Exhibit 10.5
SUBSCRIPTION AGREEMENT
Atomic Paintball, Inc.
219 Josey Lane
Red Oak, Texas 75154
The undersigned (the "Purchaser") hereby tenders this subscription and
applies to purchase from Atomic Paintball, Inc. (the "Company") Series A
Preferred Stock at a purchase price of $0.25 per share as set forth on the
following page. The undersigned hereby tenders a certified check (payable to the
order of "Atomic Paintball, Inc. -Special Account") in the amount set forth on
the following page. The undersigned hereby represents and warrants to, and
covenants with the Company as follows:
1. Relationship to Company; Investment Sophistication. The
undersigned either has (a) a pre-existing personal or business
relationship with the Company, or (b) such knowledge and
experience in financial and business matters that he or she is
capable of evaluating the merits and risks of an investment in
the Common Stock and of making an informed investment
decision.
2. Investor Qualifications. Please initial and complete whichever
of the following statements applies to you:
Accredited Investors (a)-(c):
_____ (a) I certify that I am an "accredited investor" because my individual
income from all sources for each of the two most recently ended calendar years
exceeded $200,000 or, together with that of my spouse, exceeded $300,000, and I
reasonably expect that my income from all sources for the current year will be
individually in excess of $200,000 or, together with that of my spouse, will
exceed $ 300,000.
_____(b) I certify that I am an "accredited investor" because I have an
individual net worth, or I and my spouse have a joint net worth, in excess of
$1,000,000.
______(c) Purchaser is not a natural person and Purchaser certifies that it is
an "accredited investor" because it meets one of the qualifying conditions
specified in Regulation D, which is specifically that Purchaser is:
______________________________________________________________
______________________________________________________________
______________________________________________________________
(d)Purchaser is a corporation or partnership and each of its
shareholders or partners meets at least one of the following conditions:
(A) each shareholder or partner is a natural person who falls
within at least one of the categories described in 2(a) or (b)
above; or
(B) each shareholder or partner is a corporation, partnership or
other entity which meets the description of at least one of
the organizations in 2(d)(A) above.
3. Investment risk; Access to Information. The undersigned has been
informed and is aware that an investment in the Company's Preferred Stock
involves a degree of risk and speculation, including the risk of losing the
entire investment, and has carefully read and considered in their entirety the
Risk Factors set forth in Annex A attached to this Subscription Agreement and
made a part hereof for all purposes. The undersigned understands that there are
no guarantees of a return on an investment in the Preferred Stock or the Common
Stock into which it is convertible. The undersigned has been afforded an
opportunity to meet with the Company's management and to ask and to receive
answers to any questions about this offering and the business and affairs of the
Company and to obtain any additional information which the Company possesses, or
which it can acquire without unreasonable effort and expense, that may be
necessary to verify the accuracy of information desired by the undersigned.
4. Purchase for Own Account. The Preferred Stock is being acquired by
the undersigned for the personal account of the undersigned for investment only
and not with a view to, or for resale in connection with any distribution
thereof or of any interest therein, and no one else has any beneficial ownership
or interest in the Preferred Stock being acquired by the undersigned (except as
set forth below) nor is any Preferred Stock to be subject to any lien or pledge.
5. Lack of Liquidity; Restrictions on Transfer. (a) The undersigned
understands and agrees that the Preferred Stock (and the Common Stock into which
it is convertible) will be subject to significant restrictions on
transferability, cannot be transferred or assigned except in certain limited
circumstances, that there will be no public market therefore; and, accordingly,
that it may not be possible to the undersigned readily, if at all, to liquidate
the undersigned's investment in the Preferred Stock (or the Common Stock into
which it is convertible). The undersigned represents that the undersigned can
afford to bear the risks of an investment in the Preferred Stock for an
indefinite period of time, and has adequate means of providing for the
undersigned's current financial needs and contingencies. The undersigned
understands and acknowledges that the Preferred Stock is being offered and sold
pursuant to one or more exemptions from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and from the
registration or qualification requirements of applicable state securities laws.
