SCHEDULE 14A
                                 (RULE 14A-101)

                     INFORMATION REQUIRED IN PROXY STATEMENT
                            SCHEDULE 14A INFORMATION
           PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
         |X|  Preliminary Proxy Statement          |_|  Confidential, For Use of
         |_|  Definitive Proxy Statement                the Commission Only (as
         |_|  Definitive Additional Materials           permitted by Rule 14a-6
         |_|  Soliciting Material Pursuant to           (e)(2)
              ss.240.14a-12


                              PATRON SYSTEMS, INC.
================================================================================
                (Name of Registrant as Specified in Its Charter)


================================================================================
    (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)


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                  and 0-11.

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                  applies:

================================================================================
         (2)      Aggregate number of securities to which transaction applies:

================================================================================
         (3)      Per  unit  price  or other  underlying  value  of  transaction
                  computed pursuant to Exchange Act Rule 0-11:

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                  the offsetting fee was paid previously.  Identify the previous
                  filing  by  registration  statement  number,  or the  form  or
                  schedule and the date of its filing.

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================================================================================
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================================================================================
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================================================================================
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================================================================================





                              PATRON SYSTEMS, INC.

              -----------------------------------------------------

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
              -----------------------------------------------------




TIME..................................          10:00 a.m. Central Daylight Time
                                                on June 22, 2006.

PLACE.................................          The Union League Club
                                                65 West Jackson Blvd.
                                                Chicago, IL 60604

ITEMS OF BUSINESS.....................          (1)      To  elect  one  Class I
                                                         director,  one Class II
                                                         director, and one Class
                                                         III   director  to  our
                                                         Board of Directors;

                                                (2)      To  adopt  the   Patron
                                                         Systems,   Inc.    2006
                                                         Stock Incentive Plan;

                                                (3)      To     approve      the
                                                         amendment of our Second
                                                         Amended  and   Restated
                                                         Certificate          of
                                                         Incorporation,       as
                                                         amended, to provide for
                                                         a   1-for-30    reverse
                                                         stock   split   of  our
                                                         issued and  outstanding
                                                         common stock; and

                                                (4)      To transact  such other
                                                         business     as     may
                                                         properly   come  before
                                                         the   Meeting  and  any
                                                         adjournment          or
                                                         postponement.

RECORD DATE...........................          You can vote if, at the close of
                                                business  on  May 10, 2006,  you
                                                were   a   stockholder   of  the
                                                Company.

PROXY VOTING..........................          All  stockholders  are cordially
                                                invited  to  attend  the  Annual
                                                Meeting in person.  However,  to
                                                ensure  your  representation  at
                                                the  Annual  Meeting,   you  are
                                                urged   to  vote   promptly   by
                                                signing   and    returning   the
                                                enclosed Proxy card.





May 22, 2006                                    Robert Cross
                                                CHIEF EXECUTIVE OFFICER





                                                            PATRON SYSTEMS, INC.
                                                5775 FLATIRON PARKWAY, SUITE 230
                                                         BOULDER, COLORADO 80301
                                                                  (303) 541-1005
PROXY STATEMENT
--------------------------------------------------------------------------------

These Proxy materials are delivered in connection  with the  solicitation by the
Board of Directors  ("Board") of Patron  Systems,  Inc., a Delaware  corporation
("Patron," the "Company,"  "we," "us," or "our"),  of Proxies to be voted at our
2006 Annual Meeting of stockholders  and at any  adjournments  or  postponements
thereof.

You are invited to attend our Annual Meeting of  stockholders  on June 22, 2006,
beginning at 10:00 a.m.  Central  Daylight Time. The meeting will be held at The
Union League Club, 65 West Jackson Blvd., Chicago, Illinois 60604.

It is anticipated  that the 2005 Annual Report and this Proxy  Statement and the
accompanying Proxy will be mailed to stockholders on or about May 22, 2006.

STOCKHOLDERS  ENTITLED TO VOTE. Holders of our Common Stock, par value $0.01 per
share ("Common Stock"),  Series A-1 Convertible Preferred Stock, par value $0.01
per share  ("Series A-1  Preferred  Stock") and Series A  Convertible  Preferred
Stock,  par value $0.01 per share ("Series A Preferred  Stock" and together with
the Series A-1 Preferred Stock,  "Preferred Stock"), at the close of business on
May 10, 2006  ("Record  Date") are  entitled to receive  this notice and to vote
their shares at the Annual  Meeting.  As of May 10, 2006,  there were 56,398,360
shares of Common Stock,  35,422,755 shares of Series A-1 Preferred Stock and 964
shares of Series A Preferred Stock outstanding.

VOTING.  Each  share of  Common  Stock is  entitled  to one vote on each  matter
properly  brought before the meeting.  Each share of Preferred Stock is entitled
to one vote for each share of Common  Stock  into which such share of  Preferred
Stock is  convertible,  on each  matter  properly  brought  before the  meeting.
Abstentions  will be counted  toward the  tabulation  of votes cast on proposals
submitted to stockholders and will have the same effect as negative votes, while
broker non-votes will not be counted as votes cast for or against such matters.

PROXIES. Your vote is important. If your shares are registered in your name, you
are a  stockholder  of record.  If your shares are in the name of your broker or
bank,  your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend.  All stockholders can vote by written Proxy card. Your submission of the
enclosed  Proxy will not limit  your right to vote at the Annual  Meeting if you
later decide to attend in person.  IF YOUR SHARES ARE HELD IN STREET  NAME,  YOU
MUST OBTAIN A PROXY,  EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE meeting.  If you are a stockholder of record,  you may
revoke  your Proxy at any time  before  the  meeting  either by filing  with the
Secretary of the Company,  at its principal  executive offices, a written notice
of revocation or a duly executed Proxy bearing a later date, or by attending the
Annual Meeting and expressing a desire to vote your shares in person. All shares
entitled to vote and represented by properly  executed Proxies received prior to
the Annual  Meeting,  and not  revoked,  will be voted at the Annual  Meeting in
accordance with the instructions  indicated on those Proxies. If no instructions
are indicated on a properly executed Proxy, the shares represented by that Proxy
will be voted as recommended by the Board.

QUORUM. The presence, in person or by Proxy, of a majority of the votes entitled
to be cast  by the  stockholders  entitled  to vote  at the  Annual  Meeting  is
necessary  to  constitute a quorum.  Abstentions  and broker  non-votes  will be
included in the number of shares present at the Annual  Meeting for  determining
the presence of a quorum.  Broker  non-votes occur when brokers,  who hold their
customers'  shares in street name,  sign and submit  proxies for such shares and
vote such shares on some matters,  but not others.  Typically,  this would occur
when brokers have not received any instructions  from their customers,  in which
case the brokers,  as the holders of record,  are permitted to vote on "routine"
matters, which typically include the election of directors.

ELECTION OF  DIRECTORS.  The three  nominees for director  receiving the highest
number of votes of the  Common  Stock and  Preferred  Stock,  voting as a single
class,  at the  Annual  Meeting  will be  elected.  If any  nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting,  the Proxies
will be voted for such other


                                        1



nominee(s) as shall be designated by the current Board to fill any vacancy.  The
Company has no reason to believe that any nominee will be unable or unwilling to
serve if elected as a director.

ADOPTION OF PATRON SYSTEMS, INC. 2006 STOCK INCENTIVE PLAN.  The adoption of the
Patron Systems, Inc. 2006 Stock Incentive Plan will require the affirmative vote
of a majority of the shares of Common  Stock and  Preferred  Stock,  voting as a
single class, present or represented and entitled to vote at the Annual Meeting.

AMENDMENT  TO  THE  COMPANY'S   SECOND  AMENDED  AND  RESTATED   CERTIFICATE  OF
INCORPORATION. The approval of the amendment to the Company's Second Amended and
Restated   Certificate   of   Incorporation,   as   amended   ("Certificate   of
Incorporation"), to provide for a 1-for-30 reverse stock split of our issued and
outstanding  Common Stock will require the affirmative vote of (i) a majority of
the  outstanding  shares  of  Common  Stock as of the  record  date  voting as a
separate  class,  (ii) a  majority  of the  outstanding  shares  of  Series  A-1
Preferred  Stock as of the  record  date  voting as a  separate  class,  (iii) a
majority of the outstanding  shares of Series A Preferred Stock as of the record
date voting as a separate class,  and (iv) a majority of the outstanding  shares
of Common Stock,  Series A-1 Preferred  Stock and Series A Preferred Stock as of
the record date voting as a single class.

SOLICITATION OF PROXIES. All expenses of our solicitation of proxies,  including
the cost of mailing this Proxy Statement to our  stockholders,  will be borne by
us. In addition to  solicitation  by use of the mails,  proxies may be solicited
from  stockholders  by our  directors,  officers  and  employees in person or by
telephone  or  other  means  of  communication.  Such  directors,  officers  and
employees  will  not be  additionally  compensated,  but may be  reimbursed  for
reasonable  out-of-pocket expenses in connection with such solicitation.  We may
retain  a  proxy  solicitation  firm  for  assistance  in  connection  with  the
solicitation of proxies for the Annual Meeting.  Arrangements  will also be made
with brokerage houses,  custodians,  nominees and fiduciaries for the forwarding
of proxy solicitation materials to beneficial owners of shares held of record by
such  brokerage  houses,  custodians,  nominees  and  fiduciaries,  and we  will
reimburse such brokerage houses, custodians,  nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.

OTHER  MATTERS.  In the event a  stockholder  proposal was not  submitted to the
Company  prior to the date of this  Proxy  Statement,  the  enclosed  Proxy will
confer authority on the Proxyholders to vote the shares in accordance with their
best judgment and discretion if the proposal is presented at the Meeting.  As of
the date hereof, no stockholder  proposal has been submitted to the Company, and
management  is not aware of any other  matters to be presented for action at the
Meeting.  However,  if any other matters  properly come before the Meeting,  the
Proxies  solicited  hereby will be voted by the  Proxyholders in accordance with
the  recommendations  of the Board.  Such  authorization  includes  authority to
appoint a  substitute  nominee for any Board'  nominee  identified  herein where
death,  illness or other  circumstance  arises which  prevents such nominee from
serving in such position and to vote such Proxy for such substitute nominee.


                                       2



ITEM 1:    ELECTION OF DIRECTORS

Item 1 is the election of one Class I director,  one Class II director,  and one
Class  III  director  to  the  Board.   As  provided  in  our   Certificate   of
Incorporation,  our Board is grouped  into  three  classes,  as nearly  equal in
number as possible.  Directors  hold office for staggered  terms of three years.
The  classification  of our Board is  intended  to provide  for the  election of
directors to one of the three classes each year to succeed the  directors  whose
terms are expiring.

At the 2006 Annual Meeting,  each director will be elected to a class for a term
expiring as  designated  below as the Company has not held an Annual  Meeting of
Stockholders  since  2003.  Our  bylaws  presently  provide  that the  number of
directors  may be  amended  from  time  to  time by  resolution  adopted  by the
affirmative  vote of a  majority  of the whole  Board.  Upon  completion  of the
Company's  recapitalization involving the issuance of Series A-1 Preferred Stock
in settlement of all claims, liabilities, demands, damages, etc., the Board will
pursue  increasing  the  number of  directors  to seven  members.  The number of
directors is currently fixed at three.

Unless otherwise instructed, the Proxy holders will vote the Proxies received by
them for the  nominees  named  below.  If any nominee is unable or  unwilling to
serve as a director at the time of the Annual  Meeting,  or any  postponement or
adjournment  thereof,  the Proxies  will be voted for such other  nominee(s)  as
shall be designated  by the then current Board to fill any vacancy.  The Company
has no reason to believe  that any nominee  will be unable or unwilling to serve
if elected as a director.

The Board proposes the election of the following nominee as a Class I director:

                                George Middlemas

If  elected,  the  foregoing  nominee is expected to serve until the 2009 Annual
Meeting of Stockholders.

The Board proposes the election of the following nominee as a Class II director:

                                  Robert Cross

If  elected,  the  foregoing  nominee is expected to serve until the 2007 Annual
Meeting of Stockholders.

The  Board  proposes  the  election  of the  following  nominee  as a Class  III
director:

                                 Braden Waverley

If  elected,  the  foregoing  nominee is expected to serve until the 2008 Annual
Meeting of Stockholders.

The three  nominees for election as directors at the Annual  Meeting who receive
the highest number of affirmative votes will be elected.

The principal  occupation and certain other  information  about the nominees and
certain executive officers are set forth on the following pages.

RECOMMENDATION

THE BOARD  UNANIMOUSLY  RECOMMENDS  A VOTE "FOR" THE  ELECTION  OF THE  NOMINEES
LISTED ABOVE.


                                       3



                        DIRECTORS AND EXECUTIVE OFFICERS

The  following  table sets forth the names,  positions and ages of the Company's
current  executive  officers and directors.  Officers are appointed by the Board
and their terms of office are,  except to the extent  governed by an  employment
contract, at the discretion of the Board.

--------------------------    ------    ----------------------------------------
     NAME                     AGE       POSITION HELD
--------------------------    ------    ----------------------------------------

Robert Cross                  68        Chief Executive Officer and Director
--------------------------    ------    ----------------------------------------
Braden Waverley               39        Chief Operating Officer
--------------------------    ------    ----------------------------------------
Martin T. Johnson             54        Chief Financial Officer
--------------------------    ------    ----------------------------------------
Brett Newbold                 53        President and Chief Technology Officer
--------------------------    ------    ----------------------------------------
Robert E. Yaw II              59        Chairman
--------------------------    ------    ----------------------------------------
George Middlemas              59        Director
--------------------------    ------    ----------------------------------------


DIRECTORS

GEORGE MIDDLEMAS          Mr.  Middlemas  is  Managing  General  Partner of Apex
CURRENT DIRECTOR          Investment  Partners.  Prior to joining  Apex in 1991,
AND CLASS I               Mr.   Middlemas  was  a  Senior  Vice   President  and
NOMINEE                   Principal of Inco Venture  Capital  Management.  Prior
                          thereto,  he was Vice  President  and a member  of the
                          investment  commitment  committee of Citicorp  Venture
                          Capital.  Mr.  Middlemas was a founder of both America
                          Online  (AOL) and RSA  Security  (NASDAQ:  RSAS).  Mr.
                          Middlemas  holds  a  B.A.  in  history  and  political
                          science from Pennsylvania State University; an M.A. in
                          political  science from the  University of Pittsburgh;
                          and an  M.B.A.  from the  Harvard  Graduate  School of
                          Business Administration. Mr. Middlemas has served as a
                          director  since February 28, 2005 with a term expiring
                          at the Company's 2006  Annual Meeting of Stockholders.
                          Mr.  Middlemas  also serves on the board  of directors
                          and  the  compensation  committee  of  the   board  of
                          directors of Pure Cycle Corporation.


ROBERT CROSS              Robert  Cross  joined the Company on February 28, 2005
CURRENT DIRECTOR          as its Chief  Executive  Officer.  Mr.  Cross has more
AND CLASS II              than  twenty  years   CEO-level   experience   in  the
NOMINEE                   development and marketing of information technologies,
                          including secure systems for intelligence agencies and
                          NATO markets.  From 1984 through  2004,  Mr. Cross was
                          Chief Executive Officer of Cross Technologies, Inc., a
                          business process  outsourcing firm specializing in the
                          structuring  and   commercialization   of  information
                          technologies.  From 1993 through  1998,  Mr. Cross was
                          President  and  CEO of  Nanophase  Technologies  Corp.
                          (NASDAQ:   NANX).  From  1984  through  1989,  he  was
                          Chairman  and  CEO of  Delta  Data  Systems  Corp.,  a
                          manufacturer  of secure  computers and peripherals for
                          government  intelligence agencies.  From 1983 to 1984,
                          Mr.  Cross led the  financial  turnaround  of  Control
                          Video  Corporation,   predecessor  to  America  Online
                          (AOL). Prior thereto, Mr. Cross was General Counsel of
                          Electronic Data Systems.  Prior thereto, Mr. Cross was
                          a securities  counsel with Winthrop  Stimson  Putnam &
                          Roberts.  Mr.  Cross  received  his business and legal
                          education at Washington University in St. Louis. He is
                          a Marine  Corps  veteran,  and is an active  member of
                          Business  Executives  for  National  Security  and the
                          Illinois Technology  Development  Alliance.  Mr. Cross
                          has served as a director  since February 28, 2005 with
                          a term expiring at the Company's  2006 Annual  Meeting
                          of Stockholders.

BRADEN WAVERLEY           Mr.  Waverley  joined the Company on February 17, 2006
CLASS III NOMINEE         as its Chief Operating Officer.  Mr. Waverley has been
                          an active advisor to start-up  companies in technology
                          services,  distribution and software, Mr. Waverley was
                          most recently  President of Vsource,  Inc., a publicly
                          traded  business  process  outsourcing  (BPO) services
                          firm  from  2002 to  2004.  While at  Vsource,  he was
                          responsible    for   sales,    marketing,    solutions
                          development,   public  and  investor  relations,   and
                          strategic  planning.  Under his leadership the Company
                          expanded


                                        4



                           account  acquisition,  positioning the business for a
                           successful sale to an Asian based  investment  group.
                           From 1996 to 2001,  Mr.  Waverley was with Dell Inc.,
                           where he was Vice  President  and General  Manager in
                           the  company's  Canadian  operations.  With  full P&L
                           responsibility  for the Consumer  and Small  Business
                           Divisions, he grew the combined business unit to over
                           $500  million  in  sales  and  the top  market  share
                           position in Canada. Previously, he held marketing and
                           general   management   posts  for   Dell's   business
                           throughout the Asia-Pacific  region,  where he grew a
                           new  business  unit  over  five-fold,  with  sales in
                           excess of $250 million.  Prior to Dell, Mr.  Waverley
                           co-founded Paradigm Research, a successful management
                           consulting  firm  specializing  in  business  process
                           automation and redesign strategies. Clients came from
                           industries  such as computer  hardware,  software and
                           wireless  technology.   Earlier,  Mr.  Waverley  held
                           operations  and  marketing  management  positions  at
                           Motorola,  Inc. Mr. Waverley holds a bachelors degree
                           from the  University  of Wisconsin at Madison,  and a
                           masters  of  business  administration  from  the J.L.
                           Kellogg Graduate School of Management at Northwestern
                           University.

ROBERT E. YAW II          Mr. Yaw started his career with Citicorp International
CURRENT DIRECTOR          and later joined the Investment  Banking Department of
                          Salomon  Brothers in 1973.  In 1975, at the request of
                          William  R.  Salomon,   Mr.  Yaw  created  its  Global
                          Telecommunications  Group.  In 1980,  Mr.  Yaw and Mr.
                          Lewis Ranieri created mortgage  securitization through
                          a partnership  with AT&T and Bank of America.  Also in
                          1980, Mr. Yaw became Chairman of Salomon Brothers' New
                          Products    Group--formally    coordinating    Salomon
                          Brothers' public offering origination and distribution
                          processes.   In   1981,   Mr.   Yaw   assumed   senior
                          responsibility for Salomon Brothers' Private Placement
                          Group--the   leading  U.S.  private   placement  agent
                          throughout  his  tenure.  Thereafter,  he has  been an
                          advisor,  founder,  and Director of private and public
                          companies,   including  partnerships  with  Prudential
                          Insurance   Company  of  America  and  New  York  Life
                          Insurance Company and he has held staff positions with
                          the United States Senate Foreign Relations  Committee,
                          United States Senate Republican Policy Committee,  and
                          the   Presidential   Commission   on  the  Causes  and
                          Prevention  of Violent  Crime.  Mr. Yaw  completed his
                          undergraduate  education at Bowdoin  College and Clare
                          College  (Cambridge   University)  in  1968,  and  his
                          graduate legal education at Georgetown  University and
                          the  University of London in 1973.  Mr. Yaw has served
                          as a  director  since  October  10,  2002  with a term
                          expiring  at the  Company's  2006  Annual  Meeting  of
                          Stockholders.


EXECUTIVE OFFICERS

ROBERT CROSS              Mr. Cross's biography is listed above.
CHIEF EXECUTIVE
OFFICER

BRADEN WAVERLEY           Mr. Waverley's biography is listed above.
CHIEF OPERATING
OFFICER

BRETT NEWBOLD             Mr. Newbold  rejoined the Company on February 28, 2005
PRESIDENT AND             as its President and Chief  Technology  Officer.  From
CHIEF TECHNOLOGY          October  2002  until June 2003,  Mr.  Newbold  was the
OFFICER                   Company's  Chief  Technology  Officer  and  President,
                          Technology  Products Group.  Mr. Newbold has more than
                          twenty-five   years  of   software   development   and
                          technology  company management  experience.  From 1989
                          through 1997, Mr. Newbold was Vice  President/Research
                          & Development, New Technologies for Oracle Corporation
                          (NASDAQ:   ORCL),   where  he  held  senior  operating
                          management    responsibility    for   the   selection,
                          development  and  integration  of  new   technologies,
                          reporting   directly  to  Oracle's   Chief   Executive
                          Officer,  Mr. Larry Ellison.  Thereafter,  Mr. Newbold
                          was President and Chief Operating Officer of Open Text
                          Corporation   (NASDAQ:   OTEX),  a  market  leader  of
                          collaboration and knowledge management software. Since
                          1999, Mr. Newbold served as an Executive Consultant to
                          various software  development  companies.  Mr. Newbold
                          received


                                        5



                           his   undergraduate   education  in  physics  at  the
                           University of Washington.

MARTIN T. JOHNSON         Mr. Johnson joined the Company on February 17, 2006 as
CHIEF FINANCIAL           its Chief Financial Officer. Mr. Johnson has served as
OFFICER                   an   independent   consultant   providing   financial,
                          strategy  and  operations  consulting  services  since
                          2002.  From  2000 to  2001,  he was Vice  President  -
                          Planning  and  Business   Development   for  Cabletron
                          Systems,  a  provider  of  network  hardware,  network
                          management software and consulting services. From 1999
                          to 2000, Mr. Johnson was Senior Vice President,  Chief
                          Financial   Officer   for   MessageMedia,    Inc.,   a
                          publicly-held  e-mail messaging  services and software
                          company.  From 1993 to 1999, he worked for  Technology
                          Solutions  Company,  a  publicly-held  management  and
                          information  technology  professional  services  firm.
                          Initially,   he  led  the  business  case   consulting
                          practice  serving  as Vice  President,  Business  Case
                          Consulting  and  from  February  1994  was the  firm's
                          Senior Vice  President  and Chief  Financial  Officer.
                          From 1990 to 1993, he was Corporate Controller for The
                          Marmon   Group,   Inc.,  a  $4.5  billion   autonomous
                          association of over 70 independent  member  companies.
                          From 1987 to 1990, he was Vice  President-Finance  and
                          Chief  Financial  Officer  of  COMNET  Corporation,  a
                          publicly-held  computer software and computer services
                          firm and was also  Vice  President-Finance  and  Chief
                          Financial  Officer for its  publicly-held  subsidiary,
                          Group 1 Software, Inc. Mr. Johnson holds a bachelor of
                          science in electrical  engineering  degree from Lehigh
                          University and a masters degree in management from the
                          J.L.   Kellogg   Graduate   School  of  Management  at
                          Northwestern University.


