EXHIBIT 10.25
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR
(ii)
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY TO THE
EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH
PROPOSED TRANSFER NOR IS IN VIOLATION OF
ANY APPLICABLE
STATE SECURITIES
LAWS. THIS LEGEND SHALL BE ENDORSED
UPON ANY NOTE ISSUED
IN
EXCHANGE FOR THIS NOTE.
PATRON SYSTEMS, INC.
10% JUNIOR CONVERTIBLE PROMISSORY NOTE
__________, 2005
FOR VALUE RECEIVED,
PATRON SYSTEMS, INC.,
a Delaware corporation (the
"COMPANY") with its
principal executive
office at 500 North
Michigan Avenue,
Suite 300,
Chicago, Illinois 60611, promises to pay to the order of
_______________________ (the "HOLDER" or "PAYEE") or registered assigns the
principal amount
of ______________________
($__________)
(the "PRINCIPAL
AMOUNT") on
___________, 2005 (the
"MATURITY DATE"),
subject to extension
or
exchange as more specifically described herein. The Principal
Amount is payable
in such coin or
currency of the
United States of America as at the time of
payment shall be legal tender for the payment of public and private
debts.
This Note ("NOTE")
is being issued to the Payee, pursuant to the
provisions of a Subscription Agreement by and between the
Company and the Payee
(the "SUBSCRIPTION
AGREEMENT").
Notwithstanding any
provision to the contrary
contained herein,
this
Note is subject and entitled to certain terms,
conditions, covenants
and agreements
contained in the Subscription Agreement.
Any transferee of this Note, by its acceptance hereof, assumes the obligations
of the Payee in the
Subscription Agreement
with respect to the
conditions and
procedures for transfer of this Note. Reference to the Subscription Agreement
shall in no way impair the absolute and unconditional obligation of the Company
to pay both the Principal Amount and interest thereon as provided herein. Any
initially capitalized terms not otherwise defined herein shall have
the meanings
ascribed to those terms in the Subscription Agreement.
Interest on this Note shall accrue on the Principal Amount
outstanding
from time to time at a rate per annum computed in accordance with SECTION 3
hereof and shall be payable in accordance with SECTION 3 hereof.
All payments by
the Company hereunder
shall be applied first
to pay any interest which is due,
but unpaid, then to reduce the Principal Amount.
The Company (i) waives
presentment, demand,
protest or notice of
any
kind in connection
with this Note and (ii) agrees, in the event of an Event of
Default (as
defined below),
<PAGE>
to pay to the Payee,
on demand, all costs
and expenses
(including
reasonable
legal fees) incurred in connection with the enforcement and collection of
this
Note.
1.
PREPAYMENT. This Note may not be prepaid at any time prior to the
first
closing of a Subsequent Financing (as such term is defined in
SECTION 5
hereafter). This Note,
if not converted as
provided in SECTION 5, may
be prepaid
prior to the
Maturity Date or the Extension Period (as
defined hereafter),
if applicable,
at any time commencing
on the day
immediately after the first closing of a Subsequent Financing, in
which
case the Company may only prepay the aggregate outstanding principal
amount of this
Note, with all accrued interest thereon, and such
prepayment shall be without any premium or penalty.
2.
EXTENSION OF MATURITY DATE. The Company, at its sole option, shall
have
the right to extend the Maturity Date for an additional
sixty (60) day
period (the "EXTENSION
PERIOD") by providing
the Holder with at least
thirty (30) days'
prior written
notice of its
election to do so.
In
consideration for the Extension Period, the Holder shall be
entitled to
(a) an increase in the
rate of interest
payable under this
Note, as
provided in
SECTION 3 hereafter and (b) a warrant (the "EXTENSION
WARRANT") for such number of shares of the Company's Common Stock
equal
to one-half share of
Common Stock for each $1.00 of Principal Amount
outstanding on the Maturity Date. The terms of the Extension
Warrant
shall be identical
to the terms of the original warrant issued in
connection with this Note.
3.
COMPUTATION OF INTEREST.
(a) INITIAL
INTEREST RATE. Subject to SECTION 3(B) and SECTION
3(C) below,
the outstanding Principal Amount shall bear
interest at the rate of ten percent (10%) per annum compounded
on a quarterly basis.
(b) INTEREST
RATE DURING EXTENSION
PERIOD. During the Extension
Period, if
applicable,
the interest rate payable on the
outstanding Principal
Amount shall be increased to twelve
percent (12%) per annum.
(c) MAXIMUM
RATE. In the event that it is determined that, under
the
applicable
laws relating to usury applicable to the
Company or
the indebtedness evidenced by this Note
("APPLICABLE USURY
LAWS"), the interest charges and fees
payable by the Company in connection herewith or in connection
with any other
document or instrument
executed and delivered
in connection herewith (collectively, the "EFFECTIVE INTEREST
RATE") cause the
Effective Interest
Rate applicable to the
indebtedness evidenced by this Note to exceed the maximum rate
allowed by law (the "MAXIMUM RATE"), then such interest shall
be recalculated for the period in question and any excess over
the Maximum Rate paid
with respect to such
period shall be
credited,
without further
agreement
or notice, to the
Principal Amount outstanding hereunder to reduce said
balance
by such amount
with the same
force and effect as
though the
Company had
specifically
designated such extra sums to be so
applied to principal
and the Payee had
agreed to accept such
extra payment(s) as a premium-free prepayment. All such deemed
prepayments shall be
applied to the principal balance payable
at maturity.
