceptedby Payor on [              ],2005.

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# 2.                                       Interest.  The outstanding principal balance hereundershall bear interest at a rate of 10% per annum from the date of issuance ofthis Note as indicated above (the “Issue Date”), computed on the basis of a 360-dayyear consisting of twelve 30-day months. All accrued interest under this Note shall be payable monthly on thelast Trading Day (as hereinafter defined) of each month, commencing the monthafter the Issue Date.  All payments madehereunder shall be applied first to accrued interest and thereafter toprincipal.  For purposes of this Note,“Trading Day” means any day on which the shares of Payor’s common stock, parvalue $0.001 per share (the “Common Stock”), are purchased and sold on theprincipal securities exchange or market on which the Common Stock is thenlisted or traded.

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# 3.                                       Maturity Date.  The outstanding principal balance hereunderand all unpaid, accrued interest thereon shall be payable on the date which isthe third anniversary of the Issue Date, or [                ],2008 (the “Maturity Date”).

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# 4.                                       Conversion.  At any time after Shareholder Approval (asdefined in Section 7 hereof) is obtained and prior to the Maturity Date,Holder may elect to convert all, but not less than all, of the outstandingprincipal balance hereunder (the “Converted Amount”) into a number of shares ofCommon Stock (the “Conversion Shares”) equal to the quotient obtained bydividing

 

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the Converted Amount by the Conversion Price.  For purposes of this Note, the “ConversionPrice” shall equal $4.80 per share, subject to adjustment as set forth in Section 6hereof.

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# 5.                                       Conversion Procedure.

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## (a)                                  Holder shall exercise the conversionright set forth in Section 4 hereof by delivering to Payor a completedNotice of Conversion in the form attached hereto as Exhibit A (a“Conversion Notice”).  No later than fiveTrading Days after Holder delivers to Payor the Conversion Notice, Payor shallissue to Holder a certificate or certificates representing the ConversionShares into which the Converted Amount has been converted.  Such conversion shall be deemed to have beeneffected as of the close of business on the date the Conversion Notice isdelivered to Payor, and Holder will be deemed to have become the holder ofrecord of the Conversion Shares issuable pursuant to such notice on such date.

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## (b)                                 Payor shall not be required to pay anyFederal or state transfer tax or charge that may be payable in respect of theissuance or delivery of certificates representing the Conversion Shares in aname other than that of Holder.

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## (c)                                  Upon conversion of this Note pursuant toSections 4 and 5 hereof, Payor will take all such actions as are necessary inorder to ensure that the Conversion Shares will be validly issued, fully paidand nonassessable.

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## (d)                                 If Holder is required to make anygovernmental filings or to obtain any governmental approval in connection withthe issuance or conversion of this Note, Payor will provide Holder withreasonable assistance in preparing such filings or obtaining suchapproval.  Payor will make all filingsPayor is required to make with the Securities and Exchange Commission (the“SEC”) and the applicable state securities commissions in connection with theissuance of this Note and the Conversion Shares.

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## (e)                                  No fractional share of Common Stock orscrip representing any fractional share of Common Stock shall be issued uponthe conversion of the Converted Amount. If the conversion of the Converted Amount results in a fraction, thenumber of shares of Common Stock to be issued to Holder shall be rounded up tothe nearest whole share.

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## (f)                                    Upon conversion of the entire outstandingprincipal balance hereunder and the payment of the accrued but unpaid interestdue thereon, the rights of Holder with respect to this Note will cease.

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# 6.                                       Adjustment ofConversion Price.  In the eventthat, after the Issue Date, Payor shall: (i) pay a dividend or make adistribution on the outstanding shares of Common Stock in Payor’s capital stock(which shall include any options, warrants or other rights to acquire capitalstock), (ii) subdivide the outstanding shares of Common Stock into alarger number of shares, (iii) combine the outstanding shares of CommonStock into a smaller number of shares, or (iv) issue any shares of Payor’scapital stock in reclassification of the Common Stock, then, and in each suchcase, the Conversion Price in effect immediately prior to such event shall beadjusted so that, upon conversion of the Conversion Amount, Holder shall beentitled to receive the number of Conversion Shares or other securities ofPayor that Holder would have owned or would have been entitled to receive uponor by reason of any of the events described above had

 

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the Conversion Amount been converted immediately prior to theoccurrence of such event.  In the eventthat the outstanding shares of Common Stock are ever converted into a greateror lesser number of shares of another corporation or entity through a merger orsimilar transaction, a proportionate adjustment shall be made to the ConversionPrice to account for such change.  Payorshall give prompt written notice to Holder following the occurrence of any eventwhich requires an adjustment to the Conversion Price pursuant to the termshereof.

