As filed with the Securities and Exchange Commission on September 2, 1998
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
CALIFORNIA PRO SPORTS, INC.
(Name of registrant as specified in its charter)
Delaware 84-1217733
(State or Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1221-B South Batesville Road, Greer, South Carolina 29650 (864) 848-5160
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
Barry Hollander, Acting President
1221-B South Batesville Road, Greer, South Carolina 29650 (864) 848-5160
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
Jehu Hand, Esq.
Hand & Hand
24901 Dana Point Harbor Drive, Suite 200
Dana Point, California 92629
(714) 489-2400
Facsimile (714) 489-0034
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933 other than securities offered only
in connection with dividend or
interest reinvestment plan, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:[]
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CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered Be Registered Per Share (1) Offering Price Registration Fee
Common Stock issuable upon
conversion of Series B
<S> <C> <C> <C> <C> <C>
Convertible Preferred Stock(2)....... 1,615,385 $1.00 $1,615,385 $476.54
Common Stock issuable upon
conversion of Series C
Convertible Preferred Stock(3)....... 1,584,615 $1.00 $1,584,615 $474.59
Common Stock held by
Selling Stockholders 1,608,262 $1.00 $1,608,282 $474.44
Common Stock issuable upon
exercise of Options(4) 100,000 $1.00 $100,000 $29.50
Common Stock issuable upon
exercise of options(5) 100,000 $1.25 $125,000 $36.88
200,000 $1.42 $284,000 $83.78
200,000 $1.70 $340,000 $100.30
100,000 $1.98 $198,000 $58.41
100,000 $2.27 $227,000 $66.97
100,000 $2.55 $255,000 $75.23
100,000 $2.83 $283,000 $83.49
100,000 $3.54 $354,000 $104.43
100,000 $4.25 $425,000 $125.38
Total(6)(7)........................... 6,008,262 $7,399,280 $2,182.81
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 1,615,383 shares estimated to be issuable upon conversion of
1,050 shares ($1,050,000 aggregate principal amount) of Series B 4%
Convertible Preferred Stock convertible at 65% of the closing bid price
of the Common Stock averaged over the five trading days prior to the
date of conversion. The conversion price of $.65 per share is based
upon the closing bid price of the Common Stock on September 1, 1998.The
maximum offering price per share is based upon the closing price of the
Common Stock onSeptember 1, 1998, or $1.00 since it is higher than the
estimated conversion price per share of the Series B 4% Convertible
Preferred Stock (in accordance with Rule 457(g)).
(3) Includes 1,584,615 shares estimated to be issuable upon conversion of
1,030 shares ($1,030,000 aggregate principal amount) of Series C 4%
Convertible Preferred Stock convertible at 65% of the closing bid price
of the Common Stock averaged over the five trading days prior to the
date of conversion. The conversion price of $.65 per share is based
upon the closing bid price of the Common Stock on September 1, 1998.The
maximum offering price per share is based upon the closing price of the
Common Stock on September 1, 1998, or $1.00 since it is higher than the
estimated conversion price per share of the Series C Convertible
Preferred Stock (in accordance with Rule 457(g)).
(4) Includes options to purchase 100,000 shares at a price of $1.00 per share.
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(5) Includes options to purchase shares of Common Stock at the prices
indicated. The maximum offering price is based upon the exercise price
of the options.
(6) Includes in each case reoffers of the Common Stock offered hereby and
shares issuable pursuant to antidilution provisions pursuant to Rule
416.
(7) Paid herewith.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
CALIFORNIA PRO SPORTS, INC.
6,008,262 Shares of Common Stock
($.01 par value)
The estimated 6,008,262 shares (the "Shares") of Common Stock, par
value $.01 per share (the "Common Stock") of California Pro Sports, Inc., a
Delaware corporation (the "Company") are being registered by the Company and
include an estimated 1,615,385 shares issuable upon conversion of $1,050,000 in
principal amount of Series B 4% Convertible Preferred Stock (the "Series B
Preferred"), 1,584,615 Shares issuable upon conversion of $1,030,000 in
principal amount of Series C 4% Convertible Preferred Stock (the "Series C
Stock"), 1,608,262 Shares of Common Stock already outstanding and 1,200,000
shares issuable upon exercise of Options. The Company will not receive any
proceeds from the sale of Common Stock by the selling stockholders (the "Selling
Stockholders"). See "Selling Stockholders." The expenses of the offering,
estimated at $30,000, will be paid by the Company.
The Common Stock currently trades on NASDAQ under the symbol "CALP." On
August 14, 1998, the last sale price of the Common Stock as reported on NASDAQ
was $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PURCHASE OF THESE SECURITIES INVOLVES RISKS.
See "Risk Factors" on page 3.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The date of this Prospectus is September __, 1998
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No person has been authorized in connection with this offering to give
any information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities covered by this Prospectus in any state or other jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such state
or jurisdiction. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, as well as proxy
statements and other information filed by the Company with the Commission, can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
its Regional Offices located at 7 World Trade Center, New York, New York 10048,
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission, Washington, D.C. 20549, during
regular business hours. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers such as the Company that file electronically with the Commission at
http://www.sec.gov.
This Prospectus incorporates by reference the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1997, its Quarterly Reports on
Form 10-QSB for the quarterly periods ended March 31, 1998 and June 30, 1998,
its Current Report on Form 8-K dated June 25, 1998, the description of
securities included in the Company's Registration Statement on Form 8-A, File
No. 0-25114, and all other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c) or 14 of the Exchange Act prior to the termination of
the offering made hereby. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in its entirety by such reference. The Company will provide, without charge upon
oral or written request of any person, a copy of any information incorporated by
reference herein. Such request should be directed to the Company at 1221-B South
Batesville Road, Suite B, Greer, South Carolina 29650, telephone (864) 848-5160.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation, as amended, the
Company may indemnify each of its directors and officers with respect to all
liability and loss suffered and reasonable expense incurred by such person in
any action, suit or proceeding in which such person was or is made or threatened
to be made a party or is otherwise involved by reason of the fact that such
person is or was a director of the Company. In addition, the Company may pay the
reasonable expenses of indemnified directors and officers incurred in defending
such proceedings if the indemnified party agrees to repay all amounts advanced
should it be ultimately determined that such person is not entitled to
indemnification.
In addition, as permitted by the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company's directors
will not be held personally liable to the Company or its stockholders for
monetary damages for a breach of fiduciary duty as a director except to the
extent such exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Law. This provision does not eliminate
the duty of care, and injunctive or other forms of non-monetary equitable relief
will remain available under Delaware law. In addition, each director continues
to be liable for monetary damages for (i) misappropriation of any corporate
opportunity in violation of the director's duties, (ii) acts or omissions in bad
faith or involving intentional dishonesty, (iii) knowing violations of law, and
(iv) any transaction from which a director derives an improper personal benefit.
The provision does not affect a director's responsibilities under any other law,
such as the federal securities laws of state or federal environmental laws.
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Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company
In 1997, due to continuing operating losses, management decided to
restructure and deleverage the Company. In connection with these plans, the
Company:
(a) Ceased operating the California Pro and Kemper licenses,
eliminated most of the operating and overhead expenses associated with
its sporting goods business and began to concentrate on sub-licensing
the Company's trademark rights. In the second quarter of 1997, the
Company began liquidating remaining in-line skate, snowboard and
accessories inventories.
(b) Completed the sale of substantially all of the operating
assets of USA Skate Corporation ("USA Skate") and Davtec. The proceeds
of the sale of the Company's hockey business were substantially
utilized to pay secured revolving lines of credit, purchase the
remainder of the trademarks from the previous owner, and partially
reduce notes payable of Skate Corporation ("Skate Corp.").
(c) Entered into two sub-license agreements regarding the use
of the Kemper name. The Company will rely on the expertise of their
sub-licenses to develop, import or manufacture, and market and
distribute within their licensed product categories and territories.
One of the Kemper sub-licensees, a major west coast sporting goods
retailer, designs, imports and sells directly to consumers a line of
snowboard apparel. The other Kemper sub-licensee is one of the leading
manufacturers and marketers of snowboards and related products such as
bindings, boots and other accessories. Each of the Kemper sub-licensees
offer a full line of products at various price points within their
respective product categories. The Company is seeking sub-licensees for
the California Pro brand, not only for in-line skates but for other
sporting goods categories such as snowboards and water skis.
