As filed with the Securities and Exchange Commission on February 8, 1999
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IMAGINON, INC.
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(Exact name of Registrant specified in charter)
Delaware 84-1217733
- ------------------------------ -------------------
(State or Jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
1313 LAUREL STREET, SUITE 1
SAN CARLOS, CALIFORNIA 94070
PHONE 650-596-9300
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(Address, including zip code, and telephone number, including area code,
Registrant's principal executive offices)
DAVID M. SCHWARTZ
1313 LAUREL STREET, SUITE 1
SAN CARLOS, CALIFORNIA 94070
PHONE 650-596-9300
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(Name, address and telephone number, including area code, of agent for service)
Copies of communication, including all communication sent to the
agent for service, should be sent to:
GERALD RASKIN, ESQ.
SETH WEISS, ESQ.
MICHAEL R. SAVAGE, ESQ.
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC
1400 GLENARM PLACE, SUITE 300
DENVER, COLORADO 80202
(303) 571-1400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box: |_|
<PAGE>
If any of 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 plans, 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 this following box and
list the Securities Act registration 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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<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------------------------|
| CALCULATION OF REGISTRATION FEE |
|---------------------------------------------------------------------------------------------------------------|
|Title of each class of securities | Amount to be | Proposed | Proposed | Amount of |
| to be registered | Registered | Maximum | Maximum | Registration |
| | | Offering Price | Aggregate | Fee |
| | (1) | Per Share | Offering | |
| | | | Price | |
|---------------------------------------------------------------------------------------------------------------|
|<S> | <C> | <C> | <C> | <C> |
|Common Stock issuable upon exercise | 288,360 | $.05535 | $15,960 | $4 |
|of ImaginOn outstanding warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon exercise | 557,447 | $.46125 | $257,122 | $71 |
|of ImaginOn outstanding warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon exercise | 135,500 | $.1845 | $25,000 | $7 |
|of ImaginOn outstanding warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 15,000 | $2.00 | $30,000 | $8 |
|exercise of Dahl warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 21,000 | $2.50 | $52,500 | $15 |
|exercise of Placement Agent warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 120,000 | $1.50 | $180,000 | $50 |
|exercise of underwriter warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 120,000 | $1.80 | $216,000 | $60 |
|exercise of underwriter warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 58,331 | $4.8125 | $280,718 | $78 |
|exercise of Univest warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 221,400 | $1.00 | $221,400 | $62 |
|exercise of Dahl and Altman warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon | 100,000 | $.75 | $75,000 | $21 |
|exercise of Grills warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock | 20,000 | $1.00 | $20,000 | $6 |
|Par value $.01 per share | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock | 2,394,585 | $5.75 (2) | $13,768,863 | $3,828 |
|Par value $.01 per share | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Common Stock issuable upon exercise | 1,870,000 | $1.50 | $2,805,000 | $780 |
|of Publicly-held Warrants warrants | shares | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|Warrants issuable upon exercise | 120,000 | $.30 | $36,000 | $10 |
|of underlying warrants | warrants | | | |
|-------------------------------------|--------------------|-------------------|-----------------|--------------|
|TOTAL | 5,968,016 | | $17,982,553 | $5,000 |
|---------------------------------------------------------------------------------------------------------------|
</TABLE>
(1) This Registration Statement is being used to register 1,582,846 shares
of common stock underlying warrants owned by selling security-holders,
2,345,803 shares of common stock owned by selling shareholders,
1,870,000 shares of common stock underlying publicly-held warrants,
120,000 warrants to purchase warrants to purchase 120,000 shares of
common stock of the Company plus such indeterminate number of shares of
common stock as may be issued by reason of the anti-dilution provisions
of the warrants.
(2) Pursuant to Rule 457(c), the average of the high and low price of
ImaginOn, Inc. common stock as quoted on the Nasdaq SmallCap Market on
Thursday, February 4, 1999, a date within five business days prior to
the filing of this registration statement.
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<PAGE>
--------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
Preliminary Prospectus, Subject to Completion dated February 8, 1999
PROSPECTUS
IMAGINON, INC.
1,870,000 SHARES OF COMMON STOCK UNDERLYING
PUBLICLY-HELD WARRANTS
AND
1,582,846 SHARES OF COMMON STOCK UNDERLYING WARRANTS OWNED BY SELLING
SECURITYHOLDERS
AND
2,394,585 SHARES OF COMMON STOCK OWNED BY SELLING SECURITYHOLDERS
AND
120,000 WARRANTS TO PURCHASE WARRANTS TO PURCHASE 120,000 SHARES OF COMMON
STOCK OF THE COMPANY
ImaginOn, Inc. is offering 1,870,000 shares of its common stock to
holders of its outstanding publicly-held warrants (referred to in this
prospectus as the "Publicly-Held Warrants"). The Publicly- Held Warrants, which
trade in the over-the-counter market under the symbol IMONW, entitle the holders
to purchase one share of common stock for $1.50 until June 30, 1999. Persons who
properly exercise the Publicly-Held Warrants will receive common stock
certificates without any restriction on the resale of the common stock
This also is a public offering of shares of common stock and warrants
of ImaginOn by various Selling Securityholders identified in this prospectus.
The Selling Securityholders will offer the shares and warrants for sale from
time to time at prevailing market prices. ImaginOn will not receive any of the
proceeds from the offering, except for any proceeds from the cash exercise of
warrants held by the Selling Securityholders or holders of the Publicly-held
Warrants.
Certain of the shares included in this prospectus are not currently
outstanding and will be issued to the Selling Securityholders and holders of the
Publicly-held Warrants upon the exercise of outstanding warrants. The following
is a breakdown of these shares:
Shares to be issued upon:
Exercise of Publicly-held Warrants 1,870,000
Exercise of Warrants owned
by Selling Securityholders 1,582,846
Outstanding Shares to be Resold by
Selling Securityholders 2,394,585
Total Shares Offered 5,848,016
=========
This summation does not include the 120,000 warrants to purchase
warrants to purchase 120,000 shares of common stock of the Company, but does
include the underlying shares of common stock issuable upon exercise.
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<PAGE>
|------------------------------------------------------------------------------|
| An investment in the stock of ImaginOn involves a high degree of risk. |
| The shares should only be purchased by persons who can afford a complete |
| loss. See "Risk Factors" beginning on page 7 |
|------------------------------------------------------------------------------|
The Securities and Exchange Commission has not approved or disapproved
these securities or determined that this prospectus is truthful or complete. A
representation to the contrary is a criminal offense. The information in this
prospectus is not complete, and it may change.
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This prospectus is included in the Registration Statement that was
filed by the Company with the Securities and Exchange Commission. Unless
their shares are included on a previously filed and effective Registration
Statement, Selling Securityholders and holders of the Publicly-held Warrants
cannot sell their securities until that Registration Statement becomes
effective. This prospectus is not an offer to sell the securities or the
solicitation of an offer to buy the securities in any state for an offer to sell
or the solicitation of an offer to buy is not permitted.
The date of this Prospectus is February 8, 1999
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<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS
Information about ImaginOn, Inc.........................................-4-
Forward-Looking Statements..............................................-4-
Glossary................................................................-4-
Overview of ImaginOn, Inc.'s Business...................................-6-
Overview of ImaginOn.com's Business.....................................-7-
Risk Factors............................................................-7-
Where You Can Find More Information....................................-10-
Use of Proceeds........................................................-11-
Description of the Offering............................................-12-
Selling Securityholders and Holders of the Publicly-held Warrants......-12-
Plan of Distribution...................................................-20-
Special Considerations to the Holders of the Publicly-held Warrants....-20-
Exercise of Warrants...................................................-21-
Indemnification Provided in Connection with the Offering by the
Selling Securityholders...........................................-21-
Legal Matters..........................................................-21-
Experts................................................................-22-
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<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus and in the documents
incorporated by reference herein, constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act, as amended, and Section 21E of
the Exchange Act, as amended. These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "may," "will" or similar
terms. Forward-looking statements also include projections of financial
performance, statements regarding management's plans and objectives and
statements concerning any assumption relating to the foregoing. Certain
important factors regarding the Company's business, operations and competitive
environment which may cause actual results to vary materially from these
forward-looking statements are discussed below under the caption "Risk Factors."
