SUBSCRIPTION AGREEMENT FOR
____________________________________
____________________________________
____________________________________
June
15,
2007
Element
21 Golf Company
000
Xxxxxx Xxxx Xxxx, Xxxx 0
Xxxxxxx,
Xxxxxxx, Xxxxxx, X0X0X0
Pursuant
to a Subscription Agreement dated July 14, 2006 (the “Original Subscription
Agreement”) between Element 21 Golf Company, a Delaware corporation (the
“Company”) and the undersigned (“Investor”), the Company issued to the Investor
117,647 shares of Series B Convertible Preferred Stock, $.10 par value per
share
(the “Series B Preferred Stock”), and (ii) a warrant to purchase 17,647,059
shares of the Company’s Common Stock, $.01 par value per share (the “Common
Stock”). The Investor has now agreed to make an additional investment in the
Company, and the Company and the Investor have agreed as follows:
1. Investment.
The
Investor hereby agrees to invest an additional $1,000,000 (the “Investment
Amount”) in the Company in exchange for (i) 58,824 shares of Series B Preferred
Stock, and (ii) warrants to purchase 5,882,400 shares of the Company’s Common
Stock, a form of which is attached hereto as Exhibit
A
(the
“Warrant”), on the terms and conditions described therein. The Series B
Preferred Stock shall have the rights preferences and privileges set forth
in
the Series B Certificate of Designations as heretofore filed with the Secretary
of State of Delaware (the “Certificate of Designations”), provided that the same
shall be amended as set forth in Exhibit
B
hereto
on or before June 11, 2007. The Series B Preferred Stock, the Warrants, the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
and the shares of Common Stock issuable upon exercise of the Warrants (the
“Warrant Shares”) are collectively referred to herein as the
“Securities”.
2. Payment
and Issuance of Securities.
On June
15, 2007, the Investor will tender to the Company $1,000,000 and in exchange
therefor, the Company will deliver to the Investor the Securities.
The
Investor fully understands that the Company has a limited operating history
and
that his or its investment in the Company involves a high degree of risk of
loss
of his or its entire investment. The Investor fully understands the nature
of
the risks of an investment in the Company and is qualified by its knowledge
and
experience to evaluate investments of this type. The Investor has carefully
considered the potential risks relating to the Company and an investment in
the
Company and has, in particular, reviewed each of the risks set forth in
Annex
B
attached
hereto and the Securities and Exchange Commission (“SEC”) filings described in
Annex
C
attached
hereto (collectively, the “SEC Filings”) which may be obtained
at
xxx.xxx.xxx.
Both
the Investor and its advisors have had the opportunity to ask questions of
and
receive answers from representatives of the Company or persons acting on its
behalf concerning the Company and the terms and conditions of a proposed
investment in the Company and have also have had the opportunity to obtain
additional information necessary to verify the accuracy of information furnished
about the Company. Accordingly, the Investor has independently evaluated the
risks of making an investment in the Company.
3. Investor
Representations and Warranties.
The
Investor hereby confirms and agrees that what he or it acknowledged, represented
and warranted to, and agreed with, the Company in Section 3 of the Original
Subscription Agreement shall be deemed remade herein and incorporated herein
mutatis
mutandis.
4. Company
Representations, Warranties and Covenants.
The
Company hereby confirms and agrees that what it represented and warranted to,
and covenanted with, the Investor in Section 3 of the Original Subscription
Agreement shall be deemed remade herein and incorporated herein mutatis
mutandis;
except
that the authorized capital stock of the Company consists of 300,000,000 shares
of Common Stock, $.01 par value per share, 113,390,062 of which are issued
and
outstanding as of the date hereof, and 5,000,000 shares of Preferred Stock,
2,200,000 shares of which have been designated as Series A Convertible Preferred
Stock, $.10 par value per share, 2,113,556 of which are issued and outstanding
as of the date hereof, and 353,000 shares of which have been designated as
Series B Convertible Preferred Stock, $.10 par value per share, 235,296 of
which
are issued and outstanding as of the date hereof.
5. Registration;
Compliance with the Securities Act.
This
Section 5 shall be applicable to the Warrant issued hereunder as well as the
to
warrants issued pursuant to the Original Subscription Agreement, Section 5
of
which is hereby amended to read as set forth below. As used in this Section
5,
the term “Warrant” shall mean both the Warrants issued pursuant to this
Agreement and the warrants issued pursuant to the Original Subscription
Agreement and “Warrant Shares” shall mean the shares of Common Stock issuable
upon the exercise of all such Warrants.