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# 7.                                       Limitations on Rightto Convert.

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# (a)                                  In no event shallHolder be permitted to convert the outstanding principal balance hereunderpursuant to Sections 4 and 5 hereof until Payor has obtained ShareholderApproval.  For purposes of this Note,“Shareholder Approval” means the affirmative vote of at least a majority of thevotes cast at a meeting of Payor’s shareholders (a “Shareholders Meeting”) atwhich a quorum is present to approve the potential issuance in connection withthe offering contemplated by the Memorandum (the “Offering”) of more than 20%of the outstanding shares of Common Stock for purposes of complying with the rules governingThe Nasdaq Stock Market, Inc.  Nolater than thirty (30) days after the termination of the Offering, Payor shallfile with the SEC a preliminary proxy statement pursuant to the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), in connection with aShareholder Meeting and shall seek to convene such meeting as promptlythereafter as practicable.  Payor’s ChiefExecutive Officer, who in the aggregate beneficially owns approximately 24% ofthe Common Stock outstanding as of the date of the Memorandum has agreed tovote all such shares in a manner to obtain Shareholder Approval.

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# (b)                                 In no event shallHolder be permitted to convert the outstanding principal balance hereunderpursuant to Sections 4 and 5 hereof if, upon such conversion, the number ofConversion Shares to be issued pursuant to such conversion plus thenumber of shares of Common Stock beneficially owned by Holder would exceed4.99% of the number of shares of Common Stock then issued and outstanding, itbeing the intent of Payor and Holder that Holder not be deemed at any time tohave the power to vote or dispose of greater than 4.99% of the number of sharesof Common Stock issued and outstanding at any time. Nothing contained hereinshall be deemed to restrict the right of Holder to convert such excessprincipal amount at such time as such conversion will not violate theprovisions of this Section 7. As used herein, beneficial ownership shallbe determined in accordance with Section 13(d) of the ExchangeAct.  To the extent that the limitationcontained in this Section 7 applies (and without limiting any rights Payormay otherwise have), Payor may rely on Holder’s determination of whether thisNote is convertible pursuant to the terms hereof, Payor shall have noobligation whatsoever to verify or confirm the accuracy of such determination,and the submission of a Conversion Notice by Holder shall be deemed to beHolder’s representation that this Note is convertible pursuant to the termshereof.

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# 8.                                       Securities Laws;Share Legend.  Holder, byacceptance of this Note, agrees that the Conversion Shares will be disposed ofonly in accordance with the Securities Act and the rules and regulationsof the SEC promulgated thereunder.  Inaddition to any other legend which Payor may deem advisable under theSecurities Act and applicable state securities laws, all certificatesrepresenting the Conversion Shares (as well as any other securities issuedhereunder in respect of any such shares) issued upon conversion of this Noteshall be endorsed as follows:

 

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THESECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIESLAWS, AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERREDEXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANYAPPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLYSATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Any certificate issued atany time in exchange or substitution for any certificate bearing such legend(except a new certificate issued upon completion of a public distributionpursuant to a registration statement under the Securities Act) shall also bearsuch legend unless, in the opinion of counsel (in form and substance reasonablysatisfactory to Payor) selected by Holder of such certificate, the securitiesrepresented thereby need no longer be subject to restrictions on resale underthe Securities Act.

 

# 9.                                       Call Provision.  Payor has the option to prepay all or anyportion of the outstanding principal balance hereunder at any time after theone year anniversary of the Issue Date with no prepayment penalty in accordancewith the terms of this Section 9. Payor may exercise this right of prepayment by delivering to Holder awritten notice (a “Prepayment Notice”) indicating the amount of the outstandingprincipal balance hereunder to be prepaid and the date on which Payor intendsto make such prepayment, which date may be no earlier than 30 days after thePrepayment Notice is delivered to Holder. Notwithstanding the foregoing, Payor may exercise this right ofprepayment only if a registration statement filed pursuant to the SecuritiesAct covering the resale of the Conversion Shares has been declared effective bythe SEC on or prior to the date on which Payor delivers the Prepayment Noticeto Holder.

