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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-33793
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, 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 October 28, 1997, the last reported sales price of the
Common Stock as reported on the Nasdaq National Market was $3.50 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.
-------------------------------
OCTOBER 29, 1997
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TABLE OF CONTENTS
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Page
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Incorporation of Certain Documents by Reference........................ i
Prospectus Summary..................................................... 1
The Company............................................................ 1
Risk Factors........................................................... 2
Dividend Policy........................................................ 7
Selling Stockholders................................................... 7
Plan of Distribution................................................... 8
Legal Matters.......................................................... 9
Experts................................................................ 9
Available Information.................................................. 9
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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; (9) Current Report on Form 8-K
filed on September 12, 1997; and (10) 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.
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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 according
to the Toy Manufacturers Association's 1994/1995 Toy Industry Fact Book.
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.
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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; Risk to Profitability. The Company has a short
operating history, having commenced operations in November 1992 and shipped its
first product in July 1993. 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.
History of Losses; Accumulated Deficit. The Company incurred operating
losses of $21.0, $21.9 and $12.6 million for the years ended December 31,
1993, 1994, and 1996, respectively. For the period from January 1, 1997
through June 30, 1997, the Company had a loss of $5.5 million. At June 30,
1997, the Company had an accumulated deficit of approximately $60.8 million.
In 1996 and for the six months ended June 30, 1997, the Company had net cash
outflows of $1.4 million and $266,000, respectively. As a result of these
losses, the Company has incurred indebtedness to finance its operations. See
"Dependence on Restricted Facility." In the event the Company continues to
incur operating losses and is unable to obtain additional financing on
favorable terms, or at all, in the future, its operating results and financial
condition would be materially adversely affected.
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! Pre-School(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. The
YES! Gear brand accounted for 55.0% and 60.7% of the Company's sales in 1995 and
1996, respectively. The Power Penz brand accounted for 3.1% and 22.0% of the
Company's sales in 1995 and 1996 respectively. The Company expects the
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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, but
there can be no assurance that the Company will be able to sustain Yak Bak and
Power Penz sales at 1996 levels or such level as may be necessary to maintain
its overall sales and revenues. 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 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 expense and higher advertising allowances which would
otherwise be born by the Company's customers. In the event that anticipated
reorders do not materialize, the Company'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
3
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with the Company or significantly change, reduce or delay the amount of products
ordered from the Company. Any such termination of a significant customer
relationship or change, reduction or delay in significant orders could have a
material adverse effect on the Company's operating results.
Price Protection; Stock Balancing; Reliance on Timely Payment. In
connection with the introduction of new products, many companies in the toy
industry discount prices of existing products, provide for certain advertising
allowances and credits or give other sales incentives to their customers,
particularly their most significant customers. In addition, in order to address
working capital requirements, sales of inventory, changes in marketing trends
and other issues, many companies in the toy industry allow retailers to return
slow-moving products for credit, or if the manufacturer lowers the prices of its
products, to provide price adjustments for inventories on hand at the time the
price change occurs. The Company has made such accommodations in the past, and
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.
Delays or reductions in payment have, in the past, increased the Company's
reliance on other sources of capital, including bank lines of credit, which has
increased the Company's interest expense and, in the case of payment reductions,
reduced profitability, or increased loss, by an amount equivalent to such
reductions. Delays or reductions in payment in the future would have the same or
similar effect.
Seasonality. Sales of toys traditionally have been highly seasonal, with
a majority of retail sales occurring during the December holiday season.
Accordingly, the Company expects that its operating results will vary
significantly from quarter to quarter, particularly in the third and fourth
quarters, when the majority of products are shipped, and the first quarter,
when a disproportionate amount of receivables are collected and trade credits
are negotiated. In addition, although indications of interest are provided by
retailers early in the year for product shipments for the December holiday
season, committed orders are not placed until later in the year and, even when
placed, such orders generally are cancelable at any time without penalty.