(d) PAYMENT OF
INTEREST. All accrued but unpaid
interest on the
Principal Amount
shall be paid upon the
earlier to occur
of
(i) any conversion of this Note, pursuant to the
2
<PAGE>
provisions of SECTION
5 hereafter;
or (ii) the later of
(A)
the Maturity
Date or (B)
the expiration of the Extension
Period, if applicable; PROVIDED, however, that if this Note is
prepaid, as provided in SECTION 1 hereof, then all accrued but
unpaid interest
shall be paid on such
prepayment
date. All
interest payments
shall be paid in immediately available
funds.
4.
SUBORDINATION.
(a) NOTE
SUBORDINATED TO SENIOR INDEBTEDNESS. Notwithstanding any
provision of this Note to the contrary, the Company covenants
and agrees,
and the Holder by acceptance of this Note
covenants and
agrees, that all payments of the Principal
Amount or any other
amounts due from the
Company under this
Note (all such
amounts being collectively referred to as
"AMOUNTS PAYABLE"),
shall be subordinated to the extent set
forth in SECTIONS 4(B)
through 4(F) to the
prior payment in
full (in cash or cash equivalents satisfactory to the holders
of Senior Indebtedness) of, or the conversion (pursuant to the
terms of Senior
Indebtedness) of all
amounts owed under: (i)
the Company's 10% Senior Convertible Promissory Notes issued
on February 28,
2005 pursuant to the provisions of those
certain Subscription Agreements, between the Company and each
of the purchasers
of the 10% Senior
Convertible
Promissory
Notes; (ii) the
Subordinated
Convertible
Promissory
Notes
issued as of February 25, 2005 in connection with the
Company's acquisition
of Complete Security
Solutions, Inc.;
and (iii) the Promissory Notes issued as of March 30, 2005
in
connection with
the Company's acquisition of Entelagent
Software Corp. (collectively "SENIOR INDEBTEDNESS").
(b) PRIORITY
AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS.
(i) Upon any
payment or distribution of assets of the
Company, whether in
cash, property,
securities
or
otherwise, in the
event of any dissolution, winding
up or total or partial
liquidation,
reorganization,
arrangements,
adjustment,
protection, relief
or
composition, or
assignment
for the benefit of
creditors of
the Company, whether voluntary or
involuntary or in bankruptcy,
insolvency,
receivership,
reorganization,
relief or
other
proceedings or upon an
assignment for the benefit of
creditors or any other
marshaling of all or any part
of the assets and
liabilities of the
Company (the
foregoing events herein collectively referred to as
an "INSOLVENCY EVENT"), all Senior Indebtedness shall
first be paid in full, in cash, or payment provided
for in cash
equivalents in a manner satisfactory to
the holders of Senior Indebtedness, before the Holder
shall be entitled to receive any payment or
distribution of assets
of the Company,
whether in
cash, property, securities, or otherwise, relating to
any Amounts Payable.
Upon any Insolvency
Event, any
payment to
which the Holder would be entitled
relating to
any Amounts Payable but for the
provisions of this
SECTION 4, shall be made by the
Company or by any
receiver, trustee in
bankruptcy,
liquidating trustee,
agent or other
person making
such payment or distribution, directly to the holders
of Senior Indebtedness
or their
representatives for
application to the
payment or prepayment
of Senior
Indebtedness in
full after giving effect to any
concurrent payment or
distribution to the holders of
Senior Indebtedness.
(ii)
If there has occurred and is continuing a default in
the payment
of all or any portion of any Senior
Indebtedness (the
occurrence
of which the
Company
hereby agrees
to give the
Holder prompt notice),
unless and until such
default shall have
been cured
or waived, the Company
shall not make any payment on
or with respect
to any Amounts Payable or acquire
this Note (or any portion thereof) for cash,
property, securities or otherwise.
3
<PAGE>
(iii) If,
notwithstanding
the foregoing
provisions
prohibiting payments
or distributions, the Holder
shall have received any payment of, or on account of,
any Amounts
Payable that was prohibited by this
SECTION 4, before all Senior Indebtedness shall have
been paid in full, then any such payments or
distributions shall be received and held in trust for
the holders of Senior
Indebtedness and promptly paid
over or delivered to the holders of Senior
Indebtedness remaining
unpaid thereof to the
extent
necessary to pay in full, in cash or cash equivalents
satisfactory to the
holders of Senior
Indebtedness,
such Senior Indebtedness in accordance with its terms
after giving
effect to any
prior or substantially
concurrent payment or
distribution to the holders of
all Senior
Indebtedness;
provided, that any such
payment
that is, for any reason, not so paid over or
delivered shall be
held in trust by the
Holder for
the holders of Senior Indebtedness.
(iv)
Upon any payment or
distribution of assets
referred
to in SECTION 4(B)(I),
the Holder shall be
entitled
to rely upon
any order or decree of a court of
competent jurisdiction
in which such dissolution,
winding up, liquidation or reorganization proceedings
are pending, and upon
a certificate of the receiver,
trustee in bankruptcy,
liquidating trustee, agent or
other person making any such payment or distribution
of assets, delivered to the Holder for the purpose of
ascertaining the
persons entitled to
participate in
such distribution
of assets,
the holders of
Senior
Indebtedness and other
indebtedness of the
Company,
the amount thereof or payable thereon, the amount or
amounts
paid or distributed thereon and all other
facts pertinent thereto or to this SECTION 4.
(c) RIGHTS OF
HOLDERS OF SENIOR
INDEBTEDNESS NOT TO BE
IMPAIRED,
ETC.
(i) No right
of any future holder of Senior Indebtedness
to enforce
the subordination and other terms and
conditions provided
herein shall at any
time in any
wa
