EXHIBIT 10.4
PATRON SYSTEMS, INC.
STOCK SUBSCRIPTION AGREEMENT & MUTUAL RELEASE
This Stock Subscription Agreement & Mutual Release ("AGREEMENT") is
made and entered as of this ___ day of January, 2006, by and between Patron
Systems, Inc., a Delaware corporation (the "COMPANY"), and
____________________________________ ("SUBSCRIBER").
WHEREAS, the parties hereto desire to enter 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, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising out of, in
connection with, or in any way related to the business relationship between the
parties that the Subscriber may have against the Company (the "SUBSCRIBER
CLAIMS").
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. PAYMENT TO SUBSCRIBER. In settlement of the Subscriber Claims, the
Company hereby sells to Subscriber and Subscriber hereby purchases from the
Company, ____________ shares (the "STOCK") of the Series A-1 Preferred Stock,
par value $0.01 per share, of the Company ("SERIES A-1 PREFERRED STOCK"). The
purchase price for the Stock shall be $0.80 per share, or an aggregate purchase
price of $______________. The aggregate purchase price is equivalent to the
value of the Subscriber Claims being settled herein, which Subscriber has paid
through this settlement and release of the Subscriber Claims. Each share of
Stock shall automatically convert into ten shares of the Common Stock, par value
$0.01 per share of the Company ("COMMON STOCK"), upon the effectiveness of an
amendment to the Company's Certificate of Incorporation which provides for a
sufficient number of authorized but unissued and unreserved shares of the Common
Stock to permit the conversion of all issued and outstanding shares of Series
A-1 Preferred Stock.
2. STOCK CERTIFICATE.
2.1 Unless otherwise elected by Subscriber pursuant to Section 2.2
below, within five business days after the effective date of the Registration
Statement (as described in Section 7), the Company will deliver to Subscriber a
certificate evidencing the Stock, or the number of shares of Common Stock
underlying the Stock in the event that the automatic conversion of the Stock has
been effectuated.
2.2 Subscriber may elect to receive a certificate evidencing the
Stock, or the number of shares of Common Stock underlying the Stock in the event
that the automatic conversion of the Stock has been effectuated, prior to the
effective date of the Registration Statement by completing the Election to
Receive Stock Certificate attached hereto as Exhibit A upon execution of this
Agreement. Within five business days thereof, the Company will deliver to
Subscriber a certificate evidencing the Stock, which certificate shall bear a
legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THESE SHARES UNDER THE ACT OR AN OPINION OF THE
COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT."
3. RELEASES.
3.1 RELEASES BY THE COMPANY. The Company, on behalf of itself and
its stockholders, directors, officers, employees, representatives, successors
and assigns (the "COMPANY RELEASING PARTIES"), hereby unconditionally releases
the Subscriber and his, her or its respective stockholders, members, directors,
officers, employees, representatives, heirs, executors, administrators,
successors, assigns, trustees, beneficiaries and attorneys, as applicable (the
"SUBSCRIBER RELEASEES"), from any and all claims, demands, rights and causes of
action of whatever kind or nature ("CLAIMS"), whether known or unknown,
suspected or unsuspected, that the Company Releasing Parties now own or hold, or
have at any time previously owned or held, or ever in the future may own or hold
against the Subscriber Releasees, or any of them, resulting from, arising out of
or in any manner relating to any act or omission occurring on or prior to the
date of this Agreement. However, nothing herein shall be interpreted to limit
any party's ability to enforce the terms of this Agreement.
3.2 RELEASES BY THE SUBSCRIBER. The Subscriber, on behalf of
himself, herself or itself and his, her or its respective stockholders, members,
directors, officers, employees, representatives, heirs, executors,
administrators, successors, assigns, trustees, beneficiaries and attorneys, as
applicable (the "SUBSCRIBER RELEASING PARTIES"), hereby unconditionally releases
the Company and its stockholders, directors, officers, employees,
representatives, successors and assigns (the "COMPANY RELEASEES") from any and
all Claims, whether known or unknown, suspected or unsuspected, including,
without limitation, the Subscriber Claims, that the Subscriber Releasing Parties
now own or hold, or have at any time previously owned or held, or ever in the
future may own or hold against the Company Releasees, or any of them, resulting
from, arising out of or in any manner relating to any act or omission occurring
on or prior to the date of this Agreement. However, nothing herein shall be
interpreted to limit any party's ability to enforce the terms of this Agreement.
4. TERMINATION.
4.1 Unless otherwise agreed to in writing by the parties to this
Agreement, in the event that (A) a bona fide sale (or series of related sales)
by the Company of equity interests in the Company to investors 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 Company or
comparable transaction, is not consummated on or before March 31, 2006 (the
"TERMINATION DATE"), this Agreement shall be null and void, the Stock issued to
Subscriber shall be cancelled and the Subscriber Claims which are the subject
hereof shall remain in full force and effect on their terms.