Accordingly, the Company generally must enter into tooling, manufacturing,
media and advertising commitments prior to having firm orders. As a result,
there can be no assurance that the Company can maintain sufficient flexibility
with respect to its working capital needs or its ability to manufacture
products and obtain supplies of raw materials, tools and components to be able
to minimize the adverse effects of an unanticipated shortfall or increase in
demand. Failure to accurately predict and respond to consumer demand may cause
the Company to produce excess inventory which could materially adversely
affect the Company's operating results and financial condition. Conversely, if
a product achieves greater success than anticipated, the Company may not have
sufficient inventory to meet retail demand, which could adversely impact the
Company's relations with its customers.
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. Any or all products within the YES! Gear and Power Penz
categories, which categories account for a majority of the Company's overall
product sales, will experience relatively short life cycles.
Litigation. The Company and certain of its current and former executive
officers are defendants in certain shareholder lawsuits that have been filed in
federal and California state court. These lawsuits seek compensatory and
punitive damages, interest, attorneys' fees and other costs, as well as
equitable relief to preserve defendants' assets. The Company believes that it
has meritorious defenses to these lawsuits and intends to vigorously defend
them. Nevertheless, the Company believes that it will incur substantial time and
expense to defend these lawsuits, and an adverse result in any of the lawsuits
may 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. The percentage of total sales
constituting foreign sales for 1994, 1995, 1996 and for the six months ended
June 30, 1997 are 29%, 7%, 21% and 36%, respectively. 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. To
date, substantially all of the Company's international sales have been
denominated in U.S. dollars and therefore the Company has not to date
experienced any adverse impact from currency fluctuations. To the extent future
sales are not denominated in U.S. dollars, currency exchange fluctuations in the
countries where the Company does business could materially adversely affect the
Company's business, financial condition and results of operations.
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 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.
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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 and events of default, including a
provision specifying that it shall be an event of default if either
Donald Kingsborough or Sol Kershner, the Company's Chief Executive Officer and
Chief Financial Officer, respectively, is not active in the management of the
Company and is not replaced within ninety (90) days with a suitable individual
of comparable experience and capability. 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.
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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.
Dependence on Key Personnel. The Company's future success will depend to a
significant extent on the efforts of the key management personnel, including
Donald D. Kingsborough, the Company's Chairman and Chief Executive Officer, and
other key employees. The loss of one or more of these employees could have a
material adverse effect on the Company's business. In addition, the Company
believes that its future success will depend in large part on its ability to
attract and retain highly qualified management, operations and sales personnel.
There can be no assurance the the Company will be able to attract and retain the
employees it needs to in order to ensure its success.
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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 Fleishman (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>
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SHARES
OWNED AFTER
SHARES BENEFICIALLY NUMBER OF OFFERING(1)(2)
OWNED PRIOR TO SHARES BEING ----------------
SELLING STOCKHOLDER OFFERING OFFERED NUMBER PERCENT
- --------------------------- ------------------- ------------ ------ -------
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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 Fleishman 47,667/(3)/ 47,667 0 *
OTA Limited Partnership 75,000 75,000 0 *
</TABLE>
- ---------------
* Less than 1%.
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(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, 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 defined in "Selling Stockholders"), the Selling Stockholders may
engage in short sales, including short sales against the box, puts and calls and
other transactions in securities of the Company or derivatives thereof, and may
sell and deliver the Shares in connection therewith. In effecting sales,
brokers or dealers engaged by the Selling Stockholder may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions
or discounts from the Selling Stockholders or from the purchasers in amounts to
be negotiated immediately prior to the sale. 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.
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The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the Shares for a period of three (3) years
after the effective date of this Prospectus or such earlier date when all of the
shares being offered hereunder have been sold or may be sold without volume or
other restrictions pursuant to Rule 144 or Rule 144A under the Securities Act,
as determined by counsel to the Company pursuant to a written opinion letter.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the
Securities offered hereby have been passed upon for the Company by Cooley
Godward llp, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306-
2155.
EXPERTS
The consolidated financial statements of YES! Entertainment Corporation
appearing in the YES! Entertainment Corporation Annual Report (Form 10-K) for
the year ended December 31, 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 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.
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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.
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