FURTHER INFORMATION CONCERNING THE BOARD

MEETINGS AND COMMITTEES

The Board held 7 meetings  during fiscal 2005.  The Board also acted 15 times by
unanimous written consent during fiscal 2005. All directors attended 75% or more
of all the  meetings  of the Board in fiscal  2005.  The Board  does not have an
Audit Committee, Compensation Committee or Nominating Committee.

While we do not  require  members  of our Board to attend the  Company's  Annual
Meeting of stockholders,  each director is encouraged to do so. Our stockholders
acted by written consent for our most recent annual meeting held in 2003.

AUDIT COMMITTEE FUNCTIONS

Our Board  performs  the  functions of an audit  committee  and does not operate
pursuant to a charter in connection with the performance of such functions.  Our
Board is  responsible  for the  engagement of the Company's  independent  public
accountants,  reviews the scope of the audit to be conducted by the  independent
public   accountants,   and  periodically  meets  with  the  independent  public
accountants  and the Chief  Financial  Officer of the Company to review  matters
relating  to  the  Company's  financial  statements,  the  Company's  accounting
principles and its system of internal accounting controls.

In fulfilling its  responsibilities for the financial statements for fiscal year
2005, the Board:

         o        Reviewed and discussed the audited  financial  statements  for
                  the year ended December 31, 2005 with  management and Marcum &
                  Kliegman,   L.P.   ("Marcum"),   the   Company's   independent
                  registered public accounting firm;

         o        Discussed with Marcum the matters  required to be discussed by
                  Statement on Auditing Standards No. 61 relating to the conduct
                  of the audit; and

         o        Received   written   disclosures  and  a  letter  from  Marcum
                  regarding  its   independence   as  required  by  Independence
                  Standards  Board Standard No. 1, and has discussed with Marcum
                  their independence.


                                       6



Based on its review of the audited  financial  statements and  discussions  with
management and Marcum, the Board approved the inclusion of the audited financial
statements  be included in the  Company's  Annual  Report on Form 10-KSB for the
year  ended  December  31,  2005 for filing  with the  Securities  and  Exchange
Commission.

NOMINATING COMMITTEE FUNCTIONS

Our Board performs the functions of a nominating  committee and does not operate
pursuant to a charter in connection with the  performance of such functions.  We
believe that since there are only three  directors,  it is  appropriate  for the
entire Board to undertake the  functions of the  nominating  committee.  We have
determined  that Mr.  Middlemas  is  "independent"  as that term is  defined  in
Section 4200 of the Marketplace Rules as required by the NASDAQ Stock Market. In
carrying out its function to nominate  candidates for election to the Board, the
Board  considers  the mix of  skills,  experience,  character,  commitment,  and
diversity of background,  all in the context of the requirements of the Board at
that  point in time.  The  Board  believes  that  each  candidate  should  be an
individual  who has  demonstrated  integrity  and  ethics  in  such  candidate's
personal and professional life, has an understanding of elements relevant to the
success  of  a   publicly-traded   company  and  has  established  a  record  of
professional  accomplishment  in such candidate's  chosen field.  Each candidate
should  be  prepared  to  participate  fully  in  board  activities,   including
attendance at, and active  participation in, meetings of the Board, and not have
other personal or  professional  commitments  that would interfere with or limit
such candidate's ability to do so.

If the Company is legally  required by contract or  otherwise  to provide  third
parties with the ability to nominate directors (E.G.,  preferred stock rights to
elect directors upon a dividend default,  stockholder  agreements and management
agreements),  the selection and nomination of such directors need not be subject
to the Board's nominating and review process.

A stockholder  of the Company may nominate one or more persons for election as a
director  at  an  annual  meeting  of  stockholders  by  submitting  information
regarding  such nominee to the Company's  Chief  Executive  Officer.  Candidates
nominated  by  stockholders  will be  reviewed  by the  Board  according  to the
requirements set forth above.

STOCKHOLDER COMMUNICATIONS WITH THE BOARD.

Our Board has adopted three methods by which our  stockholders  may  communicate
with the Board regarding matters of substantial importance to the Company. These
methods are as follows:

1.       PROCEDURES  FOR  SUBMISSION  OF  COMMUNICATIONS   REGARDING  AUDIT  AND
ACCOUNTING  MATTERS.  Our Board  has in place  procedures  for (a) the  receipt,
retention,  and treatment of communications received by us regarding accounting,
internal accounting controls, or auditing matters; and (b) the submission by our
employees,  on a confidential and anonymous basis, of  communications  regarding
questionable  accounting or auditing matters.  These procedures allow any person
to submit a good faith  communication  regarding  these various audit,  internal
accounting  control and accounting  matters to the Board,  or to our management,
and any employee to do so on a confidential and anonymous basis, without fear of
dismissal  or  retaliation  of any  kind.  Ultimately,  the Board  will  oversee
treatment of communications in this area, and therefore any submissions would be
reviewed by all members of the Board.

2.       CODE OF ETHICAL  CONDUCT.  Our Code of Ethical  Conduct  identifies the
e-mail addresses for each of our Chief Executive  Officer,  Robert Cross,  Chief
Financial Officer, Martin T. Johnson, and the Chairman of our Board, Robert Yaw.
This allows individuals to contact those members of our management in connection
with matters  concerning the code and our company's  overall  ethical values and
standards.

3.       INVESTOR  RELATIONS.   Our  Chief  Executive  Officer,   Robert  Cross,
addresses  all of our  investor  relations  matters.  Stockholders  are  free to
contact Mr. Cross at (303) 541-1005.  Mr. Cross determines  whether inquiries or
other communications with respect to investor relations should be relayed to our
Board or to other  management.  Typical  communications  relayed to our Board or
other management  involve  stockholder  proposal  matters,  audit and accounting
matters  addressed in item 1 above,  and matters  related to our code of ethical
conduct addressed in item 2 above.


                                       7



ITEM 2:    ADOPTION OF PATRON SYSTEMS, INC. 2006 STOCK INCENTIVE PLAN

The Patron  Systems,  Inc. 2006 Stock Incentive Plan ("Plan") was adopted by the
Board of  Directors  on May 10,  2006,  subject  to  approval  by the  Company's
stockholders. If approved by the stockholders, the Plan will become effective as
of June 22, 2006, the date of the Annual Meeting. Under the Plan, the Company is
authorized to grant equity-based awards in the form of stock options, restricted
common stock, stock units and stock appreciation rights to employees  (including
executive officers),  non-employee  directors and consultants of the Company and
its subsidiaries.

The Board of Directors believes that equity-based  incentive  compensation plans
provide an important  means of attracting,  retaining and motivating  employees,
non-employee   directors  and  other  service   providers  and  recommends  that
stockholders  approve the adoption of the Plan. Because  non-employee  directors
and executive  officers of the Company are eligible to receive  awards under the
Plan, they have a personal interest in the approval of the adoption of the Plan.

The purpose of the Plan is (a) to recognize and  compensate  selected  employees
and   consultants  who  contribute  to  the  success  of  the  Company  and  its
subsidiaries,  (b) to attract and retain  employees and  consultants  and (c) to
provide  incentive  compensation  to  employees  and  consultants  based  on the
performance of the Company and its subsidiaries. The Board of Directors believes
that employees,  non-employee  directors and other service providers who have an
investment in the Company are more likely to meet and exceed performance goals.

The Board proposes that the stockholders approve the adoption of the Plan.

                         PRINCIPAL FEATURES OF THE PLAN

The following summary briefly  describes the principal  features of the Plan and
is  qualified  in its entirety by reference to the full text of the Plan, a copy
of which is attached hereto as Appendix "A" in the form proposed.

GENERAL.  The Plan may be administered by the Board or another  committee of the
Board. The Plan is currently  administered by the Board. If the Board designates
that a committee shall  administer the Plan, that committee must be comprised of
"non-employee  directors"  within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934  ("Exchange  Act") and "outside  directors"  under  Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").  The Board
may also appoint one or more separate  committees of the Board, each composed of
one or more directors of the Board, who need not satisfy the requirements  noted
above,  who may  administer  the Plan  with  respect  to  employees  who are not
considered officers or directors of the Company under Section 16 of the Exchange
Act.  Subject to the  provisions of the Plan, the Board will have full and final
authority to select the employees,  officers,  directors and consultants to whom
awards  will be granted  thereunder,  to grant the awards and to  determine  the
terms  and  conditions  of the  awards  and the  number  of  shares to be issued
pursuant thereto.

ELIGIBILITY.  Employees,  non-employee  directors and other service providers of
the  Company  and our  affiliates  who,  in the  opinion of the Board,  are in a
position to make a  significant  contribution  to the success of the Company and
our affiliates are eligible to participate in the Plan. The Board determines the
type  and  size of  award  and sets  the  terms,  conditions,  restrictions  and
limitations  applicable to the award within the confines of the Plan's terms. As
of May 10,  2006,  there were  approximately  27  employees  and 2  non-employee
directors who would be eligible to participate in the Plan.

AVAILABLE  SHARES.  The maximum  number of shares  available for grant under the
Plan is 5,600,000  shares of Common  Stock,  on a  post-reverse-split  basis (as
described in Item 3 below).  The number of shares  available for award under the
Plan is subject to adjustment for certain  corporate  changes in accordance with
the provisions of the Plan. The aggregate  number of shares  available for grant
will  increase  annually by the lower of (i)  1,000,000  shares,  (ii) 5% of the
outstanding  shares on the last day of the immediately  preceding year, or (iii)
an amount  determined  by the Board.  Currently,  the  maximum  number of shares
available for grant of awards under the Plan to any one participant is 1,500,000
shares during any fiscal year.


                                       8



AWARDS. The Plan authorizes the Board to enter into any type of arrangement with
an eligible employee that, by its terms,  involves or might involve the issuance
of (1) shares of Common Stock,  (2) options to purchase Common Stock,  (3) stock
appreciation  rights  based on Common  Stock and (4) stock units based on Common
Stock.  An  award  may  consist  of one  such  arrangement  or two or more  such
arrangements in tandem or in the alternative.

An  award  may  provide  for  the  issuance  of  Common  Stock  for  any  lawful
consideration,  including  services  rendered to the Company.  An award  granted
under the Plan may include a provision  conditioning or accelerating the receipt
of benefits,  either  automatically or in the discretion of the Board,  upon the
occurrence of specified events, including a change of control of the Company, an
acquisition  of a specified  percentage  of the voting power of the Company or a
dissolution, liquidation, merger, reclassification, sale of substantially all of
the  property  and  assets  of  the  Company  or  other  significant   corporate
transaction.  Any stock option  granted may be an incentive  stock option within
the meaning of Section 422 of the Code or a nonqualified stock option.

An award  under  the Plan may  permit  the  recipient  to pay all or part of the
purchase price of the shares or other property  issuable  pursuant to the award,
and/or to pay all or part of the recipient's tax  withholding  obligations  with
respect to such issuance,  in cash or by delivering  previously  owned shares of
capital stock of the Company.

STOCK  OPTIONS.  The Plan  provides  for the grant of  incentive  stock  options
intended to meet the  requirements  of Section 422 of the Code and  nonqualified
stock options that are not intended to meet those requirements.  Incentive stock
options may be granted only to employees of the Company and its affiliates.  All
options  will be  subject to terms,  conditions,  restrictions  and  limitations
established by the Board,  as long as they are consistent  with the terms of the
Plan.

The Board will  determine  when an option will vest and become  exercisable.  No
option will be  exercisable  more than ten years after the date of grant (or, in
the case of an incentive stock option granted to a 10%  stockholder,  five years
after  the  date of  grant).  Unless  otherwise  provided  in the  option  award
agreement,  options  terminate  within a  certain  period  of time  following  a
participant's   termination  of  employment  or  service  by  reason  of  death,
disability  or  retirement,   for  any  reason  other  than  death,  disability,
retirement, or for cause.

The exercise price of a stock option granted under the Plan may not be less than
the fair market value of the Common Stock on the date of grant.  Incentive stock
options  must be granted at 100% of fair  market  value.  (or, in the case of an
incentive stock option granted to a 10% stockholder, 110% of fair market value).
The closing price on the OTC Bulletin Board for the Common Stock on May 10, 2006
was $0.069.

The exercise  price of a stock option may be paid in cash or, in the  discretion
of the Board, with previously acquired shares of Common Stock,  through services
rendered, through an irrevocable direction to a securities broker to sell shares
and to  deliver  all or part of the sale  proceeds  to the  Company,  through an
irrevocable  direction to a  securities  broker or lender to pledge  shares,  as
security  for a loan,  and to deliver  all or part of the loan  proceeds  to the
Company,  by  promissory  note or by any  other  form of  consideration  that is
consistent with applicable law.

STOCK  APPRECIATION  RIGHTS OR SARS. A stock  appreciation right or SAR entitles
the  participant to receive an amount in cash and/or shares of Common Stock,  as
determined by the Board, equal to the amount by which the Company's Common Stock
appreciates in value after the date of the award.  The Board will determine when
the SAR will  vest and  become  exercisable.  The Board  will set  other  terms,
conditions,  restrictions  and  limitations  on  SARs,  including  rules  as  to
exercisability after termination of employment or service.

RESTRICTED STOCK. Restricted stock awards consist of shares of Common Stock that
must be returned to the Company if certain  conditions  are not  satisfied.  The
Board  will  determine  the  restriction  period  and may  impose  other  terms,
conditions  and  restrictions  on  restricted  stock,   including  vesting  upon
achievement   of  performance   goals  pursuant  to  a  performance   award  and
restrictions  under  applicable  securities laws. The Board also may require the
participant to pay for restricted stock.  Subject to the terms and conditions of
the  award  agreement  related  to  restricted  stock,  a  participant   holding
restricted  stock  will have the right to  receive  dividends  on the  shares of
restricted  stock during the restriction  period,  vote the restricted stock and
enjoy all other  stockholder  rights related to the shares of Common Stock. Upon
expiration of the  restriction  period,  the  participant is entitled to receive
shares of Common Stock not subject to restriction.


                                       9



STOCK UNITS.  Stock units are fictional  shares of Common Stock.  The Board will
determine  the  restriction  period and may impose other terms,  conditions  and
restrictions on stock units. Upon the lapse of restrictions,  the participant is
entitled  to  receive  shares of Common  Stock or an amount of cash equal to the
fair  market  value of such  shares of  Common  Stock as  provided  in the award
agreement.  An award of stock units may include the grant of a right to dividend
equivalents.  Such right entitles the holder to be credited with an amount equal
to all cash  dividends  paid on one share  while the stock unit is  outstanding.
Dividend equivalents may be converted into additional stock units. Settlement of
dividend  equivalents  may  be  made  in  the  form  of  cash,  shares,  or in a
combination of both. Prior to distribution,  any dividend  equivalents which are
not paid shall be subject to the same  conditions  and  restrictions  (including
without limitation,  any forfeiture conditions) as the stock units to which they
attach.  The Board  will  determine  when the stock  units  will vest and become
exercisable.  The  Board  will set other  terms,  conditions,  restrictions  and
limitations  on  stock  units,   including  rules  as  to  exercisability  after
termination of employment or service.

PERFORMANCE STANDARDS.  The number of Shares or other benefits granted,  issued,
retainable  and/or  vested  under an award under the Plan may be made subject to
the  attainment  of  performance  goals for a specified  period of time relating
performance  criteria  specified  in the Plan applied to either the Company as a
whole or to a business unit or subsidiary, either individually, alternatively or
in any combination,  and measured either annually or cumulatively  over a period
of years,  on an  absolute  basis or relative to a  pre-established  target,  to
previous  years' results or to a designated  comparison  group or index, in each
case as specified by the Board in the award notice.  The Board may appropriately
adjust any evaluation of the performance  criteria  referenced  above to exclude
certain events occurring  during the period over which  performance is measured.
The Board shall determine the  performance  criteria not later than the 90th day
of  the  performance   period,  and  shall  determine  and  certify,   for  each
participant,  the extent to which the  performance  criteria  have been met. The
Board may not in any event increase the amount of compensation payable under the
Plan  upon  the  attainment  of a  performance  goal to a  participant  who is a
"covered employee" within the meaning of Section 162(m) of the Code.

PLAN DURATION. The Plan will become effective upon its adoption by the Company's
stockholders at the Annual Meeting on June 22, 2006. Unless  terminated  earlier
by the Board, the Plan will automatically terminate on June 21, 2016.

AMENDMENTS.  The Board may  amend or  terminate  the Plan at any time and in any
manner, subject to the following: (1) no recipient of any award may, without his
or her consent, be deprived thereof or of any of his or her rights thereunder or
with respect  thereto as a result of such amendment or  termination;  and (2) if
any law, rule or regulation  requires that any such amendment be approved by the
Company's  stockholders,  then such amendment will not be effective until it has
been approved by the Company's stockholders.

EFFECT OF SECTION 16(b) OF THE SECURITIES  EXCHANGE ACT OF 1934. The acquisition
and  disposition  of  Common  Stock by  officers,  directors  and more  than 10%
stockholders  of the Company  ("Insiders")  pursuant  to awards  granted to them
under the Plan may be subject to Section 16(b) of the Exchange Act.  Pursuant to
Section 16(b), a purchase of Common Stock by an Insider within six months before
or after a sale of Common  Stock by the Insider  could result in recovery by the
Company of all or a portion of any amount by which the sale proceeds  exceed the
purchase  price.  Insiders are required to file reports of changes in beneficial
ownership  under  Section  16(a)  of the  Exchange  Act  upon  acquisitions  and
dispositions  of shares.  Rule 16b-3  provides an exemption  from Section  16(b)
liability for certain  transactions  pursuant to certain employee benefit plans.
The Plan is designed to comply with Rule 16b-3.

TRANSFERABILITY.  Unless the agreement  evidencing the award expressly  provides
otherwise, no award may be sold, transferred,  pledged, assigned or disposed of,
except by will or the laws of descent and distribution,  provided, however, that
an ISO may be transferred or assigned only to the extent consistent with Section
422 of the Code.

WITHHOLDING TAXES.  Participants are required to make arrangements  satisfactory
to the Company for the  satisfaction of any  withholding  tax  obligations  that
arise in connection with the Plan.  Payment of withholding  taxes may be made by
withholding  shares of Common  Stock from any payment of Common  Stock due or by
the delivery by the participant to the Company of previously  acquired shares of
Common Stock,  in either case having an aggregate fair market value equal to the
amount of the required  withholding taxes. No payment will be made and no shares
of Common  Stock will be issued  pursuant to any award made under the Plan until
the applicable tax withholding obligations have been satisfied.


                                       10



UNITED  STATES  FEDERAL  INCOME TAX  CONSEQUENCES.  The  following  is a general
discussion  of the principal  federal  income tax  consequences  under the Plan.
Because the United States federal income tax rules governing options and related
payments  are complex and  subject to change,  optionees  are advised to consult
their tax  advisors  prior to  exercise  of  options  or  dispositions  of stock
acquired  pursuant to option exercise.  The Plan does not constitute a qualified
retirement plan under Section 401(a) of the Code (which  generally covers trusts
forming  part of a stock  bonus,  pension or  profit-sharing  plan funded by the
employer and/or employee  contributions which are designed to provide retirement
benefits to participants under certain  circumstances) and is not subject to the
Employee  Retirement  Income  Security Act of 1974 (the pension reform law which
regulates  most types of  privately  funded  pension,  profit  sharing and other
employee benefit plans).

CONSEQUENCES TO EMPLOYEES:  INCENTIVE STOCK OPTIONS. No income is recognized for
federal income tax purposes by an optionee at the time an Incentive Stock Option
is granted,  and,  except as  discussed  below,  no income is  recognized  by an
optionee upon his or her exercise of an Incentive Stock Option.  If the optionee
disposes of the shares received upon exercise after two years from the date such
option was granted  and after one year from the date such  option is  exercised,
the  optionee  will  recognize  long-term  capital  gain or loss  when he or she
disposes of his or her shares.  Such gain or loss  generally will be measured by
the difference  between the exercise price of the option and the amount received
for the shares at the time of  disposition.  If the optionee  disposes of shares
acquired upon exercise of an Incentive Stock Option within two years after being
granted the option,  or within one year after  acquiring the shares,  any amount
realized from such disqualifying  disposition will be taxable at ordinary income
rates in the year of  disposition  to the extent that the lesser of (a) the fair
market value of the shares on the date the Incentive Stock Option was exercised,
or (b) the  fair  market  value  at the time of such  disposition,  exceeds  the
Incentive Stock Option exercise price.  Any amount realized upon  disposition in
excess of the fair market  value of the shares on the date of  exercise  will be
treated as short-term or long-term  capital gain,  depending  upon the length of
time the shares have been held. The use of stock acquired through exercise of an
Incentive  Stock Option to exercise an Incentive  Stock Option will constitute a
disqualifying disposition if the applicable holding period requirements have not
been  satisfied.  For alternative  minimum tax purposes,  the excess of the fair
market value of the stock as of the date of exercise over the exercise  price of
the  Incentive  Stock  Option is included in computing  that year's  alternative
minimum taxable income. However, if the shares are disposed of in the same year,
the maximum  alternative  minimum taxable income with respect to those shares is
the gain on disposition.  There is no alternative  minimum taxable income from a
disqualifying  disposition  in  subsequent  years.  The exercise of an Incentive
Stock Option is to be considered  wages subject to withholding for FICA purposes
to the extent of the spread  between the exercise  price and value of the Common
Stock as of the date of the exercise.

CONSEQUENCES  TO EMPLOYEES:  NON-STATUTORY  OPTIONS.  An optionee  recognizes no
income at the time Non-Statutory Options are granted under the Plan. In general,
at  the  time  shares  are  issued  to  an  optionee  pursuant  to  exercise  of
Non-Statutory  Options,  the optionee will recognize  income taxable at ordinary
income tax rates equal to the excess of the fair  market  value of the shares on
the date of exercise  over the exercise  price of such shares,  unless the stock
received is not  transferable  and subject to a  substantial  risk of forfeiture
under Code  Section  83 (stock  received  by you which is  subject to  continued
employment or subject to the six month holding period under Section 16(b) of the
Securities  Act of  1934  is  deemed  to be  subject  to a  substantial  risk of
forfeiture  under Code Section 83). An optionee will  recognize  gain or loss on
the subsequent sale of shares acquired upon exercise of Non-Statutory Options in
an amount equal to the difference between the selling price and the tax basis of
the shares,  which will  include the price paid plus the amount  included in the
optionee's  taxable  income  by  reason  of the  exercise  of the  Non-Statutory
Options.  Provided  the  shares  are held as a capital  asset,  any gain or loss
resulting from a subsequent sale will be short-term or long-term capital gain or
loss depending upon the length of time the shares have been held.

