Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of
Report (Date of earliest event reported): July 31, 2006
(Exact
name of registrant as specified in its charter)
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Delaware
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000-15260
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88-0218411
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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200
Queens Quay East, Unit #1
Toronto,
Ontario, Canada,
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M5A
4K9
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code
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800-710-2021
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Not
Applicable
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(Former
name or former address, if changed since last report)
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01 Entry into a Material Definitive Agreement
On
July
31, 2006 (the “Initial Closing Date”), Element 21 Golf Company (the “Company”)
consummated a $4 million equity financing by entering into two Series B
Convertible Preferred Stock Subscription Agreements (each a “Subscription
Agreement” and collectively the “Subscription Agreements”) with each of
Clearline Capital, LLC and Vladimir Goryunov (each a “Purchaser” and
collectively, the “Purchasers”). Each Subscription Agreement provides for the
sale by the Company to the applicable Purchaser of 117,648 shares of the
Company’s Series B Convertible Preferred Stock, par value $0.10 per share (the
“Series B Preferred Stock”), and warrants to purchase an aggregate of 17,647,059
shares of the Company’s Common Stock, $.01 par value per share (the “Common
Stock”), in exchange for and in consideration of an aggregate investment by each
Purchaser of $2 million in cash (each Purchaser’s “Investment Amount”), which
amount is to be invested by each Purchaser in two equal $1 million installments,
the first of which occurred on the Initial Closing Date and the second of which
will occur at a subsequent closing to occur on or before November 30, 2006
(the
“Subsequent Closing”, and the date of such Subsequent Closing, the “Subsequent
Closing Date”); provided that the Company satisfies the necessary condition
precedent to the Subsequent Closing as described below.
On
the
Initial Closing Date, each Purchaser invested $1 million in the Company in
return for 58,824 shares of Series B Preferred Stock and two warrants (the
terms
of which are more fully described below) to purchase an aggregate of 8,823,530
shares of Common Stock. The Subscription Agreements obligate each Purchaser
to
invest the remaining $1 million of its Investment Amount (each Purchaser’s
“Additional Investment Amount”) in the Company no later than November 30, 2006,
subject only to the Company converting at least 80% of the aggregate outstanding
principal amount evidenced by those certain convertible promissory notes issued
by the Company between February 2006 and July 31, 2006 (collectively, the
“Promissory Notes”) into shares of Common Stock prior to the Subsequent Closing
Date. In exchange for each Purchaser’s Additional Investment Amount, the Company
will issue to each Purchaser an additional 58,824 shares of Series B Preferred
Stock and two additional warrants (the terms of which are more fully described
below) to purchase an aggregate of an additional 8,823,529 shares of Common
Stock. On August 3, 2006, the Company issued a press release to announce the
consummation of the equity financing. A copy of the press release issued by
the
Company is attached hereto as Exhibit 99.1.
Each
share of Series B Preferred Stock will initially be:
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convertible
into 100 shares of Common Stock (subject to adjustment in the event
of
dilutive issuances, stock splits, combinations, certain dividends
and
distributions, and mergers, reorganizations or other similar
recapitalization events);
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entitled
to vote on all matters submitted to a vote of the holders of the
Common
Stock on an as-if converted to common stock
basis;
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entitled
to accruing dividends at a rate per annum of 4% of the base amount
per
share (defined as the original issue price of $17.00 per share plus
the
amount of accrued but unpaid dividends as calculated on each anniversary
of the date of issuance of such Series B Preferred Stock
shares);
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upon
the occurrence of certain events (each a “Liquidating Event”), entitled to
a liquidation preference equal to the greater of: (i) the amount
that
would have been payable on each share of Series B Preferred Stock
had each
share been converted into Common Stock immediately prior to such
Liquidating Event, or (ii) $17.00 per share (adjusted to reflect
any stock
dividend, stock split, combination, recapitalization or reorganization)
plus all accruing dividends and all other declared but unpaid dividends.
A
merger or consolidation of the Company into another corporation or
entity
or the sale of all or substantially all of the Company’s assets will be
deemed to be a Liquidating Event unless otherwise decided by the
majority
vote of the then outstanding shares of the Series B Preferred
Stock.