(a) If,
at
any time prior to the one year anniversary of the date hereof, the Company
proposes to register any shares of its Common Stock under the Securities Act
of
1933 in connection with the public offering of such securities for its own
account or for the accounts of other shareholders of the Company, solely for
cash on a form that would also permit the registration of the shares of Common
Stock issuable upon exercise of the Warrant (the “Registrable Securities”), the
Company shall, each such time, promptly give the Investor written notice of
such
determination. Upon the written request of the Investor given within twenty
(20)
days after mailing of any such notice by the Company, the Company shall use
its
best efforts to cause to be registered under the Securities Act of 1933 all
of
the Registrable Securities that the Investor has requested be registered. The
foregoing notwithstanding, the Company may, in its discretion, withdraw any
registration statement referred to in this Section 5(a) prior to the
effectiveness thereof.
In
connection with any offering to which this Section 5(a) applies and involving
an
underwriting of shares being issued by the Company, the Company shall not be
required under this Section 5(a) to include any of the Investor’s Registrable
Securities in such
underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it. If the total amount of securities
that all holders of Registrable Securities request to be included in an
underwritten offering exceeds the amount of securities that the underwriters
reasonably believe compatible with the success of the offering, the Company
shall only be required to include in the offering so many of the securities
of
the Investor as the underwriters reasonably believe will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among each of the holders of Registrable Securities, or in such other
proportions as shall mutually be agreed to by such selling holders);
provided,
however,
that no
such reduction shall be made with respect to any securities offered by the
Company for its own account.
(b) The
Company shall (i) no later than December 15, 2007 (the “Filing Date”), prepare
and file with the SEC a Registration Statement on Form SB-2 (the “Registration
Statement”) relating to all of the Warrant Shares then held by, or issuable to,
the Investor; and (ii) use its commercially reasonable efforts, subject to
receipt of necessary information from the Investor, to cause the SEC to declare
the Registration Statement effective within 60 days after the date the
Registration Statement is filed with the SEC (such date, the “Required Effective
Date”). However, so long as the Company filed the Registration Statement by the
Filing Date, if the Registration Statement receives SEC review, then the
Required Effective Date will be the one hundred and twentieth (120) calendar
day
after the date the Registration Statement is filed with the SEC.
(c) The
Company shall use its commercially reasonable efforts to (i) promptly prepare
and file with the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary
to
keep the Registration Statement effective until the earliest of (i) two years
after the effective date of the Registration Statement, or (ii) such time as
all
of the Warrant Shares become eligible for resale by non-affiliates pursuant
to
Rule 144(k) under the Securities Act of 1933; and (ii) furnish to the Investor
with respect to the Registrable Securities registered under the Registration
Statement (and to each underwriter, if any, of such Registrable Securities)
such
number of copies of prospectuses and such other documents as the Investor may
reasonably request, in order to facilitate the public sale or other disposition
of all or any of the Registrable Securities by the Investor.
(d)
In
connection with the filing of any registration statement pursuant to this
Section 5, the Company shall use its commercially reasonable efforts to file
documents required of the Company for normal “Blue Sky” clearance in states
specified in writing by the Investor; provided, however, that the Company shall
not be required to qualify to do business or consent to service of process
in
any jurisdiction in which it is not now so qualified or has not so
consented.
(e) The
Company shall bear all expenses in connection with the procedures in paragraphs
(a) through (d) of this Section 5 and the registration of the Registrable
Securities pursuant to the Registration Statement or any other registration
statement filed by the Company pursuant to Section 5(a) (the Registration
Statement and any other such registration statements filed pursuant to Section
5(a) are each referred to herein as a “Registration” and collectively as the
“Registrations”), other than fees and expenses, if any, of counsel or other
advisers to the
Investor,
or underwriting discounts, brokerage fees and commissions incurred by the
Investor. A questionnaire related to the Registration Statement to be completed
by the Investor is attached hereto as Annex
A.
The
Investor agrees that it will promptly notify the Company of any changes in
the
information set forth in the Registration Statement regarding the Investor
or
its plan of distribution.