(d) Commenced a search for a merger candidate. As a result of
its search, on October 2, 1997, the Company signed a letter of intent
to merge with ImaginOn, Inc. ("ImaginOn"), a privately held company,
and on January 30, 1998, the company signed an agreement and plan of
merger with ImaginOn, whereby there would be an exchange of 100% of the
outstanding shares of ImaginOn for an amount equal to 60% of the
outstanding post merger common stock of California Pro.
ImaginOn, formed in March 1996, designs, manufactures and sells: (i)
consumer software products for the CD/DVD-ROM market; and (ii) a navigational
tool for sophisticated Internet users. ImaginOn's proprietary technology, called
"Transformation Database Processing and Playback" ("TDPP"), enables the creation
of new business and consumer products that provide user-friendly and
entertaining access to multimedia databases. The transaction, which is expected
to be completed by the fall of 1998, is contingent upon certain customary
conditions including, but not limited to, approval by the boards of directors of
both companies, a vote by the Company's stockholders (to approve the merger and
increase the authorized shares the Company may issue), and the completion of a
fairness opinion by an independent valuation company.
ImaginOn has developed and manufactured a general purpose software
application, named "WebZinger" for internet browsers. WebZinger(TM) mediates Web
searches for both naive and sophisticated users, increasing efficiency and
saving time. ImaginOn's core technology, TDPP, has enabled the creation of a new
class of business and consumer products; a hybrid of local and remote database
content with seamless real-time access to video, audio,
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graphics and text. ImaginOn has designed eleven software tools based on TDPP.
The first software title "World Cities 2000 San Francisco," an interactive
travelogue, is complete.
The Company's principal executive offices are located at 1221-B South
Batesville Road, Suite B, Greer, South Carolina 29650. Its telephone number is
(864) 848-5160.
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The Offering
<S> <C>
Securities Offered: An estimated 6,008,282 shares of Common Stock, $.01 par value per share,
including an estimated 1,615,385 shares issuable upon conversion of 1,050 shares
of Series B 4% Preferred Stock, 1,584,615 shares issuable upon conversion of
1,030 Shares of Series C 4% Preferred Stock (collectively, the "Preferred Stock").
1,608,262 Shares already outstanding and 1,200,000 Shares issuable upon exercise
of options and warrants. The conversion price per share of Preferred Stock is
equal to 65% of the average closing price of the Common Stock on the five
trading days prior to conversion (or an estimated $.65 per share.)
NASDAQ symbol CALP
</TABLE>
Risk Factors
Investment in the Shares offered hereby involves a high degree of risk,
including the limited operating history of the Company and competition.
Investors should carefully consider the various risk factors before investing in
the Shares. This Prospectus contains forward looking statements which may
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors." See "Risk Factors."
RISK FACTORS
The shares of Common Stock offered hereby are highly speculative and
involve a high degree of risk. The following risk factors should be considered
carefully in addition to the other information in this Prospectus before
purchasing the shares of Common Stock offered hereby. The discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
Limited Operations. The Company and ImaginOn have limited business operations.
The Company is currently receiving income from sub-licenses it has entered into
regarding the use of the Kemper name and trademark for which it has a license.
The Company also licenses the California Pro name and trademark and is pursuing
entering into sub-licenses. The Company has received no commitment from any
party for such sub-license and there can be no assurance that a sub-license will
be entered into.
No Inventories. The Company has liquidated its remaining inventory and,
therefore, it does not maintain, nor does it intend to accumulate, an inventory
of in-line skate, snowboard or hockey products.
Working Capital Shortages and Operating Losses. Recently, the Company has
generated significant operating losses and has failed to generate positive cash
flow. As a result, the Company has, and continue to experience, shortages of
working capital to fund day to day operations. ImaginOn also has generated
significant operating losses and has failed to generate positive cash flow.
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The shortages of working capital and insufficient cash flow have, from time
to time, prevented the Company from making prompt payment of current
obligations. As a result, the Company is subject to numerous claims for
collection of past due amounts and are past due on certain of its debt
obligations.
Limited Capitalization. The Company and ImaginOn have only limited financing
available to it and is dependent on significant additional financing being
available to continue as a going concern.
On March 13, 1998, the Company began a private placement for the sale of
1,842,000 shares of Skate Corp. common stock it owns, which includes an option
to acquire 2,763,000 shares of the Company's common stock in exchange for the
Skate Corp. shares. In April and May 1998, the Company received $255,000 from
investors acquiring 335,507 shares of Skate Corp. Each of the investors
exercised their options to exchange those shares for 167,754 shares of the
Company's Series A preferred stock, which automatically converted to 503,262
shares of the Company's common stock on July 15, 1998 upon the shareholders
approving an increase in the authorized common shares of the Company from
10,000,000 to 20,000,000. The offering is closed to further investors as the
Company began to sell the Series B and Series C convertible preferred stock as
described above.
In addition to selling the Preferred Stock, the Company may also seek
additional equity or debt financing to further fund day to day operations. There
can be no assurance that such financing will be available when needed, or that,
if available, it will be on satisfactory terms.
Merger with ImaginOn; Change of Business. The Company has signed a
definitive Agreement and Plan of Merger with ImaginOn, Inc. ("ImaginOn"). The
closing of this transaction is subject to certain contingencies, including
shareholder approval. If the transaction is consummated, the Company's line of
business will change to include computer software manufacturing, production and
other related activities. Although the Company's management believes the
transaction will close upon satisfaction of certain contingencies, there can be
no such assurance.
Antitakeover Provisions in the Company's Corporate Documents. The Company's
Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), of the
Company, including the 10,000 shares of Series B 4% Preferred Stock, and the
1,030 shares of Series C 4% Preferred which have been issued to date and to
determine the price, rights, preferences, privileges and restrictions thereof,
including voting rights, without any further vote or action by the Company's
stockholders. The voting and other rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The Company's Board may
similarly issue additional shares of Common Stock without any further vote or
action by stockholders. Such an issuance could occur in the context of another
public or private offering of shares of Common stock or Preferred Stock or in a
situation where the Common or Preferred Stock is used to acquire the assets or
stock of another company. The issuance of Common or Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no current plans
to issue any additional shares of Common or Preferred Stock other than as
described herein. See "Description of Securities."
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial and operating data should be read in
conjunction with the Company's financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Annual Report on Form 10-KSB (the "Annual
Report"), incorporated by reference herein. The statement of operations data for
the years ended December 31, 1997 and 1996 and the balance sheet data as of
December 31, 1997 incorporated by reference herein, are derived from financial
statements of the Company that have been audited by Gelford, Hochstadt, Pangburn
& Co., independent accountants. The statement of operations data for the six
months ended June 30, 1998 and 1997 and the balance sheet data as of June 30,
1998 and the pro forma balance sheet data as of June 30, 1998 are derived from
unaudited financial statements of the Company included in the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998 ("June
10-QSB"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report and in the June 10-QSB.
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Six Months ended Year ended
June 30, December 31,
1998 1997 1997 1996
Statement of Operation data:
<S> <C> <C> <C> <C>
Net Sales $ -- $ 6,776,239 $ 9,087,767 $ 16,952,904
Gross Profit -- 1,804,092 1,642,423 2,891,870
Loss from operations (885,631) (1,534,687) (4,075,182) (4,690,853)
Loss Before Extraordinary item (1,222,313) (1,426,733) (5,192,920) (5,575,882)
Extraordinary Item 197,901 383,705
Net Loss $ (1,222,313) $ (1,228,837) $ (4,809,215) $ (5,575,882)
Loss Per Share:
Before Extraordinary Item $ (.17) $ (.29) $ (.94) $ (1.37)
Extraordinary item .04 .07
Loss per common share $ (.17) $ (.25) $ (.87) $ (1.37)
Weighted Average
shares outstanding 7,110,712 4,986,747 5,544,833 4,078,864
June 30, 1998 December 31,
Proforma(1) Historical 1997
Balance Sheet data:
Current Assets $ 2,966,425 $ 2,740,783 $ 1,377,907
Total Assets 3,647,338 3,516,179 2,268,627
Working Capital (deficiency) 2,555,909 1,103,571 (400,625)
Shareholders' Equity 3,236,822 1,458,701 104,946
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(1) Gives effect to the receipt of $400,000 from the sale of cash from investors
who acquired 500,000 shares of the restricted common stock from the Company, the
sale of the Series B 4% Preferred Stock for $600,000, less offering costs, and a
$90,000 receivable from two officers/shareholders of the Company to purchase the
shares of Skate Corp. The unaudited pro forma consolidated balance sheet does
not purport to be indicative of the financial position of the Company had the
transactions occurred on June 30, 1998.
