<PAGE>
As filed with the Securities and Exchange Commission on March 25, 1997
Registration No. 333- ______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT
ON
FORM S-3
Under
The Securities Act of 1933
----------------
YES! ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
----------------
Delaware 94-3165290
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3875 Hopyard Road, Suite 375
Pleasanton, CA 94588
(510) 847-9444
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
----------------
BRUCE D. BOWER, ESQ.
Executive Vice President,
General Counsel and Secretary
3875 Hopyard Road, Suite 375
Pleasanton, CA 94588
(510) 847-9444
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies to:
RICHARD J. CHAR, ESQ. KENNETH L. HENDERSON, ESQ.
DEBRA B. ROSLER, ESQ. ERIC L. COHEN, ESQ.
Wilson Sonsini Goodrich & Rosati Robinson Silverman Pearce Aronsohn
Professional Corporation Berman LLP
650 Page Mill Road 1290 Avenue of the Americas
Palo Alto, California 94304 New York, New York 10104
(415) 493-9300 (212) 541-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
----------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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 the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Amount to be Offering Price Aggregate Registration
Title of Securities to be Registered Registered Per Share(1) Offering Price(1) Fee
================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share 4,325,591 $4.969 $21,493,862 $6,513
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee based upon the average of the high and low
sale prices of the Common Stock as reported on the Nasdaq National Market on
March 20, 1997.
----------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
YES! ENTERTAINMENT CORPORATION
4,325,591 SHARES OF COMMON STOCK (PAR VALUE $.001 PER SHARE)
The 4,325,591 shares of Common Stock of YES! Entertainment Corporation, a
Delaware corporation ("YES!" or the "Company") offered hereby (the "Common
Stock") are being sold by the Selling Stockholders identified herein (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of the securities offered hereby.
Such offers and sales may be made on one or more exchanges, in the over-
the-counter market, or otherwise, at prices and on terms then prevailing, or at
prices related to the then-current market price, or in negotiated transactions,
or by underwriters pursuant to underwriting agreements in customary form, or in
a combination of any such methods of sale. The Selling Stockholders may also
sell such shares in accordance with Rule 144 under the Securities Act. See
"Plan of Distribution." The Selling Stockholders are identified and certain
information with respect to them is provided under the caption "Selling
Stockholders" herein. The expenses of the registration of the securities
offered hereby, including fees of counsel for the Company, will be paid by the
Company. The underwriting discounts and selling commissions, if any, and fees
of legal counsel, if any, for the Selling Stockholders, will be borne by the
Selling Stockholders. The filing by the Company of this Prospectus in
accordance with the requirements of Form S-3 is not an admission that any person
whose shares are included herein is an "affiliate" of the Company.
The Selling Stockholders have advised the Company that they have not
engaged any person as an underwriter or selling agent for any of such shares,
but they may in the future elect to do so, and they will be responsible for
paying such a person or persons customary compensation for so acting. The
Selling Stockholders and any broker executing sell orders on behalf of any
Selling Stockholder may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event commissions received by any such broker may be
deemed to be underwriting commissions under the Securities Act.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol YESS. On March 20, 1997, the last reported sales price of the Common
Stock as reported on the Nasdaq National Market was $4.969 per share.
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN SECURITIES OFFERED BY
THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
MARCH 25, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation of Certain Documents by Reference... 2
Prospectus Summary................................ 3
The Company....................................... 3
Risk Factors...................................... 4
Dividend Policy................................... 8
Selling Stockholders.............................. 8
Plan of Distribution.............................. 9
Legal Matters..................................... 9
Experts........................................... 10
Available Information............................. 10
</TABLE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents heretofore filed by the
Company with the Securities and Exchange Commission (the "Commission") (File No.
0-25916) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") are incorporated herein by reference: (1) Annual Report on Form 10-K for
the year ended December 31, 1995; (2) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996; (3) Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996; (4) Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996; (5) Proxy Statement for Annual Meeting of Shareholders held
on May 22, 1996; (6) Proxy Statement for Special Meeting of Shareholders held on
September 24, 1996; (7) Current Report on Form 8-K filed on February 11, 1997;
(8) Current Report on Form 8-K filed on March 25, 1997; and (9) the description
of the Company's Common Stock contained in the Company's Registration Statement
on Form 8-A filed with the Commission under the Exchange Act on April 20, 1995,
declared effective on June 7, 1995 and amended by the Company's Registration
Statement on Form 8-B filed on October 31, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. The Company will provide without
charge to each person to whom this Prospectus is delivered, a copy of any and
all of such documents which are incorporated herein by reference (exclusive of
exhibits unless such exhibits are specifically incorporated by reference
herein), upon written request to YES! Entertainment Corporation, 3875 Hopyard
Road, Suite 375, Pleasanton, California 94588, to the attention of the Secretary
(telephone number (510) 847-9444).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
YES! and YAK BAK are registered trademarks and YES! GEAR, MEGA, POWER
PENZ, V-LINK, AIR VECTORS, YES! PRE-SCHOOL, YES! GIRL, DISGUSTING DESIGNS,
RADICAL AIR WEAPONS (R.A.W.), YES! EXTREME and YES! GAMES are trademarks of YES!
Entertainment Corporation. MRS. FIELDS is a registered trademark of the Mrs.
Fields Development Corporation. BASKIN 31 ROBBINS is a registered trademark of
Baskin-Robbins USA, Incorporated.
THE COMPANY
YES! Entertainment Corporation ("YES!" or the "Company") develops,
manufactures and markets toys and other entertainment products, including a
variety of interactive products. YES! applies innovative technology available
in other industries to design products that are fun for children and build on
their natural creativity. Most of YES!'s products target children between the
ages of two and twelve, a market of over 45 million in North America alone.
YES! has introduced several lines of products since being founded in
December 1992. A substantial portion of the Company's current products are
marketed under the YES! Gear brand. YES! Gear is comprised of the Company's
Yak Bak and Mega lines of products. These products, which include both
children's electronic and audio products, are designed to appeal to kids six to
twelve years of age with their high impact design and unique play activities.
The Company also markets Power Penz, a line of pens that incorporate toys and
activities. In 1996, the Company also launched a line of food activity products
with Mrs. Fields Baking Factory, a toy oven using mixes developed in conjunction
with the Mrs. Fields Development Corporation, and V-Link, a new line of
communications products designed to be a short-range, toll-free radiophone
system that includes voice-messaging, conference call and private conversation
features.
In 1997, the Company expects to introduce a number of new products and
product lines. These include the Baskin-Robbins Ice Cream Maker, a toy ice
cream maker with which children can prepare ice cream for their family using
delicious mixes developed in conjunction with Baskin-Robbins USA, Incorporated.,
Air Vectors, a line of small vehicles for boys that transform and launch flying
objects, such as airplanes or missiles, YES! Pre-School, a line of pre-school
products with incorporate popular features from YES!'s highly successful Yak Bak
line, YES! Girl, a line of electronic toys and activities specially for girls,
Disgusting Designs, a ghoulish new art activity center for boys, and Radical Air
Weapons (R.A.W.), a line of toy guns that shoot foam balls that expand three
times their original size in the air.
YES! was incorporated in California in September 1992 and began
operations in November 1992. The Company changed its state of incorporation to
Delaware in October 1996.
The Company generated net revenues of $69.7 million, $55.7 million, $36.4
million and $25.9 million in 1996, 1995, 1994 and 1993, respectively. The
Company incurred operating losses from its inception through the quarter ended
June 30, 1995, incurred a net loss of approximately $12.6 million in 1996, and
had an accumulated deficit of approximately $52.7 million at December 31, 1996.
The Company's executive offices are located at 3875 Hopyard Road, Suite
375, Pleasanton, California 94588 and its telephone number is (510) 847-9444.
3
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk. Accordingly,
in analyzing an investment in these securities, prospective investors should
carefully consider the following risk factors, along with other information
referred to herein. No investor should participate in this offering unless such
investor can afford the loss of his or her entire investment. Because of the
variety and uncertainty of the factors affecting the Company's operating
results, past financial performance and historic trends may not be a reliable
indicator of future performance. These factors, as well as other factors
affecting the Company's operating performance, and the fact that the Company
participates in a highly dynamic industry, may result in significant volatility
in the Company's common stock price. This prospectus contains certain forward-
looking statements based on current expectations which involve risks and
uncertainties. Actual results and the timing of certain events may differ
materially from those projected in such forward-looking statements due to a
number of risk factors, including those set forth below.
Limited Operating History; History of Losses; Accumulated Deficit. The
Company has a short operating history, having commenced operation in November
1992 and shipped its first product in July 1993. Although the Company has
achieved approximately $188 million in cumulative net sales through December 31,
1996, the Company incurred substantial operating losses in 1993 and 1994 and
again in 1996, and at December 31, 1996 had an accumulated deficit of
approximately $52.7 million. Future profitability is dependent upon the
Company's ability to successfully and timely introduce, finance and manufacture
its new products, successfully market its existing products and collect trade
receivables in a timely manner.
Dependence on 1997 Products. In 1997, the Company has introduced and
expects to commence sales of a number of new product lines in new product
categories, such as the Baskin-Robbins Ice Cream Maker, Air Vectors, YES!
Extreme, YES! Games and YES! Pre-School. In addition, the Company also expects
to expand its existing product lines in 1997, particularly its YES! Gear and
Power Penz line of products. Manufacturing of certain of these items in
commercial quantities has not commenced or is just commencing. The Company
expects that completing the development and the manufacture of its 1997 product
lines will place great demands on management and other Company resources. If
the Company is not able to complete the development, tooling, manufacture and
successful marketing of its 1997 product lines, the Company's operating results
and financial condition would be materially adversely affected.
Dependence on YES! Gear and Power Penz. The majority of the Company's
current product lines are sold under the YES! Gear and Power Penz brands, which
together accounted for 83% and 58% of the Company's sales in 1996 and 1995,
respectively. The Company expects the YES! Gear, in particular the Yak Bak, and
the Power Penz product lines to continue to account for a substantial percentage
of the Company's business. In addition, the Company is aware that a number of
toy manufacturers have attempted to duplicate the Company's success in this area
of product by introducing similar lines of products in 1996 and for 1997. While
the Company believes it will compete favorably with these new products on the
basis of styling, quality, product depth and promotional support, there can be
no assurance that the sale of these competitive products will not impact the
sale of the YES! Gear or Power Penz product lines, particularly on the basis of
price.
Just in Time Inventory; Compressed Sales Cycles. Most of the Company's
most significant customers have adopted inventory management systems to track
sales of particular products and rely on reorders being filled rapidly by
suppliers, rather than maintaining large on-hand inventories to meet consumer
demand. While these systems reduce a retailer's investment in inventory, they
increase pressure on suppliers like the Company to fill orders promptly and
shift a significant portion of inventory risk to the supplier. The limited
inventory carried by the
4
<PAGE>
Company's customers may also reduce or delay consumer sell-through which in
turn could impair the Company's ability to obtain reorders of its product in
quantities necessary to permit the Company to achieve planned sales and income
growth. In addition, the Company may be required to incur substantial
additional expense to fill late reorders in order to ensure the product is
available at retail prior to Christmas; these may include drop-shipment expense
and higher advertising allowances which would otherwise be born by the Company's
customers. In the event that anticipated reorders do not materialize, the
Company may incur increased inventory carrying costs.
Changes in 1997 Product Line. The Company constantly evaluates the toy
markets and its development and manufacturing schedules. As the year
progresses, the Company may elect to reduce the number of products it currently
plans on shipping in 1997 for a variety of reasons, which include but are not
limited to more accurate evaluation of demand, supply and manufacturing
difficulties, or competitive considerations. Similarly, the Company may add
products to its 1997 line either by accelerating development schedules or
strategic acquisitions of current product lines. Reducing or adding products
from and to the Company's line may have an impact on the Company's financial
performance depending on, among other things, the price points, advertising and
promotional support for and development, tooling and manufacturing costs of such
products, relative to products they replace or are replaced by, as the case may
be, if at all.