(f) For
the
purpose of this Section 5(f), the term “Investor/Affiliate” shall mean any
affiliates of the Investor and any person who controls the Investor or any
affiliate of the Investor within the meaning of Section 15 of the Securities
Act
or Section 20 of the Exchange Act; and the term “Registrations” shall include
any preliminary prospectus, final prospectus, exhibit, supplement or amendment
included in or relating to, and any document incorporated by reference in any
such Registration.
(i) The
Company agrees to indemnify and hold harmless the Investor and each
Investor/Affiliate against any losses, claims, damages, liabilities or expenses,
joint or several, to which the Investor or such Investor/Affiliates may become
subject, under the Securities Act, the Exchange Act, or any other federal or
state statutory law or regulation, or at common law or otherwise (including
in
settlement of any litigation, if such settlement is effected with the prior
written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration, including any prospectus,
financial statements and schedules, and all other documents filed as a part
thereof, as amended at the time of effectiveness of any Registration, including
any information deemed to be a part thereof as of the time of effectiveness
pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the rules
and regulations of the SEC (the “Rules and Regulations”), or the prospectus, in
the form first filed with the SEC pursuant to Rule 424(b) of the Rules and
Regulations, or filed as part of any Registration at the time of effectiveness
if no Rule 424(b) filing is required (the “Prospectus”), or any subsequent
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in the Registration or any
amendment or supplement thereto not misleading or in the Prospectus or any
amendment or supplement thereto not misleading, in light of the circumstances
under which they were made, or arise out of or are based in whole or in part
on
any inaccuracy in the representations and warranties of the Company contained
in
this Subscription Agreement, or any failure of the Company to perform its
obligations hereunder or under law, and will reimburse the Investor and each
such Investor/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by the Investor or such Investor/Affiliate in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the Company
will not be liable for amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, and the
Company will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, liability or expense arises out
of or
is based upon (i) an untrue statement or alleged untrue statement or omission
or
alleged omission made in the Registration, the Prospectus or any amendment
or
supplement thereto in reliance upon and in
conformity
with written information furnished to the Company by or on behalf of the
Investor expressly for use therein, or (ii) the failure of the Investor to
comply with the covenants and agreements contained herein with respect to the
sale of the Securities or (iii) the inaccuracy of any representation or warranty
made by the Investor herein or (iv) any statement or omission in any Prospectus
that is corrected in any subsequent Prospectus that was delivered to the
Investor prior to the pertinent sale or sales by the Investor.
(ii) The
Investor will severally indemnify and hold harmless the Company, each of its
directors, each of its executive officers, including such officers who signed
the Registration, and each person, if any, who controls the Company within
the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any losses, claims, damages, liabilities or expenses to which the
Company, each of its directors, each of its officers who signed the Registration
or controlling person may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common
law
or otherwise (including in settlement of any litigation, if such settlement
is
effected with the written consent of the Investor) insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon (i) any failure to comply
with the covenants and agreements contained herein with respect to the sale
of
the Securities, or (ii) the inaccuracy of any representation or warranty made
by
the Investor herein, or (iii) any untrue or alleged untrue statement of any
material fact contained in the Registration, the Prospectus, or any amendment
or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements in the Registration or any amendment or
supplement thereto not misleading or in the Prospectus or any amendment or
supplement thereto not misleading in the light of the circumstances under which
they were made, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was
made in the Registration, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Investor expressly for use therein, and
will reimburse the Company, each of its directors, each of its officers who
signed the Registration or controlling person for any legal and other expense
reasonably incurred by the Company, each of its directors, each of its officers
who signed the Registration or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the Investor’s
aggregate liability under this Section 5(f) with respect to a particular
Registration shall not exceed the amount of proceeds received by the Investor
on
the sale of the Registrable Securities pursuant to such Registration.