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4.2 Subscriber agrees not to transfer or sell any portion of the
Stock until the next business day after the Termination Date and, then, only in
accordance with the provisions of Section 9 hereof.
5. DISMISSAL OF ACTIONS OR COMPLAINTS. Each of the parties to this
Agreement will dismiss any action or complaint now or hereafter brought by such
party against any other party to this Agreement arising out of, resulting from
or in any manner relating to any matter released herein.
6. NO ADMISSION OF LIABILITY. The parties acknowledge that this Agreement
is a compromise settlement of potential and existing Claims, and that the
execution of this Agreement will not be deemed or construed to be an admission
of any liability of any party to this Agreement.
7. REGISTRATIONS RIGHTS. As soon as practicable and in any event no later
than one hundred twenty (120) days from the effective date hereof ("FILING
DATE"), the Company shall file with the Securities and Exchange Commission
("COMMISSION") a registration statement (the "REGISTRATION STATEMENT"), covering
the resale of the Stock and cause such Registration Statement to become
effective as soon as practicable thereafter and in any event no later than 180
days from the Filing Date. The Registration Statement required hereunder shall
be on any appropriate form in accordance with the Commission's rules and
regulations. The Company shall keep the Registration Statement continuously
effective under the Securities Act until the earlier of (i) the date when all
shares of the Stock have been sold pursuant to the Registration Statement or an
exemption from the registration requirements of the Securities Act, and (ii) two
years from the effective date of the Registration Statement.
8. REPRESENTATIONS AND WARRANTIES.
8.1 As a material inducement to Subscriber to purchase the Stock
from the Company, the Company represents to Subscriber that:
8.1.1 The execution and delivery by the Company of this
Agreement, and the consummation by the Company of the transactions set forth
herein, have been duly authorized by all necessary corporate action on the part
of the Company;
8.1.2 This Agreement has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms; and
8.1.3 Upon the issuance of the Stock in accordance with the
terms of this Agreement, the Stock shall constitute duly authorized, validly
issued, fully paid, non-assessable shares of the Company, and not subject to
adverse claims, and the Company's transfer agent and legal counsel may rely on
this representation in connection with the issuance of an opinion letter under
Rule 144 promulgated under the Securities Act.
8.2 As a material inducement to the Company to sell the Stock to
Subscriber, Subscriber represents to the Company that:
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8.2.1 This Agreement has been duly executed and delivered
by Subscriber and constitutes a valid and binging obligation of Subscriber
enforceable against Subscriber in accordance with its terms;
8.2.2 Subscriber understands that the Stock has not been
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
or any other applicable state or federal securities statutes. Subscriber is
acquiring the Stock for investment, for Subscriber's own account, and with no
present intention of reselling, directly or indirectly participating in any
distribution of or otherwise disposing of the Stock. Subscriber understands that
the Stock is subject to restrictions on transfer and that Subscriber may bear
the economic risk of acquiring the Stock for an indefinite period of time;
8.2.3 Subscriber is an "accredited investor" within the
meaning of Rule 501 of Regulation D, promulgated under the Securities Act;
8.2.4 Subscriber is a sophisticated investor and has such
knowledge and experience in business and financial matters as to be capable of
evaluating the merits and risks of an investment in the Company and has the
capacity to protect its own interest in connection with the acquisition of the
Stock;
8.2.5 Subscriber acknowledges that neither the Company nor
any officer, director, employee, agent or representative thereof has made any
representations or warranties of any kind to Subscriber including
representations regarding future revenues, earnings or profits of the Company,
the future value of the Stock, the future capitalization of the Company, the
occurrence or timing of any registered offering by the Company, the amount of
future business that may be transacted by the Company or otherwise. Subscriber
further understands that the Company's success in achieving its goals and
objectives in the future and implementing its business plans cannot be predicted
and are subject to numerous factors not within the control of the Company.
Subscriber is not acquiring the Stock based upon representations, oral or
written, by any person with respect to the future value of, or income from, the
Stock, or the length of time that Subscriber will be required to remain as the
owner of the Stock but rather upon an independent examination and judgment as to
the prospects of the Company;
8.2.6 Subscriber was not presented with or solicited by any
leaflet, public promotional meeting, circular, newspaper or magazine article,
radio or television advertisement or any other form of general advertising or
solicitation for the acquisition of the Stock;
8.2.7 Subscriber has had reasonable opportunity to seek the
advice of independent counsel respecting its investment and the risks and the
implications thereof and has relied solely upon the advice of its own tax and
legal advisors with respect to the tax and other legal aspects of the
acquisition; and
8.2.8 Subscriber acknowledges that the legend outlined in
Section 2 will be placed on the certificates representing the Stock.