CONSEQUENCES TO EMPLOYEES:  RESTRICTED  STOCK.  The receipt of restricted  stock
will not result in a taxable event to the  participant  until the  expiration of
any repurchase rights retained by the Company with respect to such stock, unless
the participant makes an election under Section 83(b) of the Code to be taxed as
of the date of purchase.  If no repurchase rights are retained,  or if a Section
83(b) election is made, the  participant  will recognize  ordinary  income in an
amount  equal to the excess of the fair market  value of such shares on the date
of purchase over the purchase  price paid for such shares.  Even if the purchase
price and the fair market  value of the shares are the same (in which case there
would be no ordinary  income),  a Section  83(b)  election must be made to avoid
deferral of the date ordinary  income is recognized.  The election must be filed
with the Internal Revenue Service not later than thirty (30) days after the date
of transfer. If no Section 83(b) election is made or if no repurchase rights are
retained, a taxable


                                       11



event will occur on each date the  participant's  ownership  rights  vest (e.g.,
when the  Company's  repurchase  rights  expire) as to the number of shares that
vest on that date,  and the holding  period for long-term  capital gain purposes
will not commence until the date the shares vest. The participant will recognize
ordinary income on each date shares vest in an amount equal to the excess of the
fair  market  value of such  shares on that date over the  amount  paid for such
shares.  The income from the restricted stock will also be subject to income and
employment  tax  withholding  in the  year  such  income  is  includible  in the
participant's income.

CONSEQUENCES TO EMPLOYEES:  STOCK APPRECIATION  RIGHTs.  Individuals who receive
stock appreciation rights under the Plan will generally recognize taxable income
upon  exercise of the stock  appreciation  right.  The income  received from the
exercise of the stock  appreciation  right will be ordinary and will be equal to
the amount of cash received or the value of the appreciated  stock.  This amount
will generally be reportable in the participant's income in the year of receipt,
however, if the stock appreciation right is exercised for stock and the stock is
subject  to a  substantial  risk of  forfeiture,  it will be  subject  to tax as
restricted stock (see above  discussion).  The income from a stock  appreciation
right will also be subject to income and employment tax  withholding in the year
such income is includible in the participant's income.

CONSEQUENCES TO THE COMPANY:  INCENTIVE  STOCK OPTIONS,  The Company will not be
allowed a deduction for federal  income tax purposes at the time of the grant or
exercise of an Incentive  Stock Option.  There are also no United States federal
income tax  consequences to the Company as a result of the disposition of shares
acquired upon exercise of an Incentive  Stock Option if the disposition is not a
disqualifying  disposition.  At the time of a  disqualifying  disposition  by an
optionee, the Company will be entitled to a deduction for the amount received by
the  optionee  to the extent  that such  amount is taxable  to the  optionee  at
ordinary income tax rates.

CONSEQUENCES TO THE COMPANY: NON-STATUTORY OPTIONS AND OTHER GRANTS. The Company
generally  will be entitled to a deduction for United States  federal income tax
purposes in the same year and in the same amount as the  optionee is  considered
to have  recognized  income  taxable at ordinary  income tax rates in connection
with the exercise of  Non-Statutory  Options or other grants  received under the
Plan.  In  certain  instances,  the  Company  may  be  denied  a  deduction  for
compensation  attributable to awards granted to certain  officers of the Company
to the extent that such compensation exceeds $1,000,000 in a given year.

CONSEQUENCES OF STOCK UNITS. There will be no federal income tax consequences to
either the participant or the employer upon the grant of restricted stock units.
Generally, the participant will recognize ordinary income subject to withholding
upon the receipt of cash and/or transfer of shares of Common Stock in payment of
the  restricted  stock  units in an amount  equal to the  aggregate  of the cash
received and the fair market value of the Common Stock so  transferred.  Subject
to certain  deduction  limitations,  the Company generally will be entitled to a
corresponding  tax deduction equal to the amount includible in the participant's
income.  Generally, a participant will also recognize ordinary income subject to
withholding upon the payment of any dividend equivalents paid with respect to an
award  in an  amount  equal to the cash the  participant  receives.  Subject  to
certain  deduction  limitations,  the  Company  generally  will be entitled to a
corresponding  tax deduction equal to the amount includible in the participant's
income.

APPLICATION OF SECTION 409A OF THE CODE.  Recently  enacted  Section 409A of the
Code  imposes an  additional  20% tax and  interest on an  individual  receiving
nonqualified  deferred  compensation  under a plan that fails to satisfy certain
requirements.  For purposes of Section 409A of the Code,  "nonqualified deferred
compensation"  includes  equity-based  incentive programs,  including some stock
options, stock appreciation rights and restricted stock unit programs. Generally
speaking,  Section 409A of the Code does not apply to incentive  stock  options,
nonqualified  stock  options  granted at fair  market  value if no  deferral  is
provided beyond exercise,  or restricted stock. In limited  circumstances,  SARs
are exempt from Section 409A of the Code.

Awards  made  pursuant  to  the  Plan  will  be  designed  to  comply  with  the
requirements  of Code  Section 409A to the extent the awards  granted  under the
Plan are not exempt  from  coverage.  However,  if the Plan fails to comply with
Section 409A of the Code in  operation,  a  participant  could be subject to the
additional taxes and interest.


                                       12



NEW PLAN BENEFITS

Because awards under the Plan are  discretionary,  benefits or amounts that will
hereinafter  be  received  by or  allocated  to the  CEO,  the  named  executive
officers, all current executive officers as a group, the non-executive directors
as a group, and all employees who are not executive officers,  are not presently
determinable.

RECOMMENDATION

The adoption of the Patron Systems,  Inc. 2006 Stock Incentive Plan will require
the  affirmative  vote of a majority of the shares of Common Stock and Preferred
Stock, voting as a single class,  present or represented and entitled to vote at
the Annual Meeting.

All Proxies will be voted to approve this  amendment  unless a contrary  vote is
indicated on the enclosed Proxy card.

THE BOARD  UNANIMOUSLY  RECOMMENDS  A VOTE  "FOR"  THE  ADOPTION  OF THE  PATRON
SYSTEMS, INC. 2006 STOCK INCENTIVE PLAN.


                                       13



ITEM 3:    AMENDMENT OF SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

The Board is requesting  stockholder  approval of an amendment (the "Amendment")
to the Company's  Second Amended and Restated  Certificate of  Incorporation  to
provide for a 1-for-30 reverse stock split of our issued and outstanding  Common
Stock.

On May 10,  2006,  our Board of  Directors  adopted  and  declared  advisable  a
resolution  approving  an  amendment  to our  Certificate  of  Incorporation  to
effectuate a pro-rata  reverse split of our issued and outstanding  Common Stock
by which every thirty (30) shares will become one share (the  "Reverse  Split").
The  principal  effect of the Reverse  Split will be to  decrease  the number of
issued and outstanding  shares of our Common stock.  Except for adjustments that
may result from the  treatment of  fractional  shares as described  below,  each
holder of Common Stock will hold the same percentage of Common Stock outstanding
immediately  following the Reverse Split as such  stockholder  held  immediately
prior to the Reverse Split.  The relative voting and other rights that accompany
the shares of Common Stock will not be affected by the Reverse Split.

The Company's Certificate of Incorporation, as amended, presently authorizes the
issuance  of  150,000,000  shares  of  Common  Stock  and  75,000,000  shares of
Preferred Stock,  each having a par value of $0.01 per share. Of the 150,000,000
presently authorized shares of Common Stock, 56,398,360,  shares were issued and
outstanding  on May 10,  2006,  the record date.  An aggregate of  approximately
429,020,474  shares of Common  Stock have been  reserved  for issuance as of the
record  date  pursuant  to  outstanding  options,   warrants,  an  accommodation
agreement and  Preferred  Stock.  Accordingly,  no shares of Common Stock remain
available  for  corporate  purposes.  In addition,  pursuant to this Proxy,  the
Company is seeking stockholder  approval of the Patron Systems,  Inc. 2006 Stock
Incentive Plan. Accordingly, assuming the proposal to adopt the Plan is approved
by our  stockholders,  an  additional  5,600,000  shares of Common  Stock,  on a
post-Reverse  Split basis will be reserved for issuance.  The Board considers it
advisable to have  additional  shares of Common Stock available for issuance for
possible  future  stock  dividends  or  stock  splits  and for  other  corporate
purposes. In Addition,  the Board believes it is desirable that the Company have
the  flexibility  to issue shares of Common Stock  without  further  stockholder
action, except as required by law.

The Board has  unanimously  adopted a  resolution  setting  forth the  following
proposed  amendment to the Company's  Certificate of  Incorporation  pursuant to
which Section (A) of Article IV of the Company's  Certificate  of  Incorporation
will be amended to read in its entirety as follows:

         "Authorized  Capital Stock. The total number of shares of capital stock
         which the  Corporation  shall have  authority to issue is  225,000,000,
         consisting of 150,000,000 shares of common stock, with the par value of
         $0.01 per share ("Common  Stock"),  and 75,000,000  shares of preferred
         stock, with the par value of $0.01 per share.  Simultaneously  with the
         effective  date of the filing of this  amendment to the Second  Amended
         and Restated  Certificate of Incorporation (the "Effective Date"), each
         share of Common Stock of the Corporation issued and outstanding or held
         as treasury  shares  immediately  prior to the Effective Date (the "Old
         Common Stock") shall  automatically  be reclassified and continued (the
         "Reverse Split"), without any action on the part of the holder thereof,
         as   one-thirtieth  of  one  share  (0.033333)  of  Common  Stock.  The
         Corporation shall not issue fractional shares on account of the Reverse
         Split. Holders of Old Common Stock who would otherwise be entitled to a
         fraction of a share on account of the Reverse Split shall receive, upon
         surrender  of  all  of  such  holder's  stock   certificates   formerly
         representing  shares of Old Common  Stock,  in lieu of such  fractional
         share, one whole share of Common Stock.

         The Corporation's stated capital shall be reduced by an amount equal to
         the  aggregate  par value of the shares of Common Stock issued prior to
         the  effectiveness  of this Certificate of Amendment which, as a result
         of the Reverse Split  provided for herein,  are no longer issued shares
         of Common Stock."

EFFECTIVE  DATE OF THE  AMENDMENT.  The Amendment  will become  effective on the
close of business on the date we file the Certificate of Amendment ("Certificate
of Amendment") of the Certificate of Incorporation  with the Delaware  Secretary
of  State  (the  "Effective  Date").  The  complete  text  of  the  form  of the
Certificate  of Amendment is set forth as APPENDIX "B" to this Proxy  Statement.
We anticipate that the Effective Date will occur on or around


                                       14



June 26, 2006.  However,  the exact timing of the filing of the  Certificate  of
Amendment will be determined by our Board of Directors based upon its evaluation
as to when the Amendment will be most  advantageous to us and our  stockholders,
and the Board of Directors reserves the right to delay filing the Certificate of
Amendment for up to six (6) months. In addition, the Board of Directors reserves
the right,  notwithstanding  stockholder  approval and without further action by
the  stockholders,  to elect not to proceed with the  Amendment  if, at any time
prior to filing the  Certificate  of Amendment,  the Board of Directors,  in its
sole  discretion,  determines  that it is no longer in the best interests of the
Company and the stockholders.

Stockholders do not have the statutory right to dissent and obtain  appraisal of
their shares under Delaware law in connection with the Amendment.

EFFECT OF THE REVERSE SPLIT. Upon effectiveness of the Certificate of Amendment,
without  further action by us or our  stockholders,  the  outstanding  shares of
Common Stock held by  stockholders  of record as of the  Effective  Date will be
converted into the right to receive a number of shares of common stock (the "New
Common  Stock")  calculated  based on a reverse  split  ratio of  one-for-thirty
shares.  For example,  if a stockholder  presently  holds 1,500 shares of Common
Stock,  that  stockholder  will hold 50 shares of New Common Stock following the
Reverse Split.

REASONS  FOR THE REVERSE  SPLIT.  The Reverse  Split and  resulting  anticipated
increase in the price of our Common Stock should enhance the  acceptability  and
marketability  of our Common  Stock to the  financial  community  and  investing
public. Many institutional investors have policies prohibiting them from holding
lower-priced  stocks in their portfolios,  which reduces the number of potential
buyers of our Common Stock.  Additionally,  analysts at many brokerage firms are
reluctant  to  recommend  lower-priced  stocks to their  clients or monitor  the
activity of lower-priced stocks.  Brokerage houses also frequently have internal
policies that discourage individual brokers from dealing in lower-priced stocks.
Further,  because brokers' commissions on lower-priced stock generally represent
a higher  percentage of the stock price than commissions on higher priced stock,
investors  in  lower-priced  stocks  pay  transaction  costs  which are a higher
percentage  of their  total  share  value,  which may limit the  willingness  of
individual investors and institutions to purchase our Common Stock.

Additionally,  in connection  with the entry into final and binding  settlements
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  ("Claims")  of  our  existing  creditors   and/claim  holders
("Claimants"),  we  negotiated  the  issuance  of one  share of our  Series  A-1
Preferred Stock for each $0.80 of Claims held by such  Claimants.  Each share of
Series A-1 Preferred  Stock is currently  convertible,  on a  pre-Reverse  Split
basis, into 10 shares of Common Stock, and will  automatically  convert upon the
effectiveness  of the  Amendment.  In  light  of the  fact  that we did not have
sufficient  shares of  authorized  but unissued  Common Stock to issue shares of
Common  Stock to the  Claimants,  we issued  shares of our Series A-1  Preferred
Stock.  Presently,  we do not have sufficient  shares of authorized but unissued
Common  Stock  to  reserve  for the  potential  issuance  of these  shares  upon
conversion of the shares of Series A-1 Preferred  Stock. The effectuation of the
Reverse Split will  increase the  availability  of  authorized  shares of Common
Stock so as to effectuate  the  conversion of the shares of Series A-1 Preferred
Stock into shares of Common Stock.

We have also issued  shares of Series A  Preferred  Stock in  connection  with a
financing  transaction.  Each  share of Series A  Preferred  Stock is  currently
convertible,  on a pre-Reverse  Split basis, into 62,500 shares of Common Stock.
Presently,  we do not have  sufficient  shares of authorized but unissued Common
Stock to reserve for the potential  issuance of these shares upon  conversion of
the shares of Series A Preferred  Stock.  The  effectuation of the Reverse Split
will increase the  availability  of  authorized  shares of Common Stock so as to
facilitate the conversion of the shares of Series A Preferred  Stock into shares
of Common Stock.

Our Board  considers  it  advisable  to have  additional  shares  available  for
issuance  under our  employee  benefit  plans,  to raise  capital in a public or
private  offering,  for  acquisitions  and  other  strategic  transactions,  for
possible  future  stock  dividends  or  stock  splits  and for  other  corporate
purposes.  In  addition,  our Board  believes it is  desirable  that we have the
flexibility to issue shares of Common Stock without further  stockholder action,
except as required by law. We have no current agreements to enter into any stock
offerings  or  strategic  transactions,  nor do we  presently  have  any  plans,
proposals  or  arrangements,  written  or  otherwise,  to issue any of the newly
available  authorized  shares of Common Stock for any purpose,  including future
acquisitions and/or financings,  other than in connection with the conversion of
Preferred Shares.


                                       15



The Reverse Split may result in some stockholders owning "odd-lots" of less than
100 shares.  Brokerage  commissions  and other costs of transactions in odd-lots
may be higher,  particularly on a per-share basis, than the cost of transactions
in even multiples of 100 shares.

RISK FACTOR. We cannot assure  stockholders  that the post-Reverse  Split market
price of our Common  Stock will  increase  proportionately  to the ratio for the
Reverse  Split.  Further,  the Reverse  Split will result in  approximately  136
million  post-Reverse  Split shares of Common Stock  (accounting  for  automatic
conversion of the Series A-1 Preferred Stock) available for future issuance.  As
such,  should we determine to issue more Common  Stock,  the number of shares of
Common Stock  available  for issuance due to the Reverse Split may result in the
dilution of the currently outstanding Common Stock.

NO FRACTIONAL SHARES. We will not issue any fractional shares in connection with
the Reverse Split.  Holders of old Common Stock who would  otherwise be entitled
to a fraction of a share on account of the Reverse  Split  shall  receive,  upon
surrender  of all of such  holder's  stock  certificates  formerly  representing
shares of the old Common  Stock,  in lieu of such  fractional  share,  one whole
share of Common Stock.

EXCHANGE OF STOCK  CERTIFICATES.  The Reverse Split will occur  automatically on
the Effective Date,  regardless of when stockholders  physically surrender their
stock  certificates  for new stock  certificates.  When  effected,  our transfer
agent,  American  Stock  Transfer & Trust  Company,  will act as exchange  agent
("Exchange Agent") to implement the exchange of stock  certificates.  As soon as
practicable  after the  Effective  Date,  we or the  Exchange  Agent will send a
letter  to  each  stockholder  of  record  at  the  Effective  Date  for  use in
transmitting   certificates  representing  shares  of  our  Common  Stock  ("Old
Certificates")  to the Exchange  Agent.  The letter of transmittal  will contain
instructions  for the  surrender of Old  Certificates  to the Exchange  Agent in
exchange for certificates representing the appropriate number of whole shares of
New Common  Stock.  No new stock  certificates  will be issued to a  stockholder
until such  stockholder has surrendered  all Old  Certificates,  together with a
properly  completed and executed letter of  transmittal,  to the Exchange Agent.
Stockholders  would then receive a new certificate in exchange for  certificates
representing  the number of whole  shares of New Common  Stock into which  their
shares of Common  Stock have been  converted  as a result of the Reverse  Split.
Until   surrendered,   we  will  deem  outstanding  Old  Certificates   held  by
stockholders  to be canceled and only to represent the number of whole shares of
New Common Stock to which these  stockholders are entitled.  All expenses of the
exchange of certificates will be borne by us.

                          YOU SHOULD NOT SEND YOUR OLD
                  CERTIFICATES TO THE EXCHANGE AGENT UNTIL YOU
                     HAVE RECEIVED THE LETTER OF TRANSMITTAL

POTENTIAL  ANTI-TAKEOVER  EFFECTS.  Certain  provisions  of our  Certificate  of
Incorporation,  bylaws  and  Delaware  law may  have  the  effect  of  delaying,
deferring or discouraging another person from acquiring control of the Company.

Our  Certificate  of  Incorporation,  as  amended,  allows our Board to issue an
additional  39,576,281 shares of preferred stock, in one or more series and with
such rights and preferences including voting rights, without further shareholder
approval.  In the event that the Board designates additional series of preferred
stock with rights and preferences,  including  super-majority voting rights, and
issues such preferred  stock,  the preferred stock could make our acquisition by
means of a tender offer, a proxy contest or otherwise, more difficult, and could
also make the removal of incumbent  officers and directors more difficult.  As a
result,  these provisions may have an anti-takeover  effect. The preferred stock
authorized in our articles of incorporation,  as amended, may inhibit changes of
control that are not  approved by our Board.  These  provisions  could limit the
price that future investors might be willing to pay in the future for our Common
Stock. This could have the effect of delaying,  deferring or preventing a change
in  control  of  the  Company.  The  issuance  of  preferred  stock  could  also
effectively  limit or dilute the voting  power of our  stockholders.  According,
such provisions of our Certificate of incorporation may discourage or prevent an
acquisition or  disposition of our business that could  otherwise be in the best
interest of our stockholders.

Following  the  Amendment,  we will have  available  approximately  136  million
(accounting  for  automatic  conversion  of  the  Series  A-1  Preferred  Stock)
authorized but unissued shares of our Common Stock available for future issuance
without stockholder approval.  These additional shares may be used for a variety
of corporate  purposes,  including a future public offering to raise  additional
capital,  corporate  acquisitions  and employee  benefit plans. The existence of
authorized  but  unissued  shares of Common  Stock may enable our Board to issue
shares of stock to


                                       16



persons  friendly to existing  management.  As a result,  our  issuance of these
shares could have an anti-takeover effect.

In addition,  our Board is grouped into three classes, as nearly equal in number
as possible. Directors hold office for staggered terms of three years and one of
the three classes is elected each year to succeed the directors  whose terms are
expiring.  The staggered  nature of election of members to our Board may make it
difficult to effect a change of incumbent  management and control.  As our Board
currently consists of 3 members,  it would take two annual meetings to replace a
majority of our Board.  This feature may also serve to entrench  management  and
make their removal more difficult.

Finally, we are subject to the provisions of Section 203 of the Delaware General
Corporation Law. That section  provides,  with some exceptions,  that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person  or  affiliate,  or  associate  of the  person,  who is an  "interested
stockholder" for a period of three years from the date that the person became an
interested  stockholder  unless:  (i)  the  transaction  resulting  in a  person
becoming an interested stockholder,  or the business combination, is approved by
the  board  of  directors  of the  corporation  before  the  person  becomes  an
interested stockholder;  (ii) the interested stockholder acquires 85% or more of
the  outstanding  voting stock of the corporation in the same  transaction  that
makes it an interested  stockholder,  excluding  shares owned by persons who are
both officers and directors of the corporation, and shares held by some employee
stock  ownership  plans;  or (iii) on or after the date the  person  becomes  an
interested   stockholder,   the   business   combination   is  approved  by  the
corporation's  board of directors  and by the holders of at least 66 2/3% of the
corporation's  outstanding  voting  stock  at  an  annual  or  special  meeting,
excluding   shares  owned  by  the   interested   stockholder.   An  "interested
stockholder"  is defined  as any person  that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation  and was the owner of 15% or more of the  outstanding  voting
stock of the  corporation at any time within the three-year  period  immediately
prior to the date on which it is sought to be  determined  whether the person is
an interested stockholder.

The  Amendment  is not the  result  of any  specific  effort to  accumulate  our
securities  or to obtain  control of our  company  by means of a merger,  tender
offer,  solicitation in opposition to management or otherwise.  The Amendment is
not part of a plan by  management  to adopt a series  of  provisions  having  an
anti-takeover  effect and management does not presently  intend to propose other
anti-takeover measures in future proxy solicitations.