MARKET PRICE OF COMMON STOCK
The Company's Common Stock and Warrants have been traded over-the-counter
since January 18, 1995 and are currently quoted on the Nasdaq SmallCap Market
under the symbols CALP and CALPW, respectively. The following table sets forth
the range of high and low bid prices as quoted by Nasdaq. These market
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
Bid Prices Bid Prices
1998 High Low High Low
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter (1/1/98-3/31/98)................................ $ 1.63 $ 1.13 $ .75 $ .44
Second Quarter (4/1/98-6/30/98)............................... $ 1.94 $ 1.19 $ .88 $ .50
1997
First Quarter (1/1/97-3/31/97)................................ $ 1.53 $ .81 $ .40 $ .25
Second Quarter (4/1/97-6/30/97)............................... $ 2.00 $ .93 $ .68 $ .21875
Third Quarter (7/1/97-9/30/97)................................ $ 2.37 $ 1.37 $ .75 $ .4375
Fourth Quarter (10/1/97-12/31/97)............................. $ 3.06 $ 1.06 $ 1.15 $ .6875
1996
First Quarter (1/1/96-3/31/96)................................ $ 4.62 $ 2.56 $ 1.92 $ .65625
Second Quarter (4/1/96-6/30/96)............................... $ 4.00 $ 2.25 $ 1.00 $ .50
Third Quarter (7/1/96-9/30/96)................................ $ 3.06 $ 1.87 $ .90 $ .375
Fourth Quarter (10/1/96-12/31/96)............................. $ 2.31 $ 1.25 $ .56 $ .21875
</TABLE>
NASDAQ NOTIFICATION OF DELISTING. The NASDAQ Stock Market, Inc. ("NASDAQ")
issued new standards for continued listing of SmallCap Market participants which
became effective February 23, 1998. The Company is a SmallCap Market participant
and must meet these new requirements. On the effective date, the Company did not
meet one of the new requirements of having net tangible assets that exceed $2
million. Under the new standards, NASDAQ has established a review process for
companies temporarily out of compliance. The Company filed its written request
for a temporary exemption to the new standards on March 27, 1998. Along with the
written request, the Company filed a Form 8-K which, on a pro-forma basis, shows
compliance with the new continued listing requirements. NASDAQ granted a
conditional exceptions to the listing requirements on July 10, 1998, provided
the Company completed by August 14, 1998 certain placements (including the
placement of Preferred Stock). The Company filed a Form 10-QSB with NASDAQ on
August 14, 1998, and the Company subsequently received on August 20, 1998 notice
from NASDAQ that the Company has evidenced compliance with all requirements
neccesary for continued listing on the NASDAQ SmallCap Market.
The number of record holders of the Company's Common Stock as of August __,
1998 was approximately ___. Based on information from the brokerage community,
the Company believes that its Common Stock and Warrants each are held
beneficially by more than 300 persons.
The Company has not declared or paid dividends on its Common Stock, nor
does it anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings to fund operations and
for the continued development of its business.
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SELLING STOCKHOLDERS
The shares of Common Stock of the Company offered by the Selling
Stockholders (the "Shares") will be offered at market prices, as reflected on
NASDAQ. The aggregate number of shares offered for resale upon conversion of the
Preferred Stock will be based on the conversion rate in effect at the time of
conversion. It is anticipated that Selling Stockholders will sell their shares
of Common Stock on NASDAQ in which case registered broker-dealers will be
allowed the commissions which are usual and customary in open market
transactions. Selling Stockholders may also sell their shares of Common Stock in
off-the-market transactions at market price in which case no commissions would
be paid.
The number of shares of Common Stock estimated to be issuable upon
conversion of each of the 1,050 shares of Series B Preferred and 1,030 Shares of
Series C Preferred, and the consequent number of shares of Common Stock
available for resale under this Prospectus, is based upon a conversion ratio
which is $1,000 divided by 65% of the closing bid price of the Common Stock on
NASDAQ averaged over the five trading days immediately prior to the date of
conversion. The number of shares in the table below is based upon a rate of
$.65, or approximately 1538.46 shares of Common Stock per share of Series B and
C Preferred. The Selling Stockholders do not own any Common Stock except as
registered hereby and will own no shares after the completion of the offering.
The relationship, if any, between the Company and any Selling Stockholder is set
forth below.
<TABLE>
<CAPTION>
Percent of
Common Stock
Number of Number of Before
Name Preferred Shares Class Common Shares Offering
<S> <C> <C> <C> <C>
The Augustine Fund 200 B 307,692 2.6%
Congregation Beth Mordecai 200 B 307,692 2.6%
Dale N. Stein 25 B 38,462 *
C. Jessie Reggio 75 B 115,385 *
Zaken Limited 200 B 307,692 2.6%
Matthew Holstein 50 B 76,923 *
Russell G. Kraus 25 B 38,462 *
The Four Corporation
Defined Benefit Pension Trust 25 B 38,462 *
Tabacalara, Ltd. 100 B 153,846 1.3%
Keith Mazer(1) 50 B 76,923 *
Bertek Realty 100 B 153,846 1.3%
The Shaar Fund, Ltd. 1,030 C 1,584,615 12.1%
Liberty Capital Group, Inc.(2) 1,400,000 11.4%
World Capital Funding, L.L.C.(1) 325,000 2.8%
Wayne Mills IRA 250,000 2.1%
Jeffrey Werbalowsky 62,500 *
John Skeleton 62,500 *
Richard Lockwood 62,500 *
Craig Avery 62,500 *
John Black 69,076 *
John Burford 98,678 *
Jim Burford, M.D.(3) 98,678 *
David Saltiel 9,868 *
William Pallack 49,340 *
Richard Cammeron 49,340 *
Joseph Maenza 128,282 1.1
Gary Tice 80,000 *
Totals 2,080 - 6,008,262 57.1%
*less than 1%
</TABLE>
8
<PAGE>
(1) Keith Mazer is an officer, director and member of World Capital
Funding, LLC. Includes as to World Capital Funding 125,000 Shares of
Common Stock and 200,000 shares issuable upon exercise of warrants.
(2) Includes options to purchase 1,000,000 shares of Common Stock.
(3) Jim Burford, MD is the brother of John Burford.
9
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
20,000,000 shares of Common Stock, $.01 par value per share, of which 11,479,727
shares were outstanding as of July 31, 1998. Holders of shares of Common Stock
are entitled to one vote for each share on all matters to be voted on by the
shareholders. Holders of Common Stock have no cumulative voting rights. Holders
of shares of Common Stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefore. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive rights to purchase the
Company's Common Stock. There are no conversion rights or redemption or sinking
fund provisions with respect to the Common Stock. All of the outstanding shares
of Common Stock are validly issued, fully paid and non-assessable.
The transfer agent for the Common Stock is Corporate Stock Transfer, Inc.,
370 17th Street, Suite 2350, Denver, Colorado, 80202.
Preferred Stock
The Company's Certificate of Incorporation authorize the issuance of
5,000,000 shares of preferred stock, $.01 par value, of which as of July 31,
1998 1,050 shares of Series B Preferred and 1,030 shares of Series C Preferred,
are outstanding. The Preferred Stock is convertible into shares of common stock.