Sales Concentration Risk. The Company's ten largest customers accounted
for approximately 85%, 87% and 68% of net sales for the years ending December
31, 1996, 1995 and 1994, respectively. For the year ended December 31, 1996,
the Company's two largest customers, Toys "R" Us and Wal-Mart, Inc., accounted
for 21% and 20% of net sales, respectively. For the year ended December 31,
1995, the same two customers each accounted for approximately 27% of net sales
and for the year ended December 31, 1994, Toys "R" Us and Wal-Mart, Inc.
accounted for 21% and 14% of net sales, respectively. While the Company intends
to expand distribution to new accounts, the Company expects to continue to
depend on a relatively small number of customers for a significant percentage of
its sales. Significant reductions in sales to any one or more of the Company's
largest customers would have a material adverse effect on the Company's
operating results. Because orders in the toy industry are generally cancelable
at any time without penalty, there can be no assurance that present or future
customers will not terminate their purchase arrangements with the Company or
significantly change, reduce or delay the amount of products ordered from the
Company. Any such termination of a significant customer relationship or change,
reduction or delay in significant orders could have a material adverse effect on
the Company's operating results.
Price Protection; Stock Balancing; Reliance on Timely Payment. In
connection with the introduction of new products, many companies in the toy
industry discount prices of existing products, provide for certain advertising
allowances and credits or give other sales incentives to their customers,
particularly their most significant customers. In addition, in order to
address working capital requirements, sales of inventory, changes in marketing
trends and other issues, many companies in the toy industry allow retailers to
return slow-moving products for credit, or if the manufacturer lowers the prices
of its products, to provide price adjustments for inventories on hand at the
time the price change occurs. The Company has made such accommodations in the
past, and there can be no assurance that the Company will not make
accommodations such as stock balancing, returns, other allowances or price
protection adjustments to a significant degree in the future. Any such
accommodations by the Company in the future could have a material adverse effect
on the Company's operating results. In addition, in the past certain of the
Company's retail customers have delayed payment beyond the date such payment is
due. Delays in payments from retail customers in the future could materially
impact the Company's anticipated cash flow to the detriment of the Company's
business.
Seasonality. The Company's revenues, as with many other toy companies, are
highly seasonal, with a majority of retail sales occurring during the December
holiday season. Accordingly, the Company expects that its operating results
will vary significantly from quarter to quarter, particularly in the quarters
ending September 30, and December 31, when the majority of products are shipped
to the Company's customers.
5
<PAGE>
Short Product Cycles. Consumer preferences in the toy industry are
continuously changing and are difficult to predict. Few products achieve market
acceptance, and even when they do achieve commercial success, products typically
have short life cycles. There can be no assurance that (i) new products
introduced by the Company will achieve any significant degree of market
acceptance, (ii) acceptance, if achieved, will be sustained for any significant
amount of time, or (iii) such products' life cycles will be sufficient to permit
the Company to recover development, manufacturing, marketing and other costs
associated therewith. In addition, sales of the Company's existing product lines
are expected to decline over time, and may decline faster than expected unless
existing products are enhanced or new product lines are introduced. Failure of
new product lines to achieve or sustain market acceptance would have a material
adverse effect on the Company's operating results and financial condition.
International Business Risk. The Company will rely in 1997 principally on
foreign distributors to market and sell the Company's products outside the
United States. Although the Company's international sales personnel work
closely with its foreign distributors, the Company cannot directly control such
entities' sales and marketing activities and, accordingly, cannot directly
manage the Company's product sales in foreign markets. In addition, the
Company's international sales may be disrupted by currency fluctuations or other
events beyond the Company's control, including political or regulatory changes.
Dependence on Manufacturing Facilities Based in People's Republic of China.
The Company contracts for the manufacture of substantially all of its products
with entities based in Hong Kong whose manufacturing facilities are located in
the People's Republic of China. In 1997, Hong Kong will become a sovereign
territory of the People's Republic of China. While the People's Republic of
China has provided assurances that Hong Kong will be allowed to maintain
critical economic and tax policies, there can be no assurance that political or
social tensions will not develop in Hong Kong that would disrupt this process.
In addition, recent tensions between the People's Republic of China and the
Republic of China (Taiwan), and the United States' involvement therein, could
result either in a disruption in manufacturing in the China mainland or in the
imposition of tariffs or duties on Chinese manufactured goods. Either event
would have an adverse impact on the Company's ability to obtain its products or
on the cost of these products, respectively, such that its operating results and
financial condition would be materially adversely affected.
Dependence on Restrictive Facility. The Company is dependent on an
Accounts Receivable Management Agreement (the "ARM Agreement") with the BNY
Financial Corporation to meet its financial needs during 1997, due in large part
to the seasonality of the Company's business whereby the Company is required to
finance the manufacture of a substantial portion of its products in the summer
and autumn but does not collect on the sale of these products until the fourth
quarter of that year and the first quarter of the following year. Under the
terms of the ARM Agreement, BNY Financial Corporation has taken a first priority
security interest in substantially all of the Company's assets, including its
intellectual property. The ARM Agreement also contains a number of restrictive
covenants, including covenants concerning the requirement that Donald
Kingsborough and Sol Kershner, the Company's Chief Executive Officer and Chief
Financial Officer, respectively, remain active in the management of the Company.
The Company was not in compliance with the quick ratio and profitability
covenants at December 31, 1996 and has obtained a waiver from BNY Financial
Corporation with regard to these covenants. In the event the Company falls out
of compliance with the ARM Agreement, and BNY Financial Corporation does not
provide financing, the Company would not be able to finance its operations as
contemplated, and its operating results and financial condition would be
materially adversely affected.
Volatility of Stock Price. The Company's Common Stock has experienced
significant price volatility and such volatility may occur in the future,
particularly as a result of quarter-to-quarter variations in the actual or
anticipated financial results of the Company or of other toy companies or
announcements by the Company or its competitors regarding new product
introductions or other developments affecting the Company. In addition, the
6
<PAGE>
market has experienced extreme price and volume fluctuations that have affected
the market price of many technology companies' stock and that have been
unrelated or disproportionate to the operating performance of these companies.
Dependence on Key Personnel. The Company's future success will depend to a
significant extent on the efforts of key management personnel, including Donald
D. Kingsborough, the Company's Chairman and Chief Executive Officer, and Sol
Kershner, the Company's Chief Financial Officer and Chief Operating Officer, and
other key employees. The loss of one or more of these employees could have a
material adverse effect on the Company's business. In addition, the Company
believes that its future success will depend in large part on its ability to
attract and retain highly qualified management, operations and sales personnel.
There can be no assurance that the Company will be able to attract and retain
the employees it needs to in order to ensure its success.
No Dividends. The Company does not anticipate that any cash dividends will
be declared or paid in the foreseeable future. In addition, the Company is
restricted under its bank line of credit from paying any dividends.
Effect of Certain Charter Provisions; Antitakeover Effects of Certificate
of Incorporation, Bylaws and Delaware Law. The Board of Directors has the
authority to issue up to 1,915,000 shares of Preferred Stock (net of 85,000
shares previously issued by the Company) and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock will be subject to and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. Further, certain
provisions of the Company's Bylaws and of Delaware law could delay or make
difficult a merger, tender offer or proxy contest involving the Company.
7
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to reinvest earnings, if any, in the development and
expansion of the Company's business. Any future declaration of cash dividends
will be at the discretion of the Board of Directors and will depend upon the
earnings, capital requirements and financial position of the Company, general
economic conditions and other pertinent factors. In addition, the Loan and
Security Agreement entered into with BNY Financial Corporation limits the
Company's ability to pay dividends without the lender's consent.
SELLING STOCKHOLDERS
The shares of Common Stock offered hereby by the Selling Stockholders are
issuable upon conversion of convertible subordinated debentures in the aggregate
principal amount of $1,566,667 (the "Debentures") and 85,000 shares of the
Company's Series A Convertible Preferred Stock (the "Preferred Stock") held by
Infinity Investors Limited and Fairway Capital Limited (the "Purchasers") and
upon the exercise of warrants to purchase an aggregate of 300,000 shares of
Common Stock (the "Warrants"). Warrants to purchase 202,500, 22,500 and 75,000
shares of Common Stock are held respectively by Infinity Investors Limited,
Fairway Capital Limited and Brown Simpson, LLC ("Brown Simpson" and together
with the Purchasers, the "Selling Stockholders"). The Debentures, the Preferred
Stock and the Warrants were issued to the Selling Stockholders in connection
with a private placement in March 1997.
The number of shares registered on the registration statement of which this
Prospectus is a part and the number of shares offered hereby have been
determined by agreement between the Company and the Purchasers. The number of
shares of Common Stock that will ultimately be issued to the Purchasers upon
conversion of the Debentures and the Preferred Stock is dependent upon a
conversion formula which relies in part on the closing bid price of the Common
Stock for the five (5) trading days immediately preceding the date of conversion
and therefore cannot be determined at this time.
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock by the Selling Stockholders as of March
20, 1997, and as adjusted to reflect the sale of the Common Stock offered hereby
by the Selling Stockholders.
<TABLE>
<CAPTION>
Shares
Owned After
Shares Beneficially Number of Offering(1)(2)
Owned Prior to Shares Being ---------------------------------
Selling Stockholder Offering(1) Offered Number Percent
- --------------------------- ---------------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Infinity Investors Limited 3,825,532(1)(3) 3,825,532 0 *
Fairway Capital Limited 425,059(1)(3) 425,059 0 *
Brown Simpson, LLC 75,000 75,000 0 *
</TABLE>
- -----------------------
* Less than 1%.
(1) Based on 14,043,432 shares of Common Stock outstanding on March 20, 1997.
(2) Assumes the sale of all shares offered hereby to unaffiliated third parties.
(3) Based, in part, upon a hypothetical conversion of the full principal amount
of the Debentures and the total outstanding number of shares of Preferred
Stock on March 20, 1997. By agreement with the Company, no Purchaser may
acquire beneficial ownership (as defined in Rule 13d-3 promulgated by the
Commission under the Exchange Act) of more than 4.9% of the outstanding
shares of Common Stock.
8
<PAGE>
PLAN OF DISTRIBUTION
The 4,325,591 shares of Common Stock of the Company offered hereby
(the "Shares") may be sold by the Selling Stockholders, or by pledgees, donees,
transferees or other successors in interest, either pursuant to a Registration
Statement of which this Prospectus forms a part or, if available, under Section
4(1) of the Securities Act of 1933, as amended (the "Securities Act") or Rule
144 promulgated thereunder.
This offering is not being underwritten. The Selling Stockholders,
directly, through agents designated from time to time or through broker-dealers
or underwriters also to be designated (who may purchase as principals and resell
for their own account), may sell the Shares from time to time, in or through
privately negotiated transactions, or in one or more transactions, including but
not limited to a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction, an exchange distribution in
accordance with the rules of such exchange, and a combination of any such
methods of sale, on the Nasdaq National Market or on any other market or stock
exchange on which the Shares may be listed in the future pursuant to and in
accordance with the applicable rules of such market or exchange or otherwise.
The selling price of the Shares may be at market prices prevailing at the time
of sale, at prices relating to such prevailing market prices or at negotiated
prices. From time to time the Selling Stockholders may engage in short sales,
including short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver the
shares in connection therewith. In effecting sales, brokers or dealers engaged
by the Selling Stockholder may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from the
Selling Stockholders or from the purchasers in amounts to be negotiated
immediately prior to the sale. Further, except as set forth herein, the Selling
Stockholders are not restricted as to the number of shares which may be sold at
any one time, and it is possible that a significant number of shares could be
sold at the same time, which may have a depressive effect on the market price of
the Common Stock.
The Selling Stockholders may also pledge shares as collateral for
margin accounts, and such shares could be resold pursuant to the terms of such
accounts.
Resales or reoffers of the Shares by the Selling Stockholders must be
accompanied by a copy of this Prospectus.
The Selling Stockholders and any agents, broker-dealers or
underwriters that participate in the distribution of the Shares may be deemed to
be underwriters, and any profit on the sale of the Shares by them, and any
discounts, commissions or concessions received by them, may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the Shares for a period of three (3) years
after the effective date of this Prospectus or such earlier date when all of the
shares being offered hereunder have been sold or may be sold without volume or
other restrictions pursuant to Rule 144 or Rule 144A under the Securities Act,
as determined by counsel to the Company pursuant to a written opinion letter.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the
Securities offered hereby have been passed upon for the Company by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California 94304. As of the date of this Prospectus, certain members,
employees and affiliates of Wilson Sonsini Goodrich & Rosati beneficially owned
an aggregate of 7,985 shares of Common Stock and warrants to purchase an
aggregate of 1,140 shares of Common Stock.
