<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[_] Preliminary Proxy Statement RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
YES! ENTERTAINMENT CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF YES! ENTERTAINMENT CORPORATION]
YES! ENTERTAINMENT CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of YES!
Entertainment Corporation, a Delaware corporation (the "Company"), will be
held on Tuesday, May 20, 1997 at 10:00 a.m., local time, at the Four Points
Hotel Sheraton, 5115 Hopyard Road, Pleasanton, California 94588, for the
following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 7, 1997 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
BRUCE D. BOWER
Executive Vice President, General
Counsel and Secretary
Pleasanton, California
April 18, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
YES! ENTERTAINMENT CORPORATION
---------------
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF STOCKHOLDERS
---------------
PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of YES! Entertainment Corporation
(the "Company") for use at the Annual Meeting of Stockholders to be held on
Tuesday, May 20, 1997 at 10:00 a.m., local time, and at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the Four
Points Hotel Sheraton, 5115 Hopyard Road, Pleasanton, California 94588. The
Company's headquarters are located at 3875 Hopyard Road, Suite 375,
Pleasanton, California 94588, and the telephone number at that location is
(510) 847-9444.
These proxy solicitation materials were mailed on or about April 18, 1997,
together with the Company's 1996 Annual Report to Stockholders, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record at the close of business on April 7, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 14,043,432 shares of the Company's Common Stock were
issued and outstanding and 85,000 shares of Preferred Stock, all designated
Series A Preferred Stock, were issued and outstanding. For information
regarding security ownership by management and by the beneficial owners of
more than 5% of the Company's Common Stock, see "Other Information--Share
Ownership by Principal Stockholders and Management." The closing sales price
of the Company's Common Stock on the Nasdaq National Market on the Record Date
was $4 1/2 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING PROCEDURES
Each stockholder is entitled to one vote for each share of Common Stock on
all matters to be voted on by the stockholders. The affirmative vote of a
majority of the outstanding shares of Common Stock is required to approve the
matters scheduled to be voted on at the Annual Meeting. Upon the execution and
return of the enclosed form of proxy, the shares represented thereby will be
voted in accordance with the terms of the proxy, unless the proxy is revoked.
Votes cast in person or by proxy will be tabulated by The First National Bank
of Boston, the Company's transfer agent.
<PAGE>
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Corporate Investor Communications, Inc. to assist in
the solicitation of proxies at an estimated fee of $5,000 plus reimbursement
of reasonable out-of-pocket expenses. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and employees, without additional compensation, personally or by telephone,
telegram, letter or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the shares of Common Stock outstanding on the Record Date. The
Company intends to include abstentions and broker non-votes as present or
represented for purposes of establishing a quorum for the transaction of
business, but to exclude broker non-votes from the calculation of shares
entitled to vote with respect to any proposal for which authorization to vote
was withheld.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of Stockholders of the Company which are intended to be presented
by such Stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than December 20, 1997 and must satisfy
the conditions established by the Securities and Exchange Commission for
stockholder proposals to be included in the Company's proxy statement for that
meeting.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's five nominees named below, all of whom are presently
directors of the Company. In the event that any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee who shall be designated by the
present Board of Directors to fill the vacancy. It is not expected that any
nominee will be unable or will decline to serve as a director. The term of
office of each person elected as a director will continue until the next
Annual Meeting of Stockholders or until a successor has been elected and
qualified.
The name and certain information regarding each nominee is set forth below.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---------------------------- --- --------------------------------------------
<C> <C> <S>
Donald D. Kingsborough 50 Chairman of the Board and Chief Executive
Officer of the Company
David C. Costine 55 President of Costine Management Co.; General
Partner of Costine Associates, L.P. and
Corporate Venture Partners, L.P.
Esmond T. Goei 46 Vice Chairman of the Board of the Company;
Chairman of the Board, CEO and President of
NHancement Technologies, Inc.
Michael J. Marocco 38 Managing Director of Sandler Capital
Management
Gary L. Nemetz 44 General Partner of Transition Capital
Management Company; President of Admiral
Capital Corp.
</TABLE>
Donald D. Kingsborough founded the Company in September 1992 and has served
as Chairman of the Board and Chief Executive Officer since that time. From May
1989 to November 1992, Mr. Kingsborough was Chief Executive Officer of
Intelligy Corporation, a developer of educational and child development
products, including software. In February 1985, Mr. Kingsborough founded
Worlds of Wonder, Inc., and served as its Chief Executive Officer until April
1988.
