<PAGE>
As filed with the Securities and Exchange Commission on August 15, 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)
-------------------------------
DONALD KINGSBOROUGH
CHIEF EXECUTIVE OFFICER
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:
PATRICK A. POHLEN, ESQ.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
(650) 843-5000
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>
===================================================================================================
Title of Securities to be Amount to be Proposed Proposed Amount of
Registered Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Share(1) Offering Price(1)
===================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value 8,118,112 $3.719 $30,191,259 $9,149
$.001 per share
- ---------------------------------------------------------------------------------------------------
</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 August 12, 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
8,118,112 shares of Common Stock (par value $.001 per share)
This Prospectus relates to the offer and sale of up to 8,118,112 shares
of Common Stock (the "Common Stock") of YES! Entertainment Corporation, a
Delaware corporation ("YES!" or the "Company") which may be 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. 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. Any underwriting discounts
and selling commissions, 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 August 12, 1997, the last reported sales price of the
Common Stock as reported on the Nasdaq National Market was $3.8125 per share.
-------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE 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.
-------------------------------
AUGUST 15, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation of Certain Documents by Reference.......................... i
Prospectus Summary....................................................... 1
The Company.............................................................. 1
Risk Factors............................................................. 2
Dividend Policy.......................................................... 6
Selling Stockholders..................................................... 6
Plan of Distribution..................................................... 7
Legal Matters............................................................ 8
Experts.................................................................. 8
Available Information.................................................... 8
</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, 1996; (2) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997; (3) Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997; (4) Proxy Statement for Annual Meeting of Shareholders held
on May 20, 1997; (6) Current Report on Form 8-K filed on February 11, 1997; (7)
Current Report on Form 8-K filed on March 24, 1997; (8) Current Report on Form
8-K filed on August 4, 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.
i
<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.) and YES! EXTREME 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! 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, had
an accumulated deficit of approximately $60.8 million at June 30, 1997, and
incurred a net loss of approximately $5.5 million (a net loss applicable to
Common stockholders of $8.1 million) for the six months ended June 30, 1997.
The Company's executive offices are located at 3875 Hopyard Road, Suite
375, Pleasanton, California 94588 and its telephone number is (510) 847-9444.
1
<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 or incorporates by
reference certain forward-looking statements based on management's expectations
at the time such statements were made. These statements are subject to risks and
uncertainties, including those enumerated below. 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; Risk to
Profitability. The Company has a short operating history, having commenced
operations in November 1992 and shipped its first product in July 1993. Although
the Company has achieved approximately $210 million in cumulative net sales
through June 30, 1997, the Company incurred substantial operating losses in 1993
and 1994, and again in 1996, and at June 30, 1997 had an accumulated deficit of
approximately $60.8 million. Future profitability and the Company's ability to
obtain future financing on favorable terms 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; Increase in Fixed Expenses. 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(R) Ice Cream Maker, Air
Vectors(TM), YES! Extreme(TM), and YES! PreSchool(TM). In addition, the Company
also expects to expand its existing product lines in 1997, particularly its YES!
Gear, Power Penz(TM) and Mrs. Fields(TM) 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. In addition, the Company has increased its fixed expenses in
anticipation of the introduction of the Company's 1997 product
lines. In the event expected sales volumes are not achieved, this increase in
fixed expenses could adversely affect the Company's operating results and
financial condition.
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 YES! Gear, and in particular the Yak Bak(R), and the Power
---------
Penz product lines to continue to account for a substantial percentage of the
Company's business. However, there can be no assurance that the Company will be
able to sustain Yak Bak and Power Penz sales at 1996 levels. See Short Product
Cycles. 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
2
<PAGE>
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
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, and may limit the
Company's ability to accurately forecast reorders creating potential volatility
in the Company's operating results. The limited inventory carried by the
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 locations prior to the peak holiday buying season; these may include
drop-shipment expenses 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's operating results will be adversely affected and
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. The
Company has made adjustments to its 1997 product line to date and expects to
make further adjustments as the year progresses.
Sales Concentration Risk. The Company's ten largest customers accounted for
approximately 85%, 87% and 68% of 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, TRU and Wal-Mart, 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, TRU and Wal-Mart accounted for 14% and 21% 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
3
<PAGE>
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 expects
to make accommodations such as stock balancing, returns, other allowances or
price protection adjustments in 1997. Any significant change in 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 and have claimed deductions to which, upon investigation, they may not be
entitled or which may be overstated. Delays or unanticipated reductions 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.