9
<PAGE>
EXPERTS
The consolidated financial statements of YES! Entertainment
Corporation appearing in the YES! Entertainment Corporation Annual Report (Form
10-K) for the year ended December 31, 1995, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1993, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock being offered, reference is hereby made to such
Registration Statement and the exhibits and schedules thereto, which may be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its principal office referred to above and at the Commission's
regional offices at 13th Floor, Seven World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60601-2511. The Commission maintains a World Wide Web site that
contains reports, proxy statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov. The Company's Common Stock is quoted on the Nasdaq National
Market under the symbol YESS. Reports and other information concerning the
Company may be inspected at the National Association of Securities Dealers, Inc.
located at 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited and reported on by its independent
public accounting firm and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered. All
amounts are estimates except the SEC registration fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount
To
Be Paid
--------
<S> <C>
SEC Registration Fee.................. $ 6,513
Nasdaq National Market listing fee.... 17,500
Edgar Filing Expenses................. 2,000
Legal Fees and Expenses............... 40,000
Accounting Fees....................... 0
Transfer Agent and Registrar's Fees... 4,000
Miscellaneous Expenses................ 0
-------
Total............................ $70,013
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation, or (iv) for any transaction
from which the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence on the part of
indemnified parties. The Company's Bylaws also permit the Company to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the Company would have the power to indemnify him or her against such
liability under the General Corporation Law of Delaware. The Company currently
has secured such insurance on behalf of its officers and directors.
The Company has entered into agreements to indemnify its directors and
officers, in addition to indemnification provided for in the Company's Bylaws.
Subject to certain conditions, these agreements, among other things, indemnify
the Company's directors and officers for certain expenses (including attorney's
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the
Company, arising out of such person's services as a director or officer of the
Company, any subsidiary
II-1
<PAGE>
of the Company or any other company or enterprise to which the person provides
services at the request of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
referenced in Item 15 of this Registration Statement or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
In addition, the Amended and Restated Registration Rights Agreement, filed
as Exhibit 4.4 hereto, contains provisions for indemnification by the Selling
Stockholders of the Registrant and its officers, directors, and controlling
persons against certain liabilities under the Securities Act.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
Exhibit
Number Description
-------- -------------------------------------------------------
<S> <C>
4.1(1) Certificate of Designation of the Series A Convertible
Preferred Stock.
4.2(2) Form of Registrant's Common Stock Certificate.
4.3 Amended and Restated Convertible Debenture and
Convertible Preferred Stock Purchase Agreement dated as
of March 18, 1997 among Infinity Investors Limited,
Fairway Capital Limited and the Registrant.
4.4 Amended and Restated Registration Rights Agreement
dated as of March 18, 1997 among Infinity Investors
Limited, Fairway Capital Limited and the Registrant.
4.5(3) Form of Warrant dated March 18, 1997.
4.6(4) Form of Convertible Subordinated Debenture dated March
18, 1997.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.,
regarding the legality of the securities being issued.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
- -------------------
(1) Incorporated by reference to Exhibit 4.1 filed with the Registrant's
Current Report on Form 8-K, which was filed with the Commission on March 25,
1997.
(2) Incorporated by reference to Exhibit 4.3 filed with the Registrant's Post-
Effective Amendment No. 4 on Form S-3 to Registration Statement on Form S-1
(File No. 33-91408), which became effective on November 20, 1996.
(3) Incorporated by reference to Exhibit 4.3 filed with the Registrant's Current
Report on Form 8-K, which was filed with the Commission on March 25, 1997.
(4) Incorporated by reference to Exhibit 4.2 filed with the Registrant's Current
Report on Form 8-K, which was filed with the Commission on March 25, 1997.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes, in accordance with the following
sections of Item 512 of Regulation S-K:
(a) (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(3) That, for the purpose of determining any liability under the
Securities Act, 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;
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering;
(b) That, for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d)
of the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(c) To deliver or cause to be delivered with the Prospectus, to each person to
whom the Prospectus is sent or given, the latest annual report, to
securityholders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 and Rule 14c-3
under the Exchange Act; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the Prospectus, to
deliver, or cause to be delivered to each person to whom the Prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
II-3
<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 all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pleasanton, State of California, on March 25,
1997.
YES! ENTERTAINMENT CORPORATION
By: /s/ BRUCE D. BOWER
---------------------------------
Bruce D. Bower
Executive Vice President.
General Counsel and Secretary
POWER OF ATTORNEY
KNOWN ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald D. Kingsborough and Bruce D. Bower
and each of them, jointly and severally, his attorneys-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
on Form S-, (or any other registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act),
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorneys-in-fact or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald D. Kingsborough Chairman of the Board and Chief Executive March 25, 1997
- --------------------------- Officer (Principal Executive Officer)
Donald D. Kingsborough
/s/ Sol Kershner Chief Financial Officer March 25, 1997
- --------------------------- (Principal Financial and Accounting Officer)
Sol Kershner
/s/ David C. Costine Director March 25, 1997
- ---------------------------
David C. Costine
/s/ Esmond T. Goei Director March 25, 1997
- ---------------------------
Esmond T. Goei
Director
- ---------------------------
Michael J. Marocco
/s/ Gary L. Nemetz Director March 25, 1997
- ---------------------------
Gary L. Nemetz
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit
Number Description
--------- ----------------------------------------------
<S> <C>
4.1(1) Certificate of Designation of the Series A
Convertible Preferred Stock.
4.2(2) Form of Registrant's Common Stock Certificate.
4.3 Amended and Restated Convertible Debenture and
Convertible Preferred Stock Purchase Agreement
dated as of March 18, 1997 among Infinity
Investors Limited, Fairway Capital Limited and
the Registrant.
4.4 Amended and Restated Registration Rights
Agreement dated as of March 18, 1997 among
Infinity Investors Limited, Fairway Capital
Limited and the Registrant.
4.5(3) Form of Warrant dated March 18, 1997.
4.6(4) Form of Convertible Subordinated Debenture dated
March 18, 1997.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati,
P.C., regarding legality of the securities being
issued.
23.1 Consent of Ernst & Young LLP, independent
auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
- ----------------
</TABLE>
(1) Incorporated by reference to Exhibit 4.1 filed with the Registrant's
Current Report on Form 8-K, which was filed with the Commission on March
25, 1997.
(2) Incorporated by reference to Exhibit 4.3 filed with the Registrant's Post-
Effective Amendment No. 4 on Form S-3 to Registration Statement on Form S-1
(File No. 33-91408), which became effective on November 20, 1996.
(3) Incorporated by reference to Exhibit 4.3 filed with the Registrant's
Current Report on Form 8-K, which was filed with the Commission on March
25, 1997.
(4) Incorporated by reference to Exhibit 4.2 filed with the Registrant's
Current Report on Form 8-K, which was filed with the Commission on March
25, 1997.
<PAGE>
EXHIBIT 4.3
================================================================================
AMENDED AND RESTATED CONVERTIBLE DEBENTURE
AND CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
Between
YES! ENTERTAINMENT CORPORATION,
INFINITY INVESTORS LIMITED
and
FAIRWAY CAPITAL LIMITED
______________________________
Dated as of March 18, 1997
______________________________
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS........................ 1
Section 1.1. Certain Definitions.................. 1
ARTICLE II PURCHASE OF SHARES......................... 5
Section 2.1. Purchase of Convertible Debentures;
Closing.............................. 5
ARTICLE III REPRESENTATIONS AND WARRANTIES............. 6
Section 3.1. Representations and Warranties of the
Company.............................. 6
Section 3.2. Representations and Warranties of the
Purchasers........................... 11
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES............ 14
Section 4.1. Transfer Restrictions................ 14
Section 4.2. Stop Transfer Instruction............ 15
Section 4.3. Furnishing of Information............ 15
Section 4.4. Copies and Use of Disclosure
Materials............................ 16
Section 4.5. Blue Sky Laws........................ 16
Section 4.6. Integration.......................... 16
Section 4.7. Certain Agreements................... 16
Section 4.8. Purchaser Ownership of Common Stock.. 17
Section 4.9. Listing of Underlying Shares......... 17
Section 4.10. Purchaser's Rights if Trading in
Common Stock is Suspended or Delisted 17
Section 4.11. No Violation of Applicable Law....... 18
Section 4.12. Repurchase Restrictions.............. 18
Section 4.13. Legal Opinion........................ 19
Section 4.14. Notice of Breaches................... 19
Section 4.15. The Warrants......................... 19
Section 4.16. Conversion Procedures................ 19
Section 4.17. Transfer Agent....................... 20
Section 4.18. Right of First Refusal............... 20
Section 4.19. Restriction on Debt.................. 21
ARTICLE V MISCELLANEOUS.............................. 21
Section 5.1. Fees and Expenses.................... 21
Section 5.2. Entire Agreement; Amendments......... 21
Section 5.3. Notices.............................. 21
Section 5.4. Amendments; Waivers.................. 23
Section 5.5. Headings............................. 23
Section 5.6. Successors and Assigns............... 23
Section 5.7. No Third-Party Beneficiaries......... 23
Section 5.8. Governing Law........................ 23
Section 5.9. Survival............................. 23
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5.10. Counterpart Signatures............... 24
Section 5.11. 24 Publicity......................... 24
Section 5.12. Severability......................... 24
Section 5.13. Remedies............................. 24
Exhibit A Form of 5% Convertible Debenture
Exhibit B Form of Certificate of Designation
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Wilson Sonsini Goodrich & Rosati,
P.C. Legal Opinion
Exhibit E(1) Form of Fairway Warrant
Exhibit E(2) Form of Infinity Warrant
Exhibit F Conversion Procedures
Schedule 2.1(b) Debentures and Warrants
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Consents and Approvals
Schedule 3.1(g) Litigation
</TABLE>
-ii-
<PAGE>
AMENDED AND RESTATED CONVERTIBLE DEBENTURE AND CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT, dated as of March 18, 1997 (this "Agreement"), by and
---------
among YES! Entertainment Corporation, a Delaware corporation (the "Company"),
-------
Infinity Investors Limited, a corporation organized and existing under the laws
of Nevis, West Indies ("Infinity") and Fairway Capital Limited, a corporation
organized and existing under the laws of Nevis, West Indies ("Fairway").
Infinity and Fairway are each a "Purchaser" and are collectively, the
---------
"Purchasers".
- -----------
WHEREAS, the Company and the Purchasers are parties to that certain
Convertible Debenture Purchase Agreement, dated as of January 28, 1997 (the
"January Purchase Agreement"), pursuant to which, among other things, (i) the
- ---------------------------
Company issued and sold to the Purchasers an aggregate of $10,000,000 principal
amount of the Company's 5% Convertible Debentures, due January 28, 2000
(collectively, the "January Debentures") and (ii) the Company delivered an
------------------
aggregate of 300,000 Common Stock purchase Warrants (collectively, the "January
-------
Warrants");
- --------
WHEREAS, the Company and the Purchasers desire to supersede in their
entirety all of the January Debentures and January Warrants with $1,566,667
aggregate principal amount of 5% Convertible Debentures, shares of a to be
created series of convertible preferred stock of the Company with an aggregate
stated value of $8,500,000 and newly issued Common Stock purchase warrants;
WHEREAS, the Company and the Purchasers have agreed to supersede the
January Purchase Agreement in its entirety hereby to effectuate the
understandings and agreements set forth above;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1. Certain Definitions. As used in this Agree ment, and
-------------------
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any Person, any Person that,
---------
directly or indirectly, controls, is controlled by or is
<PAGE>
under common control with such Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
------- -------------
"under common control with") shall mean the possession, directly or indirectly,
-------------------------
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.
"Appraiser" means a nationally recognized or major regional investment
---------
banking firm or firm of independent certified public accountants of national
standing retained to determine the Warrant Repurchase Price in accordance with
the terms hereof.
"BNY" means BNY Financial Corporation, 1290 Avenue of the Americas,
---
New York, New York 10104.
"BNY Bank Obligations" means the borrowings and interest due thereon
--------------------
(including, without limitation, any interest accruing after the commencement of
any case, proceeding or other action relating to the liquidation, dissolution,
assignment for the benefit of creditors, receivership, arrangement, bankruptcy,
insolvency or reorganization of the Company regardless of whether such interest
is allowable, payable or accruable to BNY in such case, proceeding or other
action) under the Receivables Agreement, as the same may from time to time be
amended, supplemented, otherwise modified, replaced or refinanced.
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the state of
New York or the State of California are authorized or required by law or other
government actions to close.