(iii) Promptly
after receipt by an indemnified party under this Section 5(f) of notice of
the
threat or commencement of any action, such indemnified party will, if a claim
in
respect thereof is to be made against an indemnifying party under this Section
5(f), promptly notify the indemnifying party in writing thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the indemnity agreement contained in this Section 5(f) to the
extent it is not prejudiced as a result of such failure. In case any such action
is brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity
from
an
indemnifying party, the indemnifying party will be entitled to participate
in,
and, to the extent that it may wish, jointly with all other indemnifying parties
similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants
in
any such action include both the indemnified party and the indemnifying party
and the indemnified party based upon the advice of such indemnified party’s
counsel shall have reasonably concluded, based on an opinion of counsel
reasonably satisfactory to the indemnifying party, that there may be a conflict
of interest between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 5(f) for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not
be
liable for the expenses of more than one separate counsel, reasonably
satisfactory to such indemnifying party, representing the indemnified parties
who are parties to such action, plus local counsel, if appropriate) or (ii)
the
indemnifying party shall not have employed counsel reasonably satisfactory
to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of action, in each of which cases the
reasonable fees and expenses of counsel shall be at the expense of the
indemnifying party. The indemnifying party shall not be liable for any
settlement of any action without its written consent.
(iv) If
the
indemnification provided for in this Section 5(f) is required by its terms
but
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party under this Section 5(f) in respect to any losses,
claims, damages, liabilities or expenses referred to herein, then each
applicable indemnifying party shall contribute to the amount paid or payable
by
such indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Investor from
the
private placement of the Securities hereunder or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion
as is
appropriate to reflect not only the relative benefits referred to in clause
(i)
above but the relative fault of the Company and the Investor in connection
with
the statements or omissions or inaccuracies in the representations and
warranties in this Subscription Agreement and/or the Registration Statement
which resulted in such losses, claims, damages, liabilities or expenses, as
well
as any other relevant equitable considerations. The respective relative benefits
received by the Company on the one hand and the Investor on the other shall
be
deemed to be in the same proportion as the amount paid by the Investor to the
Company pursuant to this Subscription Agreement for the Securities purchased
by
the Investor that were sold pursuant to the Registration Statement bears to
the
difference (the “Difference”) between the amount the Investor paid for the
Securities that were sold pursuant to the
Registration
Statement and the amount received by the Investor from such sale. The relative
fault of the Company, on the one hand, and the Investor on the other shall
be
determined by reference to, among other things, whether the untrue or alleged
statement of a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate representation and/or
warranty relates to information supplied by the Company or by the Investor
and
the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable
by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in this Section 5(f), any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim. The provisions set forth in paragraph (iii) of this Section 5(f)
with
respect to the notice of the threat or commencement of any threat or action
shall apply if a claim for contribution is to be made under this paragraph
(iv);
provided, however, that no additional notice shall be required with respect
to
any threat or action for which notice has been given under paragraph (iii)
for
purposes of indemnification. The Company and the Investor agree that it would
not be just and equitable if contribution pursuant to this Section 5(f) were
determined solely by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
this
paragraph. Notwithstanding the provisions of this Section 5(f), the Investor
shall be required to contribute any amount in excess of the amount by which
the
Difference exceeds the amount of any damages that the Investor has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(g) So
long
as a Registration covering the resale of Registrable Securities owned by the
Investor is effective, the Company will furnish to the Investor upon the
reasonable request of the Investor, a reasonable number of copies of the
Prospectuses, and any supplements thereto, to supply to any other party
requiring such Prospectuses; and the Company, upon the reasonable request of
the
Investor and with prior notice, will be available to the Investor or a
representative thereof at the Company’s headquarters to discuss information
relevant for disclosure in the Registration covering the Registrable Securities
and will otherwise cooperate with the Investor conducting an investigation
for
the purpose of reducing or eliminating the Investor’s exposure to liability
under the Securities Act, including the reasonable production of information
at
the Company’s headquarters, subject to appropriate confidentiality
limitations.
6. Severability.
In the
event any parts of this Subscription Agreement are found to be void, the
remaining provisions of this Subscription Agreement shall nevertheless be
binding with the same effect as though the void parts were deleted.
7. Choice
of Law and Jurisdiction.
This
Subscription Agreement will be deemed to have been made and delivered in the
state of the Investor’s residence as set forth on the signature page hereto and
will be governed as to validity, interpretation, construction, effect and in
all
other respects by the internal laws of the State of Delaware.
8. Counterparts.
This
Subscription Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute
one
and the same instrument. The execution of this Subscription Agreement may be
by
actual or facsimile signature.
9. Benefit.
This
Subscription Agreement shall be binding upon and inure to the benefit of the
parties hereto.
10. Notices
and Addresses.