EFFECT ON OUTSTANDING SHARES.  Except for de minimus adjustments that may result
from the treatment of fractional  interests as described above, once the Reverse
Split is  completed,  the  number of shares of our  Common  Stock  owned by each
stockholder will be reduced in the same proportion as the reduction in the total
number of shares outstanding, such that the percentage of our Common Stock owned
by each stockholder will remain unchanged.  The number of shares of Common Stock
that may be purchased upon exercise of outstanding options,  warrants, and other
securities  convertible  into, or exercisable or exchangeable for, shares of our
Common Stock, and the exercise or conversion prices for these  securities,  will
be adjusted in accordance with their terms as of the Effective Date.

On the Effective  Date,  each share of Series A-1  Preferred  Stock will convert
into one third (1/3) of a share of Common Stock (on a post-Reverse Split basis).

ACCOUNTING CONSEQUENCES. The par value of our Common Stock will remain unchanged
at $0.01 per  share  after the  Reverse  Split.  However,  the  Common  Stock as
designated  on our  balance  sheet will be  adjusted  downward in respect of the
shares of the New Common  Stock to be issued in the Reverse  Split such that the
stated value of the Common  Stock will become an amount  equal to the  aggregate
par value of the shares of New Common Stock being  issued in the Reverse  Split,
and the  Additional  Paid-in  Capital as designated on our balance sheet will be
increased  by an amount  equal to the  amount by which the  stated  capital  was
decreased.  Additionally, net loss per share would increase proportionately as a
result of the Reverse  Split.  We do not  anticipate  that any other  accounting
consequence would arise as a result of the Reverse Split.

FEDERAL  INCOME TAX  CONSEQUENCES.  The  following  is a summary of the material
anticipated  United States federal income tax  consequences  of the Amendment to
our stockholders.  This summary is based on the United States federal income tax
laws now in effect and as currently interpreted,  and does not take into account
possible changes in such laws or  interpretations.  This summary is provided for
general  information  only and does not  address  all  aspects  of the  possible
federal  income tax  consequences  of the  Amendment  and is not intended as tax
advice to any person. In particular,  this summary does not consider the federal
income tax consequences to our stockholders in


                                       17



light of their  individual  investment  circumstances  or to holders  subject to
special  treatment  under the federal  income tax laws, and does not address any
consequences of the Amendment under any state, local, or foreign tax laws.

We believe that our  stockholders who exchange their Common Stock solely for New
Common Stock should  generally  recognize no gain or loss for federal income tax
purposes. A stockholder's  aggregate tax basis in its shares of New Common Stock
received  should  be the same as the  stockholder's  aggregate  tax basis in the
Common  Stock  exchanged  therefor.  The holding  period of the New Common Stock
received  by that  stockholder  should  include  the  period  during  which  the
surrendered Common Stock was held,  provided all such Common Stock was held as a
capital asset at the Effective Date.

We will not recognize any gain or loss as a result of the Reverse Split.


RECOMMENDATION

The  approval of the  Amendment  to the  Company's  Second  Amended and Restated
Certificate  of  Incorporation  will  require (i) a majority of the  outstanding
shares of Common Stock as of the record date voting as a separate class,  (ii) a
majority  of the  outstanding  shares of Series  A-1  Preferred  Stock as of the
record date  voting as a separate  class,  (iii) a majority  of the  outstanding
shares of Series A  Preferred  Stock as of the record  date voting as a separate
class, and (iv) a majority of the outstanding shares of Common Stock, Series A-1
Preferred  Stock and Series A Preferred  Stock as of the record date voting as a
single class.

THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE
COMPANY'S SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.


                                       18



                             EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

The following table sets forth, as to the Chief Executive  Officer and the other
four most highly  compensated  executive  officers at the end of the fiscal year
ended December 31, 2005  (collectively  the "Named  Executive  Officers")  whose
compensation  exceeded  $100,000 during the fiscal year ended December 31, 2005,
information  concerning  all  compensation  paid  for  services  to  us  in  all
capacities.



                                                     ANNUAL COMPENSATION                 LONG-TERM COMPENSATION
                                                ---------------------------------   -------------------------------
                                                                                           AWARDS           PAYOUTS
                                                                                    -------------------------------
                                                                        Other                    Securities
                                                                        Annual      Restricted   underlying
                                                Salary      Bonus    Compensation     Stock       options /   LTIP     All Other
Name and Principal Position            Year       ($)        ($)          ($)       Award(s)($)   SARs (#)   Payouts  Compensation
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
Robert Cross(1)                        2005     186,458    82,388          0            0         1,000,000     0          0
     Director, Chief Executive         2004           0         0          0            0                 0     0          0
     Officer                           2003           0         0          0            0                 0     0          0

----------------------------------------------------------------------------------------------------------------------------------
Brett Newbold(2)                       2005     150,624         0          0            0                 0     0          0
     President & Chief Technology      2004           0         0          0            0                 0     0          0
     Officer                           2003     159,000         0          0            0                 0     0          0
----------------------------------------------------------------------------------------------------------------------------------
William Hammon(3)                      2005     157,500         0          0            0           400,000     0          0
     Chief Marketing Officer           2004           0         0          0            0                 0     0          0
                                       2003           0         0          0            0                 0     0          0
----------------------------------------------------------------------------------------------------------------------------------
James E. Morriss(4)                    2005     141,666         0          0            0           600,000     0          0
     Vice President -                  2004           0         0          0            0                 0     0          0
     Engineering                       2003           0         0          0            0                 0     0          0
----------------------------------------------------------------------------------------------------------------------------------
Heidi B. Newton(5)                     2005     142,500    15,000          0            0           200,000     0          0
     Vice President - Finance          2004           0         0          0            0                 0     0          0
     and Administration                2003           0         0          0            0                 0     0          0
----------------------------------------------------------------------------------------------------------------------------------


(1)      Mr. Cross became Patron's Chief Executive Officer on February 28, 2005.
         On July 1, 2005, Mr. Cross was granted an option to purchase  1,000,000
         shares of the Company's  Common Stock at a per share  exercise price of
         $0.65. This option terminates on June 30, 2015.

(2)      Mr. Newbold was named Patron's  President and Chief Technology  Officer
         on February  28,  2005.  Previously,  Mr.  Newbold was  Patron's  Chief
         Technology Officer and President, Technology Products Group joining the
         Company on October 11, 2002. He later  terminated  his employment as of
         June 30, 2003.

(3)      Mr. Hammon became Patron's Chief Marketing Officer upon the acquisition
         of  Entelagent  on March 30,  2005.  On August  17,  2005,  Mr.  Hammon
         received an option to purchase  400,000 shares of the Company's  Common
         Stock  at a per  share  exercise  price of  $0.34.  This  option  grant
         terminates on August 16, 2015. Mr. Hammon's employment with the Company
         ended on January 9, 2006.

(4)      Mr. Morriss  became  Patron's Vice  President-Engineering  on March 31,
         2005. On August 17, 2005, Mr. Morriss was granted an option to purchase
         600,000  shares of the Company's  Common Stock at a per share  exercise
         price of $0.34. This option terminates on August 16, 2015.

(5)      Ms. Newton became Patron's Vice President - Finance and  Administration
         on February  26,  2005.  On August 17,  2005 Ms.  Newton was granted an
         option to purchase  200,000  shares of the Company's  Common Stock at a
         per share exercise price of $0.34. This option terminates on August 16,
         2015.


                                       19



OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 2005



                           NUMBER OF
                           SECURITIES        % OF TOTAL OPTIONS
                       UNDERLYING OPTIONS   GRANTED TO EMPLOYEES   EXERCISE    EXPIRATION
NAME                        GRANTED          IN FISCAL YEAR(1)      PRICE(2)      DATE
--------------------   ------------------   --------------------   --------    ----------
                                                                     
Robert Cross .......       1,000,000               18.8%            $0.65(3)     6/30/15
Brett Newbold ......              --                  --               --             --
William Hammon .....         400,000                7.5%            $0.34        8/16/15
James E. Morriss ...         600,000               11.3%            $0.34        8/16/15
Heidi B. Newton ....         200,000                3.8%            $0.34        8/16/15


(1)      The total number of stock options granted to employees  during the year
         ended December 31, 2005 was 5,315,000 shares.

(2)      The exercise  price of such  options was equal to closing  price on the
         trading day immediately preceding the date of grant, except as noted.

(3)      Mr. Cross' options were granted at a per share exercise price of $0.65.
         The closing price on the date of grant was $0.68.

DIRECTOR COMPENSATION

Patron's non-employee  directors do not receive compensation for their services.
Directors are reimbursed for travel expenses associated with attendance at Board
meetings.  There were no  reimbursement  of travel expenses in each of the years
ended December 31, 2005 and 2004.

EXECUTIVE EMPLOYMENT AGREEMENTS

ROBERT W. CROSS

On February 28, 2005, the Company's  Board approved the appointment of Mr. Cross
as our Chief Executive Officer and Acting Chief Financial Officer.

On July 1, 2005,  we entered  into an  employment  agreement  with Mr.  Cross in
connection with Mr. Cross's employment for a one-year term, subject to automatic
renewal,  commencing on July 1, 2005, as Chief Executive Officer. The Employment
Agreement provides for a base salary of $200,000 per year with a non-recoverable
draw of  $100,000  (grossed  up for  taxes)  during  the first six months of the
Agreement.  In the event that his  employment  is  terminated,  Mr.  Cross shall
continue  to  receive  his base  salary  and  shall  be  entitled  to  continued
participation in our executive benefit plans for a period of six (6) months. The
Employment  Agreement  also  provides  for a  performance  bonus  determined  in
accordance with quarterly  revenue  milestones that are to be established by the
Board.  Mr. Cross is eligible to receive a bonus of up to 100% of quarterly base
salary for each  quarter  that the  Company  achieves  the agreed  upon  revenue
milestones.  Additionally,  the Employment  Agreement  provides for the grant of
1,000,000 stock options at an exercise price of $0.65 per share with the options
vesting 25% on July 1, 2005, 25% on September 30, 2005, 25% on December 31, 2005
and 25% on March 31, 2006. The options expire on June 30, 2012.

Mr.  Cross's  employment  agreement  will  terminate  on the  expiration  of the
agreement's  term, his death, or delivery of written notice of termination by us
to Mr. Cross if he were to suffer a permanent disability rendering him unable to
perform  his  duties  and  obligations  under the  agreement  for 90 days in any
12-month period. We can terminate Mr. Cross's  employment by delivery of written
notice of such  termination  "for cause" or  "without  cause" (as such terms are
defined in his employment  agreement) to Mr. Cross.  Mr. Cross can terminate his
employment by delivery of written  notice of  termination  "for good reason" (as
such term is defined in his employment agreement) to us. Mr. Cross agrees not to
compete with us or solicit  certain of our  employees or clients for a period of
one year after the termination of his employment.


                                       20



On March 7, 2006, the Patron Board of Directors,  in executive  session  without
Mr. Cross being present,  approved a bonus arrangement ("Bonus Arrangement") for
Mr.  Cross.  The  Bonus  Arrangement  provides  for (i) a cash  bonus  equal  to
$200,000,  grossed up for taxes (the "Cash Bonus"), (ii) the Cash Bonus would be
payable  only after  agreement  has been  reached  with  creditors  holding  the
applicable  percentage of Patron's  creditor  obligations agree to convert their
obligations under the Creditor and Claimant  Liabilities  Restructuring and when
the funding escrow  established  by Laidlaw has been released (the  "Eligibility
Date"),  (iii) 50% of the Cash Bonus would be paid on the Eligibility  Date, and
the  other 50% would be paid in ten equal  monthly  installments  beginning  one
month  following the  Eligibility  Date, and (iv) on the  Eligibility  Date, Mr.
Cross would be granted a stock  option in an amount  representing  an  aggregate
2.5% of the outstanding  shares of Company common stock on the Eligibility  Date
("Initial Cross Grant").  Additionally,  upon the completion of the Creditor and
Claimant  Liabilities  Restructuring,  Mr.  Cross will be granted an  additional
option ("Cross  Additional  Option") which together with the Cross Initial Grant
shall enable Mr. Cross to purchase, along with the Cross Initial Grant shares of
Company  common  stock   representing  2.5%  of  the  common  stock  issued  and
outstanding   after   completion  of  the  Creditor  and  Claimant   Liabilities
Restructuring  on a fully-diluted  basis.  These options have a term of 10 years
and vest 20% on the date of grant and  1/48th of the  balance on the last day of
each month for the next 48 months following the Eligibility Date.

BRETT NEWBOLD

On February 28, 2005, we entered into an employment agreement with Brett Newbold
in connection  with Mr.  Newbold's  employment for a one-year  term,  subject to
automatic  renewal,  commencing  on February  28, 2005,  as President  and Chief
Technology  Officer.  Mr.  Newbold will receive a minimum  annual base salary of
$190,000  during each fiscal year of the agreement,  subject to adjustment on an
annual basis by the Board.  In the event that his employment is terminated,  Mr.
Newbold  shall  continue  to receive  his base  salary and shall be  entitled to
continued  participation in our executive  benefit plans for a period of six (6)
months.  Mr.  Newbold is eligible  to receive (i) an annual  bonus of 50% of his
annual base salary if certain  financial  performance  measures are attained and
(ii) such  discretionary  bonuses as may be authorized by the Board from time to
time for executive  employees.  Mr.  Newbold also is eligible to  participate in
stock  option and other  employee  benefit  plans of the Company  that may be in
effect from time to time.

Mr.  Newbold's  employment  agreement  will  terminate on the  expiration of the
agreement's  term, his death, or delivery of written notice of termination by us
to Mr. Newbold if he were to suffer a permanent  disability rendering him unable
to perform his duties and  obligations  under the  agreement  for 90 days in any
12-month  period.  We can  terminate  Mr.  Newbold's  employment  by delivery of
written notice of such termination "for cause" or "without cause" (as such terms
are  defined  in his  employment  agreement  to Mr.  Newbold.  Mr.  Newbold  can
terminate his employment by delivery of written notice of termination  "for good
reason" (as defined in his  employment  agreement) to us. Mr. Newbold agrees not
to compete with us or solicit  certain of our  employees or clients for a period
of two years after the termination of his employment.

BRADEN WAVERLEY

On February 17, 2006,  the Company  entered into an  employment  agreement  (the
"Waverley Agreement") with Braden Waverley ("Waverley"), the Company's new Chief
Operating Officer. The term of the Waverley Agreement is one year with automatic
one-year  renewal  unless  Mr.  Waverley  is  provided  with  written  notice of
non-renewal  90 days prior to  expiration  of the current  term of the  Waverley
Agreement.  The  Waverley  Agreement  provides for a base salary of $200,000 per
year.  The Waverley  Agreement  provides for a performance  bonus  determined in
accordance  with  revenue  milestones  established  by the Board on a  quarterly
basis.  Mr.  Waverley is eligible to receive a bonus of up to 75% of base salary
for each quarter that the Company  achieves the agreed upon revenue  milestones.
Additionally,  the Waverley Agreement provides for the grant of stock options in
an amount  representing an aggregate 3.5% of the  outstanding  shares of Company
Common  Stock on the date of grant  ("Waverley  Initial  Grant").  The  Waverley
Initial Grant is for 2,201,119  shares at an exercise price of $0.055 per share.
Additionally,  upon the  completion  of the  resolution  of Claims  through  the
issuance  of Series  A-1  Preferred  Stock,  Mr.  Waverley  will be  granted  an
additional  option  ("Waverley  Additional  Option")  which  together  with  the
Waverley  Initial  Grant shall enable Mr.  Waverley to purchase,  along with the
Waverley Initial Grant,  shares of Company Common Stock representing 3.5% of the
Common  Stock  issued and  outstanding  after  completion  of the  Creditor  and
Claimant Liabilities  Restructuring on a fully-diluted basis. These options have
a term of 10 years and vest 20% on the date of


                                       21



grant and  1/48th of the  balance  on the last day of each month for the next 48
months following the effective date of this agreement.

MARTIN T. JOHNSON

On February 17, 2006,  the Company  entered into an  employment  agreement  (the
"Johnson Agreement") with Martin T. Johnson ("Johnson"), the Company's new Chief
Financial Officer.  The term of the Johnson Agreement is one year with automatic
one-year  renewal  unless  Mr.  Johnson  is  provided  with  written  notice  of
non-renewal  90 days prior to  expiration  of the  current  term of the  Johnson
Agreement.  The Johnson  Agreement  provides  for a base salary of $180,000  per
year.  The Johnson  Agreement  provides for a  performance  bonus  determined in
accordance  with  revenue  milestones  established  by the Board on a  quarterly
basis.  Mr.  Johnson is  eligible to receive a bonus of up to 50% of base salary
for each quarter that the Company  achieves the agreed upon revenue  milestones.
Additionally,  the Johnson Agreement  provides for the grant of stock options in
an amount  representing an aggregate 1.25% of the outstanding  shares of Company
Common Stock on the date of grant ("Johnson Initial Grant"). The Johnson Initial
Grant  is  for  786,114  shares  at an  exercise  price  of  $0.055  per  share.
Additionally,  upon the  completion  of the  resolution  of Claims  through  the
issuance  of  Series  A-1  Preferred  Stock,  Mr.  Johnson  will be  granted  an
additional option ("Johnson  Additional Option") which together with the Johnson
Initial  Grant  shall  enable Mr.  Johnson to  purchase,  along with the Johnson
Initial Grant,  shares of Company Common Stock  representing 1.25% of the Common
Stock  issued and  outstanding  after  completion  of the  Creditor and Claimant
Liabilities Restructuring on a fully-diluted basis. These options have a term of
10 years and vest 20% on the date of grant and 1/48th of the balance on the last
day of each month for the next 48 months  following the  effective  date of this
agreement.


                                       22



         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of our Common  Stock as of May 10, 2006,  by (i) each person (or group
of affiliated  persons) who is known by us to  beneficially  own more than 5% of
the outstanding shares of our Common Stock, (ii) each of our directors, director
nominees  and  executive  officers,  and  (iii) all of our  executive  officers,
director nominees and directors as a group. Under Rule 13d-3, certain shares may
be deemed to be  beneficially  owned by more than one person (if,  for  example,
persons  share the  power to vote or the power to  dispose  of the  shares).  In
addition,  shares are deemed to be beneficially  owned by a person if the person
has the right to acquire the shares (for  example,  upon  exercise of an option)
within 60 days of the date as of which the information is provided. In computing
the  percentage  ownership of any person,  the amount of shares  outstanding  is
deemed to include  the amount of shares  beneficially  owned by such person (and
only such  person)  by  reason of these  acquisition  rights.  As a result,  the
percentage of  outstanding  shares of any person as shown in this table does not
necessarily  reflect the person's actual  ownership or voting power with respect
to the number of shares of Common Stock actually outstanding at May 10, 2006. As
of May 10,  2006,  there were  56,398,360  shares of Common  Stock  outstanding.
Except as otherwise  indicated,  the address of each of the executive  officers,
directors and more than 5% stockholders named below is c/o Patron Systems, Inc.,
5775 Flatiron Parkway, Suite 230, Boulder, CO 80301.


                                   AMOUNT AND NATURE OF
CERTAIN BENEFICIAL OWNERS          BENEFICIAL OWNERSHIP         PERCENT OF CLASS
-------------------------          --------------------         ----------------

DIRECTORS, DIRECTOR NOMINEES &
EXECUTIVE OFFICERS

Robert W. Cross(1)                            1,066,667                     1.9%
Braden Waverley(2)                              623,650                     1.1%
Brett Newbold(3)                              4,075,000                     7.2%
Martin T. Johnson(4)                            222,732                        *
James E. Morriss(5)                             272,000                        *
Heidi B. Newton                                 202,114                        *
Robert E. Yaw II(6)                           2,950,000                     5.2%
George M. Middlemas                              22,751                        *
ALL DIRECTORS AND EXECUTIVE
   OFFICERS AS A GROUP(7)                     9,434,914                    16.7%

5% STOCKHOLDERS
Apex Investment Fund V, L.P.(8)              11,547,838                    20.5%
   225 W. Washington St.,
   Suite 1500
   Chicago, Illinois 60606

     *   Less than 1%

(1)      Consists of 1,000,000  shares of Common Stock that may be acquired from
         the  Company  within  60 days of May 10,  2006  upon  the  exercise  of
         outstanding stock options.

(2)      Consists of 623,650  shares of Common  Stock that may be acquired  from
         the  Company  within  60 days of May 10,  2006  upon  the  exercise  of
         outstanding stock options.

(3)      Consists of 1,475,000 shares of Common Stock that are directly owned by
         Mr.  Newbold,  and  2,600,000  shares of Common Stock owned by Newbold,
         Inc., a corporation of which Mr. Newbold is the sole stockholder.


                                       23



(4)      Consists of 222,732  shares of Common  Stock that may be acquired  from
         the  Company  within  60 days of May 10,  2006  upon  the  exercise  of
         outstanding stock options.

(5)      Consists of 225,000  shares of Common  Stock that may be acquired  from
         the  Company  within  60 days of May 10,  2006  upon  the  exercise  of
         outstanding stock options.

(6)      Consists of 950,000  shares of Common Stock that are directly  owned by
         Mr.  Yaw,  and  2,000,000  shares of Common  Stock  owned by Mr.  Yaw's
         spouse.

(7)      Consists of 2,071,382  shares of Common Stock that may be acquired from
         the  Company  within  60 days of May 10,  2006  upon  the  exercise  of
         outstanding stock options.

(8)      Consists of 11,547,838 shares of Common Stock that may be acquired from
         the  Company  within  60 days of May 10,  2006  upon  the  exercise  of
         outstanding warrants.

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership  of our Series A-1  Preferred  Stock as of May 10,  2006,  by (i) each
person (or group of affiliated  persons) who is known by us to beneficially  own
more than 5% of the outstanding  shares of Series A-1 Preferred Stock, (ii) each
of our directors, director nominees and executive officers, and (iii) all of our
executive  officers,  director nominees and directors as a group, as applicable.
Under Rule 13d-3,  certain shares may be deemed to be beneficially owned by more
than one person (if, for example,  persons  share the power to vote or the power
to dispose of the  shares).  In addition,  shares are deemed to be  beneficially
owned by a person  if the  person  has the  right to  acquire  the  shares  (for
example,  upon exercise of an option) within 60 days of the date as of which the
information is provided.  In computing the  percentage  ownership of any person,
the  amount of shares  outstanding  is deemed to  include  the  amount of shares
beneficially  owned by such  person  (and only such  person)  by reason of these
acquisition  rights.  As a result,  the percentage of outstanding  shares of any
person as shown in this table does not  necessarily  reflect the person's actual
ownership  or voting  power  with  respect to the number of shares of Series A-1
Preferred Stock actually  outstanding at May 10, 2006. As of May 10, 2006, there
were 35,422,755 shares of Series A-1 Preferred Stock outstanding.

