EXHIBIT 10.6


 


AGREEMENT REGARDING NOTES AND PREFERRED
SHARES


 


This AGREEMENT REGARDING NOTES AND PREFERRED
SHARES (together with the exhibits hereto, the “Agreement”) is made
as of September 29, 2004 by and among TRI-S SECURITY CORPORATION,
a Georgia corporation formerly known as Diversified Security Corporation (the
“Company”), and PARAGON SYSTEMS, INC., an Alabama
corporation and a wholly-owned subsidiary of the Company (“Paragon”), on the
one hand, and HAROLD BRIGHT, a resident of the
State of Tennessee (“Bright”), CHARLES KEATHLEY,
a resident of the State of Alabama (“Keathley”), ROBERT
LUTHER, a resident of the State of Alabama (“Luther”), and JOHN WILSON, a resident of the State of Tennessee (“Wilson”
and, together with Bright, Keathley and Luther, the “Note Holders”), on the
other hand.


 


WHEREAS, the Company
has issued certain promissory notes dated February 24, 2004 to the Note
Holders as described on Exhibit A attached hereto (the “Parent Notes”);


 


WHEREAS, Paragon has
issued a certain promissory note dated March 11, 2004 to or for the
benefit of the Note Holders as described on Exhibit B attached hereto
(the “Subsidiary Note” and together with the Parent Notes, the “Notes”);


 


WHEREAS, the Company
presently is preparing for an underwritten initial public offering of its
common stock, $0.001 par value per share (the “Common Stock”), to be registered
on a registration statement on Form S-1 under the Securities Act of 1933, as
amended (the “Initial Public Offering”);


 


WHEREAS, in
anticipation of the Initial Public Offering, the parties hereto have agreed to
enter into this Agreement;


 


NOW, THEREFORE, in
consideration of the mutual covenants and agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby mutually acknowledged, the parties hereto agree as follows:


 


1.                                       Promissory Notes.  The Company and each of the Note Holders
hereby agree to amend and restate each Parent Note to which they are a party in
its entirety in the form attached hereto as Exhibit C (each an “Amended
and Restated Parent Note” and collectively the “Amended and Restated Parent
Notes”).  Paragon and each of the Note
Holders hereby agree to amend and restate the Subsidiary Note in its entirety
in the form attached hereto as Exhibit D (the “Amended and Restated
Subsidiary Note” and, together with the Amended and Restated Parent Notes, the
“Amended and Restated Notes”). 
Simultaneously with the execution and delivery of this Agreement, (i)
the Note Holders shall deliver to the Company for cancellation all Parent Notes
and the Subsidiary Note, (ii) the Company shall deliver to each Note Holder an
executed Amended and Restated Parent Note made in favor of such holder in the
principal amount listed opposite such holder’s name on Exhibit E
attached hereto and (iii) Paragon shall deliver to the Note Holders an executed
Amended and Restated Subsidiary Note.


 


2.                                       Series C Shares. Each of the Note
Holders and the Company acknowledges and agrees that, pursuant to that certain
Stock Purchase Agreement dated as of February 23, 2004 by


 
















 


and among the Company and each of the Note Holders (the “Stock Purchase
Agreement”), the Note Holders are entitled to receive an aggregate of 100
shares of the Company’s Series C Redeemable Preferred Stock, $1.00 par value
per share  (the “Series C Shares”), with
an aggregate redemption value of $6.0 million and dividends payable thereon in
an aggregate amount of $300,000.00 per annum, with all such accrued dividends
to be paid on August 31 and February 28 of each year and such shares
to be redeemed by the Company on or before February 27, 2007. No later
than October 15, 2004, the
Company shall issue and deliver to each Note Holder a certificate representing
such number of Series C Shares as listed opposite such holder’s name on Exhibit
E attached hereto.  Each of the Note
Holders hereby waives the default in connection with the payment of dividends
in respect of such Series C Shares payable as of August 31, 2004.  Simultaneously with the delivery by the
Company of the Series C Shares on or before October 15, 2004, each of the
Note Holders shall deliver to the Company for cancellation any and all
certificates previously issued to such holder in connection with the Series C
Shares that such holder is entitled to receive pursuant to the Stock Purchase
Agreement.


 


3.                                       Forbearance. Notwithstanding
anything to the contrary which may be set forth in those certain Security
Agreements dated as of February 24, 2004, between the Company and each
Note Holder (each a “Security Agreement” and collectively, the “Security
Agreements”), each Note Holder agrees not to exercise any rights or remedies
such holder may have under the Security Agreement to which such holder is a
party prior to January 1, 2005.


 


4.                                       Cash Payment.  Simultaneously with the execution and
delivery of this Agreement, the Company shall pay to each Note Holder an amount
of cash as set forth opposite such Note Holder’s name on Exhibit E
attached hereto. The Company hereby agrees, acknowledges and understands that
such amounts shall not be applied to or cause a reduction of any interest or
principal under the Notes, the Amended and Restated Notes or any other
promissory note issued by either the Company or Paragon to any of the Note
Holders, nor cause a reduction of any other liability of the Company hereunder.