All
notices, offers, acceptance and any other acts under this Subscription Agreement
(except payment) shall be in writing, and shall be sufficiently given if
delivered to the addresses in person, by Federal Express or similar courier
delivery, or, if mailed, postage prepaid, by certified mail, return receipt
requested, as follows:
Investor:
At
the
address designated on the signature page of this Subscription
Agreement.
the
Company:
Element
21 Golf Company
000
Xxxxxx Xxxx Xxxx, Xxxx 0
Xxxxxxx,
Xxxxxxx, Xxxxxx, X0X0X0
Tel: (000)
000-0000
or
to
such other address as any of them, by notice to the others may designate from
time to time. The transmission confirmation receipt from the sender’s facsimile
machine shall be conclusive evidence of successful facsimile delivery.
11. Oral
Evidence.
This
Subscription Agreement constitutes the entire agreement between the parties
with
respect to the subject matter hereof and supersedes all prior oral and written
agreements between the parties hereto with respect to the subject matter hereof.
This Subscription Agreement may not be changed, waived, discharged, or
terminated orally but, rather, only by a statement in writing signed by the
party or parties against which enforcement or the change, waiver, discharge
or
termination is sought.
12. Section
Headings.
Section
headings herein have been inserted for reference only and shall not be deemed
to
limit or otherwise affect, in any matter, or be deemed to interpret in whole
or
in part, any of the terms or provisions of this Subscription
Agreement.
13. Survival
of Representations, Warranties and
Agreements.
The
representations, warranties and agreements contained herein shall survive the
delivery of, and the payment for, the Securities.
RESIDENTS
OF ALL STATES:
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED
AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT
AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID
ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR
THE
ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO
THE
CONTRARY IS UNLAWFUL.
|
INVESTOR
|
ELEMENT
21 GOLF COMPANY
By:
__________________________________
Name:
Xxxxxxxx Xxxxx
Title:
President & CEO
|
ANNEX
A
ELEMENT
21 GOLF COMPANY
REGISTRATION
STATEMENT QUESTIONNAIRE
In
connection with the preparation of the Registration Statement, please provide
the following information:
Pursuant
to the “Selling Stockholder” section of the Registration Statement, please state
your or your organization’s name exactly as it should appear in the Registration
Statement:
Please
provide the number of shares that you or your organization will own immediately
after Closing, including those Securities purchased by you or your organization
pursuant to this Subscription Agreement and those shares purchased by you or
your organization through other transactions:
Have
you
or your organization had any position, office or other material relationship
within the past three years with the Company or its affiliates?
________
Yes ________
No
If
yes,
please indicate the nature of any such relationships below:
Are
you
(i) an NASD Member (see definition), (ii) a Controlling (see definition)
shareholder of an NASD Member, (iii) a Person Associated with a Member of the
NASD (see definition), or (iv) an Underwriter or a Related Person (see
definition) with respect to the proposed offering; or (b) do you own any shares
or other securities of any NASD Member not purchased in the open market; or
(c)
have you made any outstanding subordinated loans to any NASD
Member?
________
Yes ________
No
If
“yes,”
please describe below:
NASD
Member.
The term
“NASD member” means either any broker or dealer admitted to membership in the
National Association of Securities Dealers, Inc. (“NASD”). (NASD Manual, By-laws
Article I, Definitions)
Control.
The term
“control” (including the terms “controlling,” “controlled by” and “under common
control with”) means the possession, direct or indirect, of the power, either
individually or with others, to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities,
by
contract, or otherwise. (Rule 405 under the Securities Act of 1933, as
amended)
Person
Associated with a member of the NASD.
The term
“person associated with a member of the NASD” means every sole proprietor,
partner, officer, director, branch manager or executive representative of any
NASD Member, or any natural person occupying a similar status or performing
similar functions, or any natural person engaged in the investment banking
or
securities business who is directly or indirectly controlling or controlled
by a
NASD Member, whether or not such person is registered or exempt from
registration with the NASD pursuant to its bylaws. (NASD Manual, By-laws Article
I, Definitions)
Underwriter
or a Related Person.
The
term “underwriter or a related person” means, with respect to a proposed
offering, underwriters, underwriters’ counsel, financial consultants and
advisors, finders, members of the selling or distribution group, and any and
all
other persons associated with or related to any of such persons. (NASD
Interpretation).
ANNEX
B
RISK
FACTORS
The
Securities to be issued by the Company are speculative and involve a high degree
of risk.