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 or existing product lines to achieve or sustain market acceptance can create
excess inventory, reduce average selling prices and/or require that the Company
provide retailers with financial incentives, any one or all of which results
would have a material adverse effect on the Company's operating results and
financial condition.
International Business Risk. The Company principally relies 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.
Competition. The toy industry is highly competitive. Among the Company's
competitors are toy companies, divisions of large diversified companies, and
producers of consumer electronics products, many of which have greater assets
and resources than those of the Company, as well as
4
<PAGE>
smaller domestic and foreign toy and entertainment products manufacturers,
importers and marketers. The Company's principal competitors include Mattel,
Inc., Hasbro, Inc., and, particularly in the Yak Bak and Power Penz categories,
Tiger Electronics, Inc. These competitors may impede the Company's ability to
maintain market share and pricing goals in its existing categories, and may
prevent the Company from successfully launching new products in categories
served by these competitors.
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 June 1997, Hong Kong became 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, and while the transition to date has not adversely impacted
the Company's business, 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 Peoples Republic of China and the Republic
of China (Taiwan), and the United States' involvement therein, and recent debate
regarding the extension of the Peoples Republic of China most favored nation
trading status, 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 the ARM
Agreement with 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 is required to remain in compliance
with certain financial and other covenants under the ARM Agreement with BNY.
The Company was not in compliance with a financial covenant under the ARM
Agreement at March 31 and June 30, 1997 but previously had obtained a waiver
from BNY with regard to that covenant violation. 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.
Dilution from Convertible Securities; Obligation to Redeem in Cash. Under the
terms of a preferred stock and convertible debenture financing completed in the
first quarter of 1997 and restructured in the second quarter of 1997, certain
investors have the right to convert the securities held by them in the face
amount of approximately $11.7 million, plus dividends and interest accrued, into
Company common stock at a discount to the prevailing market price. The
conversion price at which such securities may be converted into common stock is
at a discount of 11.25% beginning in November 1997 increasing to 18.75% in April
1998 of a weighted average value of the Company's common stock, depending
principally on the date on which such securities are converted. Because the
Company is not permitted by Nasdaq rules to issue in the aggregate more than 20%
of its outstanding common stock as the result of the conversion of the
convertible preferred stock and convertible debentures and the exercise of the
warrants without first obtaining stockholder approval, the Company would be
required to redeem any portion of the securities issued in excess of 20% of its
outstanding common stock in cash.
5
<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 $1,956,021.39 (the "Debentures") and 390,846 shares of the
Company's Series B Convertible Preferred Stock (the "Preferred Stock") held by
Infinity Investors Limited, Fairway Capital Limited, Linda Cappello, Gerard
Cappello and Lawrence Fleischman (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 OTA Limited Partnership ("OTA" and together with the Purchasers, the
"Selling Stockholders"). The Debentures and the Preferred Stock were issued to
the Selling Stockholders in July 1997 in connection with the restructuring of a
private placement which took place in March 1997. The Warrants were issued to
the Selling Stockholders in connection with the March 1997 private placement.
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 lowest reported sales price of
the Common Stock for a period ranging from 14 to 30 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 July
31, 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 OFFERED NUMBER PERCENT
- ----------------------------- ------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Infinity Investors Limited 7,068,353/(3)/ 7,068,353 0 *
Fairway Capital Limited 784,071/(3)/ 784,071 0 *
Linda Cappello 85,813/(3)/ 85,813 0 *
Gerard Cappello 57,208/(3)/ 57,208 0 *
Lawrence Fleischman 47,667/(3)/ 47,667 0 *
OTA Limited Partnership 75,000 75,000 0 *
</TABLE>
- ---------------
* Less than 1%.
6
<PAGE>
(1) Based on 14,287,786 shares of Common Stock outstanding on July 31, 1997.
(2) Assumes the sale of all shares offered hereby to unaffiliated third
parties.
(3) Calculated as two times the number of shares of Common Stock issuable
upon the hypothetical conversion of the full principal amount of and
interest on the Debentures, the total outstanding number of shares of
Preferred Stock and exercise in full of the Warrant at the closing common
stock price on April 30, 1997 without giving effect to any discount to
such price. By agreement with the Company, the Purchasers may not 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.
PLAN OF DISTRIBUTION
Up to 8,118,112 shares of Common Stock of the Company which may be
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.