                                      AMOUNT AND NATURE OF       PERCENT OF
CERTAIN BENEFICIAL OWNERS             BENEFICIAL OWNERSHIP         CLASS
-------------------------             --------------------       ----------
5% HOLDERS
Apex Investment Fund V, L.P.               10,607,316                29.9%
   225 W. Washington St.,
   Suite 1500
   Chicago, Illinois 60606
Per Gustafsson                              2,790,592                 7.9%
   Sodergatan 20A
   Vaxjo, Sweden 35235
Sherleigh Associates Inc.                   2,312,500                 6.6%
Profit Sharing Plan
   c/o Jack Silver
   920 5th Avenue, Apt. 3B
   New York, NY 10021
Patrick J. Allin                            1,875,000                 5.3%
   311 Belle Foret Drive
   Lake Bluff, IL 60044
Richard Linting                             1,777,261                 5.0%
   830 Temple Hills Drive
   Laguna Beach, CA 92651


                                       24



The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of our Series A Preferred Stock as of May 10, 2006, by (i) each person
(or group of  affiliated  persons) who is known by us to  beneficially  own more
than 5% of the outstanding  shares of Series A Preferred Stock, (ii) each of our
directors,  director  nominees  and  executive  officers,  and  (iii) all of our
executive  officers,  director nominees and directors as a group, as applicable.
Under Rule 13d-3,  certain shares may be deemed to be beneficially owned by more
than one person (if, for example,  persons  share the power to vote or the power
to dispose of the  shares).  In addition,  shares are deemed to be  beneficially
owned by a person  if the  person  has the  right to  acquire  the  shares  (for
example,  upon exercise of an option) within 60 days of the date as of which the
information is provided.  In computing the  percentage  ownership of any person,
the  amount of shares  outstanding  is deemed to  include  the  amount of shares
beneficially  owned by such  person  (and only such  person)  by reason of these
acquisition  rights.  As a result,  the percentage of outstanding  shares of any
person as shown in this table does not  necessarily  reflect the person's actual
ownership  or voting  power  with  respect  to the  number of shares of Series A
Preferred Stock actually  outstanding at May 10, 2006. As of May 10, 2006, there
were 964 shares of Series A Preferred Stock outstanding.

                                      AMOUNT AND NATURE OF       PERCENT OF
CERTAIN BENEFICIAL OWNERS             BENEFICIAL OWNERSHIP         CLASS
-------------------------             --------------------       ----------
5% HOLDERS
Apex Investment Fund V, L.P.                  250                  25.9%
   225 W. Washington St.,
   Suite 1500
   Chicago, Illinois 60606
Acro Van Nieuwland                            120                  12.4%
   Bunde 8
   2970 Schilde
   Belgium
Peter Nordin APS                               93.3334              9.7%
   Bakkevei 2A
   DK 3070
   Snekkersten, Denmark
Graham Smith                                   52                   5.4%
   Vicolo Sport 15
   20029 Turbigo
   Milan, Italy


CHANGES IN CONTROL

On January 12, 2006, we issued a Stock  Subscription  Agreement & Mutual Release
to each of our creditors  and claimants  pursuant to which we would sell to such
creditors  and/or claimants shares of Series A-1 Preferred Stock in exchange for
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 that such creditors and/or
claimants may have with the Company.  If all creditors  and/or  claimants accept
the  Company's  offer,  the Company  will issue an  aggregate  of  approximately
40,061,645  shares of Series  A-1  Preferred  Stock.  The  shares of Series  A-1
Preferred Stock will automatically convert into 400,616,445 shares of the Common
Stock at such time that the Company amends its Certificate of  Incorporation  to
provide for the conversion of all shares of Series A-1 Preferred Stock. Based on
56,398,360  shares  of  Common  Stock  outstanding  as of May 10,  2006,  if the
automatic  conversion  of the maximum  number of shares of Series A-1  Preferred
Stock were to occur on such  date,  the  creditors  and/or  claimants  would own
approximately  87.72% of the  issued  and  outstanding  shares of the  Company's
Common  Stock.  As of May 10, 2006,  35,422,755  shares of Series A-1  Preferred
Stock were outstanding, convertible into 354,227,555 shares of Common Stock.

On March 27,  2006,  pursuant  to the  consummation  of the  Series A  Preferred
financing  for  aggregate  proceeds of  $4,820,501,  the  Company  issued to the
purchasers  of Series A Preferred  Stock an  aggregate of 964 shares of Series A
Preferred  Stock and warrants to purchase an aggregate of  20,085,446  shares of
Common Stock. The 964 shares of Series A Preferred Stock are, subject to certain
conditions,  convertible at the option of the holders  thereof,  into 60,256,264
shares  of the  Company's  Common  Stock.  Based  on  56,398,360  shares  of the
Company's Common Stock  outstanding as of May 10, 2006, if all holders of Series
A Preferred  Stock  elected to convert all of their shares of Series A Preferred
Stock and to exercise all of their warrants issued in connection with the Series
A Preferred


                                       25



financing on such date,  such  holders of Series A Preferred  Stock and warrants
would own  approximately  58.8% of the issued and  outstanding  shares of Common
Stock.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The  following  table  sets  forth  information  concerning  our equity
compensation plans as of December 31, 2005.



                                    NUMBER OF SECURITIES                              NUMBER OF SECURITIES REMAINING
                                      TO BE ISSUED UPON        WEIGHTED-AVERAGE        AVAILABLE FOR FUTURE ISSUANCE
                                         EXERCISE OF          EXERCISE PRICE OF          UNDER EQUITY COMPENSATION
                                    OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,       PLANS (EXCLUDING SECURITIES
                                     WARRANTS AND RIGHTS     WARRANTS AND RIGHTS         REFLECTED IN COLUMN (a))
PLAN CATEGORY                                (a)                     (b)                            (c)
--------------------------------    --------------------     -------------------      -----------------------------
                                                                                           
Equity compensation plans                   --                        --                            --
approved by security holders

Equity compensation plans not           14,337,233                  $0.59                           --
approved by security holders[1]

TOTAL                                   14,337,233                  $0.59                           --


----------
[1] Represents options granted pursuant to individual option agreements.


               CERTAIN TRANSACTIONS WITH SIGNIFICANT STOCKHOLDERS,
                        DIRECTORS AND EXECUTIVE OFFICERS

Other than the transactions described below, within the last two years there has
not been, nor is there currently proposed,  any transaction or series of similar
transactions to which we were or will be a party:

         o        in which the amount involved exceeds $60,000; and

         o        in which any director,  executive officer,  other stockholders
                  of more  than 5% of our  equity  securities  or any  member of
                  their  immediate  family had or will have a direct or indirect
                  material interest.

In 2002 we, through our then Chief Executive Officer,  Patrick J. Allin,  agreed
to reimburse  recurring  office  expenses of the  non-executive  Chairman of the
Board in the  aggregate  of  $142,500.  The monthly  recurring  amount of $9,500
continued  through June of 2003 at which time the office was  relocated  and the
amount  increased to $15,000 per month. The aggregate office expense in 2003 and
2004 was $147,000 and $180,000, respectively. This accrual continued through May
31, 2005, at which time the monthly office expense of $15,000 ceased to accrue.

From April 30, 2002  (Inception)  to December 31, 2004, J. William  Hammon,  our
Chief Marketing Officer, and his spouse, have advanced $345,712 in the aggregate
to us. For $119,000 of this total amount, we issued two notes, payable on demand
and accruing  interest at a rate of 10% per annum.  In an effort to secure legal
counsel  and  pay  certain  reimbursable  expenses,  we  completed  two  Private
Placements of restricted  securities for $200,000 in the aggregate,  which funds
were deposited into the personal bank account of Mr. Hammon.  From this account,
he paid certain of our  outstanding  obligations,  including legal retainers and
fees and  reimbursable  expenses of officers and  stockholders.  The $200,000 in
private placement funds were netted against the total he advanced to us.

Beginning  on July 1,  2005,  and  continuing  through  December  31,  2005,  we
completed,  through 12 separate fundings,  a $5,234,000  financing (the "Interim
Bridge  Financing  III")  through  the  issuance  of (i) 10% Junior  Convertible
Promissory  Notes (the  "Bridge III Notes") and (ii)  warrants to purchase up to
2,617,000 shares of


                                       26



common stock (the "Bridge III  Warrants")  to, among other  existing  investors,
Apex Investment Fund V, L.P. ("Apex").  The Bridge III Warrants have a term of 5
years and an exercise price of $0.60 per share.

The  Bridge  III Notes had an  initial  term of 120 days (due on  various  dates
beginning  October  28,  2005) with  interest  at 10% per annum and  featured an
option for the Company to extend the term for an  additional  60 days to various
dates  beginning  December 28, 2005.  Upon the extension of the maturity date of
the Bridge III Notes,  the  contractual  interest rate would increase to 12% per
annum,  and the Company  would be required to issue  warrants  (the  "Bridge III
Extension  Warrants") to purchase such number of shares of the Company's  common
stock equal to one-half of a share for each $1.00 of principal then outstanding.
The Bridge III Extension  Warrants  issuable upon extension of the maturity date
of the Bridge III Notes feature a term of 5 years and an exercise price of $0.60
per share. The Company has agreed to file with the SEC, a registration statement
for the  resale of the  restricted  shares of its  common  stock  issuable  upon
exercise of the conversion option that would be issuable in this transaction, on
a best efforts basis.

Beginning on October 29,  2005,  the Company  elected to extend the  contractual
maturity  date of the  various  Bridge  III Notes for an  additional  60 days to
various dates beginning December 28, 2005, which caused the contractual interest
rate to  increase to 12% per annum.  In  addition,  the Company was  required to
issue the  1,200,000  Bridge III  Extension  Warrants to purchase such number of
shares  of common  stock  equal to 1/2 of a share  for each  $1.00 of  principal
amount  outstanding.  All of the Bridge III Notes have been redeemed in exchange
for the issuance of shares of Series A-1 Preferred Stock.

On July 1, 2005, the Company issued a Bridge III Note in the principal amount of
$1,650,000 and Bridge III Warrants to purchase 825,000 shares of Common Stock to
Apex.  The  aggregate  fair  value of these  Bridge  III  Warrants  amounted  to
$415,891.

On August 19, 2005, the Company issued a Bridge III Note in the principal amount
of $450,000 and Bridge III Warrants to purchase  225,000  shares of Common Stock
to Apex. The fair value of these Bridge III Warrants amounted to $55,263.

On September  30, 2005,  the Company  issued a Bridge III Note in the  principal
amount of  $1,200,000  and Bridge III  Warrants  to purchase  600,000  shares of
Common Stock to Apex.  The fair value of these  Bridge III Warrants  amounted to
$57,143.

On October  16,  2005,  the  Company  issued a Bridge III Note in the  principal
amount of $360,000 and Bridge III Warrants to purchase  180,000 shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $9,018.

On October  24,  2005,  the  Company  issued a Bridge III Note in the  principal
amount of $75,000 and Bridge III  Warrants to purchase  37,500  shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $1,879.

On October  29,  2005,  the  Company  issued  Bridge III  Extension  Warrants to
purchase  825,000 shares of Common Stock to Apex. The fair value of these Bridge
III Extension Warrants amounted to $42,394.

On October  31,  2005,  the  Company  issued a Bridge III Note in the  principal
amount of $385,000 and Bridge III Warrants to purchase  192,500 shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $9,644.

On November  16,  2005,  the Company  issued a Bridge III Note in the  principal
amount of $225,000 and Bridge III Warrants to purchase  112,500 shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $4,431.

On November  21,  2005,  the Company  issued a Bridge III Note in the  principal
amount of $150,000 and Bridge III Warrants to purchase  75,000  shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $2,954.


                                       27



On November  29,  2005,  the Company  issued a Bridge III Note in the  principal
amount of $210,000 and Bridge III Warrants to purchase  105,000 shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $4,135.

On  December  8, 2005,  the  Company  issued a Bridge III Note in the  principal
amount of $229,000 and Bridge III Warrants to purchase  114,500 shares of Common
Stock to Apex. The fair value of these Bridge III Warrants amounted to $4,757.

On December  17,  2005,  the Company  issued  Bridge III  Extension  Warrants to
purchase  225,000 shares of Common Stock to Apex. The fair value of these Bridge
III Extension Warrants amounted to $9,544.

On March 27, 2006,  in repayment and full  settlement  of aggregate  obligations
outstanding to Apex amounting to $8,112,177,  including obligations  outstanding
under the Bridge III Notes issued to Apex, the Company issued to Apex 10,140,221
shares of Series A-1 Preferred Stock.

On April 3, 2006,  in repayment  and full  settlement  of aggregate  obligations
outstanding to Apex  amounting to $373,676,  including  obligations  outstanding
under the Bridge III Notes  issued to Apex,  the Company  issued to Apex 467,095
shares of Series A-1 Preferred Stock.

We also have employment  agreements with certain of our executive officers.  The
terms of those employment agreements have been previously disclosed.

            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section  16(a) of the  Exchange  Act, as amended,  requires  our  directors  and
executive  officers and the holders of more than 10% of our Common Stock to file
with the Securities  and Exchange  Commission  initial  reports of ownership and
reports of changes in ownership of our equity securities.  Based upon our review
of Forms 3, 4 and 5 submitted to us, we are aware that the following individuals
failed to file on a timely  basis,  as  disclosed  in the forms  above,  reports
required by Section 16(a) of the Exchange Act: Robert Cross, our Chief Executive
Officer,  failed to timely  file one report  reporting  one  transaction;  Brett
Newbold,  our President and Chief  Technology  Officer failed to timely file one
report reporting one transaction;  Heidi B. Newton,  our Vice  President-Finance
and Administration,  failed to timely file one report reporting one transaction;
James E.  Morriss,  our Vice  President-Engineering,  failed to timely  file one
report  reporting  one  transaction;  and J.  William  Hammon,  our former Chief
Marketing Officer failed to timely file one report reporting one transaction.

                             STOCKHOLDER PROPOSALS

Any  stockholder who intends to present a proposal at the 2007 Annual Meeting of
stockholders  for  inclusion in the  Company's  Proxy  Statement  and Proxy form
relating to such Annual  Meeting must submit such proposal to the Company at its
principal  executive  offices by December 24, 2006. In addition,  in the event a
stockholder  proposal is not received by the Company by March 9, 2007, the Proxy
to  be  solicited  by  the  Board  for  the  2007  Annual  Meeting  will  confer
discretionary  authority  on the  holders of the Proxy to vote the shares if the
proposal is presented at the 2007 Annual  Meeting  without any discussion of the
proposal in the Proxy Statement for such meeting.

SEC rules and regulations  provide that if the date of the Company's 2007 Annual
Meeting  is  advanced  or  delayed  more  than 30 days from the date of the 2006
Annual  Meeting,  stockholder  proposals  intended  to be  included in the proxy
materials for the 2007 Annual  Meeting must be received by the Company  within a
reasonable  time before the Company begins to print and mail the proxy materials
for the 2007 Annual Meeting.  Upon determination by the Company that the date of
the 2007  Annual  Meeting  will be advanced or delayed by more than 30 days from
the date of the 2006 Annual  Meeting,  the Company will  disclose such change in
the earliest possible Quarterly Report on Form 10-Q.

                         INDEPENDENT PUBLIC ACCOUNTANTS

Our Board has  selected  Marcum &  Kliegman  LLP  ("Marcum &  Kliegman")  as our
independent  public  accountant for the current fiscal year ending  December 31,
2006. We anticipate that a  representative  of Marcum & Kliegman will attend the
Annual  Meeting for the purpose of responding to appropriate  questions.  At the
Annual  Meeting,  a  representative  of Marcum & Kliegman  will be  afforded  an
opportunity to make a statement if he or she so desires.


                                       28



As reported on a current report filed with the Securities & Exchange  Commission
on February 10, 2004, on January 21, 2004, we received  notification  from Grant
Thornton LLP ("Grant  Thornton")  of its  decision to resign as our  independent
public accountants.

Grant  Thornton's  reports on the our  consolidated  financial  statements as of
September  30, 2002 and for the period from  inception  (April 30, 2002) through
September 30, 2002 and as of December 31, 2002 and for the period from inception
(April 30, 2002) through December 31, 2002 did not contain an adverse opinion or
disclaimer of opinion and were not qualified as to uncertainty,  audit scope, or
accounting  principles except such reports did contain an explanatory  paragraph
related to the  Company's  ability to  continue as a going  concern.  During the
fiscal period ended  December 31, 2002 and through the date of Grant  Thornton's
resignation,  there were no  disagreements  with Grant Thornton on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which disagreement,  if not resolved to the satisfaction of
Grant Thornton,  would have caused it to make reference to the subject matter of
the  disagreement  in  connection  with its reports.  During the interim  period
ending  September 30, 2002,  the fiscal  period ended  December 31, 2002 and the
subsequent interim periods preceding such resignation, there were no "reportable
events" (as that term is defined in Items 304(a)(l)(v) of Regulation S-K) except
as follows:

         o        During  the  course  of  reviewing  the  Company's   quarterly
                  unaudited  financial  statements  on Form 10-QSB in 2003,  the
                  Company had on numerous  occasions in 2003 been  provided with
                  confirmation  letters  from an investor,  InterCap  Group LLC,
                  committing to $50 million in  financing.  In reliance on these
                  documents and other  discussions  with the investor about such
                  financing,  management  continually  believed  it had  met the
                  conditions  precedent to funding and that the funding would be
                  imminent,  having disclosed in its Form 10-QSB for the quarter
                  ending September 30, 2003 that the funding would take place no
                  later  than  January 5,  2004.  In its letter of  resignation,
                  Grant  Thornton  concluded  based  on  background  information
                  related to the  investor  it had  independently  obtained  and
                  later had been brought to its attention by management  through
                  subsequent  discussions,  that this background information had
                  not been  brought to Grant  Thornton's  attention  on a timely
                  basis. In its  resignation  letter,  Grant Thornton  indicated
                  that it believed a  representation  made by the  Company  that
                  Hogan & Hartson LLP  ("Hogan")  had agreed to be re-engaged as
                  the Company's  legal counsel upon payment of outstanding  fees
                  was not factual based upon its own inquires made to Hogan.  In
                  addition,  Grant  Thornton also indicated that the Company had
                  not been forthcoming with contact  information  requested from
                  the Company for an official reference regarding the background
                  of the  investor.  These  factors,  coupled  with newly  found
                  information concerning the investor's background, and the fact
                  that  the  funding  had  never  occurred  as  promised  by the
                  investor,  led Grant  Thornton  to  conclude  that it could no
                  longer rely on the Company's representations and, as a result,
                  Grant  Thornton  was  unwilling  to  be  associated  with  the
                  financial   statements   prepared  by  our   management,   and
                  accordingly,  advised us that Grant  Thornton was  withdrawing
                  its audit  reports and those audit  reports could no longer be
                  relied upon.

Based on our subsequent  discussion with a  representative  of Hogan, we believe
our statements made to Grant Thornton  regarding our relationship  with Hogan at
the  time  were  true,  and  that  there  was  either  a   miscommunication   or
misunderstanding  between Grant Thornton and Hogan. In addition,  at the time of
Grant Thornton's  resignation,  we were unaware that Grant Thornton had not been
provided  with  the  official  reference  information  for the  investor  it had
requested.

Lastly,  our disclosure of the InterCap  funding was based on written and verbal
communication  from InterCap and verified by  knowledgeable  third  parties.  We
believe the statements  made in previous  filings and press releases  accurately
and completely described InterCap's commitments at the time of each disclosure.

Our Board did not recommend or approve the resignation of Grant Thornton.

We  requested  that Grant  Thornton  furnish us with a letter  addressed  to the
Securities and Exchange Commission ("SEC") stating whether or not it agreed with
our  statements  in our filings with the SEC. We do not have a record of receipt
of such a letter.


                                       29



On October 27, 2004,  the Board  resolved to engage Marcum & Kliegman LLP as our
new  independent  accountants  to audit our financial  statements for the period
from April 30, 2002 through  December  31, 2002,  and for the fiscal years ended
December 31, 2003 and 2004. We engaged Marcum & Kliegman as our new  independent
accountants as of November 15, 2004. During the two most recent fiscal years and
the interim period  preceding the  engagement of Marcum & Kliegman,  we have not
consulted  with  Marcum & Kliegman  regarding  any  matters  specified  in Items
304(a)(2)(i) or (ii) of Regulation S-B.

AUDIT FEES

The aggregate  fees billed for each of the fiscal years ended  December 31, 2005
and 2004, for professional services rendered by the principal accountant for the
audit  of  our  annual   financial   statements   were   $364,786  and  $60,000,
respectively.

AUDIT-RELATED FEES

The  aggregate  fees  billed for the fiscal  year ended  December  31,  2005 for
professional  services  rendered by the principal  accountant  for audit related
services  associated with the preparation of the acquisition Form 8-K filing was
$30,214.

TAX FEES

None.

ALL OTHER FEES

None.

Our Board is directly responsible for interviewing and retaining our independent
public   accountant,   considering  the  accounting   firm's   independence  and
effectiveness,  and pre-approving the engagement fees and other  compensation to
be paid  to,  and the  services  to be  conducted  by,  the  independent  public
accountant.  The Board does not delegate these responsibilities.  During each of
the fiscal years ended  December  31, 2005 and December 31, 2004,  respectively,
our Board pre-approved 100% of the services described above.

                            SOLICITATION OF PROXIES

It is expected  that the  solicitation  of Proxies will be by mail.  The cost of
solicitation  by  management  will be borne by the  Company.  The  Company  will
reimburse  brokerage firms and other persons  representing  beneficial owners of
shares for their reasonable disbursements in forwarding solicitation material to
such  beneficial  owners.  Proxies  may  also be  solicited  by  certain  of our
directors and officers, without additional compensation,  personally or by mail,
telephone, telegram or otherwise.


                                       30



                          ANNUAL REPORT ON FORM 10-KSB

THE  COMPANY'S  ANNUAL REPORT ON FORM 10-KSB,  AS AMENDED,  WHICH HAS BEEN FILED
WITH THE  SECURITIES  AND EXCHANGE  COMMISSION  FOR THE YEAR ENDED  DECEMBER 31,
2005, WILL BE MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST
TO THE COMPANY, 5775 FLATIRON PARKWAY, SUITE 230, BOULDER, COLORADO 80301.


                                             ON BEHALF OF THE BOARD OF DIRECTORS


                                             Robert Cross
                                             CHIEF EXECUTIVE OFFICER




Boulder Colorado
May 22, 2006


                                       31

                                                                      APPENDIX A

                              PATRON SYSTEMS, INC.