INFORMATION ABOUT IMAGINON, INC.
GLOSSARY
The following glossary may be helpful in understanding the business and
risk factors associated with ImaginOn, Inc. and its wholly-owned subsidiary
ImaginOn.com:
"BROWSER" - Short for Web Browser; it's the tool (program) that allows
a user to surf the web.
"BUFFER" - A storage area for a finite amount of data in a computer
system or digital transmission system.
"CD-ROM" - Compact Disc - Read Only Memory. A CD-ROM is any compact
disc which contains computer data. These discs can store large amounts of data.
If there is a large amount of data on a CD-ROM, then it is usually impractical
to copy the data to the hard disk, in this case, you must insert the disc
whenever you want to use the data. The ROM simply means that you cannot save
information onto these discs. CD-Rom may also refer to the drive used to read
these discs.
"COMPILER" - A software program that processes a structured set of data
and creates another data set. If the data is a computer program written in a
human-readable language, the output will usually be a set of instructions that
can be executed by a computer to perform the tasks the programmer intended.
"DVD"- Digital video disc or digital versatile disc. DVD Rom is similar
to a large capacity CD Rom. DVD movies are DVD discs containing digitalized
Hollywood movies. DVD Ram (Random Access Memory) is recordable DVD media, like
CDR (CD Recordable) and CDRW (CD Read/Write discs.)
"E-MAIL" - E-mail stands for electronic mail. Most networks support
some form of e-mail. E-mail allows a user to send text (such as a letter) to
another person on another computer.
"ELECTRONIC-MAIL" - This tool is usually provided by an internet
service provider. It allows a user to send and receive mail (messages) over the
Internet.
"HTML" - Hypertext Mark-Up Language. HTML is not really a programming
language, but a way to format text by placing marks around the text. For
example, HTML allows a user to make a word bold or underline it. HTML is the
foundation for most web pages.
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<PAGE>
"HYPERLINK" - A data object, such as text or an image, that has a dual
purpose. The first purpose is to convey information in the form of text or a
picture. The second purpose is to connect the user to another data object, that
may be somewhere else entirely separate from the text or image presented. For
example, on an Internet Web page, the word "Poodle" within a text about dogs
might serve to connect the user to another web page specifically about poodles,
when the user clicks their mouse button while their cursor is on the word
"Poodle."
"HYPERTEXT" - Text on a web page that links the user to another web
page. The hypertext, or links will usually be different color than the other
text on the page and is usually underlined.
"I/O" - Input/Output. The place where data enters or leaves a computer
system or digital transmission system.
"INTERNET" - Originally called ARPANET after the Advanced Research
Projects Agency of the U.S. Department of Defense. This electronic network
connects the hosts together so that a user may go from one Web Page to another
efficiently. The electronic connection began as a government experiment in 1969
with four computers connected together over phone lines. By 1972, universities
also had access to what was by then called the Internet.
"KEYWORD" - A word a user might use to search for a web site.
"LATENCY" - The time it takes for a computer or transmission system to
respond to the user's input.
"LINK" - A link will transport a user from one Internet site to another
with just a click of the mouse. Links can be text or graphic and are
recognizable once the user knows what to look for. Text links usually will be
underlined and often a different color than the rest of the text on the screen.
A graphic link usually has a frame around it.
"LOSSLESS" - A digital process that preserves information. For example,
the process that digitizes financial data for transmission over computer
networks is lossless, so the numbers do not change between sender and receiver.
"LOSSY" - A digital process that loses information. For example, the
process that digitizes voice for long distance telephone calls is lossy, so the
quality of the audio is less than perfect.
"NET" - Short for Internet.
"NETWORK" - A multi-dimensional set of items and the connections
between them.
"NODE" - The point within a network where an item resides, or a
connection is made to an item in the network.
"OBJECT" - A self-contained item of information that has predefined
attributes and behaviors. Objects are used by computer programs to store data
and represent data. Examples of objects are digital images, a text page, a
display window.
"ONLINE" - Having accesses to the Internet.
"REAL-TIME" - To view or hear something in real-time means to see or
hear it immediately and without any slowdowns. Real-time audio on the Internet,
for example, means the user does not have to wait an entire audio file to
download, but can (almost) immediately start listening to the audio as it is
coming to them.
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<PAGE>
"SITE" - A place on the Internet. Every web page has a location where
it resides which is called its site. Every site has an address usually beginning
with "http://."
"STREAM" - Digital data that is transmitted or delivered as a
continuous flow of information within a channel. The stream may or may not have
a fixed duration. Examples of streams are digitized audio and digitized video.
"SURFING" - The process of "looking around" the Internet.
"URL" - Uniform Resource Locator. The address of an Internet site.
"WWW" - An acronym for the World Wide Web.
"WEB" - Short for the World Wide Web.
"WEB BROWSER" - The tool (program) that allows one to surf the World
Wide Web.
"WEB PAGE" - Every time a user is on the Internet, they are looking at
a web page.
"WORLD WIDE WEB" - A full-color, multimedia database of information on
the Internet. Like the name implies the World Wide Web is a universal mass of
web pages connected together through links. Theoretically, if a user clicks on
every link on every web page you would eventually visit every corner of the
world without ever leaving their computer chair.
OVERVIEW OF IMAGINON'S BUSINESS
In 1997, the Company, operating under the name California Pro Sports
Inc., had limited operating revenue from its in-line skate and snowboard
businesses. In September 1997, the Company sold substantially all of the assets
of its ice and street/roller hockey business. Also in 1997, due to continuing
operating losses, management decided to restructure the Company and reduce its
debt. During 1998, the Company had no operating revenues, but did have income
from sub-licensing agreements.
On October 2, 1997, the Company signed a letter of intent to merge a
wholly-owned subsidiary corporation with ImaginOn, Inc., a privately-held
software company incorporated in the state of California. For clarity of this
prospectus, this company will be referred to as "ImaginOn.com". On January 30,
1998, the Company entered into an agreement and plan of merger with ImaginOn.com
(the "Merger").
The stockholders of both the Company and ImaginOn.com approved the
Merger in late 1998. The stockholders of the Company also approved changing the
name of the Company from California Pro Sports, Inc. to ImaginOn, Inc., and the
name change was filed with the state of Delaware on December 18, 1998.
On January 20, 1998, the Merger was completed and the shareholders of
ImaginOn.com became stockholders of ImaginOn, Inc. and were issued 21,256,419
shares of the Company's common stock. As a result of the Merger, the Company
conducts all of its active business through the ImaginOn.com subsidiary.
ImaginOn's principal executive offices are located at 1313 Laurel
Street, Suite 1, San Carlos, California 94070. Its telephone number is (650)
596-9300. Its world wide web homepage can be found at www.imaginon.com.
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<PAGE>
OVERVIEW OF IMAGINON.COM'S BUSINESS
ImaginOn.com designs, sells and manufactures: (i) consumer software
products for the rapidly growing "infotainment" and "edutainment" CD/DVD-ROM
markets; and (ii) Internet software. ImaginOn.com's core proprietary technology,
"Transformational Database Processing and Playback" ("TDPP"), is embodied in a
set of 12 software tools. New products created with ImaginOn.com tools are
characterized by seamless real-time access to video, audio, graphics, text, html
and 3D objects from multiple remote or local databases. ImaginOn.com is
packaging its tool set as an internet data management system. This package will
be marketed as an enterprise- wide solution for delivering "Learning on Demand."
Taking advantage of its own tool set to build innovative and unique products
quickly and at low cost, ImaginOn.com is producing a series of interactive
travelogues for distribution on CD and DVD. ImaginOn.com's first general-purpose
software application, "WebZinger(TM)," is an automated productivity tool that
searches the Web, then formats its results into a graphic PowerPoint(TM)-like
slideshow. WebZinger substantially increases the efficiency of Web and intranet
searches for both new and sophisticated users alike.
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE
MAKING AN INVESTMENT IN THE COMMON STOCK. ANY ONE OR A COMBINATION OF THESE RISK
FACTORS MAY HAVE A MATERIAL ADVERSE EFFECT ON IMAGINON.