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# 10.                                 Governing Law.  The terms of this Note shall be construed inaccordance with the laws of the State of Georgia.

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# 11.                                 Restrictions onTransfer.  Holder, byacceptance of this Note, agrees and understands that: (i) this Note maynot be transferred, sold pledged or hypothecated by Holder; and (ii) anyattempted transfer, sale, pledge or hypothecation of this Note by Holder shallbe void and of no effect.

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**[SIGNATURE PAGE FOLLOWS]**

 

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**IN WITNESS WHEREOF,**the Payor and Holderhave duly executed and delivered this Note, or caused this Note to be dulyexecuted and delivered, all as of the date first written above.

 
|   | **TRI-S  SECURITY CORPORATION** |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   |                            |   |
|   | By:                             | Ronald G.  Farrell |
|   | Its:                            | Chief Executive  Officer |
|        |                                 |  |  |

 

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**ACCEPTEDBY:**

 

**HOLDER:**

 

**[NAMEOF HOLDER]**

 

 
|             |   |
|------------------|--------|
|   By:  |   |   |
|   Its: |   |   |

 
| Address of Holder: |   |   |
|--------------------|--------|--------|
|               |   |   |
|               |   |   |
| Facsimile Number:  |   |   |
| E-mail:            |   |   |

 

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**EXHIBIT A**

 

**NOTICE OF CONVERSION**

 

**TO: TRI-S SECURITY CORPORATION**

 

(1)                                  The undersigned hereby elects to convert theentire outstanding principal balance of that certain 10% Callable, ConvertiblePromissory Note, dated                     ,2005, issued by Tri-S Security Corporation (the “Company”) to the undersigned(“the Note”), into               shares (the “Shares”) of the Company’s common stock, $.001 par value per share,pursuant to the terms of the Note.

 

(2)                                  Please issue a certificate or certificatesrepresenting the Shares in the following name:

 
| Name   | Address |
|--------|---------|
|   |    |

 

(3)                                  The undersigned represents that:  (i) the Shares are being acquired forthe account of the undersigned for investment purposes only and not with a viewto, or for resale in connection with, the distribution thereof, and theundersigned has no present intention of distributing or reselling the Shares; (ii) theundersigned is aware of the Company’s business affairs and financial conditionand has acquired sufficient information about the Company to reach an informedand knowledgeable decision regarding the undersigned’s investment in theCompany; (iii) the undersigned is experienced in making investments ofthis type and has such knowledge and background in financial and businessmaters that the undersigned is capable of evaluating the merits and risks ofthis investment and protecting the undersigned’s own interests; (iv) theundersigned understands that the Shares have not been registered under the SecuritiesAct of 1933, as amended (the “Securities Act”), by reason of a specificexemption from the registration provisions of the Securities Act (whichexemption depends upon, among other things, the bona fide nature of theinvestment intent as expressed herein) and, because the Shares have not beenregistered under the Securities Act, they may not be sold or transferred by theundersigned unless so registered or an exemption from such registration isavailable; (v) the undersigned is aware that the Shares may not be soldpursuant to Rule 144 adopted under the Securities Act (the “Rule”) unlesscertain conditions are met and until the undersigned has held the Shares forthe number of years prescribed by the Rule and that among the conditionsfor use of the Rule is the availability to the public of currentinformation about the Company; (vi) the undersigned agrees not to make anydisposition of all or any part of the Shares unless and until there is then ineffect a registration statement under the Securities Act covering such proposeddisposition and such disposition is made in accordance with said registrationstatement or the undersigned has provided the Company with an opinion ofcounsel satisfactory to the Company stating that such registration is not required;and (vii) the undersigned is an “accredited investor” as such term isdefined in Rule 501 promulgated pursuant to the Securities Act.

 
| **Date:** |   |   | **[NAME OF UNDERSIGNED)** |
|-----------|--------|--------|---------------------------|
|      |   |
|      |   |   |
|      | By:    |   |                      |
|      | Its:   |   |                      |

 

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