See "Selling Stockholders". The annual dividend rate for the Series B and Series
C Preferred is $40.00 per share, when, as and if declared by the Company's Board
of Directors. If not declared, dividends will accumulate and be payable in the
future. Full dividends must be paid or set aside on the Series B and Series C
Preferred Stock before dividends may be paid or set aside on the Company's
Common Stock. A liquidation shall be deemed to occur in the event of any
voluntary liquidation, the sale of substantially all the assets of the Company
or certain changes of control and similar transactions. The holders of Series B
and Series C Preferred have a liquidation preference of $1,300 per share over
the Common Stock. The Company does not expect to declare or pay such dividends
in the foreseeable future. The Company may issue additional preferred stock in
the future. The Company's Board of Directors has authority, without action by
the shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series.
The Company considers it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or private placements, the provisions for preferred stock in the
Company's Certificate of Incorporation would avoid the possible delay and
expense of a shareholder's meeting, except as may be required by law or
regulatory authorities. Issuance of the preferred stock could result, however,
in a series of securities outstanding that will have certain preferences with
respect to dividends and liquidation over the Common Stock which would result in
dilution of the income per share and net book value of the Common Stock.
Issuance of additional Common Stock pursuant to any conversion right which may
be attached to the terms of any series of preferred stock may also result in
dilution of the net income per share and the net book value of the Common Stock.
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. Therefore, it is not possible at this
time to determine in what respect a particular series of preferred stock will be
superior to the Company's Common Stock or any other series of preferred stock
which the Company may issue. The Board of Directors may issue additional
preferred stock in future financings.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of Delaware law could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. While such provisions are intended to enable the Board of Directors to
maximize stockholder value, they may have the effect of discouraging
10
<PAGE>
takeovers which could be in the best interest of certain stockholders. There is
no assurance that such provisions will not have an adverse effect on the market
value of the Company's stock in the future.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Hand & Hand, a law corporation, Dana Point, California.
EXPERTS
The financial statements of the Company as of December 31, 1997 and for the
years ended December 31, 1997 and 1996, incorporated by reference in this
Prospectus from the Annual Report on Form 10-KSB, have been incorporated herein
in reliance on the report of Gelford, Hochstadt, Pangburn & Co., independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
No dealer, salesman or other person is authorized to give any information
or to make any representations not contained in this Prospectus in connection
with the offer made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
to an offer to buy the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained herein
is correct as of any time subsequent to the date hereof.
11
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Additional Information.................................................................................... 2
Prospectus Summary........................................................................................ 3
Risk Factors.............................................................................................. 6
Market Price of Common Stock.............................................................................. 8
Selling Stockholders...................................................................................... 10
Description of Securities................................................................................. 10
Legal Matters............................................................................................. 11
Experts................................................................................................... 11
</TABLE>
6,008,262 SHARES
12
<PAGE>
CALIFORNIA PRO SPORTS, INC.
PART II
<TABLE>
<CAPTION>
Item 14. Other Expenses of Issuance and Distribution.
<S> <C> <C>
Filing fee under the Securities Act of 1933 $ 2,182.81
Blue Sky qualification fees and expenses(1) 1,000.00
Printing and engraving(1) 2,000.00
Legal Fees 15,000.00
Accounting Fees 6,800.00
Miscellaneous(1) 3,017.19
TOTAL $ 30,000.00
=================
</TABLE>
(1) Estimates
Item 15. Indemnification of Directors and Officers.
Pursuant to the Company's Certificate of Incorporation, as
amended, the Company may indemnify each of its directors and officers with
respect to all liability and loss suffered and reasonable expense incurred by
such person in any action, suit or proceeding in which such person was or is
made or threatened to be made a party or is otherwise involved by reason of the
fact that such person is or was a director of the Company. In addition, the
Company may pay the reasonable expenses of indemnified directors and officers
incurred in defending such proceedings if the indemnified party agrees to repay
all amounts advanced should it be ultimately determined that such person is not
entitled to indemnification.
In addition, as permitted by the Delaware General Corporation Law,
the Company's Certificate of Incorporation provides that the Company's directors
will not be held personally liable to the Company or its stockholders for
monetary damages for a breach of fiduciary duty as a director except to the
extent such exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Law. This provision does not eliminate
the duty of care, and injunctive or other forms of non-monetary equitable relief
will remain available under Delaware law. In addition, each director continues
to be liable for monetary damages for (i) misappropriation of any corporate
opportunity in violation of the director's duties, (ii) acts or omissions in bad
faith or involving intentional dishonesty, (iii) knowing violations of law, and
(iv) any transaction from which a director derives an improper personal benefit.
The provision does not affect a director's responsibilities under any other law,
such as the federal securities laws of state or federal environmental laws.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibits being filed herewith are listed below.
Number Description
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant. (INCORPORATED BY REFERENCE TO
EXHIBIT 3.1 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM
SB-2, REGISTRATION NO. 33-85108 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION "SEC" ON OCTOBER 13, 1994 (THE "1994
REGISTRATION STATEMENT").)
3.2 Bylaws as currently in effect. (INCORPORATED BY REFERENCE TO EXHIBIT 3.2
TO THE 1994 REGISTRATION STATEMENT.)
13
<PAGE>
3.3 Certificate of Designations for Series B 4% Convertible Preferred Stock.
(INCORPORATED BY REFERENCE TO EXHIBIT 3.(I).1 OF THE REGISTRANT'S
JUNE 30, 1998 10-QSB.)
3.4 Certificate of Designations for Series C 4% Convertible Preferred Stock. FILED
HEREWITH.
4.1 Specimen of Common Stock certificate. (INCORPORATED
BY REFERENCE TO EXHIBIT 4.1 TO AMENDMENT NO. 4 TO THE
1994 REGISTRATION STATEMENT, FILED WITH THE SEC ON
DECEMBER 22, 1994 ("1994 AMENDMENT #4).)
5.0 Opinion of Hand & Hand. FILED HEREWITH.
10.1 Manufacturing Agreement, dated April 1, 1993, between the Registrant and Playmaker.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.2 TO THE 1994
REGISTRATION STATEMENT.)
10.2 Exclusive License Agreement, dated April 1, 1993, between the Registrant and Playmaker.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.4 TO THE 1994
REGISTRATION STATEMENT.)
10.3(a) Indemnity letter agreement, dated April 1, 1993, between the Registrant and Playmaker.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.8(A) TO THE 1994
REGISTRATION STATEMENT.)
10.3(b) Patent License Agreement, dated April 1, 1993 and Assignment thereof.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.8(B) TO THE 1994
REGISTRATION STATEMENT.)
10.4 Loan and Security Agreement, dated April 1, 1993, with LaSalle National Bank, N.A.
("Loan Agreement"). (INCORPORATED BY REFERENCE TO EXHIBIT 10.10 TO
THE 1994 REGISTRATION STATEMENT.)
10.5(a) Amendment, dated June 15, 1994, to Loan Agreement.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.10(A) TO
AMENDMENT NO. 1 TO THE 1994 REGISTRATION STATEMENT,
FILED WITH THE SEC ON OCTOBER 28, 1994 ("1994
AMENDMENT #1).)
10.5(b) Consent and Amendment, dated August 3, 1994, to Loan
Agreement. (INCORPORATED BY REFERENCE TO EXHIBIT
10.10(B) TO 1994 AMENDMENT #1.)
10.5(c) Amendment, dated August 30, 1995, to Loan Agreement. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.10(C) TO REGISTRATION STATEMENT ON FORM
SB-2, REGISTRATION NO. 33-98898 ("REGISTRATION STATEMENT 33-98898.")
10.6 Demand Note, dated April 1, 1993. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.11 TO THE 1994 REGISTRATION
STATEMENT.)
10.7 Continuing Unconditional Guaranties, dated April 1, 1993, of Henry Fong and Michael
S. Casazza. (INCORPORATED BY REFERENCE TO EXHIBIT 10.12 TO THE 1994
REGISTRATION STATEMENT.)
10.8 Letter Agreement, dated April 1, 1993, from the Registrant to LaSalle.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.13 TO THE 1994
REGISTRATION STATEMENT.)
14
<PAGE>
10.9 1994 Stock Option Plan. (INCORPORATED BY REFERENCE TO EXHIBIT 10.14 TO
THE 1994 REGISTRATION STATEMENT.)
10.10 License Agreement, dated July 28, 1994, between Front
500 Corporation and CP. (INCORPORATED BY REFERENCE TO
EXHIBIT 10.16 TO THE 1994 REGISTRATION STATEMENT.)