LIMITED OPERATIONS OF THE SPORTING GOODS DIVISION. The Company has
limited business operations from its sporting goods division. 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. The Company has liquidated
its remaining sports equipment inventory and, therefore, does not maintain, nor
does it intend to accumulate, an inventory of in-line skate, snowboard or hockey
products.
DEVELOPMENT STAGE OF IMAGINON.COM. ImaginOn.com was incorporated in
March 1996 and has generated minimal revenues. Accordingly, its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet and interactive
media products and services. Specifically, such risks include the failure to
continue to develop products using the TDPP technology, the rejection of
ImaginOn.com's services by web consumers and the inability of ImaginOn.com to
increase sales of WebZinger. Since its inception, ImaginOn.com has been engaged
primarily in product development activities. ImaginOn.com's initial product was
introduced in July 1997 as shareware, and marketing for ImaginOn.com's
proprietary products, WebZinger and WorldCities 2000, commenced in late January
1999. As a result, ImaginOn.com has no relevant operating history upon which an
evaluation of its performance and prospects can be made. Although ImaginOn.com's
founders have experience in developing and commercializing new products based on
innovative technologies, there can be no assurance that unanticipated expenses,
problems or technical difficulties will not occur which would result in material
delays in product commercialization or that ImaginOn.com's efforts will result
in successful product commercialization.
NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF CONTINUED FINANCING. In the
future, the Company will require additional financial resources to fund its new
product development and growth. Although the Company is actively exploring
options for funding, it has received no commitment from any person or source for
that financing, and there can be no assurance that adequate financing will be
available on reasonable terms. The failure to acquire additional funding when
required would have a material adverse effect on the Company's business
prospects.
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<PAGE>
UNPROVEN ACCEPTANCE OF IMAGINON.COM'S PRODUCTS. The Company's earnings
growth will now depend primarily upon market acceptance of its software
products, including ImaginOn.com's WebZinger. The commercial version of this
product was completed in April 1998 and ImaginOn.com has only just begun its
marketing and distribution plan. There can be no assurance that ImaginOn.com's
products will be successfully marketed or will achieve customer acceptance.
DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENT INTRODUCTIONS;
PRODUCT DELAYS. ImaginOn.com's success in the software development business
depends on, among other things, the timely introduction of successful new
products or enhancements of existing products to replace declining revenues from
products at the latter stage of a product cycle. Consumer preferences for
software products are difficult to predict, and few consumer software products
achieve sustained market acceptance. If revenue from new products or
enhancements does not replace declining revenues from existing products,
ImaginOn.com's business, operating results and financial condition could be
materially adversely affected. The process of developing software products such
as those offered by ImaginOn is extremely complex and is expected to become more
complex. A significant delay in the introduction of one or more new products or
enhancements could have a material adverse effect on the ultimate success of
such products and on ImaginOn.com's business, operating results and financial
condition.
DEVELOPING MARKET; NEW ENTRANTS. The market for Internet products and
CD-ROM computer software is rapidly evolving and is characterized by an
increasing number of market entrants who have introduced or developed products
and services. Although ImaginOn.com believes that the diverse segments of the
Internet market will provide opportunities for more than one supplier of
products and services similar to those it possesses, it is possible that a
single supplier may dominate one or more market segments. In addition, because
the market for CD-ROM computer software is rapidly changing, there can be no
assurance that market acceptance of ImaginOn.com's products will be achieved.
COMPETITION. ImaginOn.com competes with many other providers of online
navigation and interactive media information. Many companies offer competitive
products or services addressing Web navigation services and infotainment
software products. The markets that ImaginOn.com intends to enter for its
WebZinger product are characterized by intense competition and an increasing
number of new market entrants who have developed or are developing potentially
competitive products from companies that are larger and better capitalized and
that have expertise and established brand recognition in these markets. Because
the infotainment software market segment is still emerging and the cost barriers
to entry into this segment are relatively low, ImaginOn.com's competitors range
from small companies with limited resources to large, more established producers
of infotainment software. ImaginOn.com will face competition from numerous
sources, online and Internet service providers and others with the technical
capabilities and expertise which would encourage them to develop and
commercialize competitive products and services. Some competitors have
substantially greater financial, technical, marketing, distribution, personnel
and other resources than ImaginOn.com. Increased competition resulting from,
among other things, the timing of competitive product releases and the
similarity of such products to those of ImaginOn.com, may result in significant
price competition, reduced profit margins, a reduction in sell-through of its
products at retail stores or on the Internet, any of which could have a material
adverse effect on ImaginOn.com's business, operating results or financial
condition. In addition, ImaginOn.com believes that large software companies,
media companies and film studios are increasing their focus on the interactive
entertainment and infotainment sectors of the software market and, as a result
of their financial and other resources, name recognition, customer base and
licensed rights, are significant competitors in the software industry. Current
-8-
<PAGE>
and future competitors with greater financial resources than ImaginOn.com may be
able to carry larger inventories, undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make higher offers or guarantees to
software developers and co-development partners than ImaginOn.com. ImaginOn.com
may not have the resources required to respond effectively to the market or
technological changes or to compete successfully with current or future
competitors or that competitive pressures faced by ImaginOn.com will not
materially and adversely affect ImaginOn.com's business, operating results or
financial condition.
GOVERNMENT REGULATION. ImaginOn.com is not currently subject to direct
regulation by any government agency in the United States, other than regulations
applicable to conduct businesses generally, and there are currently few laws or
regulations directly applicable to access to or commerce on the Internet. Due to
the increasing popularity and use of the Internet, it is possible that laws and
regulations may be adopted with respect to the Internet, covering issues such as
user privacy, pricing and characteristics and quality of products and services.
Such laws or regulations could also limit the growth of the Internet, which
could in turn decrease the demand for ImaginOn.com's proposed products and
services and increase ImaginOn.com's cost of doing business. Inasmuch as the
applicability to the Internet of the existing laws governing issues such as
property ownership, libel and personal privacy is uncertain, any such new
legislation or regulation or the application of existing laws and regulations to
the Internet could have an adverse effect on ImaginOn.com's business and
prospects.
DEPENDENCE ON MANAGEMENT. The success of the Company will be dependent
upon the personal efforts of its President and Chief Executive Officer, David M.
Schwartz, and its Vice President, Engineering, Leonard W. Kain. The loss of the
services of either individual could have a material adverse effect on ImaginOn's
business and prospects. The Company has not obtained "key-person" life insurance
on Messrs. Schwartz and Kain. The success of the Company is also dependent upon
its ability to hire and retain additional qualified management, marketing,
technical, financial and other personnel. Competition for qualified personnel is
intense and the Company may not be able to hire or retain qualified personnel
which could have a material adverse effect on the Company.
THIRD PARTY ARRANGEMENTS. ImaginOn.com has entered into certain
agreements and informal relationships with other software and computer companies
under which the companies will use ImaginOn.com's products in their respective
businesses. ImaginOn.com believes these arrangements are important to the
promotion of ImaginOn.com's products and the public recognition of the
"ImaginOn" name. These arrangements typically are not exclusive, and may be
terminable upon little or no notice. Any such event could have a material
adverse effect on the Company's business, results of operations and financial
condition.
TRADEMARKS AND PROPRIETARY RIGHTS. The Company's success and ability to
compete is dependent in part on ImaginOn.com's proprietary technology.
ImaginOn.com regards its technology as proprietary and relies primarily on a
combination of U.S. patents, trademarks, copyrights, trade secret laws,
third-party non-disclosure agreements and other methods to protect its
proprietary rights. The technology in which ImaginOn.com has proprietary rights
is contained in its software. ImaginOn.com owns the GameFilm tools and know-how
and has obtained a license for the GameFilm technology from JT Storage, Inc.,
successor to Atari, Inc. Currently, ImaginOn.com has a patent application
pending for its "TDPP" technology. Effective trademark, patent, copyright and
trade secret protection may not be available in every country in which
ImaginOn.com's products and media properties will be distributed or made
available through the Internet. There can be no assurance that the steps taken
by ImaginOn.com to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate ImaginOn.com's copyrights,
trademarks, and similar proprietary rights.