"Certificate of Designation" means the certificate of designation,
--------------------------
substantially in the form of Exhibit B attached hereto, the final form of which
---------
is subject to the approval by the Purchasers, which is to be filed by the
Company with the Secretary of State of the State of Delaware on or prior to the
Closing Date.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's common stock, par value $.001 per
------------
share.
"Convertible Debentures" means the Company's 5% Convertible
----------------------
Debentures, due January 28, 2000, in the form attached
-2-
<PAGE>
hereto as Exhibit A, to be issued in accordance with and subject to the terms
---------
and conditions hereof.
"Disclosure Materials" means, collectively, the SEC Documents and the
--------------------
Schedules to this Agreement furnished by or on behalf of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
encumbrance, right of first refusal, charge or security interest of any kind in
or on such asset or the revenues or income thereon or therefrom.
"Material Adverse Effect" shall have the meaning set forth in Section
----------------------- -------
3.1(a).
- ------
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of the Company's Series A
---------------
Convertible Preferred Stock, par value $.001 per share, with the respective
rights, preferences and privileges set forth in the Certificate of Designation.
"Receivables Agreement" means the Accounts Receivable Management and
---------------------
Security Agreement, dated as of July 31, 1995, among the Company and BNY.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated as of January 28, 1997, by and between the Company and the
Purchasers, as amended by the Amended and Restated Registration Rights Agreement
of even date herewith, in the form attached hereto as Exhibit C, as the same may
---------
be amended, supplemented or otherwise modified in accordance with its terms.
"SEC Documents" shall have the meaning set forth in Section 3.1(k).
------------- --------------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Shares" shall have the meaning set forth in Section 2.1(a).
------
-3-
<PAGE>
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
------------ --------------
"Trading Day" means (a) a day on which the Common Stock is traded on
-----------
the Nasdaq National Market or Nasdaq SmallCap Market or principal national
securities exchange or market on which the Common Stock has been listed or
quoted, or (b) if the Common Stock is not listed or quoted on the Nasdaq
National Market or Nasdaq SmallCap Market or any principal national securities
exchange or market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the Nasdaq Stock Market, or (c) if the
Common Stock is not listed on the American Stock Exchange, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
"Transaction Documents" shall have the meaning set forth in Section
--------------------- -------
3.1(b).
- ------
"Transfer Agent" shall have the meaning set forth in Section 4.17.
-------------- ------------
"Transfer Agent Agreement" means the Book Entry Transfer Agent
------------------------
Agreement, dated as of the date hereof, between the Company, the Purchasers and
the Transfer Agent.
"Underlying Securities Registration Statement" means a registration
--------------------------------------------
statement contemplated by the Registration Rights Agreement and relating to the
Underlying Shares and Warrant Shares.
"Underlying Shares" means the shares of Common Stock issuable upon the
-----------------
conversion of the Convertible Debentures and the Shares in accordance with their
terms and the Certificate of Designation.
"Warrant Exercise Price" means the lesser of (a) $7.875 and (b) 125%
----------------------
of the average of the lowest Per Share Market Values for any five (5)
consecutive Trading Days during the 60 Trading Days following the Closing Date.
"Warrant Repurchase Price" with respect to any Warrant delivered
------------------------
hereunder shall equal (A) if the average Per Share Market Value for the five
Trading Days immediately preceding the date of the notice triggering a
repurchase hereunder or the date of payment in full of the repurchase price
calculated under Section 4.10, whichever is greater, is greater than the Warrant
------------
Exercise Price, then the product of (1) the number of shares of Common Stock
issuable upon exercise in full of such Warrant (less such number of
-4-
<PAGE>
shares of Common Stock as shall have been previously issued upon conversion of
such Warrant) and (2) the average Per Share Market Value for the five Trading
Days immediately preceding (a) the date of the notice triggering such repurchase
or (b) the date of payment in full of the repurchase price calculated under
Section 4.10, whichever is greater, less the Warrant Exercise Price; or (B) if
- ------------
the average Per Share Market Value for the five Trading Days immediately
preceding the date of the notice triggering such repurchase or the date of
payment in full of such repurchase price, whichever is greater, is less than or
equal to the Warrant Exercise Price, then such amount as is determined in good
faith by the Purchasers, provided that, if the Company notifies the Purchasers
within 10 Business Days of its receipt of such Purchaser valuation that it
disagrees with such valuation, within 10 Business Days of such Company notice,
an Appraiser mutually acceptable to each of the Purchasers and the Company shall
determine such amount; provided, however, if the Company and the Purchasers fail
-------- -------
to appoint such mutually acceptable Appraiser within 10 Business Days of the
expiration of such 10 day period, each of the Company and the Purchasers shall
appoint an Appraiser, who (within 10 Business Days of such appointment) shall
appoint a third Appraiser to determine conclusively the repurchase price for
such Warrant, with the fees and disbursements of any such Appraiser being shared
equally by the Company and the Purchasers.
"Warrants" shall have the meaning set forth in Section 4.15.
-------- ------------
"Warrant Shares" shall have the meaning set forth in Section 3(d).
-------------- ------------
ARTICLE II
PURCHASE OF SHARES
------------------
Section 2.1. Purchase of Convertible Debentures; Closing.
-------------------------------------------
(a) Subject to the terms and conditions set forth in this Agreement,
the Company shall issue and sell to the Purchasers, and the Purchasers shall
purchase (i) an aggregate principal amount of $1,566,667 of Convertible
Debentures and (ii) an aggregate of 85,000 shares of Preferred Stock (the
"Shares"), having the respective rights, preferences and privileges set forth in
------
the Certificate of Designation, for an aggregate purchase price of $10,000,000
plus interest from the date of the January Purchase Agreement until the date
hereof (the "Purchase Price").
--------------
-5-
<PAGE>
(b) The Closing.
-----------
(i) The closing of the purchase and sale of the Convertible
Debentures, Shares and Warrants (the "Closing") shall take place at the offices
-------
of Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas,
New York, New York 10104, immediately following the execution hereof, or at such
other time and/or place as the Purchasers and the Company may agree. The date
of the Closing is hereinafter referred to as the "Closing Date".
------------
(ii) At the Closing and in the manner described in the Transfer
Agent Agreement, if applicable, (A) the Company shall deliver (i) the Debentures
and Warrants and certificates representing the Shares to be issued and delivered
to each Purchaser, as specified in Schedule 2.1(b) hereto, to the Persons (or
as directed thereby), registered in the names and in the amounts set forth
thereon, and (ii) to the Persons entitled thereto, all other documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement; (B) each Purchaser shall
deliver to the Company (i) the January Debentures and January Warrants issued to
such Purchaser (and shall deliver the January Warrants held by Brown Simpson,
LLC) in connection with the closing of the transactions under the January
Purchase Agreement and (ii) all documents, instruments and writings required to
have been delivered at or prior to the Closing by such Purchaser pursuant to
this Agreement. The Company acknowledges and agrees that the $10,000,000 paid it
by the Purchasers at the closing of the transactions under the January Purchase
Agreement shall constitute full payment of the Purchase Price for the Warrants,
Shares and Convertible Debentures to be issued and sold to the Purchasers at the
Closing pursuant to this Agreement, and no other consideration shall be due from
the Purchasers at the Closing.
For purposes of this Agreement, when used in connection with the
Convertible Debentures, "Conversion Price," "Original Issue Date," "Conversion
---------------- ------------------- ----------
Date," "Conversion Ratio" and "Per Share Market Value" shall have the meanings
- ---- ---------------- ----------------------
set forth in the Convertible Debentures and, when used in connection with the
Preferred Stock such terms shall have the meanings set forth in the Certificate
of Designation.
-6-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.1. Representations and Warranties of the Company. The
------------------------------------- -------
Company hereby represents and warrants to the Purchasers as follows:
(a) Organization and Qualification. The Company is a corporation, duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. At
the time the Company changed its state of incorporation from California to
Delaware, the Company was in good standing under the laws of the State of
California. The Company has no subsidiaries other than as set forth in the SEC
Documents (collectively, the "Subsidiaries"). Each of the Subsidiaries is a
------------
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not individually or
in the aggregate have a material adverse effect on the results of operations,
assets, prospects or financial condition of the Company and the Subsidiaries,
taken as a whole (a "Material Adverse Effect").
------------------------
(b) Authorization; Enforcement. The Company has the requisite
--------------------------
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Warrants, the Registration Rights Agreement, the
Transfer Agent Agreement, the Convertible Debentures and the Certificate of
Designation and otherwise to carry out its obligations hereunder and thereunder.
This Agreement, the Registration Rights Agreement, the Transfer Agent Agreement,
the Convertible Debentures, the Warrants and the Certificate of Designation are
collectively referred to as the "Transaction Documents." The execution and
---------------------
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company. Each Transaction Document has been
duly executed and delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable against the Company in
-7-
<PAGE>
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company and each of the Subsidiaries is set forth in Schedule
--------
3.1(c). No shares of Common Stock are entitled to preemptive or similar rights.
- ------
Except as specifically disclosed in Schedule 3.1(c), there are no outstanding
---------------
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Convertible Debentures, Shares and Warrants hereunder, securities,
rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate of incorporation, bylaws or other charter
documents.
(d) Issuance of Convertible Debentures, Shares and Warrants. The
-------------------------------------------------------
Convertible Debentures have been duly and validly authorized for issuance, offer
and sale pursuant to this Agreement and, when issued and delivered as provided
hereunder against payment in accordance with the terms hereof, shall be valid
and binding obligations of the Company enforceable in accordance with their
terms free and clear of all Liens. The Shares are duly authorized and, when paid
for in accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable. The Warrants are duly authorized, and when issued and paid for in
accordance with the terms hereof, shall be validly issued, free and clear of all
Liens. The Company has and at all times while the Convertible Debentures, Shares
and Warrants are outstanding will maintain an adequate reserve of shares of
Common Stock to enable it to perform its obligations under this Agreement, the
Convertible Debentures, the Certificate of Designation and Warrants and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) two times the number of shares of Common Stock which would
be issuable upon conversion in full of the aggregate principal amount of the
Convertible Debentures and of the full number of Shares, assuming in each case
such conversion occurred on the Original Issue Date (collectively the
"Underlying Shares"), and (ii) the number of shares of Common Stock which would
-----------------
be issuable upon exercise in full of the Warrants (the "Warrant
-------
-8-
<PAGE>
Shares"). When issued in accordance with the terms hereof and the Convertible
- -------
Debentures, the Certificate of Designation, the Underlying Shares will be duly
authorized, validly issued, fully paid nonassessable, free and clear of all
Liens; and when issued upon exercise of the Warrants in accordance with their
respective terms, the Warrant Shares will be duly authorized, validly issued,
fully paid, nonassessable and free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its certificate of incorporation or bylaws
(each as amended through the date hereof) or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party or by which any property or asset of the Company is bound
or affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) or
(iii), such conflicts, defaults, terminations, amendments, accel erations,
cancellations and violations as could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any Transaction
Document, (y) have a Material Adverse Effect or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
Transaction Document. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, do not have a
Material Adverse Effect.
(f) Consents and Approvals. Except as obtained prior to the execution
----------------------
hereof, neither the Company nor any Subsidiary is required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) the filing with the
Commission of an Underlying Securities Registration Statement contemplated by
the Registration Rights Agreement and the making of the applicable blue-sky
filings under state securities laws, each as contemplated by the Registration
Rights Agreement, which shall be filed in the time periods set forth in the
Registration Rights Agreement, (ii) the filing of the Certificate
-9-
<PAGE>
of Designation with the Secretary of State of the State of Delaware, which shall
occur prior to the Closing, and (iii) other than, in all other cases, where the
failure to obtain such consent, waiver, authorization or order, or to give or
make such notice or filing, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any of the
Transaction Documents, (y) have a Material Adverse Effect or (z) adversely
impair the Company's ability to perform fully on a timely basis its obligations
under any of the Transaction Documents.
(g) Litigation; Proceedings. Except as specifically set forth in
-----------------------
Schedule 3.1(g), there is no action, suit, notice of violation, proceeding or
- ---------------
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
assets or properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, state, county, local or foreign) which
(i) relates to or challenges the legality, validity or enforceability of the
Transaction Documents, Underlying Shares or Warrant Shares (ii) could,
individually or in the aggregate, if adversely determined, have a Material
Adverse Effect or (iii) could, individually or in the aggregate, adversely
impair the Company's ability to perform fully on a timely basis its obligations
under the Transaction Documents.