David C. Costine has served as a director of the Company since January 1993.
Since 1988, Mr. Costine has been a general partner of Costine Associates,
L.P., which is the general partner of the venture capital firm Corporate
Venture Partners, L.P. Since 1987, he has served as President of Costine
Management Co., a venture capital firm. Mr. Costine also serves as a director
of Spectrum Holobyte, Inc., a video game and software publisher (a Nasdaq
National Market company), Brightware Inc., Ironics, Inc. and Pathlight
Technology, Inc.
Esmond T. Goei has served as a director of the Company since September 1993,
and as Vice Chairman of the Board of the Company since July 1996. Since July
1994, Mr. Goei has been Chairman of the Board, CEO and President of BioFactors
Inc., a human resource software and services company, and of its successor
company NHancement Technologies, Inc., a systems integration company, since
October 1996. Mr. Goei has worked independently in venture capital management
since July 1992, and prior to that was Chief Executive Officer (North America)
for Transpac Capital Pte. Ltd., a Singapore-based international venture
capital management company that he co-founded in 1989. From October 1992 to
February 1997, he was a General Partner of Transition Ventures I, L.P., a
venture capital fund. Until April 1995, Mr. Goei was Chairman of the Board of
Centigram Communications Corp., a leading telecommunications equipment
manufacturer, and had been a board member since 1987. He has also served on
the board of CliniCom, Inc., a patient care information systems company, since
1988.
3
<PAGE>
Michael J. Marocco has served as a director of the Company since October
1993. Mr. Marocco is a Managing Director of Sandler Capital Management and has
been associated with that company since April 1989. Prior to that, he was a
Vice President at Morgan Stanley & Co. Incorporated. Mr. Marocco also serves
as a director of Millbrook Press and Source Media.
Gary L. Nemetz has served as a director of the Company since March 1995. Mr.
Nemetz is a general partner of Transition Capital Management Company and has
been President of Admiral Capital Corp., a private investment management firm,
since 1984. Since 1984, Mr. Nemetz has also conducted a management consulting
business and law practice through G.L. Nemetz, a Professional Corporation. Mr.
Nemetz is a Certified Public Accountant (inactive status) and serves as a
director of Can Lines, Inc. and NHancement Technologies, Inc. (a Nasdaq
SmallCap Market company).
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of seven meetings (including regularly
scheduled and special meetings) during fiscal 1996 and took action by
unanimous written consent two times. During the last fiscal year, all of the
incumbent directors attended 75% or more of the meetings of the Board of
Directors and committees, if any, upon on which such directors served.
The Board of Directors of the Company has three standing committees, which
were established in October 1994: a Nominating Committee, a Compensation
Committee and an Audit Committee. The Nominating Committee, which currently
consists of Messrs. Costine and Goei, is responsible for making
recommendations to the Board of Directors regarding the size and composition
of the Board of Directors. The Nominating Committee did not hold any meetings
in fiscal 1996.
The Compensation Committee, which currently consists of Messrs. Goei,
Marocco and Nemetz, determines the salaries and incentive compensation of the
Company's executive officers and is responsible for the administration of the
Company's stock option plans. The Compensation Committee took action by
unanimous written consent twice and held three meetings during fiscal 1996.
The Audit Committee, which currently consists of Messrs. Costine and Nemetz,
reviews the scope of the audit and other services provided by the Company's
independent accountants and reviews the results of such audits and the
auditors' recommendations regarding the Company's accounting principals and
its system of internal accounting controls. The Audit Committee held two
meetings during fiscal 1996.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for their services as directors of the Company. In fiscal 1996,
each non-employee director ("Outside Director") received a fee of $2,000 per
fiscal quarter for their services as directors of the Company. In addition,
commencing in July 1996, Mr. Goei received a monthly fee of $5,000 in his
capacity as Vice Chairman. Under the Company's 1995 Director Stock Option Plan
(the "Director Plan"), each of the Company's Outside Directors is
automatically granted a nonstatutory stock option to purchase 15,000 shares of
Common Stock on the later of July 31, 1995 or the date of the first meeting in
which an individual participates as a director of the Company (the "First
Option"). After the First Option is granted to an Outside Director, such
Outside Director will be granted an automatic annual option of 7,500 shares of
Common Stock (a "Subsequent Option") on July 31 of each subsequent year,
provided that such person remains a Outside Director, and provided that such
person has been a member of the Board of Directors for at least six months. As
of March 14, 1997, there were 90,000 options outstanding under the Director
Plan exercisable at a range of per share exercise prices from $5 1/4 to $11
1/8.