Each
investor is urged to carefully read the “Risk Factors” set forth below. As used
herein, the terms “we”, “the Company” and “our” refer to Element 21 Golf
Company.
We
Will Need To Raise Additional Funds. These Funds May Not Be Available When
We
Need Them or on Terms Favorable to Us.
We
will
need to raise additional funds to operate the business, support more rapid
expansion, develop new or enhanced products, respond to competitive pressures,
acquire complementary businesses or technologies, or respond to unanticipated
events. There can be no assurances that additional financing will be available
when needed on favorable terms, or at all. If these funds are not available
when
we need them, we may need to change our business strategy or reduce our
operations or investment activities. In addition, any issuance of additional
equity securities will dilute the ownership interest of our existing
stockholders and the issuance of additional debt securities may increase the
perceived risk of investing in us.
There
Are Risks Associated With Our Stock Trading On The NASD OTC Bulletin Board
Rather Than A National Exchange.
There
are
significant consequences associated with our stock trading on the NASD OTC
Bulletin Board rather than a national exchange. The effects of not being able
to
list our securities on a national exchange include:
-
Limited
release of the market prices of our securities;
-
Limited
news coverage of us;
-
Limited
interest by investors in our securities;
-
Volatility of our stock price due to low trading volume;
-
Increased difficulty in selling our securities in certain states due to “blue
sky” restrictions; and
-
Limited
ability to issue additional securities or to secure additional
financing.
“Xxxxx
Stock” Regulations May Impose Certain Restrictions On The Marketability of Our
Securities.
The
SEC
has adopted regulations which generally define “xxxxx stock” to be any equity
security that has a market price (as defined) less than $5.00 per share, subject
to certain exceptions. The Company’s Common Stock is presently subject to these
regulations which impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make
a
special suitability determination for the purchase of such securities and have
received the purchaser’s written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a xxxxx stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the SEC relating to the xxxxx stock market.
The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer’s presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the xxxxx stock held in the account and information on the
limited market in xxxxx stocks. Consequently, the “xxxxx stock” rules may
restrict the ability of broker-dealers to sell the Company’s securities and may
negatively affect the ability of purchasers of the Company’s shares of Common
Stock to sell such securities.
Limited
Trading Market; Restrictions on Transferability.
The
Company’s shares of Common Stock trade on the OTC Bulletin Board with limited
daily trading volume. However, the Securities have not been registered under
the
Act, and accordingly, are subject to restrictions on transferability and resale
and may not be transferred or sold except as permitted under the Act and
applicable state securities laws, pursuant to registration or exemption
therefrom. Investors should be aware that they will be required to bear the
financial risk of this investment for an indefinite period of time.
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATES AND ARE BEING OFFERED
AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT
AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY
AND
RESALE AND MAY NOT BE PLEDGED, TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER
SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY,
NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS
OF
THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IT
IS
INTENDED THAT THE SHARES OF COMMON STOCK OFFERED HEREBY AND THE WARRANTS WILL
BE
MADE AVAILABLE ONLY TO ACCREDITED INVESTORS, AS DEFINED IN SECTION
2(15) OF
THE
SECURITIES ACT AND RULE 501 THEREUNDER. THE SECURITIES OFFERED HEREBY ARE BEING
OFFERED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS FOR NON-PUBLIC OFFERINGS.
SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHICH THE OFFERING
WILL BE MADE AND RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES.
INVESTMENT
IN THE SECURITIES OFFERED HEREBY SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN
AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. INVESTORS WILL BE REQUIRED
TO REPRESENT THAT THEY ARE FAMILIAR WITH AND UNDERSTAND THE TERMS OF THIS
OFFERING, AND THAT HAVE SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT THEY ARE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THIS
INVESTMENT.
NO
SECURITIES MAY BE RESOLD OR OTHERWISE DISPOSED OF BY AN INVESTOR UNLESS, IN
THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, REGISTRATION UNDER THE
APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE
IS
MADE WITH SUCH REGISTRATION REQUIREMENTS. THE OFFEREE, BY ACCEPTING DELIVERY
OF
THESE MATERIALS, AGREES TO RETURN THE OFFERING MATERIALS AND ALL ACCOMPANYING
OR
RELATED DOCUMENTS TO THE COMPANY UPON REQUEST IF THE OFFEREE DOES NOT AGREE
TO
PURCHASE ANY OF THE SECURITIES OFFERED HEREBY.