(b) Purchaser understands that Purchaser must bear the economic risk of
an investment in the Shares indefinitely because none of the Shares may be sold,
pledged or otherwise transferred unless subsequently registered under the
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Securities Act and applicable state securities laws or unless an exemption from
registration is available; that there is no market for the Shares and it is
unlikely one will develop; and that each certificate representing the Shares
will bear substantially the following legend until such restriction is no longer
required by law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED
OF EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF ALL SUCH
LAWS. THE TRANSFER OF THE SECURITIES IS FURTHER RESTRICTED BY
THE COMPANY'S ARTICLES OF INCORPORATION, AS AMENDED, AND THE
CERTIFICATE OF DESIGNATIONS, COPIES OF WHICH ARE AVAILABLE
WITHOUT COST UPON WRITTEN REQUEST AT THE COMPANY'S PRINCIPAL
OFFICES.
6. Governing Law; Binding Effect. This Subscription Agreement shall be
governed by, and interpreted in accordance with, the law of the State of Texas.
This Subscription Agreement shall survive the death or disability of the
undersigned, and shall be binding on his or her heirs or successors in interest.
7. Limitation of Liability. The Company and the Purchaser acknowledge
that Subsection N of Section 33 of the Texas Securities Act (entitled Limitation
of Liability in Small Business Issuances) limits the potential liability of a
person who has been engaged to provide services relating to offers of securities
such as the issuance of the Shares by the Company to the Purchaser to three
times the fee paid by the issuer or other seller to the person for the services,
unless the trier of fact finds the person engaged in intentional wrongdoing in
providing the services. The Company and the Purchaser agree that this limitation
of potential liability shall apply to this offering of the Shares and that this
required disclosure was provided.
8. Piggyback Registration Rights. If any Shares of Preferred Stock, or
shares of Common Stock into which such shares have been converted (collectively,
the "Registrable Securities"), are outstanding and held by the Purchaser, the
Company shall use its best efforts to include the Registrable Shares in any
registration statement filed by the Company with the Securities and Exchange
Commission (other than a registration statement on Form S-8 or Form S-4) to the
extent requisite to permit the public offering and sale of the Registrable
Securities and will use its reasonable efforts to cause such registration
statement to become effective as promptly as practicable. Notwithstanding the
foregoing, the Company or the managing underwriter, if any, of such offering may
elect to exclude all or a portion of the Registrable Securities if the offering
of such Registrable Securities would adversely affect the market for the
Company's securities or the Company's business plans. As used herein, the
"Registrable Securities" shall mean the Registrable Securities that have not
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been previously sold or that may not be resold pursuant to Rule 144 promulgated
under the Securities Act or other available exemption. Notwithstanding the
foregoing, the Company shall not in any event be required to keep any such
registration or qualification in effect for a period in excess of two years from
the date on which the Purchaser acquires the Preferred Stock. In connection with
registration of securities pursuant to this Agreement, the Company shall bear
all expenses incurred in connection with such registration statement, except
that the Purchaser shall pay all fees and expenses with respect to its shares,
including broker/dealer commissions, underwriting discounts, the expenses of
such underwriter, fees and disbursements of counsel of Purchaser and any stock
transfer taxes incurred with respect of the Registrable Securities of Purchaser.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned executes and agrees to be bound by
this Subscription Agreement.
Date: _______, 2003 $_____________ ___________
Purchase Price Shares of Preferred Stock
______________________________ U.S. Citizenship:Yes:____ No:_____
Signature
______________________________ ______________________________
Signature of Spouse Name(s) of Owner(s) (Print)
______________________________
If Joint Ownership, Check one: ______________________________
Address of Primary Residence
____Joint Tenants, with ______________________________
Rights of Survivorship City State Zip
____Tenants in Common ______________________________
____Community Property ______________________________
Social Security Number(s) (or Tax Id No.)