9. TRANSFER RESTRICTIONS. The Stock may not be offered for sale, sold or
transferred except pursuant to (i) an effective registration under the
Securities Act or in a transaction which
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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 statute, and (iii)
evidence of compliance with the applicable securities laws of other
jurisdictions. Subscriber shall furnish to the Company and the Company shall be
entitled to rely upon an opinion of competent securities counsel acceptable to
the Company with respect to compliance with the above laws.
10. CONFIDENTIALITY. With the exceptions provided for below, the parties
hereto agree not to disseminate to any person or entity, directly or indirectly,
copies of, or information pertaining to the terms of, this Agreement. Any party
not in breach of this provision shall be entitled to immediate injunctive relief
against the breaching party to enjoin any disclosure in breach of the provisions
of this Section 10. Nothing contained herein shall prohibit the parties hereto
from disclosing information pertaining to this Agreement (a) in the Company's
filings with the Commission as required by the Securities Exchange Act of 1934,
as amended, (b) to any governmental entity when requested, (c) pursuant to a
lawfully issued subpoena, (d) to a court upon issuance of an appropriate
protective order in the event of litigation involving the parties hereto, (e) to
the Company's provider of any executive and/or organization liability insurance
policy (or similar type of policy) and (f) to any professional advisor who
agrees to be bound by the terms and provisions of this Section 10. In the event
that any party hereto is adjudged to have breached the provisions of this
Section 10, such party will reimburse the non-breaching parties for any and all
reasonable attorneys' fees and costs incurred in connection with obtaining the
relief provided for in this Section 10.
11. MISCELLANEOUS/GENERAL.
11.1 AMENDMENT. No modification or amendment hereof shall be valid
and binding, unless it be in writing and signed by Subscriber and the Company.
11.2 BENEFIT. Except as otherwise expressly limited herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
None of the rights, privileges, or obligations set forth in, arising under, or
created by this Agreement may be assigned or transferred without the prior
consent in writing of Subscriber and the Company.
11.3 HEADINGS. Section headings are inserted herein for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
11.4 GOVERNING LAW; JURISDICTION. This Agreement and the
performance of the transactions and obligations of the parties hereunder shall
be governed by and construed solely in accordance with the internal laws of the
State of Illinois with respect to contracts made and to be fully performed
therein, without regard to the conflicts of laws principles thereof. By their
execution of this Agreement, the parties hereby expressly and irrevocably (i)
agree that any suit or proceeding arising directly and/or indirectly pursuant to
or under this Agreement, shall be brought solely in a federal or state court
located in the County of Xxxx, State of Illinois, (ii) submit to the IN PERSONAM
jurisdiction of the federal and state courts located in the County of Xxxx,
State of Illinois and agree that any process in any such action may be served
upon any of them personally, or by certified mail or registered mail upon them
or their registered agent,
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return receipt requested, with the same full force and effect as if personally
served upon them in the County of Xxxx, State of Illinois, and (iii) waive any
claim that any such jurisdiction is not a convenient forum for any such suit or
proceeding and any defense or lack of IN PERSONAM jurisdiction with respect
thereto. In the event of litigation to enforce this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees and costs from the
non-prevailing party.
11.5 COUNTERPARTS; FACSIMILE; PDF. This Agreement may be executed
in any number of counterparts, each of which shall constitute an original, but
all of which, taken together, shall constitute one and the same instrument.
Facsimile or portable document format signatures shall have the same binding
effect as original signatures.
11.6 ENTIRE AGREEMENT. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and all prior conversations, negotiations, understandings
and agreements between the parties hereto concerning the subject matter hereof
are hereby expressly superseded.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
with the intent that it be effective as of the date first above written.
"COMPANY"
PATRON SYSTEMS, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
"SUBSCRIBER"
If Business Entity: Entity Name:
-------------------------------
Date Signed: ___________, 200_ By:
----------------------------------------
Name:
Title:
If Individual:
Date Signed: ___________, 200_
-------------------------------------------
, Individually
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EXHIBIT A
ELECTION TO RECEIVE STOCK CERTIFICATE
The undersigned hereby notifies Patron Systems, Inc. (the "Company") of
the undersigned's election to receive a certificate representing the Stock (as
such term is defined in the Stock Subscription Agreement and Mutual Release,
dated as of the date hereof, between the undersigned and Patron Systems, Inc.
(the "Subscription Agreement")) prior to the effective date of the Registration
Statement (as such term is defined in the Subscription Agreement).
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