 


5.                                       Repayment of Notes and Payment Dividends.  If the Initial Public Offering is
consummated, then the Company agrees that, until the Amended and Restated Notes
have been repaid in full, it shall apply all of the net proceeds thereof, after
payment of underwriting discounts and out-of-pocket fees and expenses incurred
in connection therewith (“the “Net Proceeds”), to the repayment of the Amended
and Restated Notes no later than three (3) business days after the Company
receives such proceeds. If the Initial Public Offering is consummated and the
Company has repaid the Amended and Restated Notes in full, then the Company
shall apply any remaining Net Proceeds to the payment of the dividends with
respect to the Series C Shares which were accrued and payable as of
August 31, 2004 (the “Accrued Dividends”) no later than three (3) business
days after the Company receives such proceeds until the Accrued Dividends have
been repaid in full.  If the Initial
Public Offering is not consummated by December 31, 2004, the Company shall
pay such dividends on such date.


 


6.                                       Common Share Issuance.


 


(a)                                  The
Company shall issue to each Note Holder, promptly upon the completion of the
Initial Public Offering, a number of shares of the Common Stock having a cash
value as set forth opposite such holder’s name on Exhibit E attached
hereto, with each share


 


2
















 


being valued at the per share price at which the Common Stock is sold
in the Initial Public Offering; provided, however, that each  such issuance to a Note Holder is subject to
the Company receiving an appropriate subscription agreement executed by such
holder in the form of Exhibit F attached hereto.  Each Note Holder acknowledges, agrees and
understands that unless and until the Initial Public Offering is completed, the
Company shall have no obligation to issue the shares of the Company’s common
stock as contemplated by this Section 6.


 


(b)                                 No
later than October 15, 2004, the Company shall issue and deliver to each
Note Holder one share of Common Stock; provided, however, that each such
issuance to a Note Holder is subject to the Company receiving an appropriate
subscription agreement executed by such holder in the form of Exhibit F
attached hereto.  Each of the Note
Holders hereby agrees, acknowledges and understands that if the Company effects
an exchange and recapitalization of its Common Stock prior to the Initial
Public Offering (the “Exchange and Recapitalization”), then the shares of
Common Stock issued pursuant to this Section 6(b) shall be redeemed by the
Company for $1.00 per share prior to the Exchange and Recapitalization by
written notice from the Company to each of the Note Holders.  The Company hereby agrees that if such redemption
occurs, then the Company shall reissue the redeemed shares of Common Stock to
the Note Holders promptly upon completion of the Exchange and Recapitalization.


 


7.                                       Employment Agreements.  Notwithstanding anything to the contrary
set forth in that certain Employment Agreement dated February 24, 2004
between the Company and Keathley, the Company hereby agrees to pay to Keathley
during the second half of the term of such agreement the same salary and
benefits which Keathley was entitled to receive during the first half of the
term of such agreement.  Notwithstanding
anything to the contrary set forth in that certain Employment Agreement dated
February 24, 2004 between the Company and Luther, the Company hereby
agrees to pay to Luther during the second half of the term of such agreement
the same salary and benefits which Luther was entitled to receive during the
first half of the term of such agreement. 
The amount of services to be provided by Keathley and Luther under the
Employment Agreements shall not increase or be modified and during the second
half of the term of such Agreements shall be 50% of the amount of time or
services required under the first half of the term of such Agreements.


 


8.                                       Amendment to Stock Purchase Agreement and Security
Agreements. Each of the Note Holders and the Company hereby
agree, and hereby amend the Stock Purchase Agreement to the extent necessary to
provide, as follows:


 


(a)                                  Any
legal proceeding instituted by the Company concerning the matters contemplated
by or relating to the Stock Purchase Agreement may be brought in a court with
subject matter jurisdiction over the dispute located in Atlanta, Georgia, and
each of the Note Holders hereby submits to jurisdiction in any such court,
agrees that venue properly lies in any such court, and agrees that each such
holder will not attempt to defeat or deny such jurisdiction by motion or other
request for leave from any court. With respect to any legal proceeding
instituted by the Company concerning the matters contemplated by or relating to
the Stock Purchase Agreement, such agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Georgia
without reference to its choice of law rules. 
The Company hereby (i) agrees that any failure of any Note Holder to
bring any compulsory counterclaim (as defined by applicable law) that such
holder may have with respect


 


3
















 


to any legal proceeding instituted by the Company concerning the
matters contemplated by or relating to the Stock Purchase Agreement shall not
constitute a waiver of any of such holder’s rights, claims, or actions whether
such rights, claims, or actions were or could have been deemed a compulsory
counterclaim under either Alabama or Georgia law, (ii) agrees that such holder
may file any action in any court with subject matter jurisdiction over such
rights, claims or actions located in Huntsville, Alabama, and (iii) irrevocably
submits to the jurisdiction of such court for such purposes, irrevocably agrees
that venue properly lies in such court, and irrevocably agrees that the Company
will not attempt to defeat or deny such jurisdiction by motion or other request
for leave from any court. With respect to any such actions instituted by any
Note Holder, the Stock Purchase Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Alabama
without reference to its choice of law rules. 
The Company further agrees that it will not attempt to deny the Note
Holder’s rights, claims, or actions on any basis relating to or arising from
any claim that such rights, claims or actions should have been brought as
compulsory counterclaims. 
Notwithstanding the foregoing, if any court determines that such claim
or action may not be instituted by any Note Holder in a court located in
Huntsville, Alabama as contemplated in this Section 8(a), then the Company
agrees to dismiss without prejudice all legal proceedings instituted pursuant
to this Section 8(a) by the Company in Georgia in order to enable the Note
Holder to litigate all of its rights under the Stock Purchase Agreement,
Amended and Restated Notes, Unamended Notes, and Pledge and Assignment of Stock
and Security Agreement in a court with subject matter jurisdiction located in
Huntsville, Alabama.  If the Company
decides to refile such proceeding, it shall do so in a court with subject
matter jurisdiction located in Huntsville, Alabama, and in such event, such
proceeding shall be governed by and construed and enforced in accordance with
the internal laws of the State of Alabama without reference to its choice of
law rules.