-9-
<PAGE>
LIABILITY FOR INFORMATION SERVICES. Because materials may be downloaded
by the online or Internet services operated or facilitated by ImaginOn.com and
may be subsequently distributed to others, there is a potential that claims will
be made against ImaginOn.com for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature and content
of such materials. Such claims have been brought, and sometimes successfully
pressed, against online service providers in the past. Although ImaginOn.com
carries general liability insurance, ImaginOn.com's insurance may not cover
potential claims of this type or may not be adequate to indemnify ImaginOn.com
for all liability that may be imposed. Any impositions of liability or legal
defense expenses are not covered by insurance or in excess of insurance coverage
could have a material adverse effect on ImaginOn.com's business, operating
results and financial condition.
SUBSTANTIAL DILUTION TO CURRENT STOCKHOLDERS. As a result of the Merger
with ImaginOn.com, there was substantial dilution to current stockholders of the
Company.
INTEGRATION OF IMAGINON OPERATIONS. The Merger of ImaginOn, Inc. with
ImaginOn.com significantly altered the Company's business. There can be no
assurance that the Company can realize the expected benefits of the Merger.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the Company to file information with
the Securities and Exchange Commission concerning its business and operations.
Accordingly, the Company files annual, quarterly, and special reports, proxy
statements and other information with the Commission. You can inspect and copy
of this information at the Public Reference Facility maintained by the
Commission at Judiciary Plaza, 450 5th Street, N.W., Room 1024, Washington, D.C.
20549. You can also do so at the following regional offices of the Commission:
* New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048
* Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661.
You can receive additional information about the operation of the
Commission's Public Reference Facilities by calling the Commission at 1-(800)
SEC-0330. The Commission also maintains a website at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that, like the Company, file information electronically with
the Commission.
The Commission allows the Company to "incorporate by reference"
information that has been filed with them, which means that the Company can
disclose important information to you by referring you to the other information
we have filed with the Commission. The information that we incorporate by
reference is considered to be part of this prospectus, and related information
that we file with the Commission will automatically update and supersede
information we have included in this prospectus. We also incorporate by
reference any future filings we make with the Commission under Sections 13(a),
13(c) or 15(d) of the Securities Exchange Act of 1934, as amended, until the
Selling Securityholders sell all of their shares or until the registration
rights of the Selling Securityholders expire. This prospectus is part of a
Registration Statement that we filed with the Commission (Registration No.
333-______).
-10-
<PAGE>
FILING PERIOD
Annual Report on Form 10-KSB.................... Year ended December 31, 1997,
as amended by Form 10-KSB/A-1
and filed on October 23, 1998
Quarterly Reports on Form 10-QSB................ Quarters Ended September 30,
1998, June 30, 1998 as amended
and March 31, 1998 as amended
Current reports on Form 8-K..................... Dated:
* February 3, 1999
* June 25, 1998
* March 25, 1998
* February 23, 1998
Proxy Statement on Schedule 14A................. For the Special Meeting held
December 10, 1998
Description of the Company's Common Stock....... See the Company's Registration
Statement on Form 8-A, File
No. 0-25114.
You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this prospectus by writing or
calling us at the following address:
Investor Relations
ImaginOn, Inc.
1313 Laurel Street, Suite #1
San Carlos, California 94070
Telephone: (650) 596-9300
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement or amendment to this prospectus.
We have not authorized anyone else to provide you with different information or
additional information. Selling Securityholders will not make an offer of the
Company's Common Stock in any state where the offer is not permitted. You should
not assume that the information in this prospectus, or any supplement or
amendment to this prospectus, is accurate at any date other than the date
indicated on the cover page of such documents.
USE OF PROCEEDS
If all the warrants are exercised at their current exercise prices, the
Company will receive net proceeds of approximately $4 million. The proceeds of
any warrant exercises will be used for working capital purposes.
-11-
<PAGE>
DESCRIPTION OF THE OFFERING
The Selling Securityholders and holders of the Publicly-held Warrants
are offering an aggregate of 5,848,016 shares of the Company's Common Stock, Par
value $.01 per share ("Common Stock"). Of these shares, 2,394,585 shares of
Common Stock are currently outstanding, 1,582,846 shares of Common Stock will be
issued to the Selling Securityholders upon the exercise of the outstanding
convertible securities, and 1,870,000 shares of Common Stock will be issued to
the holders of the Publicly-held Warrants upon the exercise of the outstanding
convertible securities. The company is also registering 120,000 warrants to
purchase warrants to purchase 120,000 shares of the Company's Common Stock.
These 120,000 shares are included in the 1,582,841 shares of the Common Stock
which will be issued to the Selling Securityholders upon the exercise of the
warrants underlying the warrants.
SELLING SECURITYHOLDERS AND HOLDERS OF THE COMPANY'S PUBLICLY-HELD WARRANTS
The following tables set forth the total number of shares to be
registered by this Prospectus. Table I lists each warrant issuance to the
Selling Securityholders. Table II lists the securities to be registered and
offered for sale by the Selling Securityholders and holders of the Company's
Publicly-held Warrants. Table II also names each of the Selling Shareholders
individually. Except as indicated, the Selling Securityholders and holders of
the Company's Publicly-held Warrants are offering all of the shares of Common
Stock and warrants owned by them or received by them upon the exercise of the
warrants.
Because the Selling Securityholders and holders of the Company's
Publicly-held Warrants may offer all or part of the shares of Common Stock
received upon exercise of the warrants, which they hold pursuant to the offering
contemplated by this Prospectus, and because their offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of warrants that will be held upon termination of this offering. The
shares of Common Stock received upon exercise of the warrants offered by this
prospectus may be offered from time to time by the Selling Securityholders and
holders of the Company's Publicly-held Warrants.
-12-
<PAGE>
TABLE I
WARRANT ISSUANCES TO THE SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
|===============================================================================================================|
| | | | | | Common Stock |
| | Warrants | Grant | Exercise | Expiration | Issuable Upon |
| Title | Outstanding | Date | Price | Date | Exercise |
|===============================================================================================================|
|<S> | <C> | <C> | <C> | <C> | <C> |
|PLACEMENT AGENT | 21,000 | 9/8/94 | $2.50 | 9/7/99 | 21,000 |
|WARRANTS | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|UNDERWRITER | 120,000 | 1/17/95 | $1.50 | 1/17/00 | 120,000 |
|WARRANTS I | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|UNDERWRITER | 120,000 | 1/17/95 | $1.80 | 1/17/00 | 120,000 |
|WARRANTS II | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|WARRANTS | 120,000 | 1/17/95 | $.30 | 1/17/00 | 120,000 |
|UNDERLYING | | | | | |
|UNDERWRITER | | | | | |
|WARRANTS | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|PUBLICLY-HELD | 1,870,000 | 1995 IPO | $1.50 | 6/30/99 | 1,870,000 |
|WARRANTS | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|IMAGINON | 288,368 | | $.05535 | 9/22/00 | 288,368 |
|OUTSTANDING | | | | | |
|WARRANTS I | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|IMAGINON | 503,247 | | $.46125 | 1/20/00 | 503,247 |
|OUTSTANDING | | | | | |
|WARRANTS II | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|IMAGINON | 135,500 | | $.1845 | 11/25/00 | 135,500 |
|OUTSTANDING | | | | | |
|WARRANTS III | | | | | |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|DAHL I WARRANTS | 20,000 | 4/15/97 | $1.00 | 4/15/00 | 20,000 |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|DAHL II WARRANTS | 15,000 | 9/7/97 | $2.00 | 9/7/00 | 15,000 |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|ALTMAN I WARRANTS | 51,400 | 9/ /94 | $1.00 | 4/14/02 | 51,400 |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|ALTMAN II WARRANTS | 150,000 | 8/ /95 | $1.00 | 8/1/03 | 150,000 |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|GRILLS WARRANTS | 100,000 | 4/13/97 | $.75 | 4/13/02 | 100,000 |
|---------------------|---------------------|-------------|----------------|-----------------|------------------|
|UNIVEST WARRANTS | 58,331 | 7/25/95 | $4.8125 | 7/25/00 | 58,331 |
|---------------------------------------------------------------------------------------------------------------|
</TABLE>
-13-
<PAGE>
TABLE II: SECURITIES
WARRANTS TO BE REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS AND
HOLDERS OF THE COMPANY'S PUBLICLY-HELD WARRANTS
<TABLE>
<CAPTION>
|=======================================================================================================================|
| | Amount of | Common Stock | Warrants to be | Amount of Common |
| | Common Stock | to be Offered | Offered by the | Stock Owned After |
| Name | Owned Before This | by the Selling | Selling | the Offering is |
| | Offering | Securityholder | Securityholder | Complete |
|=======================================================================================================================|
|COMMON STOCK UNDERLYING PLACEMENT AGENT |
|WARRANTS |
|-----------------------------------------------------------------------------------------------------------------------|
|<S> | | <C> | | |
|Tom Curtis | | 6,300 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Charles F. Kirby | | 3,640 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Mike Kirby | | 4,060 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David F. Lutz | | 7,000 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|COMMON STOCK UNDERLYING UNDERWRITER |
|WARRANTS |
|-----------------------------------------------------------------------------------------------------------------------|
|Steven M. Bathgate | | 11,400 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Fred Birner | | 10,830 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Cohig & Associates | | 46,740 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David H. Drennen | | 2,280 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Dennis Genty | | 7,410 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Steven R. Hinkle | | 9,120 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|James Hosch | | 5,700 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ed Larkin | | 4,560 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Eugene C. McColley | | 14,820 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David C. Olson | | 6,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Mike Wootten | | 1,140 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|COMMON STOCK UNDERLYING UNDERWRITER |
|WARRANTS |
|-----------------------------------------------------------------------------------------------------------------------|
|Steven M. Bathgate | | 11,400 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Fred Birner | | 10,830 | | |
|-----------------------------------------------------------------------------------------------------------------------|
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
|=======================================================================================================================|
| | Amount of | Common Stock | Warrants to be | Amount of Common |
| | Common Stock | to be Offered | Offered by the | Stock Owned After |
| Name | Owned Before This | by the Selling | Selling | the Offering is |
| | Offering | Securityholder | Securityholder | Complete |
|=======================================================================================================================|
|<S> | | <C> | <S> | |
|Cohig & Associates | | 46,740 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David H. Drennen | | 2,280 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Dennis Genty | | 7,410 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Steven R. Hinkle | | 9,120 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|James Hosch | | 5,700 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ed Larkin | | 4,560 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Eugene C. McColley | | 14,820 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David C. Olson | | 6,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Mike Wootten | | 1,140 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|WARRANTS UNDERLYING UNDERWRITER |