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Additionally,
at any time when at least 25,000 shares of Series B Preferred Stock are
outstanding (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization event
affecting such shares), the Company may not do any of the following without
the
written consent or affirmative vote of the holders of at least a majority of
the
then outstanding shares of Series B Preferred Stock: (i) effect any merger
or
consolidation of the Company; (ii) amend or repeal any provision of, or add
any
provision to, the Company’s Certificate of Incorporation or By-laws if such
action would alter or change the preferences, rights, privileges or powers
of,
or the restrictions provided for the benefit of, such Series B Preferred Stock;
(iii) create, or authorize the creation of, or issue or obligate itself to
issue
shares of, 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; (iv) acquire another entity by means of a purchase of all
or a
portion of the capital stock or assets of such entity for consideration in
excess of $2,000,000; (v) liquidate, wind up, or dissolve the Company or adopt
any plan for the same; (vi) effect any sale, lease, transfer, pledge or other
disposition of assets of the Company or its subsidiaries, not in the ordinary
course of business, unless the value of such assets; singly or in connection
with any related series of transactions does not in the aggregate exceed
$5,000,000; (vii) enter into any transaction with any officer, director or
beneficial owner of five percent (5%) or more of the Common Stock; (viii)
authorize or effect the issuance by the Company of any shares of capital stock
or rights to acquire shares of capital stock pursuant to stock option, stock
bonus or other employee stock plans for the benefit of the employees of the
Corporation other than the issuance of options to purchase up to 20,000,000
shares of Common Stock pursuant to the Company’s existing stock option plan;
(ix) incur any indebtedness for borrowed money in excess of $1,000,000
outstanding at any time; (x) acquire any material assets of another person
for
consideration in excess of $2,000,000 other than in the ordinary course of
business, or (xi) permit any subsidiary to do any of the foregoing. The
protective provisions described above in subsections (iv)-(xi) will cease to
be
of further force and effect if the Purchasers fail to invest the Additional
Investment Amount on or prior to November 30, 2006 for any reason other than
the
failure of the Company to convert at least 80% of the aggregate outstanding
principal amount evidenced by the Promissory Notes into shares of Common Stock
prior to November 30, 2006.
On
the
Initial Closing Date the Company granted each Purchaser (i) one warrant to
purchase 3,750,000 shares of Common Stock at an exercise price of $0.22 per
share in the event the warrant is exercised on or prior to July 31, 2007, and
$0.28 per share in the event the warrant is exercised on or after August 1,
2007, and (ii) one warrant to purchase 5,073,530 shares of Common Stock at
an
exercise price of $0.28 per share (each an “Initial Warrant”, and collectively,
the “Initial Warrants”). Assuming that the conditions precedent to the
Subsequent Closing are satisfied, on the Subsequent Closing Date, the Company
will grant each Purchaser (i) one additional warrant to purchase 3,750,000
shares of Common Stock at an exercise price of $0.22 per share in the event
the
warrant is exercised on or prior to July 31, 2007, which increases to $0.28
per
share in the event the warrant is exercised on or after August 1, 2007, and
(ii)
one additional warrant to purchase 5,073,530 shares of Common Stock at an
exercise price of $0.28 per share (each a “Subsequent Warrant”, collectively,
the “Subsequent Warrants” and collectively with the Initial Warrants, the
“Warrants”). The Warrants expire on January 31, 2009. The exercise prices of the
Warrants are subject
to adjustment in the event of certain dilutive issuances, stock dividends,
stock
splits, share combinations or other similar recapitalization events. The
Warrants may only be exercised by the payment of the applicable exercise price
to the Company in cash, no cashless exercise is permitted.
The
terms of the Initial Warrants and the Subsequent Warrants are identical. Forms
of each of the two Initial Warrants are attached hereto as Exhibits
4.1 and 4.2 respectively.
The
Certificate (as defined in Section 3.03 below) relating to the Series B
Preferred Convertible Stock is attached hereto as Exhibit 3(i) and is
incorporated herein by reference. A form of the two identical Subscription
Agreements is attached hereto as Exhibit 10.1 and is incorporated herein by
reference. Forms
of
each of the two Initial Warrants are attached hereto as Exhibits
4.1 and 4.2 respectively and each is incorporated herein by reference.
The
foregoing description of the Series B Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to Section 5.03 and
to
Exhibit 3(i).