                            2006 STOCK INCENTIVE PLAN

               (Adopted by the Board of Directors on May 10, 2006)


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

SECTION 1.       ESTABLISHMENT AND PURPOSE.....................................1

SECTION 2.       DEFINITIONS...................................................1

         (a)     "Affiliate"...................................................1
         (b)     "Award".......................................................1
         (c)     "Board of Directors"..........................................1
         (d)     "Change in Control"...........................................1
         (e)     "Code"........................................................2
         (f)     "Company".....................................................2
         (g)     "Consultant"..................................................2
         (h)     "Employee"....................................................2
         (i)     "Exchange Act"................................................3
         (j)     "Exercise Price"..............................................3
         (k)     "Fair Market Value"...........................................3
         (l)     "ISO".........................................................3
         (m)     "Nonstatutory Option" or "NSO"................................3
         (n)     "Offeree".....................................................3
         (o)     "Option"......................................................3
         (p)     "Optionee"....................................................3
         (q)     "Outside Director"............................................4
         (r)     "Parent"......................................................4
         (s)     "Participant".................................................4
         (t)     "Plan"........................................................4
         (u)     "Post-Reverse Split Basis"....................................4
         (v)     "Purchase Price"..............................................4
         (w)     "Restricted Share"............................................4
         (x)     "Restricted Share Agreement"..................................4
         (y)     "SAR".........................................................4
         (z)     "SAR Agreement"...............................................4
         (aa)    "Service".....................................................4
         (bb)    "Share".......................................................4
         (cc)    "Stock".......................................................4
         (dd)    "Stock Option Agreement"......................................4
         (ee)    "Stock Unit"..................................................4
         (ff)    "Stock Unit Agreement"........................................5
         (gg)    "Subsidiary"..................................................5
         (hh)    "Total and Permanent Disability"..............................5

SECTION 3.       ADMINISTRATION................................................5

         (a)     General; Committee Composition................................5
         (b)     Committee for Non-Officer Grants..............................5
         (c)     Committee Procedures..........................................5


                                      A-i


         (d)     Administrator Responsibilities................................5

SECTION 4.       ELIGIBILITY...................................................7

         (a)     General Rule..................................................7
         (b)     Ten-Percent Stockholders......................................7
         (c)     Attribution Rules.............................................7
         (d)     Outstanding Stock.............................................7

SECTION 5.       STOCK SUBJECT TO PLAN.........................................7

         (a)     Basic Limitation..............................................7
         (b)     Award Limitation..............................................7
         (c)     Additional Shares.............................................8

SECTION 6.       RESTRICTED SHARES.............................................8

         (a)     Restricted Stock Agreement....................................8
         (b)     Payment for Awards............................................8
         (c)     Vesting.......................................................8
         (d)     Voting and Dividend Rights....................................8
         (e)     Restrictions on Transfer of Shares............................8

SECTION 7.       TERMS AND CONDITIONS OF OPTIONS...............................9

         (a)     Stock Option Agreement........................................9
         (b)     Number of Shares..............................................9
         (c)     Exercise Price................................................9
         (d)     Withholding Taxes.............................................9
         (e)     Exercisability and Term.......................................9
         (f)     Exercise of Options..........................................10
         (g)     Effect of Change in Control..................................10
         (h)     Leaves of Absence............................................10
         (i)     No Rights as a Stockholder...................................10
         (j)     Modification, Extension and Renewal of Options...............10
         (k)     Restrictions on Transfer of Shares...........................10
         (l)     Buyout Provisions............................................11

SECTION 8.       PAYMENT FOR SHARES...........................................11

         (a)     General Rule.................................................11
         (b)     Surrender of Stock...........................................11
         (c)     Services Rendered............................................11
         (d)     Cashless Exercise............................................11
         (e)     Exercise/Pledge..............................................11
         (f)     Promissory Note..............................................11
         (g)     Other Forms of Payment.......................................11
         (h)     Limitations under Applicable Law.............................12


                                      A-ii



SECTION 9.       STOCK APPRECIATION RIGHTS....................................12

         (a)     SAR Agreement................................................12
         (b)     Number of Shares.............................................12
         (c)     Exercise Price...............................................12
         (d)     Exercisability and Term......................................12
         (e)     Effect of Change in Control..................................12
         (f)     Exercise of SARs.............................................12
         (g)     Modification or Assumption of SARs...........................13

SECTION 10.      STOCK UNITS..................................................13

         (a)     Stock Unit Agreement.........................................13
         (b)     Payment for Awards...........................................13
         (c)     Vesting Conditions...........................................13
         (d)     Voting and Dividend Rights...................................13
         (e)     Form and Time of Settlement of Stock Units...................13
         (f)     Death of Recipient...........................................14
         (g)     Creditors' Rights............................................14

SECTION 11.      ADJUSTMENT OF SHARES.........................................14

         (a)     Adjustments..................................................14
         (b)     Dissolution or Liquidation...................................14
         (c)     Reorganizations..............................................15
         (d)     Reservation of Rights........................................15

SECTION 12.      DEFERRAL OF AWARDS...........................................15

SECTION 13.      AWARDS UNDER OTHER PLANS.....................................16

SECTION 14.      PAYMENT OF DIRECTOR'S FEES IN SECURITIES.....................16

         (a)     Effective Date...............................................16
         (b)     Elections to Receive NSOs, Restricted Shares or
                 Stock Units..................................................16
         (c)     Number and Terms of NSOs, Restricted Shares or
                 Stock Units..................................................16

SECTION 15.      LEGAL AND REGULATORY REQUIREMENTS............................16

SECTION 16.      WITHHOLDING TAXES............................................17

         (a)     General......................................................17
         (b)     Share Withholding............................................17

SECTION 17.      OTHER PROVISIONS APPLICABLE TO AWARDS........................17

         (a)     Transferability..............................................17


                                      A-iii



         (b)     Qualifying Performance Criteria..............................17

SECTION 18.      NO EMPLOYMENT RIGHTS.........................................18

SECTION 19.      DURATION AND AMENDMENTS......................................18

         (a)     Term of the Plan.............................................18
         (b)     Right to Amend or Terminate the Plan.........................18
         (c)     Effect of Termination........................................18

SECTION 20.      EXECUTION....................................................18


                                      A-iv



                              PATRON SYSTEMS, INC.

                            2006 STOCK INCENTIVE PLAN



SECTION 1.        ESTABLISHMENT AND PURPOSE.

         The Plan (as hereinafter defined) was adopted by the Board of Directors
on May 10, 2006, and shall become effective as of June 22, 2006,  provided it is
approved by the holders of at least a majority of the shares of common stock and
preferred  stock  present or  represented  and voting on the proposal to approve
this Plan at the 2006 annual  meeting of the  stockholders  of the Company  duly
held in accordance with applicable law (the  "Effective  Date").  The purpose of
the Plan is to promote the  long-term  success of the  Company  (as  hereinafter
defined) and the creation of stockholder value by (a) encouraging  Employees (as
hereinafter defined), Outside Directors (as hereinafter defined) and Consultants
(as  hereinafter  defined)  to  focus on  critical  long-range  objectives,  (b)
encouraging  the  attraction and retention of Employees,  Outside  Directors and
Consultants with exceptional  qualifications and (c) linking Employees,  Outside
Directors and Consultants  directly to stockholder  interests  through increased
stock ownership.  The Plan seeks to achieve this purpose by providing for Awards
(as hereinafter  defined) in the form of restricted shares, stock units, options
(which may constitute  incentive stock options or nonstatutory stock options) or
stock appreciation  rights. The Plan shall be administered by the Administrator,
as provided in Section 3 hereof. For the purposes hereof,  "Administrator" shall
mean the Board of Directors (as defined hereinafter) or any committee authorized
by the Board of Directors to administer the Plan, pursuant to the terms hereof.

SECTION 2.        DEFINITIONS.

         (a)      "Affiliate" shall mean any entity other than a Subsidiary,  if
                  the Company and/or one of more  Subsidiaries own not less than
                  50% of such entity.

         (b)      "Award" shall mean any award of an Option, a SAR, a Restricted
                  Share or a Stock Unit under the Plan.

         (c)      "Board of Directors"  shall mean the Board of Directors of the
                  Company, as constituted from time to time.

         (d)      "Change in Control"  shall mean the  occurrence  of any of the
                  following events:

                  (i)      A change in the composition of the Board of Directors
                           occurs,  as a result of which fewer than  one-half of
                           the incumbent directors are directors who either:

                           (A)      Had been  directors  of the  Company  on the
                                    "look-back  date" (as  defined  below)  (the
                                    "original directors"); or

                           (B)      Were elected, or nominated for election,  to
                                    the Board of Directors with the  affirmative
                                    votes  of  at  least  a   majority   of  the
                                    aggregate of the original directors who were
                                    still in office at the time of the  election
                                    or  nomination   and  the  directors   whose
                                    election or  nomination  was  previously  so
                                    approved (the "continuing directors"); or


                                      A-1



                  (ii)     Any   "person"   (as   defined   below)  who  by  the
                           acquisition  or  aggregation  of  securities,  is  or
                           becomes  the  "beneficial  owner" (as defined in Rule
                           13d-3   under  the   Exchange   Act),   directly   or
                           indirectly, of securities of the Company representing
                           50% or  more  of the  combined  voting  power  of the
                           Company's then outstanding securities ordinarily (and
                           apart   from   rights    accruing    under    special
                           circumstances)  having the right to vote at elections
                           of directors (the "Base Capital Stock");  except that
                           any change in the  relative  beneficial  ownership of
                           the  Company's  securities  by any  person  resulting
                           solely from a reduction  in the  aggregate  number of
                           outstanding  shares of Base  Capital  Stock,  and any
                           decrease  thereafter  in such  person's  ownership of
                           securities,  shall be  disregarded  until such person
                           increases in any manner, directly or indirectly, such
                           person's  beneficial  ownership of any  securities of
                           the Company; or

                  (iii)    The  consummation of a merger or consolidation of the
                           Company  with or into  another  entity  or any  other
                           corporate  reorganization,  if  persons  who were not
                           stockholders of the Company immediately prior to such
                           merger,  consolidation  or other  reorganization  own
                           immediately after such merger, consolidation or other
                           reorganization 50% or more of the voting power of the
                           outstanding  securities of each of (A) the continuing
                           or  surviving  entity and (B) any direct or  indirect
                           parent  corporation  of such  continuing or surviving
                           entity; or

                  (iv)     The sale,  transfer  or other  disposition  of all or
                           substantially all of the Company's assets.

         For purposes of subsection  (d)(i)  above,  the term  "look-back"  date
shall mean the later of (1) the  Effective  Date or (2) the date 12 months prior
to the date of the event that may constitute a Change in Control.

         For purposes of subsection  (d)(ii) above, the term "person" shall have
the same  meaning as when used in Sections  13(d) and 14(d) of the  Exchange Act
but shall exclude (1) a trustee or other fiduciary  holding  securities under an
employee  benefit plan  maintained by the Company or a Parent or Subsidiary  and
(2) a  corporation  owned  directly or  indirectly  by the  stockholders  of the
Company in substantially the same proportions as their ownership of the Stock.

         Any other provision of this Section 2(d) notwithstanding, a transaction
shall not  constitute  a Change in Control if its sole  purpose is to change the
state of the Company's incorporation or to create a holding company that will be
owned  in  substantially  the  same  proportions  by the  persons  who  held the
Company's securities immediately before such transaction.

         (e)      "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
                  amended.

         (f)      "Company" shall mean Patron Systems, Inc.

         (g)      "Consultant"  shall mean a consultant  or advisor who provides
                  bona fide services to the Company,  a Parent,  a Subsidiary or
                  an Affiliate as an  independent  contractor or a member of the
                  board of directors  of a Parent or a Subsidiary  who is not an
                  Employee.

         (h)      "Employee"  shall  mean  any  individual  who is a  common-law
                  employee of the Company, a Parent or a Subsidiary.


                                      A-2



         (i)      "Exchange Act" shall mean the Securities Exchange Act of 1934,
                  as amended.

         (j)      "Exercise  Price"  shall mean,  in the case of an Option,  the
                  amount  for  which one  Common  Share  may be  purchased  upon
                  exercise of such Option,  as specified in the applicable Stock
                  Option  Agreement.  "Exercise  Price,"  in the  case of a SAR,
                  shall mean an  amount,  as  specified  in the  applicable  SAR
                  Agreement,  which is subtracted  from the Fair Market Value of
                  one  Common  Share in  determining  the  amount  payable  upon
                  exercise of such SAR.

         (k)      "Fair Market  Value" with  respect to a Share,  shall mean the
                  market  price  of  one  Share  of  Stock,  determined  by  the
                  Administrator as follows:

                  (i)      If the Stock was traded  over-the-counter on the date
                           in  question  but was not traded on The Nasdaq  Stock
                           Market,  then the Fair Market Value shall be equal to
                           the last  transaction  price  quoted for such date by
                           the OTC Bulletin Board or, if not so quoted, shall be
                           equal  to  the  mean   between   the  last   reported
                           representative  bid and asked prices  quoted for such
                           date   by  the   principal   automated   inter-dealer
                           quotation  system on which the Stock is quoted or, if
                           the Stock is not  quoted on any such  system,  by the
                           "Pink  Sheets"  published by the  National  Quotation
                           Bureau, Inc.;

                  (ii)     If the Stock was traded on The Nasdaq  Stock  Market,
                           then the Fair Market Value shall be equal to the last
                           reported  sale  price  quoted  for  such  date by The
                           Nasdaq Stock Market;

                  (iii)    If the Stock  was  traded  on a United  States  stock
                           exchange  on the  date in  question,  then  the  Fair
                           Market  Value  shall be equal  to the  closing  price
                           reported   for   such   date   by   the    applicable
                           composite-transactions report; and

                  (iv)     If none of the foregoing  provisions  is  applicable,
                           then the Fair Market Value shall be determined by the
                           Administrator in good faith on such basis as it deems
                           appropriate.

         In  all  cases,   the   determination  of  Fair  Market  Value  by  the
         Administrator shall be conclusive and binding on all persons.

         (l)      "ISO" shall mean an employee  incentive stock option described
                  in Section 422 of the Code.

         (m)      "Nonstatutory  Option" or "NSO" shall mean an  employee  stock
                  option that is not an ISO.

         (n)      "Offeree"  shall mean an individual to whom the  Administrator
                  has offered the right to acquire  Shares under the Plan (other
                  than upon exercise of an Option).

         (o)      "Option"  shall  mean an ISO or  Nonstatutory  Option  granted
                  under the Plan and entitling the holder to purchase Shares.

         (p)      "Optionee"  shall  mean an  individual  or estate who holds an
                  Option or SAR.


                                      A-3



         (q)      "Outside  Director"  shall  mean  a  member  of the  Board  of
                  Directors  who  is  not a  common-law  employee  of,  or  paid
                  consultant to, the Company, a Parent or a Subsidiary.

         (r)      "Parent" shall mean any  corporation  (other than the Company)
                  in an unbroken chain of corporations  ending with the Company,
                  if each of the corporations  other than the Company owns stock
                  possessing 50% or more of the total  combined  voting power of
                  all classes of stock in one of the other  corporations in such
                  chain. A corporation  that attains the status of a Parent on a
                  date  after  the  adoption  of  the  Plan  shall  be a  Parent
                  commencing as of such date.

         (s)      "Participant"  shall mean an individual or estate who holds an
                  Award.

         (t)      "Plan"  shall  mean  this  Patron  Systems,  Inc.  2006  Stock
                  Incentive Plan, as amended from time to time.

         (u)      "Post-Reverse-Split-Basis"   shall  mean   subsequent  to  the
                  consummation  of a reverse  stock  split by the Company of the
                  outstanding  Stock  whereby each holder of Stock  receives one
                  (1) Share for each  thirty  (30) Shares held by such holder of
                  Stock.

         (v)      "Purchase  Price" shall mean the  consideration  for which one
                  Share may be acquired under the Plan (other than upon exercise
                  of an Option), as specified by the Administrator.

         (w)      "Restricted Share" shall mean a Share awarded under the Plan.

         (x)      "Restricted  Share Agreement" shall mean the agreement between
                  the  Company and the  recipient  of a  Restricted  Share which
                  contains the terms,  conditions and restrictions pertaining to
                  such Restricted Shares.

         (y)      "SAR" shall mean a stock  appreciation right granted under the
                  Plan.

         (z)      "SAR Agreement"  shall mean the agreement  between the Company
                  and an  Optionee  which  contains  the terms,  conditions  and
                  restrictions pertaining to his or her SAR.

         (aa)     "Service"  shall mean  service as an Employee,  Consultant  or
                  Outside Director.

         (bb)     "Share"  shall  mean  one  share  of  Stock,  as  adjusted  in
                  accordance with Section 8 (if applicable).

         (cc)     "Stock" shall mean the Common Stock of the Company.

         (dd)     "Stock Option  Agreement" shall mean the agreement between the
                  Company and an Optionee  that  contains the terms,  conditions
                  and restrictions pertaining to his Option.

         (ee)     "Stock Unit" shall mean a bookkeeping  entry  representing the
                  equivalent of one Share, as awarded under the Plan.


                                      A-4



         (ff)     "Stock Unit  Agreement"  shall mean the agreement  between the
                  Company and the  recipient of a Stock Unit which  contains the
                  terms,  conditions and  restrictions  pertaining to such Stock
                  Unit.

         (gg)     "Subsidiary" shall mean any corporation, if the Company and/or
                  one or more  other  Subsidiaries  own not less than 50% of the
                  total  combined  voting  power of all  classes of  outstanding
                  stock of such  corporation.  A  corporation  that  attains the
                  status of a  Subsidiary  on a date after the  adoption  of the
                  Plan shall be  considered a Subsidiary  commencing  as of such
                  date.

         (hh)     "Total and Permanent  Disability" shall mean that the Optionee
                  is unable to engage in any  substantial  gainful  activity  by
                  reason  of  any  medically  determinable  physical  or  mental
                  impairment that can be expected to result in death or that has
                  lasted, or can be expected to last, for a continuous period of
                  not less than 12 months.

SECTION 3.        ADMINISTRATION.

         (a)      GENERAL; COMMITTEE COMPOSITION. The Plan shall be administered
                  by the Board of  Directors.  The Board of  Directors  may also
                  designate a committee of the Board of directors to  administer
                  the  Plan,  which  committee  shall  consist  of two  or  more
                  directors of the Company,  who shall be appointed by the Board
                  of Directors.  In addition, to the extent that the Company has
                  a class of stock  registered  under Section 12 of the Exchange
                  Act or is subject to the reporting  obligations  under Section
                  13(a) or Section 15(d) of the Exchange Act, the composition of
                  the  committee  shall  satisfy  (i) such  requirements  as the
                  Securities   and  Exchange   Commission   may   establish  for
                  administrators  acting  under  plans  intended  to qualify for
                  exemption  under  Rule  16b-3  (or its  successor)  under  the
                  Exchange  Act;  and (ii)  such  requirements  as the  Internal
                  Revenue  Service may  establish for outside  directors  acting
                  under plans  intended to qualify for  exemption  under Section
                  162(m)(4)(C) of the Code.

         (b)      COMMITTEE FOR NON-OFFICER  GRANTS.  The Board of Directors may
                  also appoint one or more  separate  committees of the Board of
                  Directors,  each  composed  of one or  more  directors  of the
                  Company who need not satisfy the requirements of Section 3(a),
                  who may  administer the Plan with respect to Employees who are
                  not  considered  officers or  directors  of the Company  under
                  Section 16 of the  Exchange  Act,  may grant  Awards under the
                  Plan to such  Employees  and may  determine  all terms of such
                  grants.  The Board of Directors may also authorize one or more
                  officers of the  Company to  designate  Employees,  other than
                  officers  under  Section 16 of the  Exchange  Act,  to receive
                  Awards  and/or to  determine  the number of such  Awards to be
                  received by such persons; provided, however, that the Board of
                  Directors  shall  specify the total number of Awards that such
                  officers may so award.

         (c)      COMMITTEE  PROCEDURES.  The Board of Directors shall designate
                  one of the members of each committee provided for hereunder as
                  chairman.  Each  committee may hold meetings at such times and
                  places as it shall  determine.  The acts of a majority  of any
                  committee  members  present  at  meetings  at  which a  quorum
                  exists,  or acts  reduced  to or  approved  in  writing by all
                  committee members, shall be valid acts of such committee.

         (d)      ADMINISTRATOR  RESPONSIBILITIES.  Subject to the provisions of
                  the Plan,  the  Administrator  shall have full  authority  and
                  discretion to take the following actions:


                                      A-5



                  (i)      To interpret the Plan and to apply its provisions;

                  (ii)     To adopt,  amend or  rescind  rules,  procedures  and
                           forms relating to the Plan;

                  (iii)    To authorize any person to execute,  on behalf of the
                           Company,  any  instrument  required  to carry out the
                           purposes of the Plan;

                  (iv)     To determine  when Awards are to be granted under the
                           Plan;

                  (v)      To select the Offerees and Optionees;

                  (vi)     To determine  the number of Shares to be made subject
                           to each Award;

                  (vii)    To prescribe the terms and  conditions of each Award,
                           including (without limitation) the Exercise Price and
                           Purchase  Price,  and the  vesting or duration of the
                           Award (including  accelerating the vesting of Awards,
                           either  at the  time  of  the  Award  or  thereafter,
                           without the consent of the Participant), to determine
                           whether an Option is to be classified as an ISO or as
                           a Nonstatutory  Option, and to specify the provisions
                           of the agreement relating to such Award;

                  (viii)   To amend any outstanding Award agreement,  subject to
                           applicable  legal  restrictions and to the consent of
                           the  Participant  if  the  Participant's   rights  or
                           obligations would be materially impaired;

                  (ix)     To prescribe the  consideration for the grant of each
                           Award or other right under the Plan and to  determine
                           the sufficiency of such consideration;

                  (x)      To determine the  disposition  of each Award or other
                           right under the Plan in the event of a  Participant's
                           divorce or dissolution of marriage;

                  (xi)     To  determine  whether  Awards under the Plan will be
                           granted  in  replacement  of  other  grants  under an
                           incentive or other  compensation  plan of an acquired
                           business;

                  (xii)    To  correct  any  defect,  supply  any  omission,  or
                           reconcile any  inconsistency in the Plan or any Award
                           agreement;

                  (xiii)   To establish or verify the extent of  satisfaction of
                           any performance goals or other conditions  applicable
                           to  the  grant,  issuance,  exercisability,   vesting
                           and/or ability to retain any Award; and

                  (xiv)    To  take  any  other  actions  deemed   necessary  or
                           advisable for the administration of the Plan.