(h) No Default or Violation. Neither the Company nor any Subsidiary
-----------------------
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as could not,
in any such case, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of any of the Transaction Documents, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under the Transaction Documents.
(i) Certain Fees. Except for $400,000 paid by the Company to
------------
Pennsylvania Merchant Group, no fees or commission will be payable by the
Company to any broker, finder, investment banker or bank with respect to the
consummation of the transactions contemplated hereby.
(j) Private Offering. Assuming (without any independent investigation
----------------
or verification by or on behalf of the Company) the accuracy of the
representations and warranties of the Purchasers set forth in Section 3.2, the
-----------
offer and sale of the Convertible
-10-
<PAGE>
Debentures, Shares, the Warrants, the Underlying Shares and the Warrant Shares
are exempt from registration under Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any person acting on its
--------------
behalf has taken or will take any action (including, without limitation, any
offering of any securities of the Company under circumstances which would
require the integration of such offering with the offering of the Convertible
Debentures or Shares under the Securities Act) which might subject the offering,
issuance or sale of the Convertible Debentures, Shares, the Warrants, the
Underlying Shares or the Warrant Shares to the registration requirements of
Section 5 of the Securities Act.
(k) SEC Documents. The Company has filed all forms, reports and
-------------
documents required to be filed by it under the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(the foregoing reports being collectively referred to herein as the "SEC
---
Documents") on a timely basis, or has received a valid extension of such time of
- ---------
filing. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and none of
the SEC Documents, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited and unaudited consolidated
balance sheets of the Company and its Subsidiaries contained in the SEC
Documents, and the related consolidated statements of income, changes in
stockholders' equity and changes in cash flows for the periods then ended,
including the footnotes thereto, except as indicated therein, have been prepared
in accordance with generally accepted accounting principles consistently
followed throughout the periods indicated, except that unaudited financial
statements contained therein do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments and fairly present the financial
condition of the Company and its consolidated Subsidiaries as of and for the
dates thereof and, except as indicated therein, reflects all claims against and
all material debts and liabilities of the Company and its consolidated
Subsidiaries, fixed or contingent, as at and for the dates thereof; and the
related statements of income, stockholders' equity and changes in cash flows
fairly present the results of the operations of the Company and its consolidated
Subsidiaries and the changes in financial position for the period indicated.
Since the date of the financial statements included in the Company's last filed
Quarterly Report on Form 10-Q, there has been no event, occurrence or
development that has had a Material
-11-
<PAGE>
Adverse Effect which is not specifically disclosed in any of the Disclosure
Materials.
(l) Form S-3 Eligibility. The Company is eligible to register for
--------------------
resale securities with the Commission under Form S-3 promulgated under the
Securities Act.
(m) Investment Company. The Company is not, and following the Closing
------------------
and issuance of the Convertible Debentures and the Shares will not be, nor is it
an Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(n) Solicitation Materials. The Company has not (i) distributed any
----------------------
offering materials in connection with the offering and sale of the Convertible
Debentures, the Shares, the Warrants, the Underlying Shares or the Warrant
Shares other than the Disclosure Materials or (ii) solicited any offer to buy or
sell the Convertible Debentures, the Shares, the Warrants, the Underlying Shares
or the Warrant Shares by means of any form of general solicitation or
advertising.
(o) Margin Requirements. The Company does not intend to, and will not,
--------------------
use the proceeds of the offer and sale of the Convertible Debentures, Shares and
Warrants hereunder, directly or indirectly, immediately, incidentally or
ultimately, (i) to purchase or carry Margin Stock (as such term is defined under
Regulation U of the Board of Governors of the Federal Reserve System, as in
effect from time to time) or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
Section 3.2. Representations and Warranties of the Purchasers. Each
------------------------------------------------
of the Purchasers, severally and not jointly, hereby represents and warrants to
the Company as follows:
(a) Organization; Authority. Such Purchaser is a corporation duly
-----------------------
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement, Transfer Agent Agreement and otherwise
to carry out its obligations hereunder and thereunder. The acquisition of the
Convertible Debentures and Shares to be purchased by such Purchaser hereunder
has been duly authorized by all necessary action on the part of such Purchaser.
Each of this
-12-
<PAGE>
Agreement and the Registration Rights Agreement has been duly executed and
delivered by such Purchaser and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other general
principles of equity.
(b) Investment Intent. Such Purchaser is acquiring the Convertible
-----------------
Debentures, Shares and the Warrant to be purchased by it hereunder, and the
Underlying Shares and the Warrant Shares relating to such Convertible
Debentures, Shares and Warrants, for its own account for investment purposes
only and not with a view to or for distributing or reselling such Convertible
Debentures, Shares, Underlying Shares, Warrant or Warrant Shares or any part
thereof or interest therein, without prejudice, however, to such Purchaser's
right, subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of such
Convertible Debentures, Shares, Underlying Shares, Warrant or Warrant Shares
pursuant to under an effective registration statement under the Securities Act
or pursuant to an available exemption from the registration requirements
thereunder and in compliance with applicable state securities laws.
(c) Purchaser Status. At the time such Purchaser was offered the
----------------
Convertible Debentures, Shares and Warrant to be acquired by it hereunder, it
was and at the date hereof, it is, and at each date it exercises Warrants it
will be, an "accredited investor" as defined in Rule 501(a) under the Securities
Act.
(d) Investment Company. The Purchaser is not, and following the
------------------
Closing and issuance of the Convertible Debentures and Shares will not be, nor
is it an Affiliate of an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(e) Experience of Purchaser. Such Purchaser, either alone or together
-----------------------
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of an investment in the securities to be acquired by it hereunder, and has
so evaluated the merits and risks of such investment.
(f) Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
-----------------------------------------------
able to bear the economic risk of an investment in the securities to be acquired
by it hereunder and, at the pre sent time, is able to afford a complete loss of
such investment.
-13-
<PAGE>
(g) Prohibited Transactions. The securities to be acquired by such
-----------------------
Purchaser hereunder are not being acquired, directly or indirectly, with the
assets of any "employee benefit plan", within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(h) Access to Information. Such Purchaser acknowledges receipt of the
---------------------
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the securities offered hereunder and the merits and risks of investing in
such securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in such securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials.
(i) Reliance. Such Purchaser understands and acknowledges that (i) the
--------
Convertible Debentures, the Shares and the Warrants being offered and sold to it
hereunder are being offered and sold without registration under the Securities
Act in a private placement that is exempt from the registration provisions of
the Securities Act under Regulation D promulgated thereunder and (ii) the
availability of such exemption, depends in part on, and that the Company will
rely upon the accuracy and truthfulness of, the foregoing representations and
such Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
-----------
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
Section 4.1. Transfer Restrictions. (a) If any Purchaser should
---------------------
decide to dispose of any portion of the principal amount of the Convertible
Debentures, any of the Shares or any portion of the Warrant to be purchased by
it hereunder (and upon conversion or exercise thereof, any Underlying Shares or
Warrant
-14-
<PAGE>
Shares, as applicable), such Purchaser understands and agrees that it
may do so only (i) pursuant to an effective registration statement under the
Securities Act, (ii) to the Company or (iii) pursuant to an available exemption
from registration under the Securities Act. No Purchaser may dispose of any
portion of such securities pursuant to clause (iii) in the immediately prior
sentence unless such Purchaser provides prior written notice thereof to the
Company and complies with the provisions of the immediately following sentence.
In connection with any transfer of any Convertible Debentures, Warrants,
Underlying Shares or Warrant Shares other than pursuant to an effective
registration statement or to the Company, the Company may require that the
transferor provide to the Company an opinion of counsel experienced in the area
of United States securities laws selected by the transferor, the form and
substance of which opinion shall be reasonably satis factory to the Company, to
the effect that such transfer of such Convertible Debentures, Shares, Warrants,
Underlying Shares or Warrant Shares, as the case may be, is being made in
compliance with the Securities Act.
(b) The Purchasers agree to the imprinting, so long as required by the
terms of this Section 4.1(b), of the following legend on certificates
representing the Convertible Debentures, the Shares, the Underlying Shares, the
Warrants and the Warrant Shares to be modified as applicable:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE [OR EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS.
[THIS WARRANT IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH
IN AN AMENDED AND RESTATED CONVERTIBLE DEBENTURE AND CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT, DATED AS OF MARCH 18, 1997, BETWEEN THE COMPANY
AND THE ORIGINAL HOLDER HEREOF. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF YES! ENTERTAINMENT CORPORATION.]
The legend set forth above shall be removed upon the conversion of
Convertible Debentures or Shares or exercise of Warrants represented by such
certificate at any time after an Underlying Securities Registration Statement
has been declared, and
-15-
<PAGE>
so long as such Underlying Securities Registration Statement remains effective
under the Securities Act or, if not converted during such time, at such other
time as in the opinion of counsel to the Company experienced in the area of
United States securities laws such legend is no longer required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The certificates
representing the Convertible Debentures, Shares, Warrants, Underlying Shares and
Warrant Shares shall also bear any other legends required by applicable Federal
or state securities laws, which legends may be removed as set forth above in the
immediately preceding sentence, or, with respect to legends required pursuant to
state securities laws, when such legends are no longer required under the
applicable requirements of such securities laws. The Company agrees that it will
provide each Purchaser, upon request, with a substitute certificate or
certificates, free from such legend at such time as such legend is no longer
applicable. Each Purchaser agrees that, in connection with any transfer of
Underlying Shares or Warrant Shares by it pursuant to an effective registration
statement under the Securities Act, such Purchaser will comply with all
applicable prospectus delivery requirements of the Securities Act. The Company
makes no representation, warranty or agreement as to the availability of any
exemption from registration under the Securities Act with respect to any resale
of the Convertible Debentures, Shares, Underlying Shares, Warrants or Warrant
Shares.
Section 4.2. Stop Transfer Instruction. For so long as an
-------------------------
Underlying Securities Registration Statement is effective, the Company may not
issue any stop transfer instruction or make any notation on its records with
respect thereto to any transfer agent (including the Transfer Agent) of the
Company and shall issue shares of Common Stock upon a conversion of Convertible
Debentures or Shares or exercise of Warrants in accordance with Section 4.1.
Section 4.3. Furnishing of Information. (a) As long as any
-------------------------
Purchaser owns Convertible Debentures, Shares, Underlying Shares, Warrants or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof) all reports required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly
furnish each Purchaser with true and complete copies of all such filings. If the
Company is not at the time required to file reports pursuant to such sections,
it will prepare and furnish to each Purchaser annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act in the time period that such filings
-16-
<PAGE>
would have been required to have been made under the Exchange Act.
(b) The Company shall deliver copies to the Purchasers of any
documents or financial statements it delivers to BNY pursuant to Section 11(a),
11(b) or 11(c/d) of the Receivables Agreement concurrently with such delivery to
BNY, provided that the Company shall not be obligated to deliver the
accountant's consent required under Section 11 of the Receivables Agreement and
shall not deliver to the Purchasers the other materials it is required to
deliver to BNY under such Section 11.
Section 4.4. Copies and Use of Disclosure Materials. The Company
--------------------------------------
consents to the use of the SEC Documents, and any amendments and supplements
thereto, by the Purchasers in connection with resales of the Underlying Shares
or the Warrant Shares to the extent such resales are not pursuant to an
effective registration statement.
Section 4.5. Blue Sky Laws. The Company shall qualify the Underlying
-------------
Shares and the Warrant Shares under the securities or Blue Sky laws of such
jurisdictions as each Purchaser may request and shall continue such
qualification at all times through the third anniversary of the Closing Date;
provided, however, that the Company shall not be required in connection
- -------- -------
therewith to qualify as a foreign corporation where it is not now so qualified,
or take any action that would subject the Company to general service of process
in any such jurisdiction where it is not then so subject or subject the Company
to any material tax in any such jurisdiction where it is not then so subject.
Section 4.6. Integration. The Company shall not and shall use its
-----------
best efforts to ensure that no Affiliate shall sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Convertible Debentures, the Shares, the Warrants, the Underlying Shares
or the Warrant Shares in a manner that would require the registration under the
Securities Act of the sale of the Convertible Debentures, the Shares, the
Warrants, the Underlying Shares or the Warrant Shares to the Purchasers.