|WARRANTS |
|-----------------------------------------------------------------------------------------------------------------------|
|Steven M. Bathgate | | | 11,400 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Fred Birner | | | 10,830 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Cohig & Associates | | | 46,740 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David H. Drennen | | | 2,280 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Dennis Genty | | | 7,410 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Steven R. Hinkle | | | 9,120 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|James Hosch | | | 5,700 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ed Larkin | | | 4,560 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Eugene C. McColley | | | 14,820 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David C. Olson | | | 6,000 | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Mike Wootten | | | 1,140 | |
|-----------------------------------------------------------------------------------------------------------------------|
|ORIGINAL IMAGINON OUTSTANDING WARRANTS |
|-----------------------------------------------------------------------------------------------------------------------|
|Thomas Olson | | 17,368 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ralph Grills | | 135,500 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David Schaper | | 54,200 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Henry & Caroyln Fong | | 81,300 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Mark Kroeger | | 28,997 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Joseph Maenza | | 54,200 | | |
|-----------------------------------------------------------------------------------------------------------------------|
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
|=======================================================================================================================|
| | Amount of | Common Stock | Warrants to be | Amount of Common |
| | Common Stock | to be Offered | Offered by the | Stock Owned After |
| Name | Owned Before This | by the Selling | Selling | the Offering is |
| | Offering | Securityholder | Securityholder | Complete |
|=======================================================================================================================|
|<S> | | <C> | | |
|Henry Fong | | 8,400 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|John Stapleton | | 67,750 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|John Kubinski | | 27,100 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Wayne Mills | | 271,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Infinity Advisors, Inc. | | 40,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Gary Tice | | 60,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Regis Dahl | | 135,500 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|OTHER WARRANTS |
|-----------------------------------------------------------------------------------------------------------------------|
|Regis Dahl | | 20,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Regis Dahl | | 15,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Gary Altman | | 51,400 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Gary Altman | | 150,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ralph H. Grills, Jr. | | 100,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Univest Management | | 58,331 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|COMMON STOCK ISSUANCES |
|-----------------------------------------------------------------------------------------------------------------------|
|Brian C. Simpson | | 10,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Hung-Chang Yang | | 10,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Barry Hollander | | 8,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Henry Fong | | 20,800 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Regis Dahl | | 67,750 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Generation Capital | | 142,750 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Wayne Mills | | 154,573 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Larry Katz | | 67,750 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|USA SKATE CORP. COMMON STOCK DISTRIBUTION |
|-----------------------------------------------------------------------------------------------------------------------|
|R. Andrew Giradot | | 41,250 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ralph Grills | | 75,000 | | |
|-----------------------------------------------------------------------------------------------------------------------|
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
|=======================================================================================================================|
| | Amount of | Common Stock | Warrants to be | Amount of Common |
| | Common Stock | to be Offered | Offered by the | Stock Owned After |
| Name | Owned Before This | by the Selling | Selling | the Offering is |
| | Offering | Securityholder | Securityholder | Complete |
|=======================================================================================================================|
|<S> | | <C> | | |
|Joseph Hovorka | | 45,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|John T. Kubinski | | 75,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|L&S Partners | | 33,750 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Wayne Mills | | 75,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ralph Murad | | 10,500 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|David Olson | | 30,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Greg Pusey | | 63,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Arlene Raskin | | 15,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Laurence Alpert | | 75,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Anker Bank | | 30,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Carylyn Bell | | 15,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Brimstone Limited | | 300,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Russell Casement | | 57,750 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Regis Dahl | | 12,750 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Emitex, Inc. | | 60,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Irene Friedlob | | 15,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|GA Partnership | | 49,500 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Bentrand T. Ungar | | 150,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|VLA Partnership | | 7,500 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Mike D. Wooten | | 28,500 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Michael Casazza | | 62,501 | | |
|-----------------------------------------------------------------------------------------------------------------------|
|USA SKATE CORP. CONVERSION OF NOTES |
|-----------------------------------------------------------------------------------------------------------------------|
|Michael S. Casazza | | 81,813 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Thomas McCarthy | | 21,250 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Alexander B. Neel | | 10,625 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|William G. Field | | 5,000 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|John Ballard | | 19,350 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Tricun Development | | 29,937 | | |
|-----------------------------------------------------------------------------------------------------------------------|
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
|=======================================================================================================================|
| | Amount of | Common Stock | Warrants to be | Amount of Common |
| | Common Stock | to be Offered | Offered by the | Stock Owned After |
| Name | Owned Before This | by the Selling | Selling | the Offering is |
| | Offering | Securityholder | Securityholder | Complete |
|=======================================================================================================================|
|<S> | | <C> | | |
|Donald Gross | | 5,312 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Springmeadow Limited | | 21,250 | | |
|Partnership | | | | |
|-----------------------------------------------------------------------------------------------------------------------|
|USA SKATE CORP. COMMON STOCK "KICKER |
|SHARES" |
|-----------------------------------------------------------------------------------------------------------------------|
|John Ballard | | 18,876 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|T. Walter Brashier | | 4,569 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Cambridge Holdings, | | 18,876 | | |
|Ltd. | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Michael S. Casazza | | 1,294 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Russell Casement | | 30,203 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Russell Casement, DDS, | | 9,537 | | |
|P.C. Employee Profit | | | | |
|Sharing Plan | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|CLFS Equities, Ltd. | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Arthur N. and Helen S. | | 7,548 | | |
|Converse | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Cord Investment Co. | | 18,876 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Creative Investment | | 4,715 | | |
|Services, Inc. | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|DeJure, Ltd. | | 88,727 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|William G. Field, MD | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|FBO Freberg & | | 4,715 | | |
|Company, Inc. | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|GA Partnership | | 15,082 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Generation Capital | | 6,092 | | |
|Associates | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Darryl L. and Sharon | | 5,282 | | |
|Getman | | | | |
|-----------------------------------------------------------------------------------------------------------------------|
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
|=======================================================================================================================|
| | Amount of | Common Stock | Warrants to be | Amount of Common |
| | Common Stock | to be Offered | Offered by the | Stock Owned After |
| Name | Owned Before This | by the Selling | Selling | the Offering is |
| | Offering | Securityholder | Securityholder | Complete |
|=======================================================================================================================|
|<S> | | <C> | | |
|R. Andrew Girardot, Jr. | | 18,876 | | |
|DDS | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Donald Gross | | 1,523 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Carl W. Hefton | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Ming Hsu | | 18,876 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|James A. and Ada L. | | 4,715 | | |
|Jones | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Michael Leiter | | 9,436 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Charles David Luther | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|RD Luther | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Gary Magness | | 9,436 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Thomas McCarthy | | 1,523 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Alexander B. Neel | | 761 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|James H. O'Keefe | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Rons Family Living | | 9,436 | | |
|Trust | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|William L. Schuetz | | 9,436 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Glen E. Sibley | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Springmeadow Limited | | 381 | | |
|Partnership | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Sumitomo | | 9,436 | | |
|Bank/Wintrode | | | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Stephen J. Tierschel | | 4,715 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Trican Developments | | 18,876 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Kenneth L. Weiner | | 3,538 | | |
|------------------------|---------------------------|--------------------|---------------------|-----------------------|
|Paine Webber CF - | | 3,063 | | |
|Penelope Avery Jones | | | | |
|=======================================================================================================================|
</TABLE>
-19-
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock issuable upon the exercise of the
Publicly-held Warrants will be offered solely by the Company, and no
underwriters are participating in this offering.