10.11 Exclusive Distributorship Agreement, dated March 1994, with Maneuverline Co. Ltd.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.20 TO THE 1994
REGISTRATION STATEMENT.)
10.12 Exclusive Distributorship Agreement, dated March 1,
1991, with Airtool Ltd. (Incorporated by reference to
Exhibit 10.21 to the 1994 Registration Statement.)
10.13 Exclusive Distributorship Agreement, dated June 15, 1994, with Wolf Strobel Sportswear
GMBH. (INCORPORATED BY REFERENCE TO EXHIBIT 10.22 TO THE 1994
REGISTRATION STATEMENT.)
10.14 License Agreement, dated May 10, 1995, granted by California Pro, Inc. to Big5 Co., Ltd.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.23 IN REGISTRATION
STATEMENT 33-98898.)
10.15 Form of Warrant related to the Registrant's issuance of warrants to purchase up to 200,000
shares of Common Stock. (INCORPORATED BY REFERENCE TO EXHIBIT 10.29(A)
TO THE 1994 REGISTRATION STATEMENT.)
10.16 Form of Warrant related to the issuance of warrants to purchase up to 21,000 shares of
Common Stock. (INCORPORATED BY REFERENCE TO EXHIBIT 10.29(C) TO 1994
AMENDMENT #1.)
10.17 Form of Indemnity Agreements for the Registrant's directors and officers.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.31 TO THE 1994
REGISTRATION STATEMENT.)
10.18 Lease Agreement, dated February 16, 1993, for office space, as amended by letter
agreement dated February 16, 1994. (INCORPORATED BY REFERENCE TO EXHIBIT
10.32 TO THE 1994 REGISTRATION STATEMENT.)
10.19 Patent License Agreement, with Out of Line Sports, Inc. dated as of September 30, 1994.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.33 TO THE 1994
REGISTRATION STATEMENT.)
10.20 Trademark License Agreement, dated as of September
30, 1994. (INCORPORATED BY REFERENCE TO EXHIBIT 10.34
TO THE 1994 REGISTRATION STATEMENT.)
10.21 Agreement, dated October 31, 1994, between California Pro Sports, Inc. and Playmaker
related to royalty payments. (INCORPORATED BY REFERENCE TO EXHIBIT 10.35
TO AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT, FILED WITH
THE SEC ON NOVEMBER 16, 1994 ("1994 AMENDMENT #2").)
10.22 Form of Warrant related to the Registrant's issuance of warrants to purchase up to 300,000
shares of Common Stock. (INCORPORATED BY REFERENCE TO EXHIBIT 10.37 IN
REGISTRATION STATEMENT 33-98898.)
15
<PAGE>
10.23 Letter Agreement dated August 24, 1995 among the
Registrant and Warren Amendola, Patricia Amendola,
Three R Sales, Inc., Three R Profit Sharing
Retirement Plan and USA Skate Company, Inc.
(Incorporated by reference to Exhibit 10.38 in
Registration Statement 33-98898.)
10.24 Form of Warrant related to the Registrant's issuance
of warrants to purchase up to 150,000 shares of
Common Stock with Registration Rights Agreement.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.39 IN
REGISTRATION STATEMENT 33-98898.)
10.25 Stock Purchase Agreement effective as of April 30,
1996 by and among Warren Amendola, Sr., Patricia
Amendola, Three R Profit Sharing Retirement Plan,
Warren Amendola, Jr., Richard Amendola and Russell
Amendola, as sellers, and USA, as purchaser, and the
Registrant, including the following exhibit
agreements thereto. (INCORPORATED BY REFERENCE TO
EXHIBIT 10.1 TO THE REGISTRANT'S FORM 8-K, FILED MAY
30, 1996, REPORTING AN EVENT ON MAY 15, 1996,
COMMISSION FILE NO. 0-25114 (THE "1996 FORM 8- K").)
10.26(a) Exhibit A - USA's Promissory Note to sellers in the principal amount of $1,050,000,
with related Guaranty. (INCORPORATED BY REFERENCE TO EXHIBIT 10.1(A) TO
THE 1996 FORM 8-K.)
10.26(b) Exhibit B - License Agreement from Warren Amendola, Sr. to USA Skate, with related
Guaranty. (INCORPORATED BY REFERENCE TO EXHIBIT 10.1(B) TO THE 1996
FORM 8-K.)
10.26(c) Exhibit C - Consulting and Non-Competition Agreement among Warren Amendola, Sr.,
USA and the Registrant, with related Guaranty. (INCORPORATED BY REFERENCE
TO EXHIBIT 10.1(C) TO THE 1996 FORM 8-K.)
10.26(d) Exhibit D - Escrow Agreement by and among Warren Amendola, Sr., USA, the Registrant
and Blau, Kramer, Wactlar & Lieberman, P.C. (INCORPORATED BY REFERENCE TO
EXHIBIT 10.1(D) TO THE 1996 FORM 8-K.)
10.26(e)(1) Exhibit E1 - Employment Agreement between USA Skate and Warren Amendola, Sr.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.1(E)(1) TO THE 1996 FORM
8-K.)
10.26(e)(2) Exhibit E2 - Non-Disclosure and Non-Competition
Agreement by and among Warren Amendola, Jr., USA
Skate, USA and the Registrant. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.1(E)(2) TO THE 1996 FORM
8-K.)
10.26(e)(3) Exhibit E3 - Non-Disclosure and Non-Competition Agreement by and among Richard
Amendola, USA Skate, USA and the Registrant. (INCORPORATED BY REFERENCE
TO EXHIBIT 10.1(E)(3) TO THE 1996 FORM 8-K.)
10.26(f) Exhibit F - Registration Rights Agreement by and among the sellers and USA, with
related Guaranty. (INCORPORATED BY REFERENCE TO EXHIBIT 10.1(F) TO THE
1996 FORM 8-K.)
10.26(g) Exhibit G - Guaranty for the benefit of Patricia
Amendola. (INCORPORATED BY REFERENCE TO EXHIBIT
10.1(G) TO THE 1996 FORM 8-K.)
10.26(h) Exhibit H - Davtec's Promissory Note to Warren Amendola, Sr. in the principal amount
of $125,000, with related Guaranty. (INCORPORATED BY REFERENCE TO EXHIBIT
10.1(H) TO THE 1996 FORM 8-K.)
16
<PAGE>
10.27(a) Loan and Security Agreement between USA Skate and
LaSalle National Bank (the "USA Skate Loan Agreement)
(INCORPORATED BY REFERENCED TO EXHIBIT 10.27(A) TO
THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 1996 (THE "1996 FORM 10-KSB").)
10.27(b) Demand Note related to the USA Skate Loan Agreement.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.2(A) TO THE
1996 FORM 8-K.)
10.27(c)(1) Guaranty of the USA Skate Loan by the Registrant, California Pro, Inc. and USA.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.27(C)(1) TO THE 1996 FORM
10-KSB.)
10.27(c)(2) Guaranty of the USA Skate Loan by Henry Fong. (INCORPORATED BY REFERENCE
TO EXHIBIT 10.27(C)(2) TO THE 1996 FORM 10-KSB.)
10.27(c)(3) Guaranty of the USA Skate Loan by Michael Casazza. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.27(C)(3) TO THE 1996 FORM 10-KSB.)
10.27(d) Letter from the Registrant, USA and Three R Sales,
Inc. to LaSalle National Bank. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.2(C) TO THE 1996 FORM 8-K.)
10.28(a) Letter Amendment, dated as of April 30, 1996, to the
Loan Agreement dated April 1, 1993 between California
Pro, Inc. and LaSalle National Bank, as amended (the
"CP Loan"). (INCORPORATED BY REFERENCE TO EXHIBIT
10.3(A) TO THE FORM 8-K.)
10.28(b) Guaranty of the CP Loan by USA Skate. (Incorporated by reference to Exhibit 10.3(b)
to the 1996 Form 8-K.)
10.29 Lease Agreement, dated November 1, 1996, between Philip Calabrese and USA Skate Co.,
Inc. (INCORPORATED BY REFERENCE TO EXHIBIT 10.31 IN REGISTRATION
STATEMENT 33-98898.)