4
<PAGE>
REQUIRED VOTE
Directors shall be elected by a plurality of the votes of the shares of the
Company's Common Stock entitled to vote and represented in person or by proxy
at the Annual Meeting. No Stockholder shall be entitled to cumulate votes in
the election of directors. Votes against, votes withheld and broker non-votes
have no legal effect on the election of directors due to the fact that such
elections are by a plurality.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
5
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On the recommendation of the Audit Committee, the Board of Directors has
selected Ernst & Young LLP, certified public accountants, to audit the
financial statements of the Company for the fiscal year ending December 31,
1997, and recommends that the Stockholders vote for ratification of such
appointment.
Ernst & Young LLP has audited the Company's financial statements since the
Company's inception. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting, will have the opportunity to make a statement,
and is expected to be available to respond to appropriate questions.
REQUIRED VOTE
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the votes cast at the Annual Meeting. In the event that the Stockholders do
not approve the selection of Ernst & Young LLP, the Board of Directors will
reconsider its selection.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997.
6
<PAGE>
OTHER INFORMATION
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 14, 1997 for the following: (i) each person or entity
who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each of the officers named in the Summary Compensation Table;
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(1)
----------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS (2)
Barry Rubenstein (3)(4)(5).................................................. 1,561,489 10.8%
68 Wheatley Road
Brookville, NY 11545
Sandler Capital Management (6).............................................. 1,417,477 9.8
767 Fifth Avenue
New York, NY 10153
Andyla Yasa................................................................. 1,389,502 9.9
c/o P. T. Amanda Granitkusuma
Chase Plaza Tower, 4th Floor
Jln. Jend. Sudirman Kav.21
Jakarta 12910 Indonesia
Barry Fingerhut (3)(7)...................................................... 1,329,957 9.3
767 Fifth Avenue
New York, NY 10153
Irwin Lieber (3)(8)......................................................... 1,329,957 9.3
767 Fifth Avenue
New York, NY 10153
Capital Cities Capital, Inc. (9)............................................ 1,120,797 7.9
77 West 66th Street
New York, NY 10023-6298
DIRECTORS
Michael J. Marocco (6)(10).................................................. 1,433,883 10.0
Donald D. Kingsborough (11)................................................. 511,623 3.6
David C. Costine (12)....................................................... 448,888 3.2
Gary L. Nemetz (13)......................................................... 441,972 3.1
Esmond T. Goei (14)......................................................... 76 ,508 *
NAMED OFFICERS
Sol Kershner (15)........................................................... 137,941 1.0
Patricia Root (16).......................................................... 69,787 *
William Radin (17).......................................................... 46,965 *
Bruce D. Bower (18)......................................................... 45,011 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (12 persons) (19)........... 4,347,076 28.8
</TABLE>
7
<PAGE>
- -------
*Less than 1%.
(1) The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission (the "SEC"), and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days of March 14, 1997 through the exercise of any
stock option or other right. Unless otherwise indicated in the footnotes,
each person has sole voting and investment power (or shares such powers
with his or her spouse) with respect to the shares shown as beneficially
owned.
(2) This information was obtained from filings made with the SEC pursuant to
Sections 13(d), 13(f) or 13(g) of the Exchange Act.
(3) Includes 350,314, 119,191, 47,161, 475,857 shares of Common Stock held by
21st Century Communications Partners, L.P., 21st Century Communications
T-E Partners, L.P. 21st Century Communications Foreign Partners, L.P. and
Applewood Associates, L.P., respectively. Also includes 180,807, 61,518,
24,341 and 49,631 shares of Common Stock, respectively, subject to
warrants exercisable within 60 days of March 14, 1997. Messrs.
Rubenstein, Fingerhut and Lieber disclaim beneficial ownership of these
securities, except to the extent of their equity ownership therein.
(4) Includes 105,809 and 105,809 shares of Common Stock held by Woodland
Venture Fund and Seneca Ventures, respectively. Also includes 9,957 and
9,957 shares of Common Stock, respectively, subject to warrants
exercisable within 60 days of March 14, 1997.
(5) Includes 18,380 shares of Common Stock held by Mr. Rubenstein and 2,757
shares of Common Stock subject to warrants exercisable within 60 days of
March 14, 1997.