 


(b)                                 Notwithstanding
the foregoing, the parties hereto agree, acknowledge and understand that this
Section 8 shall not apply with respect to, and shall in no way effect, the
Amended and Restated Subsidiary Note.


 


(c)                                  The
parties hereto agree, acknowledge and understand that, except as amended
hereby, the Stock Purchase Agreement is
and shall continue to be in full force and effect, and is, as hereby amended,
confirmed and ratified.  The parties
further acknowledge that the following promissory notes (collectively, the
“Unamended Notes” and each an “Unamended Note”) are not amended by the terms of
this Agreement and shall continue in full force and effect: (i) Promissory Note
in the principal amount of $398,850 dated February 24, 2004, executed by
Company as Maker and naming Luther as Payee; (ii) Promissory Note in the
principal amount of $813,750 dated February 24, 2004, executed by Company
as Maker and naming Keathley as Payee; (iii) Promissory Note in the principal
amount of $143,700 dated February 24, 2004, executed by Company as Maker
and naming Bright as Payee; and (iv) Promissory Note in the principal amount of
$143,700 dated February 24, 2004, executed by Company as Maker and naming
Wilson as Payee.  The Unamended Notes
shall be secured by a stock pledge or security agreement executed
contemporaneously with this Agreement.


 


9.                                       Attorney’s Fees.  Simultaneously with the execution and
delivery of this Agreement, the Company shall pay to legal counsel for Keathley
and Luther the amount of


 


4
















 


$10,000 with respect to legal fees incurred by Keathley and Luther in
connection with the matters set forth in this Agreement.


 


10.                                 Other Payments.  The Company hereby agrees to pay the monthly
mortgage payments, insurance and operating expenses, up to a maximum of
$1,000.00 per month, incurred with respect to that certain property located at
Highway 31, Elkton, Tennessee, which is owned by Keathley and Luther, for each
month commencing with September 2004 and ending with February 2005.


 


11.                                 Miscellaneous.


 


11.1                           This
Agreement shall be binding upon the parties hereto and their respective
successors, assigns, heirs and legal representatives.


 


11.2                           Any
legal proceeding instituted by the Company concerning the matters contemplated
by or relating to this Agreement may be brought in a court with subject matter
jurisdiction over the dispute located in Atlanta, Georgia, and each of the Note
Holders hereby submits to jurisdiction in any such court, agrees that venue
properly lies in any such court, and agrees that each such holder will not
attempt to defeat or deny such jurisdiction by motion or other request for
leave from any court. With respect to any legal proceeding instituted by the
Company concerning the matters contemplated by or relating to this Agreement,
this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Georgia without reference to its choice
of law rules. The Company hereby (i) agrees that any failure of any Note Holder
to bring any compulsory counterclaim (as defined by applicable law) that such
holder may have with respect to any legal proceeding instituted by the Company
concerning the matters contemplated by or relating to this Agreement shall not
constitute a waiver of any of such holder’s rights, claims, or actions whether
such rights, claims, or actions were or could have been deemed a compulsory
counterclaim under either Alabama or Georgia law, (ii) agrees that such holder
may file any action in any court with subject matter jurisdiction over such
rights, claims, or actions located in Huntsville, Alabama, and (iii) irrevocably
submits to the jurisdiction of such court for such purpose, irrevocably agrees
that venue properly lies in such court, and irrevocably agrees that the Company
will not attempt to defeat or deny such jurisdiction by motion or other request
for leave from any court. With respect to any such actions instituted by any
Note Holder, this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Alabama without reference to
its choice of law rule.  The Company further
agrees that it will not attempt to deny the Note Holder’s rights, claims, or
actions on any basis relating to or arising from any claim that such rights,
claims or actions should have been brought as compulsory counterclaims.  Notwithstanding the foregoing, if any court
determines that such claim or action may not be instituted by any Note Holder
in a court located in Huntsville, Alabama as contemplated in this
Section 11.2, then the Company agrees to dismiss without prejudice all
legal proceedings instituted pursuant to this Section 11.2 by the Company
in Georgia in order to enable the Note Holder to litigate all of its rights
under this Agreement in a court with subject matter jurisdiction located in
Huntsville, Alabama.  If the Company
decides to refile such proceeding, it shall do so in a court with subject
matter jurisdiction with respect to such proceeding located in Huntsville,
Alabama, and in such event, such proceeding shall be governed by and construed
and enforced in accordance with the internal laws of the State of Alabama
without reference to its choice of law rules.


 


5
















 


11.3                           Any
legal proceeding instituted by any Note Holder concerning the matters
contemplated by or relating to this Agreement may be brought in a court with
subject matter jurisdiction over the dispute located in Huntsville, Alabama,
and the Company hereby submits to jurisdiction in any such court, agrees that
venue properly lies in any such court, and agrees that the Company will not
attempt to defeat or deny such jurisdiction by motion or other request for
leave from any court. With respect to any legal proceeding instituted by any
Note Holder concerning the matters contemplated by or relating to this
Agreement, this Agreement  shall be
governed by and construed and enforced in accordance with the internal laws of
the State of Alabama without reference to its choice of law rules. Each Note
Holder hereby (i) agrees that any failure of the Company to bring any
compulsory counterclaim (as defined by applicable law) that the Company may
have with respect to any legal proceeding instituted by such holder concerning
the matters contemplated by or relating to this Agreement shall not constitute
a waiver of the Company’s right to bring such counterclaim, (ii) agrees that
the Company may bring such counterclaim in any court with subject matter
jurisdiction over such counterclaim located in Atlanta, Georgia, and (iii)
submits to jurisdiction in any such court, agrees that venue properly lies in
any such court, and agrees that such holder will not attempt to defeat or deny
such jurisdiction by motion or other request for leave from any court. With
respect to any such counterclaim instituted by the Company, this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Georgia without reference to its choice of law rule.


 


11.4                           Headings
and captions are included herein for convenience, do not form a part of this
Agreement, and are not admissible as to construction.


 


11.5                           This
instrument, together with the exhibits hereto, is the entire expression of the
agreement of the parties with respect to its subject matter, and supersedes all
prior understandings, agreements or representations in such regard.


 


11.6                           Neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought


 


11.7                           The
parties acknowledge the unique nature of the provisions hereof, and agree that
damages in event of breach would be both difficult to calculate and an
inadequate remedy. Consequently, in the event of breach, and in addition to
recovering any provable damages and reimbursement of any legal fees, the
injured party shall be entitled to equitable relief, including specific
performance.


 


11.8                           No
person or entity not signatory shall have any rights as a third party
beneficiary under this Agreement, or to enforce the provisions hereof on behalf
of any signatory hereto.


 


11.9                           Any
signature page delivered by a fax machine or telecopy machine shall be binding
to the same extent as an original signature page with regard to any agreement
subject to the terms hereof or any amendment thereto. Any party who delivers
such a signature page agrees to later deliver an original counterpart to any
party that requests it.


 


6
















 


11.10                     This
Agreement may be executed in any number of counterparts, all of which together
shall constitute one instrument, and each of which may be executed by less than
all of the parties to this Agreement.


 


11.11                     In
the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision. In
such event, the parties shall negotiate, in good faith, a valid, legal and
enforceable substitute provision which most nearly effects the intent of the
parties in entering into this Agreement.


 


11.12                     Each
of the Note Holders acknowledges that such holder has received and reviewed the
Company’s draft Registration Statement on Form S-1 dated September 3,
2004, prepared in connection with the Initial Public Offering.


 


[SIGNATURE PAGE FOLLOWS]


 


7
















 


IN WITNESS WHEREOF,
the parties hereto have executed and delivered this Agreement Regarding Notes
and Preferred Shares, or caused this Agreement Regarding Notes and Preferred
Shares to be executed and delivered, as of the date first written above.


 


	
   

  	
  TRI-S SECURITY CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald G. Farrell

  	
   

  
	
   

  	
  Printed Name:  Ronald G.
  Farrell

  
	
   

  	
  Title:  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PARAGON SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald G. Farrell

  	
   

  
	
   

  	
  Printed Name: Ronald G. Farrell

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NOTE HOLDERS:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HAROLD BRIGHT

  
	
   

  	
   

  
	
   

  	
  /s/  Robert Luther

  	
   

  
	
   

  	
  ROBERT LUTHER

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JOHN WILSON

  
	
   

  	
   

  
	
   

  	
  /s/ Charles Keathley

  	
   

  
	
   

  	
  CHARLES KEATHLEY

  



 


8
















 


EXHIBIT A


 


PARENT NOTES


 


	
  Name of

  Note Holder

  	
   

  	
  Principal Amount

  of Parent Note

  	
   

  	
  Maturity Date

  of Parent Note

  
	
  Harold Bright

  	
   

  	
  $

  	
  526,900.00

  	
   

  	
  May 31, 2004

  
	
  Charles Keathley

  	
   

  	
  $

  	
  2,983,750.00

  	
   

  	
  May 31, 2004

  
	
  Robert Luther

  	
   

  	
  $

  	
  1,462,450.00

  	
   

  	
  May 31, 2004

  
	
  John Wilson

  	
   

  	
  $

  	
  526,900.00

  	
   

  	
  May 31, 2004

  



 
















 


EXHIBIT B


 


SUBSIDIARY NOTE


 


	
  Name of

  Note Holder

  	
   

  	
  Principal Amount

  of Subsidiary Note

  	
   

  	
  Maturity Date

  of Subsidiary Note

  
	
  Charles Keathley, both individually and as
  agent for Robert Luther, Harold Bright and John Wilson

  	
   

  	
  $

  	
  706,507.00

  	
   

  	
  June 10, 2004

  
						



 
















 


EXHIBIT C


 


AMENDED AND RESTATED PROMISSORY NOTE


 


Atlanta, Georgia


[              ],
2004


 


ARTICLE I


 


PAYMENTS OF PRINCIPAL AND INTEREST


 


1.01                           For
value received, the undersigned, Tri-S
Security Corporation, a corporation organized under the laws of the
State of Georgia (hereinafter referred to as “Maker”), hereby promises to pay
to the order of [            ]
(“Payee”), at any location Payee shall reasonably determine, the
principal sum of [                                    ]
($             )
except as may be adjusted in accordance with the terms hereof, plus
simple interest on the unpaid principal amount hereof at the rate of seven
(7.0%) percent per annum, all according to the terms hereof, and with all
such payments being payable in cash, check, wire transfer or other form
reasonably acceptable to Payee in lawful money of the United States of
America.  This Amended and Restated
Promissory Note (the “Note”) amends and restates in its entirety that certain
Promissory Note in principal amount of [                       ]
($             )
dated February 24, 2004 made by Maker in favor of Payee (the “Original
Note”).


 


1.02                           Maker
shall pay the obligation hereunder by tendering a single payment on
December 31, 2004 of the full amount of principal due hereunder and all
interest at the rate set forth above accrued thereon since February 24,
2004.


 


1.03                           Maker
may prepay any or all portion of the outstanding balance hereof without penalty
prior to December 31, 2004, and Payee shall apply all such prepayments
hereunder first to principal, then to any interest or other amount
hereunder.


 


1.04                           Notwithstanding
the stated principal amount hereof, Maker may offset against and reduce the
principal amount of this Note by an amount equal to the amount of any
indemnification obligation as allowed in Article 6 of the Stock Purchase
Agreement dated as of February 23, 2004 by and among Maker and the Selling
Shareholders, as amended (the “Stock Purchase Agreement”).  Such items are referred to herein as
“Indemnification Obligations”.


 


1.05                           Upon
Maker’s receipt of any claim or bill for any cost or expense that would give
rise to an Indemnification Obligation, Maker shall inform the Payee by the
method(s) provided in the Stock Purchase Agreement for providing notices.


 


1.06                           Maker
may deduct from the principal amount of this Note an amount equal to the amount
stated in Maker’s notice, subject to the amount deducted being added
back to the principal amount of the Note if the amount that Maker actually
incurs that is subject to the Indemnification Obligation is less than the
amount previously deducted from the principal amount of this Note.  If an amount is deducted from the principal
amount of this Note and is later added back to the principal amount of the
Note, Maker shall be liable also for interest at the rate of seven percent (7%)
per annum on the amount of such deducted and re-added amount, as if such amount
had never been deducted.


 
















 


1.07                           Repayment
of this Note shall be subject to
any Subordination Agreement agreed upon by Maker and Payee.


 


1.08                           Notwithstanding
the foregoing, this Note is an amendment and restatement of the Original Note,
and as such, is subject to the provisions of all agreements entered into by the
parties subsequent to the execution of the Original Note, including that
“Amendment” to the Stock Purchase Agreement entered into by Maker and Payee
dated February 26, 2004 and that certain Letter Agreement between Maker
and Charles Keathley dated March 11, 2004 (collectively, the “Subsequent
Documents”).  This Note shall be subject
to any right or defense of the Payee or Maker arising from the Subsequent
Documents, and this Note shall not constitute a waiver of any right or defense
of Payee or Maker under the Subsequent Documents.


 


ARTICLE II


 


SECURITY


 


2.01                           As
security for payment of all of the obligations hereunder, Maker has pledged to
Payee, pursuant to the Security Agreement dated as of February 24, 2004,
between Maker and Payee (the “Security Agreement”),
[           ] shares of
common stock of no par value of Paragon
Systems, Inc. (the “Shares”) sold by Payee to Maker pursuant to the Stock
Purchase Agreement.


 


2.02                           RESERVED.


 


2.03                           Neither
Payee nor any of the Selling Shareholders
shall sell, assign, give, pledge, encumber, hypothecate or transfer any of the
Shares securing payment of the Note.


 


2.04                           The
number of Shares subject to the Security Agreement, and the number of Shares
subject to release from the Security Agreement shall be adjusted for any
stock split, reverse stock split, or stock dividend of Paragon Systems, Inc.


 


ARTICLE III


 


MISCELLANEOUS


 


3.01                           Upon
the failure of Maker to tender any payment hereunder when due, Payee may, at
its option, deliver written notice to Maker of the failure to tender such
payment.  If Maker has not tendered payment of the full amount of such
late payment within ten business (10) days of the date of such notice, Payee
may accelerate the full amount
of principal and interest due hereunder, and upon such acceleration, the full
principal amount hereof shall be immediately due and payable.


 


3.02                           The
failure of Payee to exercise any option hereunder, or to make demand, or to
proceed to collect after making demand hereon, shall not constitute a
waiver of the right to exercise such option, make such demand or to proceed to
collect.


 


3.03                           Maker
waives presentment for payment, notice of
dishonor, protest, notice of protest and diligence in bringing suit
against any party hereto.


 
















 


3.04                           The
obligations evidenced or created by this Note, as well as all waivers of rights
by Maker contained herein, shall effectively bind and be the obligations
and waivers of any and all others who may at any time become liable for the
payment of all or any part of this Note.


 


3.05                           No
party other than the Maker shall be liable for the payment of all or any part
of this Note unless such party has executed a written document agreeing to be
liable for payment of any or all of this Note.


 


3.06                           If
any provision (or any part of any provision) contained in this Note shall for
any reason be held or deemed to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Note, and
this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had never been contained herein and the remaining
provisions of this Note shall remain in full force and effect.


 


3.07                           Payee
shall not sell, assign, give, pledge, encumber, hypothecate or transfer any of
its rights pursuant to this Note.


 


3.08                           Any
notice required hereunder shall be deemed given three (3) business days
after such notice has been transmitted and received by the party to receive
such notice by the method(s) provided in the Stock Purchase Agreement for
providing notices.


 


3.09                           Any
legal proceeding instituted by Payee concerning the matters contemplated by or
relating to this Note may be brought in a court with subject matter
jurisdiction over the dispute located in Huntsville, Alabama, and Maker hereby
submits to jurisdiction in any such court, agrees that venue properly lies in
any such court, and agrees that Maker will not attempt to defeat or deny such
jurisdiction by motion or other request for leave from any court. With respect
to any legal proceeding instituted by Payee concerning the matters contemplated
by or relating to this Note, this Note shall be governed by and construed and
enforced in accordance with the internal laws of the State of Alabama without
reference to its choice of law rules. Payee hereby (i) agrees that any failure
of Maker to bring any compulsory counterclaim (as defined by applicable law)
that Maker may have with respect to any legal proceeding instituted by Payee
concerning the matters contemplated by or relating to this Note shall not
constitute a waiver of Maker’s right to bring such counterclaim, (ii) agrees
that Maker may bring such counterclaim in any court with subject matter jurisdiction
over such counter claim located in Atlanta, Georgia, and (iii) submits to
jurisdiction in any such court, agrees that venue properly lies in any such
court, and agrees that Payee will not attempt to defeat or deny such
jurisdiction by motion or other request for leave from any court. With respect
to any such counterclaim instituted by Maker, this Note shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Georgia without reference to its choice of law rule.


 


3.10                           Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings ascribed to them in the Stock Purchase Agreement.


 


3.11                           Any
party who is required to bring an action to enforce the terms of this Note
shall be entitled to reasonable attorneys’ fees, in addition to all other
amounts otherwise due hereunder.


 
















 


IN WITNESS WHEREOF,
Maker and Payee have executed this Note or caused this Note to be executed as
of [              ],
2004.


 


	
  

  	
  MAKER:

  
	
   

  	
   

  
	
  

  	
  TRI-S SECURITY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  By:

  	
   

  	
   

  
	
  

  	
  Name:

  	
  Ronald G. Farrell

  
	
  

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  PAYEE:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  [                   ]

  



 



















 







EXHIBIT D


 


AMENDED AND RESTATED PROMISSORY NOTE


 


Atlanta, Georgia





[             ],
2004


 


ARTICLE I


 


PAYMENTS OF PRINCIPAL AND INTEREST


 


1.01                           For
value received, the undersigned Paragon Systems, Inc.,
a corporation organized under the laws of the State of Alabama (hereinafter
referred to as “Maker”), hereby promises to pay to the order of Charles
Keathley , both individually and as agent for Robert Luther, Harold Bright and
John Wilson (“Payee”), at any location Payee shall reasonably determine, the
principal sum of SEVEN HUNDRED SIX THOUSAND, FIVE HUNDRED AND SEVEN DOLLARS
($706,507.00), plus simple interest on the unpaid principal amount hereof at
the rate of seven (7.0%) percent per annum, all according to the terms hereof,
and with all such payments being payable in cash, check, wire transfer or other
form reasonably acceptable to Payee in lawful money of the United States of
America.  This Amended and Restated
Promissory Note (the “Note”) amends and restates in its entirety all of Payee’s
interest, right and title in, to and under that certain Promissory Note in
principal amount of SEVEN HUNDRED SIX THOUSAND, FIVE HUNDRED AND SEVEN DOLLARS
($706,507.00) dated March 11, 2004 made by Maker in favor of Charles
Keathley, both individually and as agent for Robert Luther, Harold Bright and
John Wilson.


 


1.02                           Maker
shall pay the obligation hereunder by tendering a single payment on
December 31, 2004 of the full amount of the principal due hereunder and
all interest at the rate set forth above accrued thereon since March 11,
2004.


 


1.03                           Maker
shall prepay such amounts due hereunder, as provided in Section 2.02 hereof.  In
addition to the foregoing, Maker may prepay any or all of the outstanding
balance hereof without penalty prior to the due date of any payment, and Payee
shall apply such prepayments first to principal, then to any interest or other
amount hereunder.


 


ARTICLE II


 


SECURITY


 


2.01                           As
security for payment of all of the obligations hereunder, Maker hereby pledges
to Payee, those Accounts Receivable and all proceeds thereof of Maker that are
listed on Exhibit A .


 


2.02                            Notwithstanding
anything to the contrary, upon payment of any Accounts Receivable listed on Exhibit
“A”, Maker shall pay the amount of proceeds from the payment of such
Account Receivable to the Payee, as a mandatory prepayment of the amount due
hereunder.


 
















 


As
further security for payment of all obligations hereunder, Maker hereby grants
to Payee, to the extent permitted by the factoring and other agreements Maker
has entered into with LSQ Funding Group, LLC and BRE LLC, a continuing security
interest in all of Payee’s accounts, accounts receivable, receivables, existing
or hereafter arising, all cash and non-cash proceeds resulting therefrom and
all rights relating thereto; provided, however, that such
security interest shall be subject and subordinate to the security interests
granted as of the date hereof to LSQ Funding Group, LLC and BRE LLC by
Maker.  Maker authorizes Payee to file financing
statements without notice to Maker, with all appropriate jurisdictions, in
order to perfect the security interest granted hereby.  Maker shall execute and deliver to Payee all documents that Payee may
reasonably request to perfect the security
interest granted hereby. The security interest granted hereby shall
terminate upon the indefeasible payment in full of this Note.


 


2.03                           RESERVED.


 


ARTICLE III


 


MISCELLANEOUS


 


3.01                           Upon
the failure of Maker to tender any payment hereunder when due, Payee may, at
its option, deliver written notice to Maker of the failure to tender such
payment.  If Maker has not tendered
payment of the full amount of such late payment within ten business (10) days
of the date of such notice, Payee may accelerate the full amount of principal
and interest due hereunder, and upon such acceleration, the full principal
amount hereof shall be immediately due and payable.


 


3.02                           The
failure of Payee to exercise any option hereunder, or to make demand, or to
proceed to collect after making demand hereon, shall not constitute a waiver of
the right to exercise such option, make such demand or to proceed to collect.


 


3.03                           Maker
waives presentment for payment, notice of dishonor, protest, notice of protest
and diligence in bringing suit against any party hereto.


 


3.04                           The
obligations evidenced or created by this Note, as well as all waivers of rights
by Maker contained herein shall effectively bind and be the obligations and
waivers of any and all others who may at any time become liable for the payment
of all or any part of this Note.


 


3.05                           No
party other than the Maker shall be liable for the payment of all or any part
of this Note unless such party has executed a written document agreeing to be
liable for payment of any or all of this Note.


 


3.06                           If
any provision (or any part of any provision) contained in this Note shall for
any reason be held or deemed to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Note, and
this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had never been contained herein and the remaining
provisions of this Note shall remain in full force and effect.


 
















 


3.07                           Payee
shall not sell, assign, give, pledge, encumber, hypothecate or transfer any of
its rights pursuant to this Note.


 


3.08                           Any
notice required hereunder shall be deemed given three (3) business days after
such notice has been transmitted and received by the party to receive such notice
by the method(s) for providing notice as set forth in the Stock Purchase
Agreement dated February 23, 2004 by and among Tri-S Security Corporation,
Charles Keathley, Robert Luther, Harold Bright and John Wilson.


 


3.09                           Maker
and Payee hereby consent and agree to the exclusive jurisdiction and venue of
the courts of Madison County, Alabama as proper and convenient for any action
to enforce any of the provisions of this Note.


 


3.10                           Any
party who is required to bring an action to enforce the terms of this Note
shall be entitled to reasonable attorneys’ fees, in addition to all other
amounts otherwise due hereunder.


 


IN WITNESS WHEREOF,
Maker and Payee have executed this Note or caused this Note to be executed as
of [                 ],
2004.


 


	
  

  	
  MAKER:

  
	
   

  	
   

  
	
  

  	
  PARAGON SYSTEMS, INC.

  
	
   

  	
   

  
	
  

  	
  By:

  	
   

  	
   

  
	
  

  	
  Name:

  	
  Ronald G. Farrell

  
	
  

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  PAYEE:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  CHARLES KEATHLEY

  



 
















 







EXHIBIT A


 


Not on LSQ aging


 


	
  30-60

  	
   

  	
  Invoice #

  	
   

  	
  60-90

  	
   

  	
  Invoice #

  	
   

  	
  91 Up

  	
   

  	
  Invoice #

  	
   

  
	
  $

  	
  —

  	
   

  	
  0

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,932.50

  	
   

  	
  4129

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,245.74

  	
   

  	
  4130AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  561.00

  	
   

  	
  4131

  	
   

  
	
  $

  	
  —

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,477.46

  	
   

  	
  4131 AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  2,816.66

  	
   

  	
  4134AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  2,948.82

  	
   

  	
  4136AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,031.42

  	
   

  	
  4138AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,179.00

  	
   

  	
  4143

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,379.76

  	
   

  	
  4145

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  1,760.00

  	
   

  	
  4159

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  3,872.00

  	
   

  	
  4162

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  (62.50

  	
  )

  	
  4163AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  10,169.50

  	
   

  	
  4169

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  1,387.68

  	
   

  	
  4175AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  239.54

  	
   

  	
  4177AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  49.56

  	
   

  	
  4190AS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  21.32

  	
   

  	
  4204

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  39.98

  	
   

  	
  4215

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  7,867.20

  	
   

  	
  1127

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  2,969.44

  	
   

  	
  CG96-1020

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  371.18

  	
   

  	
  CG96-1021

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  670.80

  	
   

  	
  CG96-1079

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  4,162.93

  	
   

  	
  8

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  80.00

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  13,153.90

  	
   

  	
  Soo18-8

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  (1,268.26

  	
  )

  	
  121-6

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  580.23

  	
   

  	
  S0092-16

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  1,202.18

  	
   

  	
  S0092-17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  13,040.43

  	
   

  	
  57-35

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  202.10

  	
   

  	
  046-11

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  202.10

  	
   

  	
  046-13

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  201.73

  	
   

  	
  BR48613

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  403.15

  	
   

  	
  BR486

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  135.16

  	
   

  	
  BR486

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  255.17

  	
   

  	
  486

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  762.96

  	
   

  	
  13101

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  4,111.36

  	
   

  	
  HPP-1602

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  5,566.55

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  8,710.88

  	
   

  	
  STPAA-275

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  77,730.24

  	
   

  	
  56

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  781.70

  	
   

  	
   

  	
   

  
	
  $

  	
  —

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  	
   

  	
   

  	
  $

  	
  185,942.57

  	
   

  	
   

  	
   

  
															



 
















 


EXHIBIT E


 


	
  Name

  	
   

  	
  Principal Amount

  of Amended and

  Restated Parent Note

  	
   

  	
  Number of Series

  C Shares to be

  Issued

  	
   

  	
  Cash

  Payment

  	
   

  	
  Aggregate

  Value of

  Common

  Shares to be

  Issued

  	
   

  
	
  Harold Bright

  	
   

  	
  $

  	
  526,900.00

  	
   

  	
  9

  	
   

  	
  $

  	
  10,000

  	
   

  	
  $

  	
  15,000

  	
   

  
	
  Charles Keathley

  	
   

  	
  $

  	
  2,983,750.00

  	
   

  	
  55

  	
   

  	
  $

  	
  54,000

  	
   

  	
  $

  	
  81,000

  	
   

  
	
  Robert Luther

  	
   

  	
  $

  	
  1,462,450.00

  	
   

  	
  27

  	
   

  	
  $

  	
  26,000

  	
   

  	
  $

  	
  39,000

  	
   

  
	
  John Wilson

  	
   

  	
  $

  	
  526,900.00

  	
   

  	
  9

  	
   

  	
  $

  	
  10,000

  	
   

  	
  $

  	
  15,000

  	
   

  



 
















 


EXHIBIT F


 


                 ,
200    


 


To the Board of Directors of


Tri-S Security Corporation


9925 Haynes Bridge Road


Suite 200-228


Alpharetta, Georgia 30022


 


Gentlemen:


 


In connection with the purchase of
                            
shares of the common stock, with $0.001 par value (the “Shares”), of Tri-S Security Corporation, a Georgia
corporation (the “Corporation”), the undersigned hereby represents and warrants
as follows:


 


1.                                       The
Shares are being purchased for the undersigned’s own account without the
participation of any other person with the intent of holding the Shares for
investment and without the intent of participating directly or indirectly in a
distribution of the Shares and not with a view to, or for resale in connection
with, any distribution of the Shares or any portion thereof.


 


2.                                       By
virtue of the position of the undersigned with respect to the Corporation, the
undersigned has access to all material information with regard to the
Corporation.


 


3.                                       The
undersigned is not acquiring the Shares based upon any representation, oral or
written, by any person with respect to the future value of or income from the
Shares but rather upon an independent examination and judgment as to the
prospects of the Corporation.


 


4.                                       The
Shares were not offered to the undersigned by means of publicly disseminated
advertisements or sales literature.


 


The undersigned acknowledges that the undersigned must continue to bear
the economic risk of the investment in the Shares for an indefinite period and
recognizes that the Shares will be (i) sold without registration under any
state or federal law relating to the registration of securities for sale, (ii)
issued and sold in reliance on the exemption from registration under the
Georgia Securities Act of 1973, as amended (the “Act”), provided by O.C.G.A.
§ 10-5-9(13) and (iii) issued and sold in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the “1933 Act”).


 


The undersigned agrees as follows:


 


1.                                       The
Shares will not in any event be offered for sale, sold, or transferred to
anyone prior to one year after the date acquired and then not other than
pursuant to (i) an effective registration under the Act or in a transaction
otherwise in compliance with the Act, (ii) an effective registration under the
1933 Act or in a transaction otherwise in compliance with the


 
















 


1933 Act, and (iii) evidence satisfactory to the Corporation of
compliance with the applicable securities laws of any other jurisdiction.  The Corporation shall be entitled to rely
upon an opinion of counsel satisfactory to it with respect to compliance with
the above laws.


 


2.                                       The
Corporation will be under no obligation to register the Shares or to comply
with any exemption available for sale of the Shares without registration.  The Corporation is under no obligation to the
undersigned to act in any manner so as to make Rule 144 of the Securities and
Exchange Commission available with respect to the Shares.


 


3.                                       If
it so desires, the Corporation may refuse to permit the transfer of the Shares
unless the request for transfer is accompanied by an opinion of counsel
acceptable to the Corporation to the effect that neither the sale nor the
proposed transfer will result in any violation of the Act, the 1933 Act, or the
securities laws of any other jurisdiction.


 


4.                                       A
legend indicating that the Shares have not been registered under the Act and
the 1933 Act and referring to the restrictions on transferability and sale of
the Shares may be placed on the certificate or certificates delivered to the
undersigned or any substitute certificate therefor, and any transfer agent of
the Corporation may be instructed to require compliance therewith.


 


The agreements and representations made by the undersigned herein
extend to and apply to all of the Shares. 
Acceptance by the undersigned of the certificate or certificates
representing the Shares shall constitute a confirmation by the undersigned that
all agreements and representations made herein shall be true and correct at
such time.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  «Name_of_Shareholder»