Section 4.7. Certain Agreements. From the date hereof through the
------------------
third anniversary hereafter, the Company shall not and shall cause the
Subsidiaries not to, without the consent of the Purchasers, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Purchasers under the Transaction Documents;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire in
-17-
<PAGE>
excess of 10,000 shares of its Common Stock, other than shares which may be
repurchased from employees of the Company in connection with the termination of
their employment with the Company; or (iii) enter into any agreement with
respect to any of the foregoing.
The Company may not force any conversion or call a redemption of any
portion of the principal amount of the Convertible Debentures until such time as
all of the Shares have been converted or redeemed in accordance with the terms
hereof and the Certificate of Designation.
Section 4.8. Purchaser Ownership of Common Stock. No Purchaser may
-----------------------------------
use its ability to convert the Convertible Debentures or Shares issued to it
hereunder or to use its ability to acquire shares of Common Stock upon exercise
of the Warrant to be issued to it pursuant to the terms hereof to the extent
that such conversion or exercise would result in that Purchaser beneficially
owning (for purposes of Rule 13d-3 under the Exchange Act) more than 4.9% of the
outstanding shares of the Common Stock; provided, however, that the provisions
-------- -------
of this Section 4.8 shall not apply to any forced conversion by the Company
pursuant to Section 4(b) of the Convertible Debentures or pursuant to Section
5(b) of the Certificate of Incorporation and, provided, further, that if 10 days
-------- -------
have elapsed since a Purchaser shall have declared an "Event of Default" (as
such term is defined in the Convertible Debentures), the provisions of this
Section 4.8 shall be null and void ab initio.
- ----------- ------
Section 4.9. Listing of Underlying Shares. The Company shall, within
----------------------------
seven (7) Business Days of the Closing Date, file with the Nasdaq Stock Market
an additional shares listing application covering the listing of an aggregate of
4,325,591 Underlying Shares and Warrant Shares and shall take all steps
necessary to cause such application to be approved as soon as possible
thereafter. The Company shall also take all steps necessary to cause such
shares to be listed on any other national securities exchange or market on which
the Common Stock is then listed as soon as possible after the Closing Date. The
Company shall provide to each Purchaser evidence of such filings and listings,
and shall maintain such listings as long as any Purchaser holds Convertible
Debentures, Shares, Warrants, Underlying Shares or Warrant Shares. In the event
the aggregate number of Underlying Shares and Warrant Shares exceeds 4,325,591,
the Company shall promptly file one or more appropriate listing applications to
continually list for trading a number of such additional shares, as the Company
and the Purchasers shall reasonably agree.
-18-
<PAGE>
Section 4.10. Purchaser's Rights if Trading in Common Stock is Suspended
----------------------------------------------------------
or Delisted. In the event that at any time within the three-year period after
- -----------
the date hereof, trading in the shares of the Common Stock is suspended on or
delisted from the Nasdaq National Market (other than as a result of the
suspension of trading in securities on such market generally or temporary
suspensions pending the release of material information and other than a
suspension of trading if the Common Stock is quoted on the Nasdaq SmallCap
Market within one Business Day after such suspension), at each Purchaser's
option exercisable by five Business Days prior written notice to the Company,
the Company shall repurchase and redeem as applicable, all of the Convertible
Debentures, Shares, Warrants, Underlying Shares and Warrant Shares owned by such
Purchaser at an aggregate purchase price equal to the sum of (I)(A) the product
of (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (a) the day of such notice or (b) the date of payment in
full of the repurchase price calculated under this Section 4.10, whichever is
greater, multiplied by (2) the Conversion Ratio on the date of the repurchase
notice, (II) the Warrant Repurchase Price, (III) the number of Underlying Shares
and Warrant Shares then held by such Purchaser multiplied by the average Per
Share Market Value for the five (5) Trading Days immediately preceding (A) the
date of the notice or (B) the date of payment in full by the Company of the
repurchase price calculated under this Section 4.10, whichever is greater, and
(IV) interest on such amounts set forth in I - III above accruing from the 7th
day after such notice until the repurchase price under this Section 4.10 is paid
in full at the rate 15% per annum.
Section 4.11. No Violation of Applicable Law. Notwithstanding any
------------------------------
provision of this Agreement to the contrary, if any repurchase or redemption
otherwise required under this Agreement or the Registration Rights Agreement
would be prohibited by the relevant provisions of Delaware General Corporation
Law, such repurchase shall not be effected unless and until it is permitted
under such law; provided, however, that interest payable by the Company with
-------- -------
respect to any such repurchase or redemption shall continue to accrue in
accordance with Section 4.10.
------------
Section 4.12. Repurchase Restrictions. Notwithstanding any provision of
-----------------------
this Agreement to the contrary, if any repurchase or redemption otherwise
required under this Agreement or the Registration Rights Agreement would be
prohibited in the absence of consent from any lender of the Company or any of
the Subsidiaries, or by the holders of any class of securities of the Company,
the Company shall use its best efforts to obtain such consent as promptly as
practicable after the repurchase or redemption is required and such repurchase
or redemption shall not be effected
-19-
<PAGE>
unless and until such consent is obtained. Interest payable by the Company with
respect to any such repurchase or redemption shall continue to accrue until such
consent is obtained and the repurchase price therefor paid. Nothing contained in
this Section 4.12 shall be construed as a waiver by the Purchaser of any rights
------------
it may have by virtue of any breach of any representation or warranty of the
Company herein as to the absence of any requirement to obtain any such consent.
Section 4.13. Legal Opinion. The Company shall cause the legal opinions
-------------
of Wilson Sonsini Goodrich & Rosati, P.C. in the form of Exhibit D, to be
delivered at the Closing.
Section 4.14. Notice of Breaches. Each of the Company and each
------------------
Purchaser shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to, with respect to the Closing, which would
reasonably be likely to cause any representation or warranty or other agreement
of such party, as the case may be, contained herein to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to
this Section 4.14 shall be deemed to cure any breach of any representation,
------------
warranty or other agreement contained herein or in the Registration Rights
Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify each Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contem plated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Convertible Debentures and Shares a copy of any written
statement in support of or relating to such claim or notice.
Section 4.15. The Warrants. At the Closing, the Company will issue
------------
warrants to purchase an aggregate of 300,000 shares of Common Stock as specified
in Schedule 2.1(b) hereto and as follows: (i) to or as directed by Fairway, a
Common Stock purchase warrant, in the form of Exhibit D(1) (the "Fairway
------------ -------
Warrant"), pursuant to which Fairway shall have the right at any time thereafter
through the Expiration Date (as such term is defined in the Warrants) thereof,
to acquire the amount, specified on Schedule 2.1(b) hereto, of shares of Common
Stock at the Warrant Exercise Price and (ii) to or as directed by Infinity, a
Common Stock purchase warrant, in the form of Exhibit D(2) (the "Infinity
------------ --------
Warrant"), pursuant to which Infinity shall have the right at any time
- -------
-20-
<PAGE>
thereafter through the Expiration Date thereof, to acquire the amount, specified
on Schedule 2.1(b) hereto, of shares of Common Stock at the Warrant Exercise
Price per share. The Infinity Warrant, the Fairway Warrant and any other
warrants specified on Schedule 2.1(b) hereto are each referred to herein as a
"Warrant" and are collectively referred to herein as the "Warrants."
Section 4.16. Conversion Procedures. Exhibit F sets forth the
--------------------- ---------
procedures that are to followed in addition to the tendering of a Conversion
Notice hereunder with respect to the conversion of the Convertible Debentures or
Shares including the form of legal opinion, if necessary, that shall be rendered
to the Transfer Agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to exercise its right of
conversion smoothly and expeditiously.
Section 4.17. Transfer Agent. The First National Bank of Boston and
--------------
State Street Bank shall act as transfer agents (the "Transfer Agent") of the
--------------
Company. The Company may not remove or replace either Transfer Agent as its
transfer agent without written consent of the Purchasers.
Section 4.18. Right of First Refusal. Except for sales of stock to key
----------------------
employees and Company matching contributions pursuant to the Company's 401(k)
plan, for a period of one year commencing the date hereof, the Company may not
enter into any transaction with a Person other than the Purchasers to sell or
otherwise dispose of securities in any transaction intended not to be subject to
the registration requirements of the Securities Act (a "Private Placement"),
-----------------
unless the Company first provides a written notice (the "Private Placement
-----------------
Notice") to each Purchaser describing the terms and conditions of such Private
- ------
Placement (to which the Company shall attach any written term sheet or other
similar writing with respect thereto). Each Purchaser shall have the right,
exercisable within five (5) Business Days of its receipt of such notice, to
provide the Company with a written notice of its intention to provide the
financing described in the Private Placement Notice on terms no less favorable
to the Company than as set forth in the Private Placement Notice. If the
Purchasers indicate a desire to provide, in the aggregate, in excess of the
financing requested in the Private Placement Notice, each Purchaser shall have
the right to provide up to such portion of the Private Placement as corresponds
to the portion, expressed as a percentage, that the principal amount of
Convertible Debentures and stated values of Preferred Stock, then held by such
Purchaser bears to the aggregate principal amount of Convertible Debentures in
the aggregate, then outstanding. If any Purchaser shall fail to elect to
provide its respective pro rata portion of the Private Placement financing, the
other Purchasers shall be entitled to provide a pro
-21-
<PAGE>
rata portion (determined in the manner referenced above) of such shortfall. If
the Purchasers fail to elect to exercise the right of first refusal set forth in
this Section, then the Company (subject to the terms of the engagement letter
agreement between the Company and Brown Simpson, LLC) may consummate the Private
Placement on the terms and to the Persons (or Affiliates of such Persons) set
forth in the Private Placement Notice; provided, however, that if the Company
-------- -------
shall fail to consummate such Private Placement within forty-five (45) days
after the date of the Private Placement Notice relating thereto, the Company may
not consummate such Private Placement without again complying with the terms of
first refusal set forth in this Section. The provisions of this Section shall
not apply to any issuance of Company securities pursuant to a bona fide employee
stock option, stock purchase or non-employee director plan duly adopted by the
Company.
Section 4.19. Restriction on Debt. The Company covenants and agrees
-------------------
that from and after the date hereof and so long as any of the Convertible
Debentures remain outstanding, or the Company shall have any obligation to the
Purchasers hereunder or pursuant hereto, the Company shall not, and shall not
permit any Subsidiary to, without the prior written consent of the Purchasers in
each instance incur, create, assume, guarantee or suffer to exist, or become or
remain liable directly or indirectly, for or on account of any indebtedness,
obligations or liabilities that rank pari passu with or senior to the
---- -----
indebtedness, obligations and liabilities represented by the Convertible
Debentures, except under the BNY Bank Obligations.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1. Fees and Expenses. Each party shall pay the fees and
-----------------
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
set forth in the Registration Rights Agreement. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of the
Convertible Debentures and Shares pursuant hereto. Each Purchaser shall be
responsible for such Purchaser's own tax liability that may arise as a result of
the investment hereunder or the transactions contemplated by this Agreement.
Section 5.2. Entire Agreement; Amendments. This Agreement, together
----------------------------
with the Exhibits and Schedules hereto, the definitive Convertible Debentures,
the Certificate of Designation, the Registration Rights Agreement and the
Warrants contain the
-22-
<PAGE>
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
Section 5.3. Notices. Any and all notices or other communications
-------
or deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (Eastern
Standard Time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 4:30
p.m. (Eastern Standard Time) on any date and earlier than 11:59 p.m. (Eastern
Standard time) on such date, (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be:
If to the Company: YES! Entertainment Corporation
3875 Hopyard Road
Pleasanton, CA 94588
Attn: Donald Kingsborough
Facsimile No.: (510) 734-0997
With copies to: Wilson Sonsini Goodrich &
Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Attn: Richard Char
Facsimile No.: (415) 493-6811
If to any Purchaser:
27 Wellington Road
Cork, Ireland
Attn: J. A. Loughran
Facsimile No.: 011-44-171-355-4975
With copies to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1209 Avenue of the Americas
New York, NY 10019
Attn: Eric L. Cohen
Facsimile No.: (212) 541-4630
and
-23-
<PAGE>
Mr. Stuart Chasanoff
c/o HW Finance
160 Elm Street, Suite 4000
Dallas, Texas 75201
Facsimile No.: (214) 720-1662
and
Brown Simpson, LLC
Carnegie Hall Tower
152 West 57th Street, 40th Floor
New York, NY 10019
Attn: James R. Simpson
Facsimile No.: (212) 247-1329
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 5.4. Amendments; Waivers. No provision of this Agreement may
-------------------
be waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 5.5. Headings. The headings herein are for convenience
--------
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
Section 5.6. Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchasers may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except that each Purchaser may assign its rights hereunder
and under the Registration Rights Agreement to an Affiliate thereof, provided,
that such assignee demonstrates to the reasonable satisfaction of the Company
its satisfaction of the representations and warranties set forth in Section 3.2
-----------
herein. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
-24-
<PAGE>
Section 5.7. No Third-Party Beneficiaries. This Agreement is
----------------------------
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person, except that the representations,
warranties and other agreements contained herein of the Company are intended for
the benefit of and may be relied upon and enforced by Brown Simpson, LLC to the
extent such representations, warranties and agreements relate to the Warrant to
be delivered to Brown Simpson, LLC.