(6) Includes 350,314, 119,191, 47,161, 330,857, 148,885 and 71,685 shares
held by 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P., 21st Century Communications Foreign
Partners, L.P., Sandler Mezzanine Partners, L.P., Sandler Mezzanine T-E
Partners, L.P., and Sandler Mezzanine Foreign Partners, L.P.,
respectively. Also includes 180,807, 61,518, 24,341, 49,631, 22,334 and
10,753 shares, respectively, subject to warrants exercisable within 60
days of March 14, 1997. Mr. Marocco, a Managing Director of Sandler
Capital Management with which the above entities are affiliated, may be
deemed to share voting and dispositive power with regard to shares held
by affiliates of Sandler Capital Management.
(7) Includes 18,380 shares of Common Stock held by Mr. Fingerhut and 2,757
shares of Common Stock subject to warrants exercisable within 60 days of
March 14, 1997.
(8) Includes 18,380 shares of Common Stock held by Mr. Lieber and 2,757
shares of Common Stock subject to the warrants exercisable within 60 days
of March 14, 1997.
(9) Includes 61,274 shares subject to warrants exercisable within 60 days of
March 14, 1997. The Walt Disney Company, which acquired Capital Cities
Capital, Inc. (a wholly-owned subsidiary of Capital Cities/ABC) on
February 9, 1996, may be deemed to share voting and dispositive power
with regard to such shares.
(10) Includes 16,406 shares subject to options granted Mr. Marocco under the
Director Plan that are exercisable within 60 days of March 14, 1997.
(11) Includes (i) 186,122 shares subject to options exercisable within 60 days
of March 14, 1997 and (ii) 16,499 shares subject to warrants exercisable
within 60 days of March 14, 1997. Also includes 9,000 shares transferred
to Mr. Kingsborough's children. Excludes 19,998 shares held in trust for
Mr. Kingsborough's children, as to which Mr. Kingsborough disclaims
beneficial ownership.
(12) Includes 70,490 shares subject to warrants exercisable within 60 days of
March 14, 1997 held by Corporate Venture Partners, L.P. Also includes
16,406 shares subject to option granted Mr. Costine under the Director
Plan that are exercisable within 60 days of March 14, 1997. Mr. Costine,
a general partner of Costine Associates, L.P., which is the general
partner of Corporate Venture Partners, L.P., may be deemed to share
voting and dispositive power with regard to shares held by Corporate
Venture Partners, L.P. and its affiliates.
8
<PAGE>
(13) Includes 178,091, 128,656 and 26,307 shares held by Gary Nemetz, as
Trustee, Admiral Capital Corporation, as Trustee, and Gary Nemetz,
respectively. Also includes 43,543, 33,552 and 15,417 shares held by
Admiral Capital Corporation, as Trustee, Gary Nemetz, as Trustee, and
Transition Capital Management Company, as Trustee, respectively, which
are subject to warrants exercisable within 60 days of March 14, 1997.
Also includes 16,406 shares subject to option granted Mr. Nemetz under
the Director Plan that are exercisable within 60 days of March 14, 1997.
Mr. Nemetz, who owns or controls the partnership interests in Transition
Capital Management Company, with which Admiral Capital Corporation and
Mr. Goei, who is also a director of the Company, are affiliated, may be
deemed to share voting and dispositive power with regard to shares held
by Transition Capital Management Company and its affiliates.
(14) Includes 32,558 shares held by Mr. Goei and 21,268 held by Mr. Goei's
wife. Also includes 16,406 shares subject to option granted Mr. Goei
under the Director Plan that are exercisable within 60 days of March 14,
1997. Also includes 1,332, 3,602 and 1,342 shares held by Mr. Goei,
Transition Capital Management Company, as Trustee for the benefit of Mr.
Goei, and Evelyn Goei, as Trustee, respectively, which are subject to
warrants exercisable within 60 days of March 14, 1997.
(15) Includes 76,041 shares subject to options exercisable within 60 days of
March 14, 1997.
(16) Includes 43,105 shares subject to options exercisable within 60 days of
March 14, 1997.
(17) Includes 46,546 shares subject to options exercisable within 60 days of
March 14, 1997.
(18) Includes 44,456 shares subject to options exercisable within 60 days of
March 14, 1997.
(19) Includes 1,069,647 shares subject to options and warrants exercisable
within 60 days of March 14, 1997.
