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): October 11, 2006
PATRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-25675 74-3055158
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) 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 October 11, 2006, Patron Systems, Inc. (the "Registrant"), filed
with the Delaware Secretary of State a Certificate of Designation of
Preferences, Rights and Limitations of Series B Convertible Preferred Stock of
Patron Systems, Inc. ("Certificate of Designation"), designating the rights
preferences and privileges of 2,000 shares of Series B Convertible Preferred
Stock.
The Series B Convertible Preferred Stock ("Series B 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 B Preferred Stock ("Liquidation Preference
Amount"). The Liquidation Preference Amount is equal to 125% of the sum of: (i)
the stated value of any then unconverted shares of Series B 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 B Preferred Stock is junior in rank to the
Registrant's Series A Convertible Preferred Stock with respect to liquidation
and dividend rights.
The Series B 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 the lesser of i)
$2.40 per share or ii) that price per share equal to the volume weighted average
closing price of the Company's common stock for the 10 trading days prior to the
original issuance date of such shares, based on the stated value of the Series B
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 B Preferred Stock automatically converts into Common Stock,
at the then applicable conversion price based on the stated value of the Series
B 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 B 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 8,334 shares.
The Series B Preferred Stock, on an as-converted basis, vote with the
Common Stock on all matters requiring stockholder approval. Additionally, a
majority of the outstanding Series B Preferred Stock, voting as a separate
class, 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 Series B Preferred Stock, 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 B Preferred Stock remain
outstanding, the approval of a majority of the issued and outstanding shares of
Series B 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 B Preferred Stock.
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On October 13, 2006, pursuant to the execution of subscription
agreements on October 12, 2006, the Registrant completed the first closing of a
financing (the "Series B Financing") in the amount of $3,120,966, through the
issuance of units, at a purchase price of $100,000 per unit, each unit
consisting of (i) 20 shares of Series B Preferred Stock and (ii) Common Stock
Purchase Warrants ("Warrants") to purchase up to 50% of the shares of Common
Stock issuable upon the conversion of the shares of Series B Preferred Stock
purchased ("Units"). The Registrant issued 624.2 shares of Series B Preferred
Stock (convertible into 1,387,992 shares of Common Stock) and Warrants to
purchase 694,011 shares of Common Stock to the investors in the first closing of
the Series B Financing. The Warrants have a term of 5 years and an exercise
price of the lesser of i) $2.40 per share or ii) that price per share equal to
the volume weighted average closing price of the Common Stock for the 10 trading
days prior to the original issuance date of the applicable shares of Series B
Preferred Stock, based on the stated value of the Series B Preferred, 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 conversion price at
the date of such issuance. The Registrant has agreed to file with the Securities
and Exchange Commission, no later than 90 days after the closing date a
registration statement for the resale of the shares of Common Stock issuable
upon exercise of the Warrants and conversion of the Series B Preferred Stock.
The aggregate proceeds in the first closing of the Series B Financing
were comprised of $1,040,322 provided by Apex Investment Fund V, L.P. and
$2,080,644 from forty-five accredited investors introduced by Laidlaw & Company
(UK) Ltd. ("Laidlaw").
Laidlaw acted as placement agent in the Series B Financing. For its
services as placement agent, in connection with the first closing of the Series
B Financing, the Registrant paid Laidlaw a cash fee of $280,484 and issued to
Laidlaw warrants to purchase up to 208,198 shares of Common Stock at an exercise
price of the lesser of i) $2.40 per share or ii) that price per share equal to
the volume weighted average closing price of the Common Stock for the 10 trading
days prior to the original issuance date of the applicable shares of Series B
Preferred Stock, based on the stated value of the Series B 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 conversion price at the date of such issuance. The Registrant has agreed to
file with the Securities and Exchange Commission, no later than 90 days after
the closing date a registration statement for the resale of the shares of Common
Stock issuable upon exercise of the Warrants issued to Laidlaw.
The issuance and sale of the securities issued or issuable in
connection with the first closing of the Series B Financing were exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Securities Act") pursuant to Rule 506 promulgated under Section
4(2) of the Securities Act.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
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(d) Exhibits.
The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Designation of Preferences, Rights and
Limitations of Series B Convertible Preferred Stock
of Patron Systems, Inc. dated as of October 11, 2006.
10.1 Form of Subscription Agreement between Patron
Systems, Inc. and each of the purchasers of shares of
the Series B 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
placement agent and the purchasers of shares of the
Series B Preferred Stock of Patron Systems, Inc.
10.3 Registration Rights Agreement dated October 12, 2006,
among Patron Systems, Inc., Laidlaw & Company (UK)
Ltd. and each of the purchasers of shares of the
Series B Preferred Stock of 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: October 17, 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 B Convertible Preferred Stock of Patron Systems, Inc.
dated as of October 11, 2006.
10.1 Form of Subscription Agreement between Patron Systems, Inc. and
each of the purchasers of shares of the Series B 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 placement agent and purchasers of
shares of the Series B Preferred Stock of Patron Systems, Inc.
10.3 Registration Rights Agreement dated October 12, 2006, among
Patron Systems, Inc., Laidlaw & Company (UK) Ltd. and each of the
purchasers of shares of the Series B Preferred Stock of Patron
Systems, Inc.
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