We are also registering the shares offered hereby in part on behalf of
the Selling Securityholders. As used in this section, the term "Selling
Securityholders" include donees, pledgees, transferees and other successors in
interest selling shares received from the selling shareholder after the date of
this Prospectus. We will pay all costs and expenses in connection with the
preparation of this Prospectus and the registration of the shares offered
hereby. Brokerage commissions and similar selling expenses, if any, attributable
to the sale of shares will be borne by the Selling Securityholders. Sales of
shares may be effected by the Selling Securityholders from time to time in one
or more types of transactions (which may include block transactions) on the
Nasdaq SmallCap Market, in negotiated transactions, through put or call options
transactions relating to the shares, through short sales of shares, or a
combination of such methods of sale at market prices prevailing at the time of
sale, or at negotiated prices. Such transactions may or may not involve brokers
or dealers. The Selling Securityholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of the shares, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the Selling Securityholders.
We have agreed to indemnify the Selling Securityholders and their
officers, directors, employees and agents, and each person who controls any
Selling Securityholder, in certain circumstances against certain liabilities,
including liabilities arising under the Securities Act. Each Selling
securityholder has agreed to indemnify the Company and its directors and
officers in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act.
The Selling Securityholders and any broker-dealers that act in
connection with the sale of securities might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by such broker-dealers and any profit on the resale of the securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act.
Because Selling Securityholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Securityholders will be subject to the prospectus delivery requirements of the
Securities Act. We have informed the Selling Securityholders that the
anti-manipulative provisions of Regulation M promulgated under the Exchange Act
may apply to their sales in the market.
Selling Securityholders also may resell all or a portion of the Shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of that Rule.
SPECIAL CONSIDERATIONS TO THE HOLDERS
OF THE PUBLICLY-HELD WARRANTS
The shares of Common Stock issuable upon the exercise of the
Publicly-held Warrants will be offered solely by the Company, and no
underwriters are participating in this offering.
For a holder of the Publicly-held Warrants to exercise the warrants,
there must be a current registration statement covering the securities
underlying the warrants on file with the Securities and Exchange Commission and
various state securities commissions.
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<PAGE>
The Company intends to maintain a current registration statement while the
Publicly-held Warrants are exercisable. The Publicly-Held Warrants are currently
due to expire on June 30, 1999.
The Company has requested from its warrant agent a list of record
holders of the Publicly-held Warrants and the states in which the beneficial
holders of the Publicly-held Warrants reside, and is researching the Blue Sky
laws of those states to determine if exercise of these warrants is permitted in
those states. These warrants may be deprived of any value if a current
prospectus covering the securities issuable upon the exercise thereof is not
kept effective or if such underlying securities are not qualified in the states
in which the holders of the Publicly-held Warrants reside.
EXERCISE OF WARRANTS
All warrants may be exercised on or prior to expiration of the
applicable warrant exercise period, with an executed form of "Election to
Purchase" on the reverse side of the certificate and accompanied by payment of
the full exercise price for the number of warrants being exercised. Payment must
be by certified funds or cashier's check, payable to the order of the warrant
agent in the case of the Publicly-held Warrants, and to the Company, in the case
of the Selling Securityholders warrants. The warrant agent for the Publicly-held
Warrants is Corporate Stock Transfer, Inc., 370 17th Street, Suite 2350, Denver,
Colorado 80202.
INDEMNIFICATION PROVIDED IN CONNECTION WITH THE OFFERING BY THE
SELLING SECURITYHOLDERS
With respect to a registration statement relating to the securities
being offered by the Selling Securityholders, the Selling Securityholders have
agreed to indemnify, to the extent permitted by law, the Company, its directors,
certain of its officers and each person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact or any omission or alleged omission of a material fact required to be
stated in a registration statement or prospectus, or any amendment thereof or
supplement thereto or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, in each case to the extent, but only to the extent, that any such
loss, liability, claim, damage or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information or affidavits relating to the Selling Securityholders furnished by
the Selling Securityholders to the Company for use therein.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the securities of Common Stock being offered will be
passed on for the Company by Friedlob Sanderson Raskin Paulson & Tourtillott,
LLC, Denver, Colorado.
-21-
<PAGE>
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/A, have been incorporated
herein in reliance on the report of Gelfond Hochstadt Pangburn & Co.,
independent certified public accountants, given on the authority of said firm as
experts in accounting and auditing.
-22-
<PAGE>
IMAGINON, INC.
1,870,000 Shares of Common Stock
underlying Publicly-held Warrants
and
1,582,845 Shares of Common Stock underlying
Warrants owned by Selling Securityholders
and
2,394,585 Shares of Common Stock owned by Selling Securityholders
and
120,000 Warrants to Purchase Warrants to Purchase
120,000 Shares of Common Stock of the Company
February 8, 1999
------------------------------------
PROSPECTUS
------------------------------------
- --------------------------------------------------------------------------------
| No dealer, salesman or other person has been authorized to give any |
| information or to make any representations other than those contained in |
| this prospectus. Any information or representations not herein contained, if |
| given or made, must not be relied upon as having been authorized by the |
| company. This prospectus does not constitute an offer or solicitation in |
| respect to these securities in any jurisdiction in which such offer or |
| solicitation would be unlawful. The delivery of this prospectus shall not |
| under any circumstances, create any implication that there has been no |
| change in the affairs of the company or that the information contained |
| herein is correct as of any time subsequent to the date of this prospectus. |
| However, in the event of a material change, this prospectus will be amended |
| or supplemented accordingly. |
- --------------------------------------------------------------------------------
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee.
Registration and filing fee $ 4,916
NASD filing fee 54,370
Printing 2,000
Accounting fees and expenses 3,000
Legal fees and expenses 12,000
Blue sky fees and expenses 0
Transfer and Warrant Agent 5,000
Other 6,714
-------
Total $88,000
=======
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION PROVIDED UNDER THE COMPANY'S CERTIFICATE OF INCORPORATION
Section 145 of the Delaware General Corporation Law and Article Ninth
of the Registrant's Certificate of Incorporation provides for, under certain
circumstances, the indemnification of the Registrant's officers, directors,
employees and agents against liabilities which they may incur in such
capacities. A summarization of the circumstances in which such indemnifications
provided for is contained herein, but that description is qualified in its
entirety by reference to Article Ninth of the Registrant's Certificate of
Incorporation and the relevant Section of the Delaware General Corporation Law.