9
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
executive officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities ("10% Stockholders"), to
file reports of ownership on Form 3 and changes in ownership on Form 4 or
Form 5 with the SEC and the National Association of Securities Dealers, Inc.
Such officers, directors and 10% Stockholders are also required by SEC rules
to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no
Forms 5 were required for such persons, the Company believes that, during the
year ended December 31, 1996, all Section 16(a) filing requirements applicable
to its officers, directors and 10% Stockholders were complied with, except for
Forms 5 filed on January 31, 1997 on behalf of certain officers to report
options granted to such officers during the year ended December 31, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in October 1994 and is
currently composed of Messrs. Goei, Marocco and Nemetz. No interlocking
relationship exists between any member of the Company's Board of Directors or
Compensation Committee and any member of the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member of the Compensation Committee is
or was formerly an officer or an employee of the Company.
10
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and each
of the four other most highly compensated executive officers as of December
31, 1996 whose salary plus bonus exceeded $100,000 during the last fiscal year
(the "Named Officers"), certain information concerning compensation for
services to the Company in all capacities during the last two fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------ ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(2)
- --------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Donald Kingsborough..... 1996 $457,450 $33,645 300,000 $ 7,176(3)
Chief Executive Officer 1995 275,500 -- 225,000 1,099(4)
1994 265,988 -- 95,497 --(5)
Sol Kershner............ 1996 304,500 30,480 175,000 --
Chief Financial Officer 1995 156,672(6) -- 125,000 439
and Chief Operating 1994 99,083(7) -- -- --
Officer
William Radin........... 1996 257,800 27,694 80,000 --
Executive Vice 1995 216,067 -- 80,000 761
President, Operations 1994 153,465 -- 5,062 35,000(8)
Bruce Bower............. 1996 172,500 17,089 80,000 --
Executive Vice 1995 133,423 -- 80,000 --
President, General 1994 95,719(9) -- 5,062 --
Counsel and Secretary
Patricia Root........... 1996 156,563 16,822 80,000 --
Executive Vice 1995 131,357 -- 80,000 --
President, Product 1994 136,955 -- 11,543 --
Development
</TABLE>
- -------
(1) Represents profit sharing bonuses paid in 1996 pursuant to the Company's
1995 Executive Profit Sharing Plan.
(2) Includes premiums paid on term life insurance.
(3) Does not include approximately $1,490 representing Mr. Kingsborough's
share of royalties earned in 1996 by Shoot the Moon, Inc., a product
licensor of the Company.
(4) Does not include approximately $50,250 representing Mr. Kingsborough's
share of royalties earned in 1995 by Shoot the Moon, Inc.
(5) Does not include approximately $58,000 representing Mr. Kingsborough's
share of royalties earned in 1994 by Shoot the Moon, Inc.
(6) Mr. Kershner resigned as the Company's Chief Financial Officer in August
1994 and served as a consultant to the Company until July 31, 1995 when he
was reappointed Chief Financial Officer and appointed Chief Operating
Officer. Does not include $90,135 paid to Mr. Kershner for consulting
services rendered from January 1995 through mid-July 1995.
(7) Does not include $74,028 paid to Mr. Kershner for consulting services
rendered from August 1994 through December 1994.
(8) Represents amounts reimbursed for relocation expenses.
(9) Represents salary paid in 1994 commencing on March 29, 1994, Mr. Bower's
first date of employment with the Company.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to the Named Officers, information concerning
stock options granted during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM(4)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE(3) 5% 10%
- -------------- ---------- ---------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald
Kingsborough. 300,000 24.6% $13.875 10/22/06 $2,617,774 $6,633,953
Sol Kershner.. 175,000 14.4 13.875 10/22/06 1,527,035 3,869,806
William Radin. 80,000 6.6 13.875 10/22/06 698,073 1,769,054
Bruce Bower... 80,000 6.6 13.875 10/22/06 698,073 1,769,054
Patricia Root. 80,000 6.6 13.875 10/22/06 698,073 1,769,054
</TABLE>
- -------
(1) Options in this table are either incentive stock options or nonstatutory
stock options, were granted under the Company's 1992 Stock Option Plan
(the "1992 Plan") or the 1995 Stock Option Plan (the "1995 Plan") and have
exercise prices equal to the fair market value on the date of grant.
Options granted under the 1992 Plan have five- or ten-year terms, and
options granted under the 1995 plan have ten-year terms. All such options
vest over a four-year period at the rate of one-fourth of the shares at
the end of one year from the date of grant (or the first day of employment
for new employees) and 1/48th per month thereafter.