Entity Purchaser
Name of Entity:______________________________
By: ______________________________
Name: ______________________________
Title: ______________________________
Tax Id No.______________________________
ACCEPTED BY ATOMIC PAINTBALL, INC.:
______________________________
By: Barbara J. Smith Date:______________________________
Title: President
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Annex A
RISK FACTORS
An investment in the shares involves a high degree of risk, including a risk of
loss of an investor's entire investment in Atomic Paintball, Inc. Prospective
investors should consider carefully the following risk factors before purchasing
any shares.
We are a development stage company, with no significant history of
operations. We were incorporated on May 8, 2001, and are, therefore, a start up
company with very little operating history or revenues. We need to receive
substantially all of the maximum proceeds of this offering to proceed with our
business plan.
Even if we sell all of the shares offered, we will not have significant
funds to conduct business. We are only seeking to raise $100,000. As a result,
we will still be considered an extremely small company, even if we sell all of
the stock we are trying to sell. Because we will have so little money, any
financial reversal could totally wipe out any reserve we had hoped to have.
Competition in the Paintball industry is increasing and will continue
to increase as the sagging economy continues to rebound and we may not be able
to compete and survive. If we fail to attract and retain a customer base we will
not develop significant revenues or market share. We will compete with a variety
of other outdoor entertainment venues; including well established paintball
fields, speedways, and dirt tracks, many of which have much more money then we
do.
Because this is a "best efforts" offering, we have no assurances that
any of our stock will be sold. This offering is being conducted on a "best
efforts"; basis. As such, no assurances are given as to what level of proceeds,
if any, will be obtained. In the event we fail to obtain all or substantially
all of the proceeds sought in this offering, our ability to effectuate our
business plan will be materially adversely affected, and investors may lose all
or substantially all of their investment. No assurances are given that the
subscription proceeds that may be received by us will be sufficient to sustain
our operations prior to our anticipated receipt of revenues from customers.
We have no underwriters so no other party with a financial interest has
reviewed this offering for fairness. We are offering these shares through our
sole director and officer and are not using an underwriter. As a result, no
other person sophisticated in financial affairs has reviewed this offering to
determine if it is fair or if our business plan makes financial sense.
We may fail to remain a going concern. Our independent certified public
accountants have pointed out that we have an accumulated deficit and negative
working capital such that our ability to continue as a going concern is
dependent upon obtaining additional capital and financing for our planned
principal operations. We are conducting this offering to generate the capital
necessary to finance at least our initial operations. As a result, our ability
to continue as a going concern is dependent upon us receiving the maximum
proceeds of this offering.
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We have no history of profits and no assurances of profits ever
developing. As with most development stage companies, we have experienced losses
since inception. If only limited funds are raised in this offering, the risk of
our financial failure is high. We have been dependent upon loans from members of
management to sustain our development activities to date. In our discretion, if
we receive the maximum proceeds sought to be raised, the entire principal amount
of this loan, including interest, will probably be repaid.
Our success will depend greatly upon our president and vice-president.
Barbara J. Smith serves as both the Director as well as President and Alton K.
Smith serves as Vice-president and Secretary. The loss of either of their
services may hamper our ability to implement our business plan, and could cause
our stock to become worthless. We will be heavily dependent upon Mrs. Smiths'
entrepreneurial skills and experience to implement our business plan. Their
inability to devote full time and attention to the affairs of Atomic Paintball,
Inc. could hinder our growth.
We do not have an employment agreement with either Barbara or Alton
Smith and there is no assurance that either will continue to manage our affairs
in the future. We could lose the services of both parties, or they could decide
to join a competitor or otherwise compete with us directly or indirectly, having
a negative affect on our business and potentially causing the price of our stock
to be worthless. The services of either Barbara or Alton Smith would be
difficult to replace.
Both Barbara and Alton Smith have limited experience in the area of
paintball or outside entertainment business on or off the Internet. Neither
party is a paintball professional or entertainer by trade. We will likely need
to rely on others who understand that business better than Ms. Smith. Because of
this lack of experience, we may overestimate the marketability of our products
and may underestimate the costs and difficulties of selling the products. These
difficulties could prevent us from accurately determining the feasibility of our
business plan, limiting our profitability, if any, and decreasing the value of
our stock.