Section 5.8. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof.
Section 5.9. Survival. Each of (i) the representations and
--------
warranties of the Company and the Purchaser contained in Article III and the
-----------
agreements and covenants of the parties contained in Article IV and this Article
---------- -------
V shall survive until a date that is three years after the last Closing date.
- -
Section 5.10. Counterpart Signatures. This Agreement may be executed in
----------------------
two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
Section 5.11. Publicity. The Company and the Purchasers shall consult
---------
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except for such releases or public
statements that are required by law.
Section 5.12. Severability. In case any one or more of the
------------
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable
-25-
<PAGE>
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
Section 5.13. Remedies. In addition to being entitled to exercise all
--------
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be entitled to specific
performance of the obligations of the Purchasers hereunder with respect to the
subsequent transfer of Convertible Debentures, Shares and the Underlying Shares.
Each of the Company and the Purchasers agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
-26-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first indicated above.
YES! ENTERTAINMENT CORPORATION
/s/DONALD D. KINGSBOROUGH
By: _______________________________________
Name: Donald D. Kingsborough
Title: Chief Executive Officer
[PURCHASERS' SIGNATURE PAGE FOLLOWS]
<PAGE>
INFINITY INVESTORS LIMITED
/s/J. A. LOUGHRAN
By: _________________________________________
Name: J. A. Loughran
Title: Director
FAIRWAY CAPITAL LIMITED
/s/JAMES E. MARTIN
By: _________________________________________
Name: James E. Martin
Title: President
<PAGE>
Schedule 2.1(b)
---------------
Entity to Receive Securities to be
- ----------------- ----------------
Securities Purchased and Issued
- ---------- --------------------
Infinity Investors Limited Convertible Debentures in a
Principal Amount of $1,410,000
76,500 shares of Preferred Stock
Warrants to Purchase 202,500 shares
of Common Stock
Fairway Capital Limited Convertible Debentures in a
Principal Amount of $156,667
8,500 shares of Preferred Stock
Warrants to Purchase 22,500 shares
of Common Stock
Brown Simpson, LLC Warrants to Purchase 75,000 shares
of Common Stock
<PAGE>
EXHIBIT 4.4
-----------
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (this
"Agreement") is made and entered into as of March 18,1997 by and between
- ----------
Infinity Investors Limited, a corporation organized and existing under the laws
of Nevis, West Indies ("Infinity"), Fairway Capital Limited, a corporation
--------
organized and existing under the laws of Nevis, West Indies ("Fairway") (each a
-------
"Purchaser," and collectively, the "Purchasers") and YES! Entertainment
--------- ----------
Corporation, a Delaware corporation (the "Company").
-------
WHEREAS, the Company and the Purchasers are parties to that certain
Registration Rights Agreement, dated as of January 28, 1997 (the "January
-------
Registration Rights Agreement"), which was executed pursuant to that certain
- -----------------------------
Convertible Debenture Purchase Agreement, dated as of January 28, 1997, between
the Purchasers and the Company (the "January Purchase Agreement");
--------------------------
WHEREAS, the Purchasers and the Company are entering into an Amended
and Restated Convertible Debenture and Convertible Preferred Stock Purchase
Agreement, which shall supersede in its entirety the January Purchase Agreement
(the "Amended and Restated Purchase Agreement");
---------------------------------------
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Amended and Restated Purchase Agreement that the parties
supersede in its entirety the January Registration Rights Agreement in order to
govern the registration obligations of the Company with respect to the
securities to be issued by the Company under the Amended and Restated Purchase
Agreement;
NOW, THEREFOR, the Company and the Purchasers hereby agree as follows:
1. Definitions
-----------
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Amended and Restated Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:
<PAGE>
"Advice" shall have meaning set forth in Section 3(o).
------ ------------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
-------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
---------- ----------- ----------
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" shall have the meaning set forth in the Amended and
------------
Restated Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's Common Stock, par value $.001 per
------------
share, stock of any other class into which such shares may hereafter be
reclassified or changed and any other securities hereafter designated as Common
Stock of the Company.
"Debentures" means the 5% Convertible Debentures delivered to the
----------
Purchasers pursuant to the Amended and Restated Purchase Agreement.
"Effectiveness Date" means May 5, 1997.
------------------
"Effectiveness Period" shall have the meaning set forth in Section
-------------------- -------
2(a).
- ----
"Event" shall have the meaning set forth in Section 4.
----- ---------
"Event Date" shall have the meaning set forth in Section 4.
---------- ---------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Filing Date" means March 24, 1997.
-----------
-2-
<PAGE>
"Holder" or "Holders" means the holder or holders, as the case may be,
------ -------
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 6(c).
----------------- ------------
"Indemnifying Party" shall have the meaning set forth in Section 6(c).
------------------ ------------
"Losses" shall have the meaning set forth in Section 6(a).
------ ------------
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series A Convertible Preferred
---------------
Stock, par value $.001 per share, of the Company issued to the Purchasers
pursuant to the Amended and Restated Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
----------------------
upon conversion of the Debentures and the Preferred Stock and exercise of
warrants delivered by the Company to each Purchaser and warrants held by Brown
Simpson, LLC in connection with the transactions contemplated by the Amended and
Restated Purchase Agreement; provided, however that in order to account for the
-------- -------
fact that the number of shares of Common Stock that are issuable upon conversion
of Debentures and shares of
-3-
<PAGE>
Preferred Stock are determined in part upon the market price of the Common Stock
at the time of conversion, Registrable Securities shall include a number of
shares of Common Stock equal to no less than the sum of (1) two times the number
of shares of Common Stock issuable upon conversion in full of the Debentures and
the Preferred Stock, assuming such conversions occurred on the Closing Date and
(2) the number of shares of Common Stock issuable upon exercise in full of the
warrants described herein or such other number of shares of Common Stock as
agreed to by the parties to the Amended and Restated Purchase Agreement.
Notwithstanding anything herein contained to the contrary, if the actual number
of shares of Common Stock issuable upon conversion in full of the Debentures and
the Preferred Stock and exercise of all of the warrants contemplated under the
Amended and Restated Purchase Agreement exceeds twice the number of shares of
Common Stock issuable if such conversions and exercise occurred on the Closing
Date, the term "Registrable Securities" shall be deemed to include such
additional shares of Common Stock and the Company shall promptly file
appropriate amendments to the Registration Statement to evidence such increase
or the Company shall file one or more additional Registration Statements
covering such additional shares of Common Stock, in either case, in the time
contemplated herein for filing of appropriate amendments or additional
Registration Statements in accordance with the terms hereof.
"Registration Statement" means the registration statement,
----------------------
contemplated by Section 2(a), including the Prospectus, amendments and
------------
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
---------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted
-4-
<PAGE>
by the Commission having substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Special Counsel" means any special counsel to the Holders, for which
---------------
the Holders will be reimbursed by the Company pursuant to Section 5.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
------------------
On or prior to the Filing Date the Company shall prepare and file with
the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 or another appropriate
form approved by the Holders of a majority of the Registrable Securities that
permit registration of Registrable Securities for resale by the Holders in the
manner or manners designated by them (including, without limitation, public or
private sales and one or more Underwritten Offerings). The Company shall (i)
not permit any securities other than the Registrable Securities to be included
in the Registration Statement and (ii) use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is three years after the
date that such Registration Statement is declared effective by the Commission or
such earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold pursuant to Rule 144 without volume
restrictions as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Holders, to such effect (the "Effectiveness
-------------
Period"); provided, however, that the Company shall not be deemed to have used
- ------ -------- -------
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the
-5-
<PAGE>
Company has filed a post-effective amendment to the Registration Statement and
the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pur suant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
--------
Securities in such Underwritten Offering. In the event the Board of Directors
determines in good faith that effecting an Underwritten Offering would have a
Material Adverse Effect (as such term is defined in the Amended and Restated
Purchase Agreement) on the Company, the Company may delay effecting the
Underwritten Offering for up to 60 days. The Board of Directors shall provide
written notice to the Holders electing the Underwritten Offering of its decision
to delay the Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering and the
Holders shall notify the Company of such selection. No Holder may participate in
any Underwritten Offering hereunder unless such Person (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
arrangements.
3. Registration Procedures
-----------------------
In connection with the Company's registration obliga tions hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 in accordance with the method or
methods of distribution thereof as specified by the Holders, and cause the
Registration Statement to become effective and remain effective as provided
herein;
-6-
<PAGE>
provided, however, that not less than five (5) Business Days prior to the filing
- -------- -------
of such Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or deemed
to be incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities, their Special Counsel, or any managing underwriters, shall
reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep such Registration Statement continuously effective as to all
of the Registrable Securities for the three year period commencing on the date
the Registration Statement is originally declared effective by the Commission
and prepare and file with the Commission such additional Registration Statements
in order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; (iii) respond as promptly as practicable to any
comments received from the Commission with respect to the Registration Statement
or any amendment thereto; and (iv) comply with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders thereof set
forth in the Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1)
-7-
<PAGE>
Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Regis tration Statement is
proposed to be filed; and (B) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company
-------- -------
-8-
<PAGE>
shall not be required to take any action pursuant to this Section 3(e) that
------------
would, in the opinion of counsel for the Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securi ties covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
-------- --------
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, and
-9-
<PAGE>
to enable such Registrable Securities to be in such denominations and registered
in such names as any such managing underwriters or Holders may request at least
two Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
----------------
promptly as practicable, prepare a supple ment or amendment, including a post-
effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on the Nasdaq National Market and any
other securities exchange, market or over-the-counter bulletin board, if any, on
which similar securities issued by the Company are then listed.
(l) Enter into such agreements (including, in case of an Underwritten
Offering, an underwriting agreement in form, scope and substance as is customary
in Underwritten Offerings) and take all such other actions in connection
therewith (including those reasonably requested by any managing underwriters and
the Holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public offerings,
and confirm the same if and when requested; (ii) obtain and deliver copies
thereof to each Holder and the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each selling Holder and
each such underwriter, in form, scope and substance reasonably satisfactory to
any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, obtain and
deliver copies to the Holders and the managing underwriters, if any, of "cold
comfort" letters and
-10-
<PAGE>
updates thereof from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed to each selling Holder and each of the
underwriters, if any, in form and substance as are customary in connection with
Underwritten Offerings; (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the underwriters, if any, than those set forth in
Section 6 (or such other provisions and procedures acceptable to the managing
- ---------
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Under written Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
-------- -------
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be disclosed only to
the extent that each such Person executes a confidentiality agreement providing
that such information will be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities; (ii) disclosure
of such information, in the opinion of counsel to such Person, is required by
law; (iii) such information becomes generally available to the public other than
as a result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known
-11-
<PAGE>
by such Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the Commission
and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
not later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm commitment or best efforts Underwritten Offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date of the
Registration Statement, which statement shall cover said 12-month period, or end
shorter periods as is consistent with the requirements of Rule 158.
(o) Provide a CUSIP number for all Registrable Securities, not later
than the effective date of the Registration Statement.
The Company may require each selling Holder to furnish to the Company
such information regarding the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement and the Company
may exclude from such registration the Registrable Securities of any such Holder
who unreasonably fails to furnish such information within a reasonable time
after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities is not to be construed as a rec
ommendation by such Holder of the investment quality of the Company's securities
covered thereby and that such ownership does not imply that such Holder will
assist in meeting any future financial requirements of the Company, or (ii) if
such reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force, the deletion of the
reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
Each Purchaser covenants and agrees that (i) it will not offer or sell
any Registrable Securities under the Registration Statement until it has
received copies of the
-12-
<PAGE>
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
------------
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
------------
(ii) each Purchaser and its officers, directors or Affiliates, if any, will
comply, and will advise their brokers and agents to comply, with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
---------------- --------- -------- -------
3(c)(vi), such Holder will forthwith (and will advise any brokers or agents
- --------
reselling Underlying Shares on their behalf pursuant to such Registration
Statement to) discontinue disposition of such Registrable Securities and use of
the Prospectus until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
------------
or until it is advised in writing (the "Advice") by the Company that the use of
------
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration Statement.