(2) The Company granted options for 1,217,600 shares of Common Stock to
employees and directors in fiscal 1996.
(3) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or
disability or, under certain circumstances, upon an acquisition of the
Company. Options for 166,032 shares had terminated as of December 31,
1996.
(4) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (5 or 10 years) at the
annual rate specified (5% and 10%). Annual compounding results in total
appreciation of approximately 28% (at 5% per year) and 61% (at 10% per
year) for five-year options and approximately 63% (at 5% per year) and
159% (at 10% per year) for ten-year options. If the price of the Company's
Common Stock were to increase at such rates from the price at 1996 fiscal
year end ($6 7/16 per share), the resulting stock price at 5% and 10%
appreciation would be approximately $8.22 and $10.37, respectively, at the
end of 5 years, and $10.49 and $16.70, respectively, at the end of 10
years. The assumed annual rates of appreciation are specified in SEC rules
and do not represent the Company's estimate or projection of future stock
price growth. The Company does not necessarily agree that this method can
properly determine the value of an option.
12
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Officers, certain
information concerning stock options exercised during fiscal 1996 and the
number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1996. Also reported are values for "in-the-money" options
that represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Company's Common
Stock as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR END($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald
Kingsborough. -- -- 167,371 453,126 $462,458 $126,498
Sol Kershner.. -- -- 59,375 240,625 56,836 44,727
William Radin. -- -- 38,137 138,591 74,988 55,685
Bruce Bower... -- -- 36,395 140,333 67,874 41,088
Patricia Root. -- -- 36,438 135,105 67,693 62,980
</TABLE>
- -------
(1) Market value of underlying securities based on the closing price of
Company's Common Stock on December 31, 1996 (the last trading day of
fiscal 1996) on the Nasdaq National Market of $6 7/16 minus the exercise
price.
EMPLOYMENT AGREEMENTS
Employment Agreement with Donald D. Kingsborough. The Company has entered
into an employment agreement with Mr. Kingsborough effective as of June 7,
1995, for an initial term of three years. The Agreement provides that if Mr.
Kingsborough voluntarily terminates his employment with the Company, or is
terminated for cause, the Company will have the right to repurchase certain
shares of Common Stock owned by Mr. Kingsborough at a discount to the then-
current price of such stock, and that Mr. Kingsborough may not engage in
certain activities competitive with the Company for a period of one year
thereafter or upon after the expiation of his employment agreement. In the
event the Company terminates Mr. Kingsborough's employment without cause, such
provisions do not apply.
Employment Agreement with Sol Kershner. The Company has entered into an
employment agreement with Mr. Kershner effective June 10, 1995. The Agreement
provides that the Company must pay to Mr. Kershner severance equal to six
months of his current compensation in the event the Company terminates Mr.
Kershner's employment without cause prior to June 10, 1997. The Agreement
automatically renews for a one-year period on June 10, 1997 and on each
anniversary thereof. During the renewal periods, the Company may terminate Mr.
Kershner's employment at any time upon 90 days prior notice.
Employment Agreement with William Radin. In November 1995, the Company
entered into an employment agreement with William Radin, Executive Vice
President, Operations, effective as of July 1, 1995. The Agreement
automatically renews for a one year period on July 1, 1997 and on each
anniversary thereof. During the renewal period, the Company may terminate Mr.
Radin's employment upon 30 days prior notice.
13
<PAGE>
CERTAIN TRANSACTIONS
Interest in Royalties From Shoot the Moon Products, Inc. In January 1993,
the Company entered into a license agreement with Shoot the Moon Products,
Inc. ("STM") pursuant to which the Company pays royalties to STM for the use
of the technology incorporated in one of the Company's products, T.V. Teddy.
Prior to founding the Company, Mr. Kingsborough was a shareholder of STM. In
consideration of Mr. Kingsborough's contribution to the capital of STM of all
of his STM shares, STM entered into an agreement with Mr. Kingsborough
pursuant to which he is entitled to receive 15% of the royalties received by
STM for three products, including, T.V. Teddy. The amount to be paid to Mr.
Kingsborough is based upon royalties paid on sales of the T.V. Teddy hardware,
and exclude sales of the encoded videotapes. Through December 31, 1996, a
total of $725,700 in royalties related to sales of T.V. Teddy hardware has
accrued under the Company's license with STM, of which approximately $109,740
has been paid or is due Mr. Kingsborough from STM.