10.30(a) Asset Purchase Agreement, dated September 10, 1997 by
and among Les Equipements Sportifs Davtec Inc., USA
Skate Co., Inc., USA Skate Corporation, the
Registrant, Rawlings Canada Inc. and Rawlings
Sporting Goods Company, Inc. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.1(A) TO REGISTRANT'S FORM
8-K, FILED SEPTEMBER 29, 1997, REPORTING AN EVENT ON
SEPTEMBER 12, 1997, COMMISSION FILE NO. 0-25114 (THE
"1997 FORM 8-K").)
10.30(b) Exhibit A - Escrow Agreement, dated September 12,
1997 by and among Les Equipements Sportifs Davtec
Inc., USA Skate Co., Inc., Rawlings Canada Inc.,
Rawlings Sporting Goods Company, Inc. and the Bank of
New York. (INCORPORATED BY REFERENCE TO EXHIBIT
10.1(B) TO REGISTRANT'S 1997 FORM 8-K.)
10.30(c) Exhibit C - Guaranty, dated September 12, 1997 for Rawlings Canada Inc. and Rawlings
Sporting Goods Company, Inc. (INCORPORATED BY REFERENCE TO EXHIBIT
10.1(C) TO REGISTRANT'S 1997 FORM 8-K.)
10.31 Agreement and Plan of Merger, dated January 30, 1998
by and among the Registrant, ImaginOn, Inc. and
ImaginOn Acquisition Corp. (INCORPORATED BY REFERENCE
TO EXHIBIT 95 SAME NUMBER TO REGISTRANT'S 1997 FORM
10-KSB.)
11.1 Statement Re: Computation of Per Share Earnings. FILED HEREWITH.
17
<PAGE>
21.1 List of Subsidiaries. (INCORPORATED BY REFERENCE TO EXHIBIT 21.1 IN
REGISTRATION STATEMENT 33-98898.)
23.1 Consent of Independent Accountants. FILED HEREWITH.
23.2 Consent of Hand & Hand, (INCLUDED IN EXHIBIT 5.)
</TABLE>
* Management contract or compensatory plan or agreement.
18
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act
of 1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective
date of the registration statement (or
the most recent post-effective
amendment thereof) which individually
or in the aggregate, represent a
fundamental change in the information
set forth in the registration
statement;
(iii) To include any material information
with respect to the plan of
distribution not previously disclosed
in the registration statement or any
material change to such information in
the registration statement;
Provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be
included in a post-effective amendment
by those paragraphs is contained in
periodic reports filed by the
registrant pursuant to section 13 or
section 15(d) of the Securities
Exchange Act of 1934 that are
incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
such securities offered at that time shall be
deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability
under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual repor
pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration
statement shall be deemed to be a new registration
statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona
fide offering thereof.
(h) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be
permitted to directors, officers and controlling persons
of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the
Securities and Exchange Commission such indemnification
is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or
controlling person in connection with the securities
being registered, the registrant will, unless
in the opinion of its counsel that matter has been
settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such
issue.
19
<PAGE>
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information
omitted from the form of prospectus filed as
part of this registration statement in reliance
upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of
this registration statement as of the time it
was declared effective.
(2) For the purposes of determining any liability
under the Securities Act of 1933, each
post-effective amendment that contains a form of
prospectus shall be deemed to be a new
registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Item 18. Not Applicable.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Greer, State
of South Carolina on September 2, 1998.
CALIFORNIA PRO SPORTS, INC.
By: /s/ Barry S. Hollander
Barry S. Hollander, Acting President
The undersigned officer and/or director of California Pro Sports, Inc.,
a Delaware corporation (the "Corporation"), hereby constitutes and appoints
Barry S. Hollander and Henry Fong, with full power of substitution and
resubstitution, as attorney to sign for the undersigned in any and all
capacities this Registration Statement and any and all amendments thereto, and
any and all applications or other documents to be filed pertaining to this
Registration Statement with the Securities and Exchange Commission or with any
states or other jurisdictions in which registration is necessary to provide for
notice or sale of all or part of the securities to be registered pursuant to
this Registration Statement and with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent, or any of his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and incorporate such changes as
any of the said attorneys-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 2, 1998.
By: /s/ Henry Fong
Henry Fong, Chief Executive
Officer and Director
/s/ Barry S. Hollander
Barry S. Hollander, Chief Financial
Officer and Principal Accounting Officer
/s/ Brian C. Simpson
Brian C. Simpson, Director
/s/ Hung-Chang Yang
Hung-Chang Yang, Director
21
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
CALIFORNIA PRO SPORTS, INC.
Pursuant to Section 151 of
the General Corporation Law of the State of Delaware
California Pro Sports, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on June 30, 1998 pursuant to authority of the Board of
Directors as required by Section 151 of the General Corporation Law of the State
of Delaware;
RESOLVED, that pursuant to the authority granted to an vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation, the Board
of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $0.01 per share (the "Preferred Stock, par
value $0.01 per share (the "Preferred Stock"), and hereby states the designation
and number of shares, and fixes the relative rights, preferences, privileges,
powers and restrictions thereof as follows:
Series C 4% Convertible Preferred Stock;
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article
whenever used in this Certificate of Designations have the
following respective meanings;
(a) "Additional Capital Shares" has the meaning set forth in
Section 6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
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(c) "Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(d) "Capital Shares" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "Closing Date" means July 30, 1998.
(f) "Common Shares" or "Common Stock" means shares of common stock,
$.01 par value, of the Corporation.
(g) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series C Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series C Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(h) "Conversion Date" means any day on which all or any portion of
shares of the Series C Preferred Stock is converted in accordance with the
provisions hereof.
(i) "Conversion Notice" has the meaning set forth in Section 6.2.
(j) "Conversion Price" means on any date of determination the
applicable price for the conversion of shares of Series C Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "Conversion Ratio" on any date means of determination the
applicable percentage of the Market Price for conversion of shares of Series C
preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation", means California Pro Sports, Inc., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(m) "Current Market Price" on any date of determination means the
closing price of a Common Share on such day as reported on the Nasdaq - Small
Cap Market ("NASDAQ").
(n) "Default Dividend Rate" shall be equal to the Preferred Stock
Dividend Rate plus an additional 4% per annum.
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(o) "Holder" means the Shaar Fund Ltd., any successor thereto, or any
Person to whom the Series C Preferred Stock is subsequently transferred in
accordance with the provisions hereof.
(p) "Market Disruption Event" means any event that results in a
material suspension or limitation of trading of Common Shares on the NASDAQ.
(q) "Market Price" per Common Share means the average of the closing
prices of the Common Shares as reported on the NASDAQ for the five Trading Days
in any valuation Period.
(r) "Maximum Rate" has the meaning set forth in Section 7.3(b).
(s) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary or the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(t) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(u) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated a date even herewith between the Corporation and The
Shaar Fund Ltd.
(v) "SEC" means the United States Securities and Exchange Commission.
(w) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(x) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement dated a date even herewith between the Corporation and The
Shaar Fund Ltd.
(y) "Series C Preferred Stock" means the Series C 4% Convertible
Preferred Stock of the Corporation or such other convertible Preferred Stock
exchanged therefor as provided in Section 2.1.
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(aa) "Stated Value" has the meaning set forth in Article 2.
(bb) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(cc) "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on the NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(dd) "Valuation Event" has the meaning set forth in Section
6.1.