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, or by underwriters acting on behalf of the Selling Stockholders
pursuant to underwriting agreements in customary form or in and a combination of
any such methods of sale, on the Nasdaq National Market, one or more other
exchanges, in the over the counter 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, beginning at such time as, and so long as, the
Selling Shareholders do not hold Debentures or Preferred Stock (both as
defined in "Selling Stockholders"). The Selling Stockholders may exchange 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. The Selling Stockholders are
restricted as to the number of shares which may be converted and/or sold at
any one time, however, 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
7
<PAGE>
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
Common Stock offered hereby have been passed upon for the Company by Cooley
Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306-
2155.
EXPERTS
The consolidated financial statements and schedules of YES! Entertainment
Corporation appearing in YES! Entertainment Corporation's Annual Report (Form
10-K) for the year ended December 31, 1996, 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 and schedules 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.
8
<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.................. $ 9,149
Nasdaq National Market listing fee.... 17,500
Edgar Filing Expenses................. 2,000
Legal Fees and Expenses............... 10,000
Accounting Fees....................... 2,500
Transfer Agent and Registrar's Fees... 5,000
Miscellaneous Expenses................
-------
Total............................ $46,149
=======
</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
II-1
<PAGE>
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 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.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<C> <S>
4.1(2) Certificate of Designation of the Series B Convertible Preferred Stock.
4.2(3) Form of Registrant's Common Stock Certificate.
4.3(2) Amended and Restated Securities Purchase Agreement dated July 25, 1997 among
Infinity Investors Limited, Fairway Capital Limited, Cappello & Laffer Capital Corp.
and the Registrant.
4.4(3) Amended and Restated Registration Rights Agreement dated as of July 25, 1997 among
Infinity Investors Limited, Fairway Capital Limited, Cappello & Laffer Capital Corp.
and the Registrant.
4.6(2) Form of Debenture dated July 25, 1997.
5.1 Opinion of Cooley Godward LLP, 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 4.3 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.
(2) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K filed on August 4, 1997.
(3) Incorporated by reference to Exhibit 4.1 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 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;
(i) 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 August 15,
1997.
YES! ENTERTAINMENT CORPORATION
By: /s/ Donald D. Kingsborough
---------------------------
Donald D. Kingsborough
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald D. Kingsborough and Sol Kershner
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-3, (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 August 15, 1997
- ----------------------------- Officer (Principal Executive Officer)
Donald D. Kingsborough
/s/ Sol Kershner Chief Financial Officer (Principal Financial August 15, 1997
- ----------------------------- and Accounting Officer) and Secretary
Sol Kershner
/s/ David C. Costine Director August 15, 1997
- -----------------------------
David C. Costine
/s/ Esmond T. Goei Director August 15, 1997
- -----------------------------
Esmond T. Goei
/s/ Michael J. Marocco Director August 15, 1997
- -----------------------------
Michael J. Marocco
/s/ Anthony J. Miadich Director August 15, 1997
- -----------------------------
Anthony Miadich
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------
<C> <S>
4.1(2) Certificate of Designation of the Series B Convertible Preferred Stock.
4.2(3) Form of Registrant's Common Stock Certificate.
4.3(2) Amended and Restated Securities Purchase Agreement dated July 25, 1997
among Infinity Investors Limited, Fairway Capital Limited, Cappello & Laffer
Capital Corp. and the Registrant.
4.4(3) Amended and Restated Registration Rights Agreement dated July 25, 1997
among Infinity Investors Limited, Fairway Capital Limited, Cappello & Laffer
Capital Corp. and the Registrant.
4.6(2) Form of Debenture dated July 25, 1997.
5.1 Opinion of Cooley Godward LLP, 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 4.3 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.
(2) Incorporated by reference to exhibits filed with the Registrant's Current
Report on Form 8-K filed on August 4, 1997.
(3) Incorporated by reference to Exhibit 4.1 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
<PAGE>
EXHIBIT 5.1
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306-2155
(650) 843-5000
FAX (650) 857-0663
August 15, 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 August 15, 1997, in connection with the registration under the
Securities Act of 1933, as amended, of 8,118,112 shares of Common Stock, par
value $.001 per share (the "Securities"). We understand that the Shares are to
be 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,
Cooley Godward, LLP
/s/ Cooley Godward, LLP
<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 (Form S-3) and related Prospectus of YES! Entertainment
Corporation for the registration of 8,118,112 shares of its common stock issued
in connection with the conversion of convertible subordinated debentures and
Series B Convertible Preferred Stock and the exercise of certain Warrants, and
to the incorporation by reference therein of our report dated February 26,
1997 except as to note 16, as to which the date is March 18, 1997, 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, 1996, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
____________________
