EXHIBIT 4.1


 


THIS
NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OFFERED
FOR SALE OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO: (A) THE RESTRICTIONS
SET FORTH HEREIN AND (B) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO TRI-S SECURITY CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.


 


10% CALLABLE, CONVERTIBLE PROMISSORY
NOTE


 


	
  No. [                  ]

  	
  Issue Date:
  [          ], 2005

  
	
   

  	
  Alpharetta,
  Georgia

  



 


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


 


1.                                       Series of Notes.  This Note is issued as part of a series of
similar notes issued pursuant to Payor’s Confidential Private Offering
Memorandum dated July 26, 2005 (the “Memorandum”), and the terms of that
certain Subscription Agreement entered into between Payor and Holder, accepted
by Payor on [              ],
2005.


 


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


 


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


 


4.                                       Conversion.  At any time after Shareholder Approval (as
defined 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 outstanding
principal balance hereunder (the “Converted Amount”) into a number of shares of
Common Stock (the “Conversion Shares”) equal to the quotient obtained by
dividing


 





















 


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


 


5.                                       Conversion Procedure.


 


(a)                                  Holder shall exercise the conversion
right set forth in Section 4 hereof by delivering to Payor a completed
Notice of Conversion in the form attached hereto as Exhibit A (a
“Conversion Notice”).  No later than five
Trading Days after Holder delivers to Payor the Conversion Notice, Payor shall
issue to Holder a certificate or certificates representing the Conversion
Shares into which the Converted Amount has been converted.  Such conversion shall be deemed to have been
effected as of the close of business on the date the Conversion Notice is
delivered to Payor, and Holder will be deemed to have become the holder of
record of the Conversion Shares issuable pursuant to such notice on such date.


 


(b)                                 Payor shall not be required to pay any
Federal or state transfer tax or charge that may be payable in respect of the
issuance or delivery of certificates representing the Conversion Shares in a
name other than that of Holder.


 


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


 


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


 


(e)                                  No fractional share of Common Stock or
scrip representing any fractional share of Common Stock shall be issued upon
the conversion of the Converted Amount. 
If the conversion of the Converted Amount results in a fraction, the
number of shares of Common Stock to be issued to Holder shall be rounded up to
the nearest whole share.


 


(f)                                    Upon conversion of the entire outstanding
principal balance hereunder and the payment of the accrued but unpaid interest
due thereon, the rights of Holder with respect to this Note will cease.


 


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


 


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the Conversion Amount been converted immediately prior to the
occurrence of such event.  In the event
that the outstanding shares of Common Stock are ever converted into a greater
or lesser number of shares of another corporation or entity through a merger or
similar transaction, a proportionate adjustment shall be made to the Conversion
Price to account for such change.  Payor
shall give prompt written notice to Holder following the occurrence of any event
which requires an adjustment to the Conversion Price pursuant to the terms
hereof.


 


7.                                       Limitations on Right
to Convert.


 


(a)                                  In no event shall
Holder be permitted to convert the outstanding principal balance hereunder
pursuant to Sections 4 and 5 hereof until Payor has obtained Shareholder
Approval.  For purposes of this Note,
“Shareholder Approval” means the affirmative vote of at least a majority of the
votes cast at a meeting of Payor’s shareholders (a “Shareholders Meeting”) at
which a quorum is present to approve the potential issuance in connection with
the 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 governing
The Nasdaq Stock Market, Inc.  No
later than thirty (30) days after the termination of the Offering, Payor shall
file with the SEC a preliminary proxy statement pursuant to the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), in connection with a
Shareholder Meeting and shall seek to convene such meeting as promptly
thereafter as practicable.  Payor’s Chief
Executive Officer, who in the aggregate beneficially owns approximately 24% of
the Common Stock outstanding as of the date of the Memorandum has agreed to
vote all such shares in a manner to obtain Shareholder Approval.