In general, the statute provides that any director, officer, employee
or agent of a corporation may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred in a proceeding (including any civil, criminal,
administrative or investigative proceeding) to which the individual was a party
by reason of such status. Such indemnity may be provided if the indemnified
person's actions resulting in the liabilities: (i) were taken in good faith;
(ii) were reasonably believed to have been in or not opposed to the Registrant's
best interest; and (iii) with respect to any criminal action, such person had no
reasonable cause to believe the actions were unlawful. Unless ordered by a
court, indemnification generally may be awarded only after a determination of
independent members of the Board of Directors or committee thereof, by
independent legal counsel or by vote of the stockholders that the applicable
standard of conduct was met by the individual to be indemnified.
The statutory provisions further provide that to the extent a director,
officer, employee or agent is wholly successful on the merits or otherwise in
defense of any proceeding to which he was a party, he is entitled to receive
indemnification against expenses, including attorneys' fees, actually and
reasonably incurred in connection with the proceeding.
Indemnification in connection with a proceeding by or in the right of
the Company in which the director, officer, employee or agent is successful
is permitted only with respect to expenses, including attorneys' fees actually
and reasonably incurred in connection with the defense. In such actions, the
person to be indemnified must have acted in good faith, in a manner believed to
have been in the Company's best interest and must not have been
II-1
<PAGE>
adjudged liable to the Company unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability, in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expense which the Court of Chancery or such other
court shall deem proper. Indemnification is otherwise prohibited in connection
with a proceeding brought on behalf of the Registrant in which a director is
adjudged liable to the Registrant, or in connection with any proceeding charging
improper personal benefit to the director in which the director is adjudged
liable for receipt of an improper personal benefit.
Delaware law authorizes the Registrant to reimburse or pay reasonable
expenses incurred by a director, officer, employee or agent in connection with a
proceeding in advance of a final disposition of the matter. Such advances of
expenses are permitted if the person furnishes to the ImaginOn a written
agreement to repay such advances if it is determined that he is not entitled to
be indemnified by the Company.
The statutory section cited above further specifies that any provisions
for indemnification of or advances for expenses does not exclude other rights
under the Registrant's Certificate of Incorporation, Bylaws, resolutions of its
stockholders or disinterested directors, or otherwise. These indemnification
provisions continue for a person who has ceased to be a director, officer,
employee or agent of the Company and inure to the benefit of the heirs,
executors and administrators of such persons.
The statutory provision cited above also grants the power to the
Registrant to purchase and maintain insurance policies which protect any
director, officer, employee or agent against any liability asserted against or
incurred by him in such capacity arising out of his status as such. Such
policies may provide for indemnification whether or not the Company would
otherwise have the power to provide for it. No such policies providing
protection against liabilities imposed under the securities laws have been
obtained by the Registrant.
Article VIII of the Registrant's Bylaws provides that the Registrant
shall indemnify its directors, officers, employees and agents to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
Registrant has entered into agreements with its directors indemnifying them to
the fullest extent permitted by the Delaware General Corporation Law.
II-2
<PAGE>
ITEM 16 EXHIBITS
- --------------------------------------------------------------------------------
The following is a complete list of exhibits filed as part of this
Registration Statement:
No. Description
3(i).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(i).2 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(i).3 Certificate of Designations for Series C 4% Convertible Preferred
Stock. (INCORPORATED BY REFERENCE TO EXHIBIT 3.4 OF THE REGISTRANT'S
DECEMBER 21, 1998 FORM S-3/A
3(i).4 Certificate of Designations for Series D 4% Convertible Preferred
Stock. FILED HEREWITH
3(i).5 Amendment to Certificate of Incorporation of the Registrant dated
July 22, 1998. FILED HEREWITH.
3(i).6 Amendment to Certificate of Incorporation of the Registrant dated
December 17, 1998. FILED HEREWITH.
3(ii).1 Bylaws as currently in effect. (INCORPORATED BY REFERENCE TO EXHIBIT
3.2 TO THE 1994 REGISTRATION STATEMENT.)
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).)
5.1 Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC.
FILED HEREWITH.
23.1 Consent of Independent Certified Public Accountants. FILED HEREWITH.
23.2 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC,
(INCLUDED IN EXHIBIT 5.1)
ITEM 17 - UNDERTAKINGS
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 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.
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 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.
II-3
<PAGE>
4. 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 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report 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 the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Carlos, State of California, on February 8,
1999.
IMAGINON, INC.
By:/S/ DAVID M. SCHWARTZ
-------------------------------------
David M. Schwartz, Chairman, CEO and President
KNOW ALL MEN BY THESE PRESENCE, THAT THE UNDERSIGNED OFFICERS AND/OR
DIRECTORS OF IMAGINON, INC., BY VIRTUE OF THEIR SIGNATURES APPEARING BELOW,
HEREBY CONSTITUTE AND APPOINT DAVID M. SCHWARTZ, WITH FULL POWER OF
SUBSTITUTION, AS ATTORNEY-IN-FACT IN THEIR NAMES, PLACES AND STEED'S TO EXECUTE
ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT ON FORM S-3 IN THE
CAPACITIES SET FORTH OPPOSITE THEIR NAMES BELOW AND HEREBY RATIFY ALL THAT SAID
ATTORNEY-IN-FACT MAY DO BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/S/ DAVID M. SCHWARTZ Chief Executive Officer, Chief February 8, 1999
- ----------------------- Financial Officer, Chief Accounting
David M. Schwartz Officer, President and Director
/S/ LEONARD W. KAIN
- ----------------------- Secretary and Director February 8, 1999
Leonard W. Kain
/S/ MARY E. FINN
- ----------------------- Director February 8, 1999
Mary E. Finn
II-5
CERTIFICATE OF DESIGNATIONS
OF
IMAGINON, INC.
--------------------
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES D 4% CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151
OF THE
DELAWARE GENERAL CORPORATION LAW
--------------------
ImaginOn, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company"), DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of the Company on January
15, 1999.
RESOLVED, that pursuant to the authority granted to and 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"), and hereby states the designation
and number of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions as set forth in Attachment A
attached hereto.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under penalty
of perjury that the execution of this instrument is the Company's act and deed.
IMAGINON, INC.
January 25, 1999 /S/ LEONARD W. KAIN
------------------------------------
Leonard W. Kain, Secretary
<PAGE>
ATTACHMENT A
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES D 4% CONVERTIBLE PREFERRED STOCK
OF
IMAGINON, INC.
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.
(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 January 15, 1999.
(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 D Preferred Stock,
means all Common Shares now or hereafter Outstanding and securities of any other
class or series into which the Series D 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 D 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 D Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
<PAGE>
(k) "CONVERSION RATIO" on any date means of determination the
applicable percentage of the Market Price for conversion of shares of Series D
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "CORPORATION" means ImaginOn, 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 bid 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.
(o) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or
any Person to whom the Series D 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 bid 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 of 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 D PREFERRED STOCK" means the Series D 4% Convertible
Preferred Stock of the Corporation or such other convertible Preferred Stock
exchanged therefor as provided in Section 2.1.
<PAGE>
(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 1,500 shares of
Preferred Stock, is Series D 4% Convertible Preferred Stock (the "Series D
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 D Preferred Stock shall rank (i) prior to the Common
Stock; (ii) prior to any class or 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 D Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
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 D
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
<PAGE>
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series D 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 March 31, 1999, to the holders
of record of shares of the Series D 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 commending on and including the day after the
immediately 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 the 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 D 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 D 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 D Preferred
Stock. Except as provided in this Article 4, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series D Preferred Stock that may be in arrears.