         Subject to the  requirements of applicable law, the  Administrator  may
         designate  persons other than members of the Administrator to carry out
         its  responsibilities and may prescribe such conditions and limitations
         as it may  deem  appropriate,  except  that the  Administrator  may not


                                      A-6



         delegate its authority  with regard to the selection for  participation
         of or the granting of Options or other rights under the Plan to persons
         subject  to   Section  16  of  the   Exchange   Act.   All   decisions,
         interpretations  and other actions of the Administrator  shall be final
         and binding on all Offerees,  all Optionees,  and all persons  deriving
         their   rights  from  an  Offeree  or   Optionee.   No  member  of  the
         Administrator  shall be liable for any action  that he has taken or has
         failed to take in good faith with respect to the Plan,  any Option,  or
         any right to acquire Shares under the Plan.

SECTION 4.        ELIGIBILITY.

         (a)      GENERAL RULE.  Only Employees  shall be eligible for the grant
                  of ISOs.  Only Employees,  Consultants  and Outside  Directors
                  shall be eligible for the grant of  Restricted  Shares,  Stock
                  Units, Nonstatutory Options or SARs.

         (b)      TEN-PERCENT  STOCKHOLDERS.  An Employee who owns more than 10%
                  of  the  total  combined   voting  power  of  all  classes  of
                  outstanding stock of the Company, a Parent or Subsidiary shall
                  not be  eligible  for the grant of an ISO  unless  such  grant
                  satisfies the requirements of Section 422(c)(5) of the Code.

         (c)      ATTRIBUTION  RULES.  For  purposes of Section  4(b) above,  in
                  determining  stock  ownership,  an Employee shall be deemed to
                  own the stock owned,  directly or  indirectly,  by or for such
                  Employee's  brothers,  sisters,  spouse,  ancestors and lineal
                  descendants.  Stock owned, directly or indirectly, by or for a
                  corporation,  partnership,  estate or trust shall be deemed to
                  be owned proportionately by or for its stockholders,  partners
                  or beneficiaries.

         (d)      OUTSTANDING   STOCK.  For  purposes  of  Section  4(b)  above,
                  "outstanding  stock" shall include all stock  actually  issued
                  and  outstanding  immediately  after the  grant.  "Outstanding
                  stock" shall not include shares  authorized for issuance under
                  outstanding  options  held  by the  Employee  or by any  other
                  person.

SECTION 5.        STOCK SUBJECT TO PLAN.

         (a)      BASIC  LIMITATION.  Shares  offered  under  the Plan  shall be
                  authorized  but  unissued  Shares  or  treasury  Shares.   The
                  aggregate  number of Shares  authorized for issuance as Awards
                  under  the  Plan  shall  not  exceed  5,600,000  Shares  on  a
                  Post-Reverse-Split Basis, plus an annual increase on the first
                  day of each fiscal year during the term of the Plan, beginning
                  January 1, 2007, in each case in an amount equal to the lesser
                  of (i) 1,000,000 Shares,  (ii) 5% of the outstanding Shares on
                  the last day of the  immediately  preceding  year, or (iii) an
                  amount  determined by the Board of Directors.  The limitations
                  of this Section 5(a) shall be subject to  adjustment  pursuant
                  to  Section  11.  The  number of Shares  that are  subject  to
                  Options or other rights outstanding at any time under the Plan
                  shall  not  exceed  the  number of Shares  which  then  remain
                  available for issuance under the Plan. The Company, during the
                  term  of  the  Plan,  shall  at all  times  reserve  and  keep
                  available sufficient Shares to satisfy the requirements of the
                  Plan.

         (b)      AWARD LIMITATION. Subject to the provisions of Section 11, and
                  without  limiting  the powers of the Board of  Directors,  the
                  Board of Directors  may limit the number of Shares  underlying
                  or relating to Options, SARs, Restricted Shares or Stock Units
                  that a Participant  may receive under the Plan in any calendar
                  year, or place any other  limitations  on the number and


                                      A-7



                  types of Awards  (or the  Shares  underlying  or  relating  to
                  Awards) that may be granted to a  Participant  under the Plan.
                  The maximum number of Shares that may be subject to all Awards
                  granted  under  the  Plan to any one  Participant  during  any
                  fiscal  year is  1,500,000  shares,  on a  Post-Reverse  Split
                  Basis.

         (c)      ADDITIONAL  SHARES. If Restricted Shares or Shares issued upon
                  the exercise of Options are forfeited,  then such Shares shall
                  again become  available  for Awards  under the Plan.  If Stock
                  Units,  Options or SARs are  forfeited  or  terminate  for any
                  other reason before being  exercised,  then the  corresponding
                  Shares shall again become available for Awards under the Plan.
                  If Stock Units are settled, then only the number of Shares (if
                  any)  actually  issued in settlement of such Stock Units shall
                  reduce the number available under Section 5(a) and the balance
                  shall again become  available  for Awards  under the Plan.  If
                  SARs are  exercised,  then only the  number of Shares (if any)
                  actually  issued in  settlement  of such SARs shall reduce the
                  number  available in Section 5(a) and the balance  shall again
                  become available for Awards under the Plan.

SECTION 6.        RESTRICTED SHARES.

         (a)      RESTRICTED  STOCK AGREEMENT.  Each grant of Restricted  Shares
                  under  the  Plan  shall be  evidenced  by a  Restricted  Stock
                  Agreement   between  the  recipient  and  the  Company.   Such
                  Restricted  Shares shall be subject to all applicable terms of
                  the Plan and may be  subject  to any other  terms that are not
                  inconsistent  with the Plan.  The  provisions  of the  various
                  Restricted Stock  Agreements  entered into under the Plan need
                  not be identical.

         (b)      PAYMENT  FOR  AWARDS.   Subject  to  the  following  sentence,
                  Restricted  Shares may be sold or  awarded  under the Plan for
                  such   consideration  as  the   Administrator  may  determine,
                  including   (without   limitation)   cash,  cash  equivalents,
                  full-recourse  promissory  notes,  past  services  and  future
                  services. To the extent that an Award consists of newly issued
                  Restricted   Shares,   the  Award   recipient   shall  furnish
                  consideration with a value not less than the par value of such
                  Restricted  Shares in the form of cash, cash  equivalents,  or
                  past  services  rendered  to  the  Company  (or  a  Parent  or
                  Subsidiary), as the Administrator may determine.

         (c)      VESTING.  Each  Award of  Restricted  Shares may or may not be
                  subject  to  vesting.  Vesting  shall  occur,  in  full  or in
                  installments, upon satisfaction of the conditions specified in
                  the Restricted Stock  Agreement.  A Restricted Stock Agreement
                  may  provide  for  accelerated  vesting  in the  event  of the
                  Participant's death, disability or retirement or other events.
                  The  Administrator  may  determine,  at the  time of  granting
                  Restricted  Shares  of  thereafter,  that  all or part of such
                  Restricted  Shares  shall  become  vested in the event  that a
                  Change in Control occurs with respect to the Company.

         (d)      VOTING AND DIVIDEND RIGHTS.  The holders of Restricted  Shares
                  awarded  under the Plan shall have the same  voting,  dividend
                  and  other  rights  as the  Company's  other  stockholders.  A
                  Restricted  Stock  Agreement,  however,  may require  that the
                  holders  of  Restricted   Shares  invest  any  cash  dividends
                  received in  additional  Restricted  Shares.  Such  additional
                  Restricted  Shares shall be subject to the same conditions and
                  restrictions  as the Award with respect to which the dividends
                  were paid.

         (e)      RESTRICTIONS ON TRANSFER OF SHARES. Restricted Shares shall be
                  subject to such rights of repurchase,  rights of first refusal
                  or other restrictions as the Administrator may


                                      A-8



                  determine.  Such  restrictions  shall  be  set  forth  in  the
                  applicable  Restricted  Stock  Agreement  and  shall  apply in
                  addition  to any  general  restrictions  that may apply to all
                  holders of Shares.

SECTION 7.        TERMS AND CONDITIONS OF OPTIONS.

         (a)      STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
                  shall be  evidenced by a Stock  Option  Agreement  between the
                  Optionee and the Company.  Such Option shall be subject to all
                  applicable terms and conditions of the Plan and may be subject
                  to any other terms and conditions  which are not  inconsistent
                  with the Plan and which the  Administrator  deems  appropriate
                  for  inclusion in a Stock Option  Agreement.  The Stock Option
                  Agreement  shall  specify  whether  the Option is an ISO or an
                  NSO. The  provisions  of the various  Stock Option  Agreements
                  entered into under the Plan need not be identical. Options may
                  be granted in  consideration  of a reduction in the Optionee's
                  other compensation.

         (b)      NUMBER OF SHARES.  Each Stock Option  Agreement  shall specify
                  the number of Shares  that are subject to the Option and shall
                  provide for the  adjustment of such number in accordance  with
                  Section 11.

         (c)      EXERCISE PRICE.  Each Stock Option Agreement shall specify the
                  Exercise Price. The Exercise Price of an ISO shall not be less
                  than 100% of the Fair  Market  Value of a Share on the date of
                  grant,  except as otherwise provided in 4(c), and the Exercise
                  Price of an NSO  shall  not be less  100% of the  Fair  Market
                  Value  of a Share on the date of  grant.  Notwithstanding  the
                  foregoing,  a Stock  Option  Agreement  may  specify  that the
                  exercise  price  of an  NSO  may  vary  in  accordance  with a
                  predetermined  formula.  Subject  to  the  foregoing  in  this
                  Section  7(c),  the  Exercise  Price under any Option shall be
                  determined by the  Administrator at its sole  discretion.  The
                  Exercise Price shall be payable in one of the forms  described
                  in Section 8.

         (d)      WITHHOLDING  TAXES.  As a  condition  to  the  exercise  of an
                  Option,  the  Optionee  shall  make such  arrangements  as the
                  Administrator may require for the satisfaction of any federal,
                  state,  local or foreign  withholding tax obligations that may
                  arise in connection  with such  exercise.  The Optionee  shall
                  also make such  arrangements as the  Administrator may require
                  for the satisfaction of any federal,  state,  local or foreign
                  withholding tax obligations  that may arise in connection with
                  the disposition of Shares acquired by exercising an Option.

         (e)      EXERCISABILITY  AND TERM.  Each Stock Option  Agreement  shall
                  specify the date when all or any  installment of the Option is
                  to become  exercisable.  The Stock Option Agreement shall also
                  specify the term of the Option;  provided  that the term of an
                  ISO shall in no event  exceed 10 years  from the date of grant
                  (five years for Employees  described in Section 4(b)). A Stock
                  Option Agreement may provide for accelerated exercisability in
                  the event of the Optionee's death,  disability,  or retirement
                  or other  events and may provide for  expiration  prior to the
                  end of  its  term  in the  event  of  the  termination  of the
                  Optionee's Service. Options may be awarded in combination with
                  SARs,  and such an Award may provide that the Options will not
                  be exercisable unless the related SARs are forfeited.  Subject
                  to the foregoing in this Section 7(e),  the  Administrator  at
                  its  sole   discretion   shall   determine  when  all  or  any
                  installment of an Option is to become  exercisable and when an
                  Option is to expire.


                                      A-9



         (f)      EXERCISE OF OPTIONS.  Upon Termination of Service.  Each Stock
                  Option  Agreement  shall  set  forth  the  extent to which the
                  Optionee shall have the right to exercise the Option following
                  termination of the Optionee's Service with the Company and its
                  Subsidiaries,  and the  right to  exercise  the  Option of any
                  executors or  administrators  of the Optionee's  estate or any
                  person  who has  acquired  such  Option(s)  directly  from the
                  Optionee by bequest or inheritance.  Such provisions  shall be
                  determined in the sole discretion of the  Administrator,  need
                  not be uniform among all Options issued  pursuant to the Plan,
                  and  may  reflect   distinctions  based  on  the  reasons  for
                  termination of Service.

         (g)      EFFECT OF CHANGE IN CONTROL.  The Administrator may determine,
                  at the time of  granting  an Option or  thereafter,  that such
                  Option  shall  become  exercisable  as to all or  part  of the
                  Shares  subject  to such  Option in the event that a Change in
                  Control occurs with respect to the Company.

         (h)      LEAVES OF ABSENCE. An Employee's Service shall cease when such
                  Employee  ceases to be actively  employed  by, or a Consultant
                  to, the Company (or any  subsidiary) as determined in the sole
                  discretion of the Board of Directors. For purposes of Options,
                  Service  does not  terminate  when an Employee  goes on a bona
                  fide leave of  absence,  that was  approved  by the Company in
                  writing,  if the  terms of the  leave  provide  for  continued
                  service  crediting,  or when  continued  service  crediting is
                  required  by  applicable   law.   However,   for  purposes  of
                  determining  whether an Option is entitled  to ISO status,  an
                  Employee's  Service  will be  treated as  terminating  90 days
                  after such  Employee  went on leave,  unless  such  Employee's
                  right to return to active  work is  guaranteed  by law or by a
                  contract.  Service  terminates  in any event when the approved
                  leave ends, unless such Employee immediately returns to active
                  work.  The  Company   determines  which  leaves  count  toward
                  Service,  and when Service  terminates  for all purposes under
                  the Plan.

         (i)      NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
                  Optionee,  shall have no rights as a stockholder  with respect
                  to any  Shares  covered  by his  Option  until the date of the
                  issuance  of  a  stock   certificate   for  such  Shares.   No
                  adjustments shall be made, except as provided in Section 11.

         (j)      MODIFICATION,  EXTENSION  AND RENEWAL OF  OPTIONS.  Within the
                  limitations of the Plan, the Administrator may modify,  extend
                  or renew outstanding options or may accept the cancellation of
                  outstanding options (to the extent not previously  exercised),
                  whether or not granted  hereunder,  in return for the grant of
                  new Options  for the same or a different  number of Shares and
                  at the same or a different  exercise  price,  or in return for
                  the grant of the same or a  different  number of  Shares.  The
                  foregoing notwithstanding, no modification of an Option shall,
                  without the consent of the Optionee,  materially impair his or
                  her rights or obligations under such Option.

         (k)      RESTRICTIONS  ON  TRANSFER OF SHARES.  Any Shares  issued upon
                  exercise  of an  Option  shall  be  subject  to  such  special
                  forfeiture conditions,  rights of repurchase,  rights of first
                  refusal and other transfer  restrictions as the  Administrator
                  may  determine.  Such  restrictions  shall be set forth in the
                  applicable  Stock Option Agreement and shall apply in addition
                  to any general  restrictions  that may apply to all holders of
                  Shares.


                                      A-10



         (l)      BUYOUT PROVISIONS. The Administrator may at any time (a) offer
                  to buy out for a payment in cash or cash equivalents an Option
                  previously  granted or (b)  authorize  an Optionee to elect to
                  cash out an Option previously  granted, in either case at such
                  time  and  based  upon  such  terms  and   conditions  as  the
                  Administrator shall establish.

SECTION 8.        PAYMENT FOR SHARES.

         (a)      GENERAL RULE.  The entire  Exercise Price or Purchase Price of
                  Shares  issued under the Plan shall be payable in lawful money
                  of the United  States of America at the time when such  Shares
                  are  purchased,  except as  provided in Section  8(b)  through
                  Section 8(g) below.

         (b)      SURRENDER  OF  STOCK.  To  the  extent  that  a  Stock  Option
                  Agreement so  provides,  payment may be made all or in part by
                  surrendering,  or attesting to the  ownership of, Shares which
                  have already been owned by the Optionee or his representative.
                  Such Shares  shall be valued at their Fair Market Value on the
                  date when the new Shares  are  purchased  under the Plan.  The
                  Optionee shall not  surrender,  or attest to the ownership of,
                  Shares in payment of the  Exercise  Price if such action would
                  cause  the  Company  to  recognize  compensation  expense  (or
                  additional  compensation  expense)  with respect to the Option
                  for financial reporting purposes.

         (c)      SERVICES  RENDERED.  At the  discretion of the  Administrator,
                  Shares  may be  awarded  under  the Plan in  consideration  of
                  services  rendered to the Company or a Subsidiary prior to the
                  award. If Shares are awarded without the payment of a Purchase
                  Price in cash, the  Administrator  shall make a  determination
                  (at the  time  of the  award)  of the  value  of the  services
                  rendered   by  the  Offeree   and  the   sufficiency   of  the
                  consideration to meet the requirements of Section 6(b).

         (d)      CASHLESS EXERCISE. To the extent that a Stock Option Agreement
                  so  provides,  payment  may be made all or in part by delivery
                  (on a form prescribed by the  Administrator) of an irrevocable
                  direction to a securities broker to sell Shares and to deliver
                  all or part of the sale  proceeds to the Company in payment of
                  the aggregate Exercise Price.

         (e)      EXERCISE/PLEDGE.  To the extent that a Stock Option  Agreement
                  so  provides,  payment  may be made all or in part by delivery
                  (on a form prescribed by the  Administrator) of an irrevocable
                  direction to a securities  broker or lender to pledge  Shares,
                  as security for a loan, and to deliver all or part of the loan
                  proceeds to the Company in payment of the  aggregate  Exercise
                  Price.

         (f)      PROMISSORY  NOTE. To the extent that a Stock Option  Agreement
                  or Restricted Stock Agreement so provides, payment may be made
                  all or in  part by  delivering  (on a form  prescribed  by the
                  Company) a full-recourse  promissory  note.  However,  the par
                  value of the Common Shares being  purchased under the Plan, if
                  newly issued, shall be paid in cash or cash equivalents.

         (g)      OTHER  FORMS OF  PAYMENT.  To the extent  that a Stock  Option
                  Agreement or Restricted  Stock Agreement so provides,  payment
                  may  be  made  in any  other  form  that  is  consistent  with
                  applicable laws, regulations and rules.


                                      A-11



         (h)      LIMITATIONS  UNDER  APPLICABLE LAW.  Notwithstanding  anything
                  herein or in a Stock  Option  Agreement  or  Restricted  Stock
                  Agreement to the contrary, payment may not be made in any form
                  that is unlawful,  as determined by the  Administrator  in its
                  sole discretion.

SECTION 9.        STOCK APPRECIATION RIGHTS.

         (a)      SAR  AGREEMENT.  Each  grant of a SAR under the Plan  shall be
                  evidenced  by a SAR  Agreement  between the  Optionee  and the
                  Company.  Such SAR shall be subject to all applicable terms of
                  the Plan and may be  subject  to any other  terms that are not
                  inconsistent  with the Plan. The provisions of the various SAR
                  Agreements  entered into under the Plan need not be identical.
                  SARs may be granted in  consideration  of a  reduction  in the
                  Optionee's other compensation.

         (b)      NUMBER OF SHARES.  Each SAR Agreement shall specify the number
                  of Shares to which the SAR pertains and shall  provide for the
                  adjustment of such number in accordance with Section 11.

         (c)      EXERCISE PRICE.  Each SAR Agreement shall specify the Exercise
                  Price.  A SAR  Agreement  may specify an  Exercise  Price that
                  varies in accordance  with a  predetermined  formula while the
                  SAR is outstanding.

         (d)      EXERCISABILITY  AND TERM. Each SAR Agreement shall specify the
                  date  when  all or any  installment  of the  SAR is to  become
                  exercisable.  The SAR Agreement shall also specify the term of
                  the  SAR.  A  SAR  Agreement   may  provide  for   accelerated
                  exercisability   in  the  event  of  the   Optionee's   death,
                  disability  or  retirement or other events and may provide for
                  expiration  prior to the end of its  term in the  event of the
                  termination of the Optionee's service.  SARs may be awarded in
                  combination  with Options,  and such an Award may provide that
                  the SARs will not be  exercisable  unless the related  Options
                  are  forfeited.  A SAR may be  included  in an ISO only at the
                  time of  grant  but may be  included  in an NSO at the time of
                  grant or thereafter.  A SAR granted under the Plan may provide
                  that it will be  exercisable  only in the event of a Change in
                  Control.

         (e)      EFFECT OF CHANGE IN CONTROL.  The Administrator may determine,
                  at the time of  granting  a SAR or  thereafter,  that such SAR
                  shall become fully exercisable as to all Common Shares subject
                  to such SAR in the event that a Change in Control  occurs with
                  respect to the Company.

         (f)      EXERCISE OF SARS. Upon exercise of a SAR, the Optionee (or any
                  person  having the right to exercise  the SAR after his or her
                  death) shall receive from the Company (a) Shares,  (b) cash or
                  (c) a  combination  of Shares and cash,  as the  Administrator
                  shall  determine.  The amount of cash  and/or the Fair  Market
                  Value of Shares  received upon exercise of SARs shall,  in the
                  aggregate,  be equal to the  amount by which  the Fair  Market
                  Value (on the date of surrender) of the Shares  subject to the
                  SARs exceeds the Exercise Price.


                                      A-12



         (g)      MODIFICATION OR ASSUMPTION OF SARS.  Within the limitations of
                  the  Plan,  the  Administrator  may  modify,  extend or assume
                  outstanding SARs or may accept the cancellation of outstanding
                  SARs (whether  granted by the Company or by another issuer) in
                  return  for the grant of new SARs for the same or a  different
                  number  of  shares  and at the  same or a  different  exercise
                  price. The foregoing notwithstanding, no modification of a SAR
                  shall,  without the consent of the holder,  materially  impair
                  his or her rights or obligations under such SAR.

SECTION 10.       STOCK UNITS.

         (a)      STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan
                  shall be  evidenced  by a Stock  Unit  Agreement  between  the
                  recipient  and the Company.  Such Stock Units shall be subject
                  to all applicable  terms of the Plan and may be subject to any
                  other  terms  that are not  inconsistent  with the  Plan.  The
                  provisions of the various Stock Unit  Agreements  entered into
                  under  the Plan  need not be  identical.  Stock  Units  may be
                  granted in  consideration  of a reduction  in the  recipient's
                  other compensation.

         (b)      PAYMENT FOR AWARDS.  To the extent that an Award is granted in
                  the  form of  Stock  Units,  no cash  consideration  shall  be
                  required of the Award recipients.

         (c)      VESTING  CONDITIONS.  Each Award of Stock Units may or may not
                  be subject to  vesting.  Vesting  shall  occur,  in full or in
                  installments, upon satisfaction of the conditions specified in
                  the Stock Unit  Agreement.  A Stock Unit Agreement may provide
                  for  accelerated  vesting  in the  event of the  Participant's
                  death,   disability  or   retirement  or  other  events.   The
                  Administrator  may  determine,  at the time of granting  Stock
                  Units  or  thereafter,  that all or part of such  Stock  Units
                  shall  become  vested  in the event  that a Change in  Control
                  occurs with respect to the Company.