(ee) Valuation Period" means the five Trading Day period
immediately preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 1,030 shares
of Preferred Stock, is Series C 4% Convertible Preferred Stock (the "Series C
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
ARTICLE 3
RANK
SECTION 3.1
The Series C Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any class of series of capital stock of the
Corporation hereafter created other than "Pari Passu Securities" (collectively,
with the Common Stock, "Junior Securities"); and (iii) pari passu with any class
or series of capital stock of the Corporation hereafter created specifically
ranking on parity with the Series C Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
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SECTION 4.1
(a)(i) The Holder shall be entitled to receive, when, as and
if declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Sections 4(a)(ii) hereof) at the
rate of 4% per annum (computed on the basis of a 360-day year) (the "Dividend
Rate") on the Liquidation Value (as defined below) of each share of Series C
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series C Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts
on each March 31, June 30, September 30 and December 31 of each year (each, a
"Dividend Payment Due Date"), commencing September 30, 1998, to the holders of
record of shares of the Series C Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than 60 days or less than 10 days preceding the payment dates thereof, as shall
be fixed by the Board of Directors. For the purposes hereof, "Dividend Period"
means the quarterly period preceding Dividend Payment Date and ending on and
including the immediately subsequent Dividend Payment Date. Accrued and unpaid
dividends for any past Dividend Period may be declared and paid at any time,
without reference to any Dividend Payment Due Date, to holders of record on such
date, not more than 15 days preceding the payment date thereof, as may be fixed
by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be
paid in cash or through the issuance of duly and validly authorized and issued,
fully paid and non-assessable, freely tradeable shares of Common Stock valued at
the Market Price. The Common Stock to be issued in lieu of cash payments shall
be registered for resale in the Registration Statement to be filed by the
Corporation to register the Common Stock issuable upon conversion of the shares
of Series C Preferred Stock and exercise of the Warrants as set forth in the
Registration Rights Agreement. Notwithstanding the foregoing, until such
Registration Statement has been declared effective under the Securities Act by
the SEC, payment of dividends on the Series C Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series C
Preferred Stock. Except as provided in this Article 4, no
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interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series C Preferred Stock that may be in
arrears.
(c) So long as any shares of the Series C Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series C Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series C Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series C Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series C Preferred stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series C
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series C
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series C Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
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(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up (each such event being
considered a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation upon liquidation, dissolution
or winding up unless prior thereto, the holders of shares of Series C Preferred
Stock, subject to Article 5, shall have received the liquidation Preference (as
defined in Article 5(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series C Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series C Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation preference payable on each such share bears to
the aggregate liquidation Preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
not the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute, upon consummation of and as a condition to, such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding sharer of Series C Preferred Stock in accordance with and
subject to the terms of this Article 5 or (ii) be treated pursuant to Article
5(c) (iii) hereof; provided, that all holders of Series C Preferred Stock shall
be deemed to elect the option set forth in cause (i) hereof if at least a
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majority in interest of such holders elect such option. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series C Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof, plus (ii) an amount equal to thirty
percent (30%) of such Stated Value, plus (iii) the aggregate of all accrued and
unpaid dividends on such share of Series C Preferred Stock until the most recent
Dividend Payment Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(iii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time following the date of issuance of the
Series C Preferred Stock (the "Issue Date") at a conversion Price equal to 65%
of the Market Price; provided, however, that the Holder shall not have the right
to convert any portion of the Series C Preferred Stock to the extent that the
issuance to the Holder of Common Shares upon such conversion would result in the
Holder being deemed the "beneficial owner" of 5% or more of the then outstanding
Common Shares within meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended. At the Corporation's option, the amount of accrued and unpaid
dividends as of the conversion Date shall not be subject to conversion but
instead may be paid in cash as of the Conversion Date; if the Corporation elects
to convert the amount of accrued and unpaid dividends at the Conversion Date
into Common Stock, the Common Stock issued to the Holder shall be valued at the
Conversion Price. Notwithstanding the previous sentence, in no event shall the
Holder have the right to convert that portion of the Series C Preferred Stock to
the extent that the issuance of Common Shares upon the conversion of such Series
C Preferred Stock, when combined with shares of Common Stock received upon other
conversions of Series C Preferred Stock by such Holder and any other holders of
Series C Preferred Stock, would exceed 19.99% of the Common Stock outstanding on
the Closing Date. Within ten (10) Business Days after the receipt of the
Conversion Notice which upon conversion would, when combined with shares of
Common Stock received upon other conversions of Series C Preferred Stock by such
Holder and any other holders of Series C Preferred Stock and
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Warrants, exceed 19.99% of the Common Stock outstanding on the Closing Date, the
Corporation shall redeem all remaining outstanding shares of Series C Preferred
Stock at on hundred twenty-five percent (125%) of the Stated Value thereof,
together with all accrued and unpaid dividends thereon, in cash, to the date of
redemption.
The number of shares of Common Stock due upon conversion of
Series C Preferred Stock shall be (i) the number of shares of Series C Preferred
Stock to be converted, multiplied by (ii) the State Value and dividend by (iii)
the applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation
Event, the Corporation shall send notice (the "Valuation Event Notice") of such
occurrence to the Holder. Notwithstanding anything to the contrary contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; provided that, if a
Valuation Event occurs on the fifth day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on such
day; and provided, further, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than five (5) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation with two (2) Business Days of the receipt of the
Valuation Period to be other than the five (5) Trading Days immediately Prior to
the Conversion Date, the Holder shall give written notice of such fact to the
Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional
Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such issuances, or
without consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities;
(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time
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thereafter be issuable pursuant to such warrants, options or other rights shall
be less than the Current Market Price in effect immediately prior to such
issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing Sections
6.1(a) through 6.1(f) hereof, inclusive, which in the opinion of the
Corporation's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of the Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a)
--------------------------------
Conversion of the Series C Preferred Stock may be exercised, in
whole or in part, by the Holder by telecopying an executed and
completed notice of conversion in the form annexed hereto as Annex
I (the "Conversion Notice") to the Corporation. Each date on which
a Conversion Notice is telecopied to and received by the
Corporation in accordance with the provisions of this Section 6.2
shall constitute a Conversion Date. The Corporation shall convert
the Preferred Stock and issue the Common Stock Issued at Conversion
effective as of the Conversion Date. The Conversion Notice also
shall state the name or names (with addresses) of the persons who
are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the
shares of Series C Preferred Stock to the Corporation by express
courier within 30 days following the date on which the telecopied
Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied
by a proper assignment hereof to the Corporation or be endorsed in
blank. As promptly as practicable after the receipt of the
Conversion Notice as aforesaid, but in any event not more than five
Business Days after the Corporation's receipt of such Conversion
Notice, the Corporation shall (i) issue the Common Stock issued at
Conversion in accordance with the provisions of this Article 6, and
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(ii) cause to be mailed for delivery by overnight courier to the Holder (X) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (Y) cash, as provided in
Section 6.3, in respect of any fraction of a Share issuable upon such conversion
and (Z) cash in the amount of accrued and unpaid dividends as of the Conversion
Date. Such conversion shall be deemed to have been effected at the time at which
the Conversion Notice indicates so long as the Preferred Stock shall have been
surrendered as aforesaid at such time, and at such time the rights of the Holder
of the Preferred Stock, as such, shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby. The Conversion Notice shall constitute a contract between
the Holder and the Corporation, whereby the Holder shall be deemed to subscribe
for the number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 6.4), to surrender
the Preferred Stock and to release the Corporation from all liability thereon.
No cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes
or denies the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Preferred Stock into Common Shares, then the Holder shall have the right,
by written notice to the Corporation, to require the Corporation to promptly
redeem the Series C Preferred Stock for cash at a redemption price equal to one
hundred thirty-five percent (135%) of the Stated Value thereof together with all
accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under
any of the circumstances set forth above, the Corporation shall be responsible
for the payment of all costs and expenses of the Holder, including reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series C Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series C Preferred Stock, the
Corporation shall
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pay a cash adjustment in respect of such fraction in an amount equal to the same
fraction. No cash payment of less than $1.50 shall be required to be given
unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series C Preferred Stock remains outstanding and
any shares thereof has not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series C
Preferred Stock (other than a change in par value, or from par value to no par
value per share, of from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series C Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to not par value per share, or from no par value per share to par value,
or as a result of a subdivision of combination of Outstanding Common Shares upon
conversion of the Series C Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, as the case may be,
shall, without payment of any additional consideration therefor, execute a new
Series C Preferred Stock providing that the Holder shall have the right to
convert such new Series C Preferred Stock (upon terms and conditions not less
favorable to the Holder than those in effect pursuant to the Series C Preferred
Stock) and to receive upon such exercise, in lieu of each Common Share
theretofore issuable upon conversion of the Series C Preferred Stock, the kind
and amount of shares of stock, other securities, money or property receivable
upon such reclassification, change, consolidation, merger, mandatory share
exchange, sale or transfer by the holder of one Common Share issuable upon
conversion of the Series C Preferred Stock had the Series C Preferred Stock been
converted immediately prior to such reclassification, change, consolidation,
merger, mandatory share exchange or sale or transfer. The provisions of this
Section 6.4 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, mandatory share exchanges and sales and transfers.