(c) So long as any shares of the Series D 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 D 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 D 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 D Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series D 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
<PAGE>
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 D
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 D
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 D Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(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, or if the Corporation shall
otherwise 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 D 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 D 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 D 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
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when 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
<PAGE>
respect to each outstanding sharer of Series D 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 D Preferred Stock
shall be deemed to elect the option set forth in cause (i) hereof if at least a
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 D 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 D 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 D Preferred Stock (the "Issue Date") at a Conversion Price equal to the
lower of 75.0% of the Market Price or 120.0% of the Current Market Price on the
Closing Date; provided, however, that the Holder shall not have the right to
convert any portion of the Series D 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 the 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 D Preferred Stock to
the extent that the issuance of Common Shares upon the conversion of such Series
D Preferred Stock, when combined with shares of Common Stock received upon other
conversions of Series D Preferred Stock by such Holder and any other holders of
Series D 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 D Preferred Stock by such
Holder and any other holders of Series D Preferred Stock and Warrants, exceed
19.99% of the Common Stock outstanding on the Closing Date, the Corporation
shall redeem all remaining outstanding shares of Series D Preferred Stock at one
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 D Preferred Stock shall be (i) the number of shares of Series D Preferred
Stock to be converted, multiplied by (ii) the Stated Value and divided 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
<PAGE>
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 within two (2) Business Days of the receipt of
the Valuation Event Notice.. In the event that the Holder deems 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 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. Conversion of the Series
D 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
<PAGE>
with such conversion. The Holder shall deliver the shares of Series D 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 (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 D 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 D Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series D Preferred Stock, the
Corporation shall 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 D 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 D
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or 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
<PAGE>
the Series D 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 no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series D 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, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series D Preferred Stock
providing that the Holder shall have the right to convert such new Series D
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series D Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series D 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 D Preferred Stock had
the Series D 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 D 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 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 D Preferred Stock until July 15, 1999,
the Corporation, upon notice delivered to the Holder as provided in Section 6.7,
may redeem the Series D 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 twenty percent (120%) 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 D 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 D
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
<PAGE>
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 D Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall
either deliver the Series D 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 D Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to 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 D 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 D Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Corporation convert
that portion of the Series D Preferred Stock to the extent that the issuance of
Common Shares upon the conversion of such Series D Preferred Stock, when
combined with shares of Common Stock received upon other conversions of Series D
Preferred Stock by such Holder and any other holders of Series D 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 D 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 D 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 D 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, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the
Series D 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 D
<PAGE>
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 D 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 D Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series D 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 D 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 D 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 D Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series D Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series D 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 D Preferred Stock;
(c) increase the authorized number of shares of Series D
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 D 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).
In the event holders of at least a majority of the then
outstanding shares of Series D Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series D
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series D
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series D 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 D 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 D Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
<PAGE>
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series D Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series D Preferred Stock, new shares of Series D Preferred
Stock of like tenor. The Series D 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 D 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 D 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 D Preferred Stock for the purpose of receiving payment of
dividends on the Series D Preferred Stock, for the conversion of the Series D
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 D 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 this Certificate of
Designations, the Corporation shall cause to be mailed to the Holder of the
Series D Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such 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 of rights, options or warrants, or if a record is not to be taken, the
date as of which the holders of record of Series D 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 D 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 D Preferred Stock. Upon any transfer of the Series D Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series D Preferred Stock register.
The Corporation may deem the person in whose name the Series D
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 D Preferred Stock
for the purpose of receiving payment of dividends on the Series D Preferred
Stock, for the conversion of the Series D 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 D 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
D Preferred Stock.
<PAGE>
SECTION 9.6 HEADINGS. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
<PAGE>
[FORM OF CONVERSION NOTICE]
TO:___________________
___________________
___________________
The undersigned owner of this Series D 4% Convertible Preferred
Stock (the "Series D Preferred Stock") issued by ImaginOn, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series D 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 D 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 D 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 D Preferred Stock:
Please print name and address
(including zip code number) :
________________________________________________________________________________
________________________________________________________________________________
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
CALIFORNIA PRO SPORTS, INC.
(a Delaware corporation)
- --------------------------------------------------------------------------------
CALIFORNIA PRO SPORTS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware:
DOES HEREBY CERTIFY:
1. The following resolution has been adopted by the board of directors
and a majority of the stockholders of the Corporation in accordance with Section
242 of the Delaware General Corporation Law for the purpose of amending the
corporation's Certificate of Incorporation. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by changing Section A of the Article thereof
numbered "FOURTH" so that, as amended, said Section A of Article FOURTH
shall be and read as follows:
FOURTH: A: The total number of shares of capital stock which the
corporation is shall have authorized to issue is Twenty Five Million
(25,000,000) shares, Twenty Million (20,000,000) shares of Common Stock
$.01 par value (the "Common Stock"), and Five Million (5,000,000)
shares of Preferred Stock, $.01 par value.
FURTHER RESOLVED, that the capital of said Corporation shall
be revised by reason of said amendment to transfer from capital to
surplus an amount in the recapitalization.
2. That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, CALIFORNIA PRO SPORTS, INC. has caused this
certificate to be signed by its duly authorized officer this 22nd day of July,
1998.
CALIFORNIA PRO SPORTS, INC.
/s/ Barry Hollander
- ---------------------------------
Barry Hollander, Acting President
and Chief Financial Officer
CERTIFICATE OF AMENDMENT OF THE
AMENDED CERTIFICATE OF INCORPORATION
OF
CALIFORNIA PRO SPORTS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is California Pro Sports, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article First and Section A of Article Fourth thereof
and by substituting in lieu of said Articles the following new Articles:
"FIRST: The name of the corporation is ImaginOn, Inc.
"FOURTH: A. The total number of capital stock which the
corporation shall have authority to issue is 55,000,000
shares, consisting of 50,000,000 shares of common stock, $.01
par value (the "Common Stock"), and 5,000,000 shares of
preferred stock, $.01 par value (the "Preferred Stock").
3. The amendments of the certificate of incorporation herein certified
have been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
Signed on December 17, 1998
/S/ SETH WEISS
------------------------------------
Seth Weiss, Assistant Secretary
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC
1400 GLENARM PLACE
DENVER, CO 80202
February 8, 1999
ImaginOn, Inc.
1313 Laurel Street, Suite 1
San Carlos, CA 94070
Re: Registration Statement on Form S-3 Opinion of Counsel
Gentlemen:
As counsel for ImaginOn, Inc., a Delaware corporation (the
"Corporation"), we have examined the Certificate of Incorporation, as amended,
the Bylaws and minutes of the Corporation and such other corporate records,
documents, certificates and other instruments as, in our judgment, we deemed
relevant for the purposes of this opinion. We have also, as such counsel,
examined the Registration Statement on Form S-3, Securities and Exchange
Commission File No. 333-_____, as amended to date (the "Registration
Statement"), covering the issuance of shares of the Company's common stock, $.01
par value (the "Common Stock"), upon the exercise of the Company's publicly-held
warrants (the "Publicly-held Warrants") and the resale by certain Selling
Securityholders of securities of the Corporation including warrants and shares
of the Corporation's Common Stock which may be issued to Selling Securityholders
upon the exercise of outstanding warrants.
Based upon the foregoing, we are of the opinion that (i) the shares of
Common Stock to be issued upon exercise of the Publicly-held Warrants, when paid
for in accordance with the terms of the Publicly-held Warrants will be legally
issued, fully paid and non-assessable, (ii) the Common Stock to be sold by the
Selling Securityholders constitutes legally issued, fully paid and
non-assessable shares of Common Stock, (iii) the warrants issuable upon exercise
of certain warrants of the Company, when paid for in accordance with the terms
of their respective warrants, will be duly authorized and legally issued, and
(iv) the shares of Common Stock to be issued upon exercise of the warrants
underlying certain warrants of the Company, when paid for in accordance with the
terms of their respective warrants, will be legally issued, fully paid and
non-assessable shares of Common Stock.
We know that we are referred to under the caption "Legal Matters"
included in the Prospectus forming a part of the Registration Statement. We
hereby consent to such use of our name in the Registration Statement and to the
filing of this opinion as Exhibit 5.1 thereto. In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
Rules and Regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/S/ FRIEDLOB SANDERSON RASKIN
PAULSON & TOURTILLOTT, LLC
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of ImaginOn, Inc. (formerly known as 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 ImaginOn,
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/A-1 of ImaginOn, Inc. We
also consent to the use of our name and the statements with respect to us under
the heading "experts" in the prospectus.
GELFOND HOCHSTADT PANGBURN & CO.
/S/ GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
February 8, 1999