 


(b)                                 In no event shall
Holder be permitted to convert the outstanding principal balance hereunder
pursuant to Sections 4 and 5 hereof if, upon such conversion, the number of
Conversion Shares to be issued pursuant to such conversion plus the
number of shares of Common Stock beneficially owned by Holder would exceed
4.99% of the number of shares of Common Stock then issued and outstanding, it
being the intent of Payor and Holder that Holder not be deemed at any time to
have the power to vote or dispose of greater than 4.99% of the number of shares
of Common Stock issued and outstanding at any time. Nothing contained herein
shall be deemed to restrict the right of Holder to convert such excess
principal amount at such time as such conversion will not violate the
provisions of this Section 7. As used herein, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange
Act.  To the extent that the limitation
contained in this Section 7 applies (and without limiting any rights Payor
may otherwise have), Payor may rely on Holder’s determination of whether this
Note is convertible pursuant to the terms hereof, Payor shall have no
obligation whatsoever to verify or confirm the accuracy of such determination,
and the submission of a Conversion Notice by Holder shall be deemed to be
Holder’s representation that this Note is convertible pursuant to the terms
hereof.


 


8.                                       Securities Laws;
Share Legend.  Holder, by
acceptance of this Note, agrees that the Conversion Shares will be disposed of
only in accordance with the Securities Act and the rules and regulations
of the SEC promulgated thereunder.  In
addition to any other legend which Payor may deem advisable under the
Securities Act and applicable state securities laws, all certificates
representing the Conversion Shares (as well as any other securities issued
hereunder in respect of any such shares) issued upon conversion of this Note
shall be endorsed as follows:


 


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


 


Any certificate issued at
any time in exchange or substitution for any certificate bearing such legend
(except a new certificate issued upon completion of a public distribution
pursuant to a registration statement under the Securities Act) shall also bear
such legend unless, in the opinion of counsel (in form and substance reasonably
satisfactory to Payor) selected by Holder of such certificate, the securities
represented thereby need no longer be subject to restrictions on resale under
the Securities Act.


 


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


 


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


 


11.                                 Restrictions on
Transfer.  Holder, by
acceptance of this Note, agrees and understands that: (i) this Note may
not be transferred, sold pledged or hypothecated by Holder; and (ii) any
attempted transfer, sale, pledge or hypothecation of this Note by Holder shall
be void and of no effect.


 


[SIGNATURE PAGE FOLLOWS]


 


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IN WITNESS WHEREOF, the Payor and Holder
have duly executed and delivered this Note, or caused this Note to be duly
executed 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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ACCEPTED
BY:


 


HOLDER:


 


[NAME
OF 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 the
entire outstanding principal balance of that certain 10% Callable, Convertible
Promissory 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 certificates
representing the Shares in the following name:


 


	
  Name

  	
  Address

  
	
   

  	
   

  



 


(3)                                  The undersigned represents that:  (i) the Shares are being acquired for
the account of the undersigned for investment purposes only and not with a view
to, or for resale in connection with, the distribution thereof, and the
undersigned has no present intention of distributing or reselling the Shares; (ii) the
undersigned is aware of the Company’s business affairs and financial condition
and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision regarding the undersigned’s investment in the
Company; (iii) the undersigned is experienced in making investments of
this type and has such knowledge and background in financial and business
maters that the undersigned is capable of evaluating the merits and risks of
this investment and protecting the undersigned’s own interests; (iv) the
undersigned understands that the Shares have not been registered under the Securities
Act of 1933, as amended (the “Securities Act”), by reason of a specific
exemption from the registration provisions of the Securities Act (which
exemption depends upon, among other things, the bona fide nature of the
investment intent as expressed herein) and, because the Shares have not been
registered under the Securities Act, they may not be sold or transferred by the
undersigned unless so registered or an exemption from such registration is
available; (v) the undersigned is aware that the Shares may not be sold
pursuant to Rule 144 adopted under the Securities Act (the “Rule”) unless
certain conditions are met and until the undersigned has held the Shares for
the number of years prescribed by the Rule and that among the conditions
for use of the Rule is the availability to the public of current
information about the Company; (vi) the undersigned agrees not to make any
disposition of all or any part of the Shares unless and until there is then in
effect a registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement or the undersigned has provided the Company with an opinion of
counsel satisfactory to the Company stating that such registration is not required;
and (vii) the undersigned is an “accredited investor” as such term is
defined in Rule 501 promulgated pursuant to the Securities Act.


 


	
  Date:

  	
   

  	
   

  	
  [NAME OF UNDERSIGNED)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Its: