UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 1, 2006
PATRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-25675 74-3055158
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
5775 FLATIRON PARKWAY, SUITE 230
BOULDER, COLORADO 80301
(Address of Principal Executive Offices/Zip Code)
(303) 541-1005 (Registrant's
telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange ct (17 CFR 240.14d-2(B))
|_| Pre-commencement communications pursuant to Rule 13e-4(c))
under the Exchange Act (17 CFR 240.13e-4c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
ITEM 5.03. AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
On March 1, 2006, Patron Systems, Inc. (the "Registrant"), filed with
the Delaware Secretary of State a Certificate of Designation of Preferences,
Rights and Limitations of Series A Convertible Preferred Stock and Series A-1
Convertible Preferred Stock of Patron Systems, Inc. ("Certificate of
Designation"), designating the rights preferences and privileges of 2,160 shares
of Series A Convertible Preferred Stock and 50,000,000 shares of Series A-1
Convertible Preferred Stock.
The Series A Convertible Preferred Stock ("Series A Preferred Stock")
has a stated value of $5,000 per share, has no maturity date and carries a
dividend of 10% per annum, with such dividend accruing on a cumulative basis and
payable only (i) at such time as declared payable by the Board of Directors of
the Registrant or (ii) in the event of liquidation, as part of the liquidation
preference amount for the Series A Preferred Stock ("Series A Liquidation
Preference Amount"). The Series A Liquidation Preference Amount is equal to 125%
of the sum of: (i) the stated value of any then unconverted shares of Series A
Preferred Stock and (ii) any accrued and unpaid dividends thereon. An event of
liquidation means any liquidation, dissolution or winding up of the Registrant,
whether voluntary or involuntary, as well as any change of control of the
Registrant which shall include the sale by the Registrant of either (x)
substantially all its assets or (y) the portion of its assets which comprises
its core business technology, products or services.
The Series A Preferred Stock is convertible, at the option of the
holder, into shares of the common stock, par value $0.01 per share, of the
Registrant ("Common Stock") at an initial conversion price of $0.08 based on the
stated value of the Series A Preferred Stock, subject to adjustment for stock
splits, dividends, recapitalizations, reclassifications, payments made to Common
Stock holders and other similar events and for issuances of additional
securities at prices more favorable than the active price at the date of the
adjustment.
The Series A Preferred Stock automatically converts into Common Stock,
at the then applicable conversion price based on the stated value of the Series
A Preferred Stock, on the date that: (i) there shall be an effective
registration statement covering the resale of the Common Stock issuable upon
conversion of the Series A Preferred Stock, (ii) the average closing price of
the Common Stock for a period of 20 consecutive trading days is at least 250% of
the then applicable conversion price, and (iii) the average daily trading volume
of the Common Stock for the same period is at least 250,000 shares.
The Series A-1 Preferred Stock ("Series A-1 Preferred Stock") has a
stated value of $0.80 per share, has no maturity date and carries a
non-cumulative dividend of 5% per annum, with such dividend payable only (i) at
such time as declared payable by the Board of Directors of the Registrant or
(ii) in the event of liquidation, as part of the liquidation preference amount
for the Series A-1 Preferred Stock ("Series A-1 Liquidation Preference Amount").
The Series A-1 Liquidation Preference Amount is equal to the sum of: (i) the
stated value of any then unconverted shares of Series A-1 Preferred Stock and
(ii) any accrued and unpaid dividends thereon. An event of liquidation means any
liquidation, dissolution or winding up of the Registrant, whether voluntary or
involuntary, as well as any change of control of the Registrant which shall
include the sale by the Registrant of either (x) substantially all its assets or
(y) the portion of its assets which comprises its core business technology,
products or services.
The Series A-1 Preferred Stock is not convertible at the option of the
holder. Each share of Series A-1 Preferred Stock automatically converts into
Common Stock, at a conversion price of $0.08 per share based on the stated value
of the Series A-1 Preferred Stock, upon the effectiveness of an amendment to the
Registrant's certificate of incorporation which provides for a sufficient number
of authorized shares of
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Common Stock to permit the exercise or conversion of all issued and outstanding
shares of Series A Preferred Stock, Series A-1 Preferred Stock and all options,
warrants and other rights to acquire shares of Common Stock.
The Series A Preferred Stock and Series A-1 Preferred Stock ("Preferred
Shares"), on an as-converted basis, vote with the Common Stock on all matters
requiring stockholder approval. Additionally, the approvals of a majority of the
outstanding Preferred Shares, voting as separate classes, is required for any
amendment to the Certificate of Designation, the Registrant's certificate of
incorporation or bylaws which would directly and/or indirectly amend, alter,
change, repeal or otherwise adversely affect any of the powers, designations,
preferences and rights of the Preferred Shares, as applicable, including to
create, authorize or issue any series or shares of senior stock or parity stock
or to increase the amount of authorized capital stock of any such class. For so
long as the Series A Preferred Stock remain outstanding, the approval of a
majority of the issued and outstanding shares of Series A Preferred Stock is
required for the Registrant to issue funded debt, other than $1,000,000 of
working capital advances from one or more of its existing investors, and to
issue any preferred stock senior to or pari passu with the Series A Preferred
Stock.
As of March 27, 2006, the Registrant had reached agreements for
subscriptions for approximately 29,929,639 shares of Series A-1 Preferred Stock
representing approximately 75% of the Registrant's aggregate indebtedness
pursuant to the issuance, on January 12, 2006, of a Stock Subscription Agreement
& Mutual Release to each creditor and claimant ("Subscriber") of the Registrant
for purposes of entering into a final and binding settlement with respect to any
and all claims, liabilities, demands, causes of action, costs, expenses,
attorneys fees, damages, indemnities, and obligations of every kind and nature
("Subscriber Claims") that the Subscribers may have against the Registrant
("Creditor and Claimant Liabilities Restructuring"). Under terms of the Creditor
and Claimant Liabilities Restructuring, the Registrant sells to each Subscriber
and each Subscriber purchases from the Registrant shares of Series A-1 Preferred
stock at a price of $0.80 per share. The aggregate purchase price is equivalent
to the value of the Subscriber Claims being settled by such Subscriber.
Subscriber is deemed to have paid for the Series A-1 Preferred Stock through the
settlement and release of Subscriber Claims.
Each Stock Subscription Agreement & Mutual Release shall terminate and
be null and void, the Series A-1 Preferred Stock issued to the Subscribers shall
be cancelled and the Subscriber Claims shall remain in full force and effect on
their terms in the event that the Registrant does not consummate, on or before
March 31, 2006 (the "Termination Date"), (a) a bona fide sale or (series of
related sales) by the Registrant of equity interests in the Registrant in an
amount equal to or in excess of $3,000,000 or (b) any merger, consolidation,
recapitalization, reclassification, reincorporation, reorganization, share
exchange, sale of all or substantially all of the assets of the Registrant or
comparable transaction. Each Subscriber agrees not to transfer or sell any
portion of the Series A-1 Preferred Stock until the next business day after the
Termination Date, subject to (i) an effective registration under the Securities
Act of 1933, as amended ("Securities Act"), or in a transaction which is
otherwise in compliance with the Securities Act, (ii) an effective registration
under any applicable state securities statute or in a transaction otherwise in
compliance with any applicable state securities statue, and (iii) evidence of
compliance with the applicable securities laws of other jurisdictions. As
described below, the Registrant completed the sale of approximately $4.8 million
in equity securities on March 27, 2006.
The Registrant has agreed to file with the Securities and Exchange
Commission ("SEC"), no later than 120 days subsequent to the acceptance of each
Stock Subscription Agreement & Mutual Release, a registration statement for the
resale of all of the shares of Common Stock issuable upon conversion of the
Series A-1 Preferred Stock purchased thereunder, and to cause such registration
statement to become effective as soon as practicable and in any event no later
than 180 days from the filing of the registration statement.
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On March 27, 2006, the Registrant completed a financing in the amount
of $4,820,501 (the "Series A Financing") through the issuance of units, at a
purchase price of $100,000 per unit, each unit consisting of (i) 20 shares of
Series A Preferred Stock and (ii) Common Stock Purchase Warrants ("Warrants") to
purchase up to 416,667 shares of the Registrant's Common Stock ("Units"). The
Warrants have a term of 5 years and an exercise price of $0.10 per share. The
Registrant has agreed to file with the Securities and Exchange Commission, no
later than May 30, 2006, a registration statement for the resale of the shares
of Common Stock issuable upon exercise of the Warrants and conversion of the
Series A Preferred Stock.
The aggregate proceeds in the Series A Financing were comprised of
$720,001 associated with the conversion of bridge notes purchased by four
accredited investors introduced by Laidlaw & Company (UK) Ltd. ("Laidlaw"),
$1,250,000 provided by Apex Investment Fund V, LP and $2,850,500 from forty-six
accredited investors introduced by Laidlaw.
In order to effect the availability of these funds to the Registrant
prior to the completion of the Creditor and Claimant Liabilities Restructuring,
the Registrant, on March 27, 2006, entered into a Post-Closing Escrow Agreement
("Post-Closing Escrow Agreement") with Stubbs Alderton & Markiles, LLP ("Escrow
Agent") for net proceeds of approximately $2,183,066. The Escrow Agent shall
hold the funds and make periodic disbursements to the Registrant. These
disbursements shall be made on or after the 15th of each calendar month and on
or after the last day of each calendar month. A schedule detailing the
mid-month, month-end and maximum monthly disbursement amounts is attached to the
Post-Closing Escrow Agreement. The Post-Closing Escrow Agreement provides for
the release of the remaining escrow funds to the Registrant after the Registrant
has received executed agreements under the Creditor and Claimant Liabilities
Restructuring for not less than 99% in dollar amount of Subscriber Claims.
Laidlaw acted as placement agent in the Series A Financing. For its
services as placement agent, the Registrant paid Laidlaw a cash fee of $435,050,
including an advisor fee and a non-accountable expense reimbursement, and issued
to Laidlaw and/or its designees warrants to purchase up to 8,234,170 shares of
Common Stock at an exercise price of $0.10 per share.
The Registrant also previously issued 1,500,000 shares of Common Stock
to Frank Mazzola, an employee of Laidlaw, under the terms of Consulting
Agreements dated June 4, 2004, August 8, 2004 and November 17, 2004, in
consideration of advisory services provided to the registrant. The Registrant
has agreed to register the resale of the 1,500,000 shares of Common Stock issued
to Mr. Mazzola at such time as the Registrant next files a registration
statement with the SEC.
The issuance and sale of the securities issued or issuable in
connection with the Series A Financing and Creditor and Claimant Liabilities
Restructuring were exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act")
pursuant to Section 4(2) of the Securities Act as transactions not involving any
public offering.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Exhibits.
The following exhibits are filed herewith:
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Exhibit
Number Description
------- -----------------------------------------------------
3.1 Certificate of Designation of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock
and Series A-1 Convertible Preferred Stock of Patron
Systems, Inc. dated as of March 1, 2006.
10.1 Form of Subscription Agreement between Patron
Systems, Inc. and each of the purchasers of shares of
the Series A Preferred Stock of Patron Systems, Inc.
10.2 Form of Common Stock Purchase Warrant issued by
Patron Systems, Inc. in favor of each of the
purchasers of shares of the Series A Preferred Stock
of Patron Systems, Inc.
10.3 Registration Rights Agreement dated March 27, 2006,
among Patron Systems, Inc. and each of the purchasers
of shares of the Series A Preferred Stock of Patron
Systems, Inc.
10.4 Form of Stock Subscription Agreement and Mutual
Release issued by Patron Systems, Inc. in favor of
each of the Creditors and/or Claimants exchanging
claims for shares of the Series A-1 Preferred Stock
of Patron Systems, Inc.
10.5 Post Closing Escrow Agreement dated March 27, 2006,
between Stubbs Alderton & Markiles, LLP and Patron
Systems, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PATRON SYSTEMS, INC.
Date: March 30, 2006 By: /S/ ROBERT CROSS
---------------------------
Robert Cross
Chief Executive Officer
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EXHIBIT INDEX
Exhibit
Number Description
------- --------------------------------------------------------------------
3.1 Certificate of Designation of Preferences, Rights and Limitations of
Series A Convertible Preferred Stock and Series A-1 Convertible
Preferred Stock of Patron Systems, Inc. dated as of March 1, 2006.
10.1 Form of Subscription Agreement between Patron Systems, Inc. and each
of the purchasers of shares of the Series A Preferred Stock of
Patron Systems, Inc.
10.2 Form of Common Stock Purchase Warrant issued by Patron Systems, Inc.
in favor of each of the purchasers of shares of the Series A
Preferred Stock of Patron Systems, Inc.
10.3 Registration Rights Agreement dated March 27, 2006, among Patron
Systems, Inc. and each of the purchasers of shares of the Series A
Preferred Stock of Patron Systems, Inc.
10.4 Form of Stock Subscription Agreement and Mutual Release issued by
Patron Systems, Inc. in favor of each of the Creditors and/or
Claimants exchanging claims for shares of the Series A-1 Preferred
Stock of Patron Systems, Inc.
10.5 Post Closing Escrow Agreement dated March 27, 2006, between Stubbs
Alderton & Markiles, LLP and Patron Systems, Inc.
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