THESE
MATERIALS ARE SUBMITTED IN CONNECTION WITH THE PRIVATE OFFERING OF THE
SECURITIES AND DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. ANY
REPRODUCTION OR DISTRIBUTION OF THE SUBSCRIPTION AGREEMENT IN WHOLE OR IN PART,
OR THE DIVULGENCE OF ANY OF ITS CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT
OF
THE COMPANY, IS PROHIBITED. ANY PERSON ACTING CONTRARY TO THE FOREGOING
RESTRICTIONS MAY PLACE HIMSELF AND THE COMPANY IN VIOLATION OF FEDERAL OR STATE
SECURITIES LAWS.
EACH
OFFEREE MAY, IF HE SO DESIRES, MAKE INQUIRIES OF MANAGEMENT OF THE COMPANY
WITH
RESPECT TO THE COMPANY’S BUSINESS OR ANY OTHER MATTERS SET FORTH HEREIN, AND MAY
OBTAIN ANY ADDITIONAL INFORMATION WHICH SUCH PERSON DEEMS TO BE
NECESSARY
IN ORDER TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED HEREIN AND TO
MAKE
AN INVESTMENT DECISION (TO THE EXTENT THAT THE COMPANY POSSESSES SUCH
INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE). IN
CONNECTION WITH SUCH INQUIRY, ANY DOCUMENTS WHICH ANY OFFEREE WISHES TO REVIEW
WILL BE MADE AVAILABLE FOR INSPECTION AND COPYING OR PROVIDED, UPON REQUEST,
SUBJECT TO THE OFFEREES AGREEMENT TO MAINTAIN SUCH INFORMATION IN CONFIDENCE
AND
TO RETURN THE SAME TO THE COMPANY IF THE RECIPIENT DOES NOT PURCHASE THE
SECURITIES OFFERED HEREUNDER. ANY SUCH INQUIRIES OR REQUESTS FOR ADDITIONAL
INFORMATION OR DOCUMENTS SHOULD BE MADE IN WRITING TO THE COMPANY AT THE
COMPANY’S ADDRESS.
ANNEX
C
SEC
FILINGS
Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2006.
Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2006.
Quarterly
Report on Form 10-QSB for the quarter ended December 31, 2006.
Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2007.
EXHIBIT
A
NEITHER
THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS
WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE,
THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
PURCHASE
FORM
Dated:
__________,
20
___
The
undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing
shares
of Common Stock and hereby makes payment of $_______ in payment of the actual
exercise price thereof.
_________________
INSTRUCTIONS
FOR REGISTRATION OF STOCK
Name
______________________________________________________
(Please
typewrite or print in block letters)
Signature
___________________________________________________
Social
Security or Employer Identification No.
_______________________
ASSIGNMENT
FORM
FOR
VALUE
RECEIVED, _________________________________
hereby
sells, assigns and transfer unto
Name
______________________________________________________
(Please
typewrite or print in block letters)
Address
____________________________________________________
Social
Security or Employer Identification No.
________________________
The
right
to purchase Common Stock represented by this Warrant to the extent of _______
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint attorney
to transfer the same on the books of the Company with full power of
substitution.
Dated:
__________,
20
__
Signature
___________________________________________________
EXHIBIT
B
Amend
the
Certificate of Designations to designate 353,000
shares
of the authorized Preferred Stock of the Corporation as Series B Convertible
Preferred Stock.
*
* *
*
Amendment
to Section
6(b)
of the
Certificate of Designations {new
language in italics}:
(iii) authorize
the issuance of more than 300,000,000 shares of Common Stock directly by
amendment of the certificate of incorporation or indirectly by reverse
stock-split, merger or other device or
create,
or authorize the creation of, or issue or obligate itself to issue shares of,
any additional class or series of capital stock unless the same ranks junior
to
the Series B Preferred Stock with respect to the distribution of assets on
the
liquidation, dissolution or winding up of the Corporation, the payment of
dividends and redemption rights, or increase the authorized number of shares
of
Series B Preferred Stock or increase the authorized number of shares of any
additional class or series of capital stock unless the same ranks junior to
the
Series B Preferred Stock with respect to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, the payment of
dividends and redemption rights.