4. Liquidated Damages. The Company acknowledges and agrees that the
------------------
Holders will suffer damages, and that it would not be feasible to ascertain the
extent of such damages with precision, if the Company fails to fulfill its
obligations hereunder and (a) a Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date, (b) trading in the
Common Stock shall be suspended for any reason for more than three trading days,
(c) a Registration Statement is filed and declared effective by the Commission
but thereafter ceases to be effective at any time during the Effectiveness
Period without being succeeded within 10 Business
Days by a subsequent Registration Statement filed with and declared effective by
the Commission and (d) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Exchange
Act within five (5) days of the date that the Company is notified by the
Commission that an Underlying Shares Registration Statement will not be reviewed
(any such failure being hereinafter referred to as an "Event", and for purposes
-----
of clause (a) the date on which such Event occurs, for purposes of clause (b)
the date on which such 3-day limit is succeeded, for purposes of clause (c) the
date on which such 10-day limit is exceeded or for purposes of
-13-
<PAGE>
clause (d) the date on which such 5-day limit is exceeded, being hereinafter
referred to as an "Event Date"), then the discount comprising the "Initial
----------
Conversion Price" (as such term is defined in the Debentures and in the
Certificate of Designation relating to the Preferred Stock, as applicable), as
adjusted, and the discount comprising the "Conversion Price" (as such term is
defined in the Debentures and in the Certificate of Designation relating to the
Preferred Stock, as applicable), if different from the Initial Conversion Price,
shall be decreased by one percent (1%) (i.e., 81.5% as of the Event Date and
80.5% as of the one month anniversary of the Event Date) per month until such
time as the applicable Event is cured. If such Event is not cured by the third
month anniversary of the Event Date, commencing such third month anniversary the
Initial Conversion Price (as adjusted) and the discount comprising the
Conversion Price, if different from the Initial Conversion Price, shall be
decreased each month by .5% (i.e., 80% as of the third anniversary of the Event
Date and 79.5% as of the fourth month anniversary of the Event Date) and the
Company shall pay on each monthly anniversary of the Event Date, in cash as
liquidated damages and not a penalty, (i) to the Holders of outstanding
Debentures, .5% of the aggregate principal amount of the Debentures then
outstanding (each such Holder being entitled to receive such portion of such
amount as equals its pro rata portion of the principal amount of Debentures then
outstanding) and (ii) to each Holder of Preferred Stock then outstanding, .5% of
the aggregate stated values for the outstanding shares of Preferred Stock then
held by such Holder, until such time as the applicable Event is cured. If such
Event is not cured by the fifth month anniversary of the Event Date, the Company
shall pay on each monthly anniversary of the Event Date until such time as the
applicable Event is cured, in cash, as liquidated damages and not a penalty, (i)
to the Holders of outstanding Debentures, 1% of the aggregate principal amount
of the Debentures then outstanding (each such Holder being entitled to receive
such portion of such amount as equals its pro rata portion of the principal
amount of Debentures then outstanding) and (ii) to each Holder of Preferred
Stock then outstanding, 1% of the aggregate stated values for the outstanding
shares of Preferred Stock then held by such Holder. The provisions of this
Section are not exclusive and shall in no way limit the Company's obligations
under the Debentures, the Certificate of Designation relating to the Preferred
Stock or the Amended and Restated Purchase Agreement.
The Company shall notify each Holder within five (5) days of each
Event and Event Date. The Company shall pay the liquidated damage due on the
Registrable Securities to each
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<PAGE>
Holder of record as at the Event Date on the first Business Day of each month in
which such liquidated damages shall accrue.
5. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company whether or not
the Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The
fees and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
National Associa tion of Securities Dealers, Inc. and (B) in compliance with
state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the underwriters or Holders in connection with Blue
Sky qualifications of the Registrable Securities and determination of the
eligibility of the Regis trable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders as
limited pursuant to Section 5(b), (v) fees and disbursements of all independent
certified public accountants referred to in Section 3(l)(iii) (including,
-----------------
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if the Company so desires such insurance, and (vii) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange on which similar securities
issued by the Company are then listed.
-15-
<PAGE>
(b) In connection with their initial review of the Registration
Statement, the Company shall reimburse the Holders for up to $2000 for the fees
and disbursements of one firm of attorneys chosen by the Holders of a majority
of the Registrable Securities.
6. Indemnification
---------------
(a) Indemnification by the Company. The Company shall, notwithstanding
------------------------------
termination of this Agreement and without limitation as to time, indemnify and
hold harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer or sale of
Registrable Securities), brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
------
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by or on behalf of
such Holder expressly for use therein, which information was reasonably relied
on by the Company for use therein or to the extent that such information relates
to such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
-16-
<PAGE>
(b) Indemnification by Holders. In connection with the Registration
--------------------------
Statement, each Holder shall furnish to the Company in writing such information
as the Company reasonably requests for use in connection with the Registration
Statement or any Prospectus and agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of or based solely upon any untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
- ------------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
--------
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
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further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (in cluding reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regard less of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 6(a) or
------------ ------------
6(b) is unavailable to an Indemnified Party or is insufficient to hold such
- ----
Indemnified Party harmless for any Losses in respect of which this Section would
apply by its
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terms (other than by reason of exceptions provided in this Section), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 6(c), any attorneys' or other fees or expenses incurred by such party
------------
in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
------------ --- ----
allocation or by any other method of allo cation that does not take into
account the equitable considera tions referred to in the immediately preceding
paragraph. Not withstanding the provisions of this Section 6(d), no Purchaser
------------
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Purchaser from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of
any damages that such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
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<PAGE>
7. Rule 144
--------
The Company shall file the reports required to be filed by it under
the Securities Act and the Exchange Act in a timely manner and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of its securities pursuant to Rule 144. The Company further
covenants that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144. Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements. To
the extent Rule 144 is amended, the Company will take such action as any Holder
may reasonably request, to enable such Holder to sell Registrable Securities
pursuant to Rule 144 as then in effect.
8. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder,
---------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the Company nor any of its
--------------------------
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
None of the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that are currently, or may in the future be, in effect. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register
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<PAGE>
any securities of the Company under the Securities Act unless the rights so
granted are subject in all respects to the prior rights in full of the Holders
set forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement. In addition, in any case, the Company may not
register for resale under the Securities Act any securities of the Company held
by any person prior to the expiration of the 60th day following the date that
the Registration Statement has been declared effective by the Commission,
provided that if the effectiveness of such Registration Statement is suspended
for any reason (or if the Underlying Shares are not listed for trading on the
Nasdaq National Market or the Nasdaq SmallCap Market) such 60 day period shall
be increased to include any such days.
(c) No Piggyback on Registrations. None of the Company nor any of its
-----------------------------
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Common Stock to be issued under the Amended and Restated Purchase Agreement, and
the Company shall not enter into any agreement providing any such right to any
of its security holders.
(d) Piggy-Back Registrations. For so long as there is not an effective
-------------------------
Registration Statement in effect relating to the Registrable Securities, if at
any time the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within twenty (20) days after receipt of
such notice, any such holder shall so request in writing, the Company shall
include in such registration statement all or any part of the Registrable
Securities such holder requests to be registered, except that if, in connection
with any Underwritten Offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the registration statement because, in
such underwriter(s)' judgment, such limitation is necessary to effect an orderly
public distribution of securities covered thereby, then the Company shall be
obligated to include in such registration statement only such limited portion of
the Registrable Securities for to which such holder has requested inclusion
hereunder. Any exclusion of Registrable Securities
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<PAGE>
shall be made pro rata among the holders seeking to include Registrable
Securities, in proportion to the number of Registrable Securities sought to be
included by such holders; provided, however, that the Company shall not exclude
--------- -------
any Registrable Securities unless the Company has first excluded all outstanding
securities the holders of which are not entitled by right to inclusion of
securities in such registration statement; and provided, further, however, that,
-------- -------- -------
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in such registration statement. No
right to registration of Registrable Securities under this Section shall be
construed to limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
-------- -------
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
--------- -------
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 4:30 p.m. (Eastern Standard
Time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Amended and Restated Purchase Agreement later
than 4:30 p.m. (Eastern Standard Time) on any date and earlier than 11:59 p.m.
(Eastern Standard time) on such date, (iii) the Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or (iv)
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<PAGE>
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be:
If to the Company: YES! Entertainment Corporation
3875 Hopyard Road
Pleasanton, CA 94588
Attn: Donald Kingsborough
Facsimile No.: (510) 734-0997
With
copies to: Wilson Sonsini Goodrich &
Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Attn: Richard Char
Facsimile No.: (415) 493-6811
If to any Purchaser:
27 Wellington Road
Cork, Ireland
Attn: J. A. Loughran
Facsimile No.: 011-44-171-355-4975
With
copies to: Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10019
Attn: Eric L. Cohen
Facsimile No.: (212) 541-4630
and
Mr. Stuart Chasanoff
c/o HW Finance
160 Elm Street, Suite 4000
Dallas, Texas 75201
Facsimile No.: (214) 720-1662
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer books of the
Company or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the
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<PAGE>
benefit of each Holder. Except as otherwise permitted by the Amended and
Restated Purchase Agreement, the parties hereto may not assign its rights or
obligations hereunder without the prior written consent of each other.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(i) Governing Law; Arbitration. (A) This Agreement shall be governed
--------------------------
by and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law thereof.
(B) All disputes between the parties hereto arising under the
terms of this Agreement shall be arbitrated in New York City under the rules of
the American Arbitration Association then in effect in the City of New York.
Judgment on any award made by the arbitrators hereunder may be rendered in any
court having jurisdiction. The parties consent to the non-exclusive jurisdiction
of the Federal and State courts sitting in New York County, New York, in
connection with the enforcement of such award. The parties agree to keep
confidential any materials, documents or other information that is disclosed in
connection with any arbitration proceeding.
(j) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without
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<PAGE>
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(l) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(m) Shares Held by The Company and its Affiliates. Whenever the
---------------------------------------------
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchasers or transferees or successors or
assigns thereof if such Persons are deemed to be Affiliates solely by reason of
their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
YES! ENTERTAINMENT CORPORATION
/s/DONALD D. KINGSBOROUGH
By:___________________________
Donald D. Kingsborough
Chief Executive Officer
[PURCHASERS' SIGNATURE PAGE FOLLOWS]
<PAGE>
INFINITY INVESTORS LIMITED
/s/J. A. LOUGHRAN
By:___________________________
Name: J. A. Loughran
Title: Director
FAIRWAY CAPITAL LIMITED
/s/JAMES E. MARTIN
By:___________________________
Name: James E. Martin
Title: President
<PAGE>
EXHIBIT 5.1
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Phone: (415) 493-9300
Facsimile: (415) 493-6811
March 24, 1997
YES! Entertainment Corporation
3875 Hopyard Road, Suite 375
Pleasanton, CA 94588
RE: REGISTRATION STATEMENT ON FORM S-3
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 (the
"Registration Statement") to be filed by you with the Securities and Exchange
Commission (the "Commission") on March 24, 1997, in connection with the
registration under the Securities Act of 1933, as amended, of 4,325,591 shares
of Common Stock, par value $.001 per share (the "Securities"). We understand
that the Shares are to be sold sold by the selling stockholders identified in
the Registration Statement to the public as described in the Registration
Statement. As your legal counsel, we have examined the proceedings taken, and
are familiar with the proceedings proposed to be taken, by you in connection
with the sale and issuance of the Common Stock.
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Securities, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Securities, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus constituting a
part thereof, and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and related Prospectus of YES!
Entertainment Corporation for the registration of 4,325,591 shares of its common
stock issued in connection with the conversion of convertible subordinated
debentures and Series A Convertible Preferred Stock and the exercise of certain
Warrants, and to the incorporation by reference therein of our report dated
February 28, 1996, with respect to the consolidated financial statements and
schedule of YES! Entertainment Corporation included in its Annual Report (Form
10-K) for the year ended December 31, 1995, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
March 24, 1997