SECTION 6.5 Adjustments to Conversion Ratio. For so long as any shares
of the Series C Preferred Stock are outstanding, if the Corporation (i) issues
and sells pursuant to an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance thereof that is
lower than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an
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exercise price on the date of issuance of the warrants or options that is lower
than the agreed upon exercise price for the Holder, except for employee stock
option agreements or stock incentive agreements of the Corporation, or (C)
convertible, exchangeable or exercisable securities with a right to exchange at
lower than the Current Market Price on the date of issuance or conversion, as
applicable, of such convertible, exchangeable or exercisable securities, except
for stock option agreements or stock incentive agreements; and (ii) grants the
right to the purchaser(s) thereof to demand that the Corporation register under
the Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower rates.
SECTION 6.6 Optional Redemption Under Certain Circumstances. At anytime
after the date of issuance of the Series C Preferred Stock until the Mandatory
Conversion Date (as defined below), the Corporation, upon notice delivered to
the Holder as provided in Section 6.7, may redeem the Series C Preferred Stock
(but only with respect to such shares as to which the Holder has not theretofore
furnished a Conversion Notice in compliance with Section 6.2), at one hundred
thirty-five percent (135%) of the Stated Value thereof (the "Optional Redemption
Price"), together with all accrued and unpaid dividends thereon to the date of
redemption (the "Redemption Date"); provided, however, that the Corporation may
only redeem the Series C Preferred Stock under this Section 6.6 if the Current
Market Price is less than the Current Market Price on the Closing Date. Except
as set forth in this Section 6.6, the Corporation shall not have the right to
prepay or redeem the Series C Preferred Stock.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to
Section 6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
fifteen (15) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Preferred Stock. Upon any redemption of the
Series C Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall
either deliver the Series C Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series C Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to
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such account(s) as the Holder shall specify to the Corporation. If payment of
such redemption price is not made in full by the Mandatory Redemption Date or
the Redemption Date, as the case may be, the Holder shall again have the right
to convert the Series C Preferred Stock as provided in Article 6 hereof.
SECTION 6.9 Mandatory Conversion. On the third anniversary of the date
of this Agreement (the "Mandatory Conversion Date"), the Corporation shall
convert all Series C Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Corporation convert
that portion of the Series C Preferred Stock to the extent that the issuance of
Common Shares upon the conversion of such Series C Preferred Stock, when
combined with shares of Common Stock by such Holder and any other holders of
Series C Preferred Stock and Warrants, would exceed 19.99% of the Common Stock
outstanding on the Closing Date. Within ten (10) Business Days after the
Mandatory Conversion Date, the Corporation shall redeem all remaining
outstanding Series C Preferred Stock at one hundred and thirty-five percent
(135%) of the Stated Value thereof, together with all accrued and unpaid
dividends thereon, in cash, to the date of redemption.
ARTICLE 7
VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting
power, except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each
holder of Series C Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event to
the extent known at such time.
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To the extent that under the DGCL the vote of the holders of
the Series C Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series C Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series C
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series C Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series C Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series C Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled tonight, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series C Preferred Stock;
(b) create any new class or series of capital stock
having a preference over the Series C Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation ("Senior
Securities") or alter or change the rights, preferences or privileges of any
Senior Securities so as to affect adversely the Series C Preferred Stock;
(c) increase the authorized number of shares of
Series C Preferred Stock; or
(d) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in taxation
of the holders of shares of the Series C Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
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In the event holders of at least a majority of the then
outstanding shares of Series C Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series C
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series C
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of Series C Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series C Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series C Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series C Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series C Preferred Stock, new shares of Series C Preferred
Stock, new shares of Series C Preferred Stock of like tenor. The Series C
Preferred Stock shall be held and owned upon the express condition that the
provisions of this Section 10.1 are exclusive with respect to the replacement of
mutilated, destroyed, lost or stolen shares of Series C Preferred Stock and
shall preclude any and all other rights and remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the
Person in whose name the Series C Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series C Preferred Stock for the purpose of receiving payment of
dividends on the Series C Preferred Stock, for the conversion of the Series C
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series C Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the
occurrence of any event described in Sections 6.1, 6.6 or 6.7 of
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this Certificate of Designations, the Corporation shall cause to be mailed to
the Holder of the Series C Preferred Stock at its last address as it appears in
the Corporation's security registry, at least twenty (20) days notice is not
possible, at the earliest possible date prior to any such record, effective or
expiration date), a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, issuance or granting rights,
options or warrants, or if a record is not to be taken, the date as of which the
holders of record of Series C Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series C Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
The Corporation may deem the person in whose name the Series C
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series C Preferred Stock
for the purpose of receiving payment of dividends on the Series C Preferred
Stock and for all other purposes, and the Corporation shall not be affected by
any notice to the contrary. All such payments and such conversions shall be
valid and effective to satisfy and discharge the liability upon the Series C
Preferred Stock to the extent of the sum or sums so paid or the conversion or
conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
C Preferred Stock.
SECTION 9.6 Headings. The headings of the Articles and Section s of
this Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Rights to be signed by its duly authorized officer
on this 30th day of July, 1998.
CALIFORNIA PRO SPORTS, INC.
By:
Name: Barry Hollander
Title: Acting President
By:
Name:
Title:
INITIAL
HOLDER
THE SHAAR FUND LTD.
By:
Name:
Title:
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[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series C 4% Convertible Preferred Stock (the
"Series C Preferred Stock") issued by California Pro Sports, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert ________
shares of the Series C Preferred Stock into shares of the common stock, $.01 par
value, of the Corporation ("Common Stock"), in accordance with the terms of the
Certificate of Designations. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series C Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 6 of the Certificate of Designations. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion, the Series C Preferred Stock recertificated, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designations.
Dated:
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address (including zip code number):
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September 2, 1998
California Pro Sports, Inc.
1221-B South Batesville Road
Greer, South Carolina 29650
Re: Registration Statement on
Form S-3 ("Registration Statement")
Gentlemen:
You have asked for our opinion regarding the legality of an estimated
3, 200,000 Shares of common stock, $.01 par value, issuable upon conversion of
the Series B 4% Convertible Preferred Stock and the Series C 4% Convertible
Preferred Stock, all is set forth in the Registration Statement.
As your counsel, we have reviewed and examined:
1. The Certificate of Incorporation of the Corporation;
2. The Bylaws of the Corporation;
3. A copy of certain resolutions of the Corporation;
4. The Registration Statement; and
5. The Certificate of Designations filed with the Delaware Secretary of
State describing the terms of the Series B and C Stock.
In giving our opinion, we have assumed without investigation the
authenticity of any document or instrument submitted us as an original, the
conformity to the original of any document or instrument submitted to us as a
copy, and the genuineness of all signatures on such originals or copies.
Based upon the foregoing, we are of the opinion that the Shares to be
offered pursuant to the Registration Statement, if sold as described in the
Registration Statement will be legally issued, fully paid and nonassessable,
provided that no less than par value is paid for any Shares.
No opinion is expressed herein as to the application of state
securities or Blue Sky laws.
This opinion is furnished by us as counsel to you and is solely for
your benefit. Neither this opinion nor copies hereof may be relied upon by,
delivered to, or quoted in whole or in part to any governmental agency or other
person without our prior written consent.
Notwithstanding the above, we consent to the reference to our firm name
in the Prospectus filed as a part of the Registration Statement and the use of
our opinion in the Registration Statement. In giving these consents, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
HAND & HAND
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of California Pro Sports, Inc. of our report dated April 14, 1998
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to the Company's ability to continue as a going concern), relating to
the consolidated balance sheet of California Pro Sports, Inc. and subsidiaries
as of December 31, 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1997, which report appears in the December 31, 1997
annual report on Form 10-KSB of California Pro Sports, Inc. We also consent to
the use of our name and the statements with respect to us under the heading
"experts" in the prospectus.
GELFORD, HOCHSTADT, PANGBURN & CO.
Denver Colorado
September 2, 1998
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