Our management will have voting control of us, even if all of the
shares offered are sold. Our management, inclusive of our board of directors,
owns 400,000 shares of our outstanding common stock. After completion of this
offering, assuming all of the shares offered hereby are sold, our management
will continue to control at least 50% of our voting securities, without giving
effect to (i) a stock option plan that the Company intends to adopt covering up
2,000,000 shares of our common stock, or (ii) any additional issuances of our
common stock or other securities to management and/or others, in our
management's sole discretion. As a result, our management will effectively
control our affairs, including the election of all of our board of directors,
the issuance of additional shares of common stock for a stock option plan or
otherwise, the distribution and timing of dividends, if any, any merger or
acquisition involving the Company and all other matters.
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Because we only have two officers, the compensation of our officers
will at the discretion of both parties. Because they will own 50% collectively,
Barbara J. Smith 30% and Alton K. Smith 20 % of our company, jointly they will
likely continue to control our board of directors. As a result, Mr. and Mrs.
Smith will be entitled to establish the amount of their compensation, including
the amount of any bonuses paid to them. In addition, because we do not have any
independent directors, there will be no oversight of the reasonableness of any
bonuses paid to either Barbara or Alton Smith or other officers, if added.
Because the price at which the shares are offered is higher than our
current per share value, immediate dilution of value of our stock will occur. We
are authorized to issue a substantial number of shares of common stock in
addition to the preferred shares comprising the shares offered hereby, as well
as potentially additional shares of preferred stock in such series and with such
designating rights and preferences as may be determined by our board of
directors in its sole discretion.
This offering itself involves immediate and substantial dilution to
investors. Any securities issued in the future, including issuances to
management, could reduce the proportionate ownership, economic interests and
voting rights of any holders of shares of our preferred stock purchased in this
offering.
Because we have issued shares that may become eligible for resale under
Rule 144, a large amount of our stock could be sold, potentially depressing our
stock price. All of our presently outstanding shares of common stock aggregating
400,000 shares of common stock are "restricted securities"; as defined under
Rule 144 promulgated under the Securities Act and may only be sold pursuant
thereto or otherwise pursuant to an effective registration statement or an
exemption from registration, if available, Rule 144, as amended, generally
provides that a person who has satisfied a one year holding period for such
restricted securities may sell, within any three-month period (provided we have
become public and are current in our reporting obligations under the Exchange
Act) subject to certain manner of resale provisions, an amount of restricted
securities which does not exceed the greater of 1% of a company's outstanding
common stock or the average weekly trading volume in such securities during the
four calendar weeks prior to such sale. Barbara J. Smith and Alton K. Smith, our
principal executive officers, owns an aggregate of 240,000 restricted shares for
which the one year holding period expires on May 8, 2003. In addition, all of
our other shareholders' common stock will be eligible to use Rule 144 on
September 22, 2004. A sale of shares by such security holders, whether pursuant
to Rule 144 or otherwise, may have a depressing effect upon the price of our
common stock in any market that might develop.
Because we do not expect to pay dividends on our preferred or common
stock in the foreseeable future, shareholders may have no way to recoup any of
their investment. We intend for the foreseeable future to retain earnings, if
any, for the future operation and expansion of our business and do not
anticipate paying dividends on our shares of common stock for the foreseeable
future.
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There is no public market for our shares and should be considered an
illiquid investment. There is currently no market for any of our shares and no
assurances are given that a public market for such securities will develop or be
sustained if developed. As such, investors may not be able to readily dispose of
any shares purchased hereby.
Our stock will probably be subject to the penny stock regulations and
may be more difficult to sell than other registered stock. In the event we
become public, as to which there are no assurances, we will likely be subject to
the penny stock regulations. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00. The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. As our shares immediately
following any public offering, if successful, will likely be subject to such
penny stock rules, investors in this offering will in all likelihood find it
more difficult to sell their securities.