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority
of disinterested directors.
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Company's Board of Directors (the
"Committee") establishes policies and programs which determine the
compensation of the Company's executive officers, makes recommendations to the
Board on general compensation matters, and administers the Company's stock
option plans. The Committee consists of directors Esmond T. Goei, Michael J.
Marocco and Gary L. Nemetz, all of whom are non-employee members of the Board
of Directors.
Compensation Philosophy and Policies
The Committee's philosophy is to attract, retain and motivate key personnel
through programs designed to maintain the Company's competitive position in
its market. The Committee aims to motivate key employees with a combination of
cash bonuses and equity incentives which reward superior performance and align
the interests of employees to the interests of the Company's stockholders.
The Committee's policy is to establish a total compensation program at the
beginning of each year that enhances the Company's ability to meet its annual
financial and strategic goals. The Company seeks to foster teamwork and to
motivate high performance through a bonus program which depends upon
achievement of corporate performance objectives. The Company intends to
structure its compensation arrangements to qualify for deductibility under
Section 162(m) of the Internal Revenue Code.
Elements of Compensation
Compensation for officers and key employees includes both cash and equity
elements.
Cash compensation consists of base salary, cash bonuses and participation in
the Company-wide 1996 Profit Sharing Plan. Base salary is based on competitive
factors and the historic salary structure for various levels of
responsibility, expertise and experience within the Company. Officers and non-
salesperson employees are eligible for cash bonuses under the 1996 Profit
Sharing Plan, allocated as a percentage of base salary earned during fiscal
1996. The Plan established a minimum level of operating income to be achieved
by the Company for the year before any payments would be made. Because the
Company did not achieve the financial targets specified therein, no cash
bonuses were awarded under the 1996 Profit Sharing Plan for fiscal 1996.
Ownership of the Company's Common Stock is a key element of executive
compensation. Officers and other employees of the Company are eligible to
participate in the 1992 Stock Option Plan (the "1992 Plan"), adopted prior to
the Company's initial public offering in 1995, and the 1995 Stock Option Plan
(the "1995 Plan"), adopted in July 1995 and amended to increase the number of
shares reserved for issuance thereunder in October 1995. The 1992 Plan and
1995 Plan (collectively, the "Stock Plans") permit the Board of Directors or
any committee delegated by the Board to grant stock options to employees on
such terms as the Board or its committee may determine. The Compensation
Committee has the exclusive authority to grant stock options to executive
officers of the Company.
In determining the size of a stock option grant to a new officer or other
key employee, the Committee takes into account equity participation by
comparable employees within the company, practices by industry competitors and
other relevant factors. Additional options may be granted to current employees
to reward exceptional performance or to provide additional unvested equity
incentives. Options granted under the Stock Plans generally become exercisable
over four years at a rate of one-fourth of the shares subject to the options
at the end of one year from the date of grant and 1/48 of the shares per month
thereafter.
15
<PAGE>
The Company also maintains a 401(k) Plan to provide retirement benefits
through tax deferred salary deductions for all its employees. In February
1996, the Company amended its 401(k) Plan to enable the Company to match
employee contributions to the 401(k) Plan with shares of the Company's Common
Stock.
1996 Executive Compensation
Prior to the Company's initial public offering in June 1995, the Board of
Directors, consistent with the Company's status as a privately held
corporation, took primary responsibility for establishing and administering
the Company's executive compensation policies. Since June 1996, the
Compensation Committee has assumed this role. The Company's compensation
program for executive officers for fiscal 1996 included base salary, bonus and
option grants under the Stock Plans. Because the Company did not achieve the
financial targets specified therein, no cash bonuses were awarded to non-sales
executive officers under the 1996 Executive Profit Sharing Plan.
Chief Executive Officer Compensation for 1996
Donald D. Kingsborough founded the Company in September 1992 and has served
as Chairman of the Board and Chief Executive Officer since that time. Mr.
Kingsborough's compensation package is based upon reference to external
competitive pay practices and an independent review of Mr. Kingsborough's
performance. Competitive pay practice data evaluated by the Committee was
derived from information compiled regarding a group of other toy companies.
The base salary established by the Committee for Mr. Kingsborough falls within
the range of base salaries of these companies. In February 1996, the
Compensation Committee increased Mr. Kingsborough's compensation package,
including an increase in annual base salary to $382,500 per annum (paid
retroactively to January 1, 1996) and an increase in monthly automobile
allowance to $1,300 and payment of life insurance premium of $598 per month.