         (d)      VOTING AND DIVIDEND  RIGHTS.  The holders of Stock Units shall
                  have no voting rights. Prior to settlement or forfeiture,  any
                  Stock Unit awarded under the Plan may, at the  Administrator's
                  discretion,  carry  with it a right to  dividend  equivalents.
                  Such right  entitles the holder to be credited  with an amount
                  equal to all cash  dividends paid on one Share while the Stock
                  Unit is  outstanding.  Dividend  equivalents  may be converted
                  into   additional   Stock   Units.   Settlement   of  dividend
                  equivalents  may be made in the form of  cash,  in the form of
                  Shares,  or in a combination of both.  Prior to  distribution,
                  any dividend  equivalents  which are not paid shall be subject
                  to the same  conditions and  restrictions  (including  without
                  limitation,  any forfeiture  conditions) as the Stock Units to
                  which they attach.

         (e)      FORM AND TIME OF  SETTLEMENT  OF STOCK  UNITS.  Settlement  of
                  vested  Stock  Units may be made in the form of (a) cash,  (b)
                  Shares or (c) any  combination  of both,  as determined by the
                  Administrator.  The actual number of Stock Units  eligible for
                  settlement  may be larger or smaller than the number  included
                  in the  original  Award,  based on  predetermined  performance
                  factors.  Methods  of  converting  Stock  Units  into cash may
                  include  (without  limitation)  a method  based on the average
                  Fair  Market  Value of Shares  over a series of trading  days.
                  Vested  Stock  Units  may  be  settled  in a  lump  sum  or in
                  installments.  The distribution may occur or commence when all
                  vesting  conditions  applicable  to the Stock  Units have been
                  satisfied or have  lapsed,  or it may be deferred to any later
                  date. The amount of a deferred  distribution  may be increased
                  by an


                                      A-13



                  interest factor or by dividend equivalents.  Until an Award of
                  Stock Units is  settled,  the number of such Stock Units shall
                  be subject to adjustment pursuant to Section 11.

         (f)      DEATH OF RECIPIENT. Any Stock Units Award that becomes payable
                  after  the  recipient's  death  shall  be  distributed  to the
                  recipient's beneficiary or beneficiaries.  Each recipient of a
                  Stock Units Award under the Plan shall  designate  one or more
                  beneficiaries  for this purpose by filing the prescribed  form
                  with the Company. A beneficiary  designation may be changed by
                  filing the prescribed form with the Company at any time before
                  the Award recipient's  death. If no beneficiary was designated
                  or if no designated  beneficiary survives the Award recipient,
                  then any Stock  Units  Award that  becomes  payable  after the
                  recipient's  death  shall be  distributed  to the  recipient's
                  estate.

         (g)      CREDITORS'  RIGHTS.  A holder  of Stock  Units  shall  have no
                  rights other than those of a general  creditor of the Company.
                  Stock Units represent an unfunded and unsecured  obligation of
                  the  Company,  subject  to the  terms  and  conditions  of the
                  applicable Stock Unit Agreement.

SECTION 11.       ADJUSTMENT OF SHARES.

         (a)      ADJUSTMENTS.  In the event of a subdivision of the outstanding
                  Stock,  a  declaration  of a dividend  payable  in  Shares,  a
                  declaration of a dividend  payable in a form other than Shares
                  in an  amount  that  has a  material  effect  on the  price of
                  Shares,  a combination  or  consolidation  of the  outstanding
                  Stock (by  reclassification or otherwise) into a lesser number
                  of  Shares,  a  recapitalization,  a  spin-off  or  a  similar
                  occurrence,  the Administrator  shall make such adjustments as
                  it, in its sole discretion,  deems  appropriate in one or more
                  of:

                  (i)      The number of Options,  SARs,  Restricted  Shares and
                           Stock Units available for future Awards under Section
                           5;

                  (ii)     The limitations set forth in Sections 5(a) and (b);

                  (iii)    The  number of  Shares  covered  by each  outstanding
                           Option and SAR;

                  (iv)     The Exercise Price under each outstanding  Option and
                           SAR; or

                  (v)      The number of Stock Units included in any prior Award
                           which has not yet been settled.

                  Except as provided in this  Section  11, a  Participant  shall
                  have no rights by reason of any issue by the  Company of stock
                  of any  class  or  securities  convertible  into  stock of any
                  class,  any subdivision or consolidation of shares of stock of
                  any  class,  the  payment of any stock  dividend  or any other
                  increase  or  decrease in the number of shares of stock of any
                  class.

         (b)      DISSOLUTION  OR  LIQUIDATION.  To the  extent  not  previously
                  exercised  or  settled,  Options,  SARs and Stock  Units shall
                  terminate  immediately prior to the dissolution or liquidation
                  of the Company.


                                      A-14



         (c)      REORGANIZATIONS. In the event that the Company is a party to a
                  merger or other  reorganization,  outstanding  Awards shall be
                  subject to the  agreement  of merger or  reorganization.  Such
                  agreement shall provide for:

                  (i)      The  continuation  of the  outstanding  Awards by the
                           Company, if the Company is a surviving corporation;

                  (ii)     The  assumption  of  the  outstanding  Awards  by the
                           surviving corporation or its parent or subsidiary;

                  (iii)    The substitution by the surviving  corporation or its
                           parent  or  subsidiary  of its  own  awards  for  the
                           outstanding Awards;

                  (iv)     Full   exercisability   or  vesting  and  accelerated
                           expiration of the outstanding Awards; or

                  (v)      Settlement  of the  full  value  of  the  outstanding
                           Awards  in  cash  or  cash  equivalents  followed  by
                           cancellation of such Awards.

         (d)      RESERVATION OF RIGHTS.  Except as provided in this Section 11,
                  an Optionee  or Offeree  shall have no rights by reason of any
                  subdivision or  consolidation of shares of stock of any class,
                  the payment of any dividend or any other  increase or decrease
                  in the  number of shares of stock of any  class.  Any issue by
                  the  Company  of shares of stock of any class,  or  securities
                  convertible  into  shares  of stock of any  class,  shall  not
                  affect, and no adjustment by reason thereof shall be made with
                  respect to, the number or Exercise  Price of Shares subject to
                  an Option.  The grant of an Option  pursuant to the Plan shall
                  not  affect  in any way the right or power of the  Company  to
                  make  adjustments,   reclassifications,   reorganizations   or
                  changes of its  capital  or  business  structure,  to merge or
                  consolidate or to dissolve, liquidate, sell or transfer all or
                  any part of its business or assets.

SECTION 12.       DEFERRAL OF AWARDS.

         The  Administrator  (in its sole  discretion)  may  permit or require a
Participant to:

         (a)      Have cash that otherwise would be paid to such  Participant as
                  a result of the exercise of a SAR or the  settlement  of Stock
                  Units credited to a deferred  compensation account established
                  for such  Participant by the  Administrator as an entry on the
                  Company's books;

         (b)      Have  Shares  that  otherwise   would  be  delivered  to  such
                  Participant  as a result of the  exercise  of an Option or SAR
                  converted into an equal number of Stock Units; or

         (c)      Have  Shares  that  otherwise   would  be  delivered  to  such
                  Participant as a result of the exercise of an Option or SAR or
                  the settlement of Stock Units converted into amounts  credited
                  to  a  deferred  compensation  account  established  for  such
                  Participant by the  Administrator as an entry on the Company's
                  books.  Such amounts  shall be  determined by reference to the
                  Fair  Market  Value of such  Shares  as of the date  when they
                  otherwise would have been delivered to such Participant.


                                      A-15



         A deferred  compensation  account established under this Section 12 may
be credited with interest or other forms of investment  return, as determined by
the  Administrator.  A Participant for whom such an account is established shall
have no rights other than those of a general  creditor of the  Company.  Such an
account shall represent an unfunded and unsecured  obligation of the Company and
shall be subject to the terms and conditions of the applicable agreement between
such  Participant  and the Company.  If the deferral or  conversion of Awards is
permitted or required,  the Administrator (in its sole discretion) may establish
rules,  procedures  and forms  pertaining  to such  Awards,  including  (without
limitation) the settlement of deferred  compensation  accounts established under
this Section 12.

SECTION 13.       AWARDS UNDER OTHER PLANS.

         The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Shares  issued under this Plan.  Such Shares shall
be treated for all purposes  under the Plan like Shares  issued in settlement of
Stock Units and shall, when issued,  reduce the number of Shares available under
Section 5.

SECTION 14.       PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

         (a)      EFFECTIVE  DATE.  No  provision  of this  Section  14 shall be
                  effective   unless  and  until  the  Board  of  Directors  has
                  determined to implement such provision.

         (b)      ELECTIONS TO RECEIVE NSOS,  RESTRICTED  SHARES OR STOCK UNITS.
                  An Outside  Director  may elect to  receive  his or her annual
                  retainer  payments  and/or  meeting fees from the Company,  if
                  any,  in the form of cash,  NSOs,  Restricted  Shares or Stock
                  Units, or a combination thereof, as determined by the Board of
                  Directors.  Such NSOs, Restricted Shares and Stock Units shall
                  be issued  under the Plan.  An election  under this Section 14
                  shall be filed with the Company on the prescribed form.

         (c)      NUMBER AND TERMS OF NSOS,  RESTRICTED  SHARES OR STOCK  UNITS.
                  The  number of NSOs,  Restricted  Shares or Stock  Units to be
                  granted to Outside  Directors in lieu of annual  retainers and
                  meeting  fees that  would  otherwise  be paid in cash shall be
                  calculated  in a manner  determined by the Board of Directors.
                  The terms of such NSOs, Restricted Shares or Stock Units shall
                  also be determined by the Board of Directors.

SECTION 15. LEGAL AND REGULATORY REQUIREMENTS.

         Shares  shall not be issued  under the Plan  unless  the  issuance  and
delivery  of such  Shares  complies  with (or is  exempt  from)  all  applicable
requirements of law, including (without  limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated  thereunder,  state securities
laws and  regulations  and the  regulations  of any stock  exchange on which the
Company's  securities  may then be listed,  and the  Company  has  obtained  the
approval or  favorable  ruling from any  governmental  agency  which the Company
determines  is  necessary  or  advisable.  The Company  shall not be liable to a
Participant or other persons as to: (a) the non-issuance or sale of Shares as to
which the  Company has been  unable to obtain  from any  regulatory  body having
jurisdiction  the authority  deemed by the Company's  counsel to be necessary to
the  lawful  issuance  and sale of any  Shares  under the Plan;  and (b) any tax


                                      A-16



consequences  expected, but not realized, by any Participant or other person due
to the receipt, exercise or settlement of any Award granted under the Plan.

SECTION 16.       WITHHOLDING TAXES.

         (a)      GENERAL. To the extent required by applicable federal,  state,
                  local or foreign law, a  Participant  or his or her  successor
                  shall make  arrangements  satisfactory  to the Company for the
                  satisfaction of any withholding tax obligations  that arise in
                  connection with the Plan. The Company shall not be required to
                  issue any Shares or make any cash payment under the Plan until
                  such obligations are satisfied.

         (b)      SHARE WITHHOLDING.  The Administrator may permit a Participant
                  to satisfy all or part of his or her withholding or income tax
                  obligations by having the Company withhold all or a portion of
                  any Shares that otherwise  would be issued to him or her or by
                  surrendering  all or a portion  of any  Shares  that he or she
                  previously acquired. Such Shares shall be valued at their Fair
                  Market  Value  on the  date  when  taxes  otherwise  would  be
                  withheld in cash.  In no event may a  Participant  have Shares
                  withheld  that  would  otherwise  be  issued  to him or her in
                  excess of the number necessary to satisfy the legally required
                  minimum tax withholding.

SECTION 17.       OTHER PROVISIONS APPLICABLE TO AWARDS.

         (a)      TRANSFERABILITY.  Unless the agreement evidencing an Award (or
                  an  amendment   thereto   authorized  by  the   Administrator)
                  expressly  provides  otherwise,  no Award  granted  under this
                  Plan, nor any interest in such Award,  may be sold,  assigned,
                  conveyed,   gifted,   pledged,   hypothecated   or   otherwise
                  transferred  in any manner  (prior to the vesting and lapse of
                  any and all  restrictions  applicable  to Shares  issued under
                  such  Award),  other than by will or the laws of  descent  and
                  distribution;   provided,   however,   that   an  ISO  may  be
                  transferred  or assigned  only to the extent  consistent  with
                  Section 422 of the Code. Any purported assignment, transfer or
                  encumbrance  in violation of this Section  17(a) shall be void
                  and unenforceable against the Company.

         (b)      QUALIFYING PERFORMANCE CRITERIA. The number of Shares or other
                  benefits  granted,  issued,  retainable and/or vested under an
                  Award may be made  subject to the  attainment  of  performance
                  goals for a specified  period of time  relating to one or more
                  of the following  performance  criteria,  either individually,
                  alternatively  or in any  combination,  applied  to either the
                  Company as a whole or to a business unit or Subsidiary, either
                  individually,   alternatively  or  in  any  combination,   and
                  measured  either  annually  or  cumulatively  over a period of
                  years,  on an absolute basis or relative to a  pre-established
                  target,   to  previous  years'  results  or  to  a  designated
                  comparison  group or index,  in each case as  specified by the
                  Administrator  in the Award:  (a) cash flow,  (b) earnings per
                  share, (c) earnings before interest,  taxes and  amortization,
                  (d) return on equity, (e) total stockholder  return, (f) share
                  price performance, (g) return on capital, (h) return on assets
                  or net assets,  (i)  revenue,  (j) income or net  income,  (k)
                  operating income or net operating income, (l) operating profit
                  or net  operating  profit,  (m)  operating  margin  or  profit
                  margin,  (n)  return  on  operating  revenue,  (o)  return  on
                  invested  capital,  or (p) market segment shares  ("Qualifying
                  Performance  Criteria").  The  Administrator may appropriately
                  adjust  any  evaluation  of  performance  under  a  Qualifying
                  Performance  Criteria to exclude any of the  following  events
                  that   occurs   during  a   performance   period:   (i)  asset
                  write-downs,   (ii)   litigation   or


                                      A-17



                  claim judgments or settlements, (iii) the effect of changes in
                  tax  law,   accounting   principles  or  other  such  laws  or
                  provisions  affecting  reported  results,  (iv)  accruals  for
                  reorganization   and   restructuring   programs  and  (v)  any
                  extraordinary  nonrecurring  items as described in  Accounting
                  Principles   Board  Opinion  No.  30  and/or  in  managements'
                  discussion and analysis of financial  condition and results of
                  operations   appearing  in  the  Company's  annual  report  to
                  stockholders for the applicable year. The Administrator  shall
                  determine the Qualifying  Performance  Criteria not later than
                  the 90th day of the  performance  period,  and shall determine
                  and  certify,  for each  Participant,  the extent to which the
                  Qualifying   Performance   Criteria   have   been   met.   The
                  Administrator  may not in any  event  increase  the  amount of
                  compensation  payable under the Plan upon the  attainment of a
                  Qualifying Performance Goal to a Participant who is a "covered
                  employee" within the meaning of Section 162(m) of the Code.

SECTION 18.       NO EMPLOYMENT RIGHTS.

         No provision  of the Plan,  nor any right or Option  granted  under the
Plan,  shall be construed to give any person any right to become,  to be treated
as, or to remain an Employee. The Company and its Subsidiaries reserve the right
to  terminate  any  person's  Service  at any time and for any  reason,  with or
without notice.

SECTION 19.       DURATION AND AMENDMENTS.

         (a)      TERM  OF THE  PLAN.  The  Plan,  as set  forth  herein,  shall
                  terminate automatically on June 21, 2016 and may be terminated
                  on any earlier date pursuant to Subsection (b) below.

         (b)      RIGHT TO AMEND OR TERMINATE  THE PLAN.  The Board of Directors
                  may amend  the Plan at any time and from time to time.  Rights
                  and  obligations  under any Award granted before  amendment of
                  the Plan shall not be materially  impaired by such  amendment,
                  except with  consent of the  Participant.  An amendment of the
                  Plan  shall  be  subject  to the  approval  of  the  Company's
                  stockholders  only to the extent required by applicable  laws,
                  regulations or rules.

         (c)      EFFECT OF  TERMINATION.  No Awards shall be granted  under the
                  Plan after the  termination  thereof.  The  termination of the
                  Plan  shall not affect  Awards  previously  granted  under the
                  Plan.

SECTION 20.       EXECUTION.

         To  record  the  adoption  of the Plan by the Board of  Directors,  the
Company has caused its authorized officer to execute the same.

                                    PATRON SYSTEMS, INC.

                                    By:
                                           -------------------------------------
                                           Robert Cross
                                           Chief Executive Officer


                                      A-18



                                                                      APPENDIX B

                            CERTIFICATE OF AMENDMENT
                                       OF
            SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                              PATRON SYSTEMS, INC.


         Patron Systems, Inc., a corporation organized and existing under and by
virtue  of  the  General   Corporation   Law  of  the  State  of  Delaware  (the
"Corporation"), does hereby certify that:

         I.       Pursuant  to the  Unanimous  Written  Consent  of the Board of
Directors of the Corporation  dated May 10, 2006,  resolutions were duly adopted
setting  forth  a  proposed   amendment  of  the  Second  Amended  and  Restated
Certificate of Incorporation of the Corporation,  declaring said amendment to be
advisable to the Corporation and its stockholders.  The resolution setting forth
the proposed amendment is as follows:

         RESOLVED  FURTHER,  that Section (A) of Article IV the  Certificate  of
Incorporation in its entirety to read as follows:

         "Authorized  Capital Stock. The total number of shares of capital stock
         which the  Corporation  shall have  authority to issue is  225,000,000,
         consisting of 150,000,000 shares of common stock, with the par value of
         $0.01 per share ("Common  Stock"),  and 75,000,000  shares of preferred
         stock, with the par value of $0.01 per share.  Simultaneously  with the
         effective  date of the filing of this  amendment to the Second  Amended
         and Restated  Certificate of Incorporation (the "Effective Date"), each
         share of Common Stock of the Corporation issued and outstanding or held
         as treasury  shares  immediately  prior to the Effective Date (the "Old
         Common Stock") shall  automatically  be reclassified and continued (the
         "Reverse Split"), without any action on the part of the holder thereof,
         as   one-thirtieth  of  one  share  (0.033333)  of  Common  Stock.  The
         Corporation shall not issue fractional shares on account of the Reverse
         Split. Holders of Old Common Stock who would otherwise be entitled to a
         fraction of a share on account of the Reverse Split shall receive, upon
         surrender  of  all  of  such  holder's  stock   certificates   formerly
         representing  shares of Old Common  Stock,  in lieu of such  fractional
         share, one whole share of Common Stock.

         The Corporation's stated capital shall be reduced by an amount equal to
         the  aggregate  par value of the shares of Common Stock issued prior to
         the  effectiveness  of this Certificate of Amendment which, as a result
         of the Reverse Split  provided for herein,  are no longer issued shares
         of Common Stock."

         II.      That thereafter,  a majority of the outstanding stock entitled
to  vote  thereon,  acting  pursuant  to a  duly  called  and  held  meeting  of
stockholders, approved the amendment.

         III.     That said  amendment was duly adopted in  accordance  with the
provisions  of  Section  242 of the  General  Corporation  Law of the  State  of
Delaware.


                                      B-1



         IN WITNESS  WHEREOF,  the Corporation has caused this certificate to be
signed by Robert Cross, its Chief Executive Officer, this __ day of June, 2006.



                                By:               /s/ Robert Cross
                                         ---------------------------------------
                                         Name:    Robert Cross
                                         Title:   Chief Executive Officer


                                      B-2



                              PATRON SYSTEMS, INC.
                    PROXY FOR ANNUAL MEETING OF STOCKHOLDERS

           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned,  a stockholder of PATRON SYSTEMS,  INC., a Delaware corporation
(the  "Company"),  hereby  nominates,  constitutes and appoints Robert Cross and
Martin T. Johnson, or either one of them, as proxy of the undersigned, each with
full power of substitution,  to attend,  vote and act for the undersigned at the
Annual Meeting of stockholders of the Company,  to be held on June 22, 2006, and
any postponements or adjournments thereof, and in connection therewith,  to vote
and represent all of the shares of the Company  which the  undersigned  would be
entitled to vote with the same effect as if the  undersigned  were  present,  as
follows:

The Board of Directors recommends a FOR vote on all proposals listed below.

Proposal 1.  To elect the following three nominees as directors:


--------------------------  ------------------------  -------------------------
         CLASS I                    CLASS II                  CLASS III
--------------------------  ------------------------  -------------------------
    George Middlemas              Robert Cross             Braden Waverley
--------------------------  ------------------------  -------------------------


              _____ FOR NOMINEES LISTED (except as marked to the contrary below)
              _____ WITHHELD

(INSTRUCTION:  To withhold authority to vote for any individual  nominee,  write
that nominee's name in the space below:)

--------------------------------------------------------------------------------
The undersigned hereby confer(s) upon the proxies and each of them discretionary
authority with respect to the election of directors in the event that any of the
above nominees is unable or unwilling to serve.

Proposal 2.  To adopt the Patron Systems, Inc. 2006 Stock Incentive Plan.

            |_| FOR              |_| AGAINST            |_| ABSTAIN

Proposal 3.  To  approve  an  amendment  to  the  Company's  Second  Amended and
Restated  Certificate of  Incorporation,  as amended,  to provide for a 1-for-30
reverse stock split of the Company's issued and outstanding Common Stock.

            |_| FOR              |_| AGAINST            |_| ABSTAIN

     The  undersigned  hereby  revokes  any  other  proxy to vote at the  Annual
Meeting,  and hereby  ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof.  With respect to matters not
known at the time of the  solicitation  hereof,  said proxies are  authorized to
vote in accordance with their best judgment.

     THIS  PROXY WILL BE VOTED IN  ACCORDANCE  WITH THE  INSTRUCTIONS  SET FORTH
ABOVE OR, TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A
GRANT OF AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED
AT THE ANNUAL  MEETING,  THIS PROXY  CONFERS  AUTHORITY TO AND SHALL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES.

The undersigned  acknowledges  receipt of a copy of the Notice of Annual Meeting
and  accompanying  Proxy  Statement  dated May 22, 2006,  relating to the Annual
Meeting.

                                         Dated:___________________________, 2006

                                         Signature:_____________________________

                                         Signature:_____________________________
                                         Signature(s) of Stockholder(s)
                                         (See Instructions Below)

                                         The    signature(s)    hereon    should
                                         correspond  exactly with the name(s) of
                                         the  stockholder(s)  appearing  on  the
                                         Share  Certificate.  If  stock  is held
                                         jointly,  all joint owners should sign.
                                         When  signing  as  attorney,  executor,
                                         administrator,   trustee  or  guardian,
                                         please  give  full  title as  such.  If
                                         signer is a  corporation,  please  sign
                                         the  full  corporation  name,  and give
                                         title of signing officer.

           |_| Please indicate by checking this box if you anticipate
                          attending the Annual Meeting.

                PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
                      PROMPTLY USING THE ENCLOSED ENVELOPE