Item
3.02 Unregistered Sales of Equity Securities
As
described above, on the Initial Closing Date, the Company sold an aggregate
of
117,648 shares of Series B Preferred Stock and issued warrants to purchase
an
aggregate of 17,647,060 shares of Common Stock for an aggregate purchase price
of $2,000,000. The Company did not pay any underwriting discounts or commissions
in connection with its issuance of shares of Series B Preferred Stock and the
accompanying warrants. The shares of Series B Preferred Stock are convertible
into shares of Common Stock at the election of the Purchasers. Each share of
Series B Preferred Stock is initially convertible into 100 shares of Common
Stock, with such conversion ratio subject to adjustment in the
event of
dilutive issuances, stock splits, combinations, certain dividends and
distributions, and mergers, reorganizations or other similar recapitalization
events. The warrants may be exercised in whole or in part for shares of Common
Stock by payment by the Purchasers of the applicable exercise price in cash
prior to the expiration of the warrants on January 31, 2009. Neither the shares
of Series
B
Preferred Stock, the warrants, or the shares of Common Stock issuable upon
conversion of the shares of Series B Preferred Stock or upon the exercise of
the
warrants were registered under the Securities Act of 1933, as amended
(“Securities Act”). The offer and sale of the shares Series B Preferred Stock
and warrants to the Purchasers was (and we anticipate that the issuance of
shares of Common Stock upon conversion of the Series B Preferred Stock and
upon
exercise of the warrants, will be) exempt from the registration requirements
of
Section 5 of the Securities Act pursuant to Section 4(2) of the Securities
Act
and Rule 506 of Regulation D thereunder.
The
Company relied on the following facts in determining that the offer and sale
of
the shares of Series B Preferred Stock and accompanying warrants qualified
for
the exemption provided by Rule 506:
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The
offer and sale satisfied the terms and conditions of Rule 501 and 502
under the Securities Act; and
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Pursuant
to Rule 506 under the Securities Act, no more than 35 purchasers purchased
the Series B Preferred Stock and warrants, as determined in accordance
with Rule 501(e) under the Securities
Act.
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Item
3.03 Material Modifications to Rights of Security Holders
As
discussed below in Item 5.03, the Company has designated 350,000 shares of
its
authorized preferred stock as Series B Convertible Preferred Stock pursuant
to a
Certificate of the Powers, Designations, Preferences and Rights of the Series
B
Convertible Preferred Stock, $0.10 par value per share (the “Certificate”). As
described in Item 1.01 above, as of the Initial Closing Date, the Company sold
an aggregate of 117,648
shares of Series B Preferred Stock to the Purchasers. As
more
specifically described in Item 1.01, the designation and issuance of the shares
of Series B Preferred Stock materially affects the rights and powers of the
holders of the Company's Common Stock in the following ways:
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Each
share of Series B Preferred Stock is convertible into 100 shares
of Common
Stock (subject to adjustment in the event of dilutive issuances,
stock
splits, combinations, certain dividends and distributions, and mergers,
reorganizations or other similar recapitalization
events).
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Each
share of Series B Preferred Stock is entitled to vote on all matters
submitted to a vote of the holders of the Common Stock on an as-if
converted to common stock
basis.
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Each
holder of Series B Preferred Stock is entitled to receive accruing
dividends with respect to each shares of Series B Preferred Stock
held by
such holder at a rate per annum of 4% of the base amount (defined
as the
original issue price of $17.00 per share plus the amount of accrued
but
unpaid dividends as calculated on each anniversary of the date
of issuance
of such Series B Preferred Stock shares). The Company may not pay
a
dividend to holders of Common Stock unless the accruing dividends
payable
with respect to the shares of Series B Preferred Stock have been
paid in
full and a similar dividend is paid with respect to each share
of Series B
Preferred Stock on an as-converted-to-Common Stock
basis.
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Upon
the occurrence of a Liquidating Event, each holder of Series B
Preferred
Stock is entitled to a per-share liquidation preference equal to
the
greater of: (i) the amount that would have been payable on each
share of
Series B Preferred Stock had each share been converted into Common
Stock
immediately prior to such Liquidating Event, or (ii) $17.00 per
share
(adjusted to reflect any stock dividend, stock split, combination,
recapitalization or reorganization) plus all accruing dividends
and all
other declared but unpaid dividends. A merger or consolidation
of the
Company into another corporation or entity or the sale of all or
substantially all of the Company’s assets will be deemed to be a
Liquidating Event unless otherwise decided by the majority vote
of the
then outstanding shares of the Series B Preferred
Stock.