In July 1996, the Compensation Committee increased Mr. Kingsborough's base
salary to $500,000 per annum, retroactive to July 1, 1996.
Summary
The Compensation Committee sets policy and administers the Company's cash
and equity incentive programs for the purpose of attracting and retaining
highly skilled executives who will promote the Company's business goals and
giving them the incentive to achieve goals which will build long-term stock
value.
Compensation Committee of the
Board of Directors
Esmond T. Goei
Michael J. Marocco
Gary L. Nemetz
16
<PAGE>
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return with those of the S&P 500 Index and a Toy Company Index, comprised of
Hasbro, Inc., Lewis Galoob Toys, Inc., Mattel, Inc., Toy Biz, Inc. and Tyco
Toys, Inc. The graph assumes that $100 was invested (i) on June 8, 1995 (the
first trading date of the Company's Common Stock pursuant to its initial public
offering) in the Company's Common Stock and (ii) on June 8, 1995 in the S&P 500
Index and the Toy Company Index, including reinvestment of dividends. Since the
Company recently effected its initial public offering, the information in the
graph is provided in monthly intervals. Note that historic stock price
performance is not necessarily indicative of future stock price performance.
COMPARISON OF 19 MONTH CUMULATIVE TOTAL RETURN
AMONG YES! ENTERTAINMENT CORPORATION, THE S&P 500 INDEX AND TOY COMPANY INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period YES! Entertain- Toy
(Fiscal Year Covered) ment Corp. S&P 500 Company Index
- ------------------- --------------- --------- -------------
<S> <C> <C> <C>
Measurement Pt-06/08/95 $100 $100 $100
FYE 06/95 $ 99 $102 $102
FYE 09/95 $117 $110 $110
FYE 12/95 $132 $117 $113
FYE 03/96 $186 $123 $128
FYE 06/96 $293 $129 $133
FYE 09/96 $283 $133 $126
FYE 12/96 $128 $144 $133
</TABLE>
17
<PAGE>
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters which may be
brought before the Annual Meeting. If any other matters properly come before
the Annual Meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying proxy card to vote the proxy on such matters
in accordance with their best judgment as the Company may recommend.
It is important that your shares be represented at the meeting, regardless of
the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Pleasanton, California
April 18, 1997
18
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF YES! ENTERTAINMENT CORPORATION
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 20, 1997
The undersigned stockholder of YES! Entertainment Corporation, a
Delaware corporation (the "Company"), hereby acknowledges receipt
of the Notice of Annual Meeting of Stockholders and accompanying
Proxy Statement dated April 18, 1997, and hereby appoints Donald D.
Kingsborough and Bruce D. Bower, or either of them, proxies and
attorneys-in-fact, each with full power of substitution, to
represent the undersigned at the Annual Meeting of Stockholders of
YES! Entertainment Corporation to be held on Tuesday, May 20, 1997
at 10:00 a.m., local time, at the Four Points Hotel Sheraton,
located at 5115 Hopyard Road, Pleasanton, California, and at any
adjournment thereof, and to vote all shares of Common Stock of the
Company held of record by the undersigned on April 7, 1997 as
hereinafter specified upon the proposals listed on the reverse and
as more particularly described in the accompanying Proxy Statement.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS,
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
1
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE
PROPOSALS BELOW. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THESE PROPOSALS.
Please mark vote in box in the following manner using dark ink only. [X]
<TABLE>
<S> <C> <C> <C> <C>
For all nominees except those
1. ELECTION OF DIRECTORS. FOR WITHHELD listed below
Nominees: Donald D. Kingsborough, David C. [_] [_] [_] ____________________________
Costine,
Esmond T. Goei, Michael J. Marocco and Gary
L. Nemetz
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
2. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT FOR AGAINST ABSTAIN
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, [_] [_] [_]
1997.
</TABLE>
Please sign exactly as
name appears hereon. When
shares are registered in
the names of two or more
persons, whether as joint
tenants, as community
property or otherwise,
both or all of such
persons should sign. When
signing as attorney,
executor, administrator,
trustee, guardian or
another fiduciary
capacity, please give
full title as such. If a
corporation, please sign
in full corporate name by
President or other
authorized person. If a
partnership, please sign
in partnership name by
authorized person.
Signature:_____________ Date:__, 199
Signature:_____________ Date:__, 199
2