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Additionally,
at any time when at least 25,000 shares of Series B Preferred Stock (subject
to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) are
outstanding, the Company may not do any of the following without the written
consent or affirmative vote of the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock: (i) effect any merger or
consolidation of the Company; (ii) amend or repeal any provision of, or add
any
provision to, the Company’s Certificate of Incorporation or By-laws if such
action would alter or change the preferences, rights, privileges or powers
of,
or the restrictions provided for the benefit of, such Series B Preferred Stock;
(iii) create, or authorize the creation of, or issue or obligate itself to
issue
shares of, 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; (iv) acquire another entity by means of a purchase of all
or a
portion of the capital stock or assets of such entity for consideration in
excess of $2,000,000; (v) liquidate, wind up, or dissolve the Company or adopt
any plan for the same; (vi) effect any sale, lease, transfer, pledge or other
disposition of assets of the Company or its subsidiaries, not in the ordinary
course of business, unless the value of such assets; singly or in connection
with any related series of transactions does not in the aggregate exceed
$5,000,000; (vii) enter into any transaction with any officer, director or
beneficial owner of five percent (5%) or more of the Common Stock; (viii)
authorize or effect the issuance by the Company of any shares of capital stock
or rights to acquire shares of capital stock pursuant to stock option, stock
bonus or other employee stock plans for the benefit of the employees of the
Corporation other than the issuance of options to purchase up to 20,000,000
shares of Common Stock pursuant to the Company’s existing stock option plan;
(ix) incur any indebtedness for borrowed money in excess of $1,000,000
outstanding at any time; (x) acquire any material assets of another person
for
consideration in excess of $2,000,000 other than in the ordinary course of
business, or (xi) permit any subsidiary to do any of the foregoing. The
protective provisions described above in subsections (iv)-(xi) will cease to
be
of further force and effect if the Purchasers fail to invest the Additional
Investment Amount on or prior to November 30, 2006 for any reason other than
the
failure of the Company to convert at least 80% of the aggregate outstanding
principal amount evidenced by the Promissory Notes into shares of Common Stock
prior to November 30, 2006.
The
Certificate is attached hereto as Exhibit 3(i) and is incorporated herein by
reference. The foregoing description of the rights of the holders of Series
B
Preferred Stock does not purport to be complete and is qualified in its entirety
by reference to such exhibit.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
The
Company designated 350,000 shares of its authorized preferred stock as Series
B
Convertible Preferred Stock pursuant to the authority granted to the Board
of
Directors by the Company’s Certificate of Incorporation, as amended. In
connection with such designation, the Company filed the Certificate with the
Secretary of State of the State of Delaware on July 31, 2006. A copy of the
Certificate is attached hereto as Exhibit 3(i). Upon filing, the Certificate
became a part of the Company's Certificate of Incorporation, as amended. The
Certificate sets forth the voting powers, designation, preferences, limitations,
restrictions and relative rights of the Series B Preferred Stock. The rights
of
the holders of the Series B Preferred Stock are described under Items 1.01
and
3.03 above.
The
foregoing description of the Certificate does not purport to be complete and
is
qualified in its entirety by reference to Exhibit 3(i) which is incorporated
herein by reference.
Item
9.01 Financial Statements and Exhibits.
Exhibits
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Exhibit
Number
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Description
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3(i)
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Certificate
of the Powers, Designations, Preferences and Rights of the Series
B
Convertible Preferred Stock, Par Value $0.10 Per Share
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4.1
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Form
of Warrant for Purchase of 3,750,000 Shares of Common Stock dated
July 31,
2006
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4.2
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Form
of Warrant for Purchase of 5,073,530 Shares of Common Stock dated
July 31,
2006
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10.1
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Form
of Subscription Agreement for Shares of Series B Convertible Preferred
Stock dated as of July 31, 2006
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99.1
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Press
Release issued by the Company on August 3,
2006
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Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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| Date:
August 3, 2006 |
ELEMENT
21 GOLF
COMPANY |
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By: |
/s/ Nataliya
Hearn |
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Name:
Nataliya Hearn |
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Title:
President |
Exhibit
Index
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Exhibit
Number
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Description
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3(i)
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Certificate
of the Powers, Designations, Preferences and Rights of the Series
B
Convertible Preferred Stock, Par Value $0.10 Per Share
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4.1
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Form
of Warrant for Purchase of 3,750,000 Shares of Common Stock dated
July 31,
2006
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4.2
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Form
of Warrant for Purchase of 5,073,530 Shares of Common Stock dated
July 31,
2006
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10.1
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Form
of Subscription Agreement for Shares of Series B Convertible Preferred
Stock dated as of July 31, 2006
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99.1
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Press
Release issued by the Company on August 3,
2006
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