EXHIBIT 4.3
SECURITIES EXCHANGE AGREEMENT
AMONG
YES! ENTERTAINMENT CORPORATION,
INFINITY INVESTORS LIMITED,
INFINITY EMERGING OPPORTUNITIES LIMITED
AND
GLACIER CAPITAL LIMITED
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Dated as of September 2, 1998
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TABLE OF CONTENTS
PAGE
SECTION 1. CERTAIN DEFINITIONS........................................ 2
1.1 CERTAIN DEFINITIONS........................................ 2
SECTION 2. EXCHANGE OF SECURITIES..................................... 5
2.1 EXCHANGE OF SECURITIES; ISSUANCE OF SECURITIES............. 5
2.2 CLOSING.................................................... 5
SECTION 3. REPRESENTATIONS AND WARRANTIES............................. 6
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 6
3.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS............ 10
SECTION 4. OTHER AGREEMENTS OF THE PARTIES............................ 11
4.1 TRANSFER RESTRICTIONS...................................... 11
4.2 STOP TRANSFER INSTRUCTION.................................. 12
4.3 FURNISHING OF INFORMATION.................................. 13
4.4 COPIES AND USE OF DISCLOSURE MATERIALS..................... 13
4.5 BLUE SKY LAWS.............................................. 13
4.6 INTEGRATION................................................ 13
4.7 CERTAIN AGREEMENTS......................................... 14
4.8 LISTING OF UNDERLYING SHARES............................... 14
4.9 INVESTOR'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED
OR DELISTED................................................ 14
4.10 NO VIOLATION OF APPLICABLE LAW............................. 15
4.11 REPURCHASE RESTRICTIONS.................................... 15
4.12 LEGAL OPINION.............................................. 15
4.13 NOTICE OF BREACHES......................................... 15
4.14 CONVERSION PROCEDURES...................................... 15
4.15 TRANSFER AGENT............................................. 16
4.16 NEW DIRECTORS.............................................. 16
4.17 RESTRICTION ON DEBT........................................ 16
4.18 RESTRICTION ON SHORT SALES................................. 16
4.19 RESTRICTIONS ON CONVERSION AND SALE........................ 16
4.20 STOCKHOLDERS MEETING....................................... 17
i.
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 5. MISCELLANEOUS.............................................. 18
5.1 FEES AND EXPENSES.......................................... 18
5.2 ENTIRE AGREEMENT; AMENDMENTS............................... 18
5.3 NOTICES.................................................... 18
5.4 AMENDMENTS; WAIVERS........................................ 19
5.5 HEADINGS................................................... 20
5.6 SUCCESSORS AND ASSIGNS..................................... 20
5.7 NO THIRD-PARTY BENEFICIARIES............................... 20
5.8 GOVERNING LAW.............................................. 20
5.9 SURVIVAL................................................... 20
5.10 COUNTERPART SIGNATURES..................................... 20
5.11 PUBLICITY.................................................. 20
5.12 SEVERABILITY............................................... 21
5.13 REMEDIES................................................... 21
5.14 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT................. 21
Exhibit A Form of Certificate of Designation
Exhibit B Form of 5% Convertible Debenture
Exhibit C [Intentionally Omitted]
Exhibit D Form of Cooley Godward LLP Legal Opinion
Exhibit F Conversion Procedures
Schedule 2.2(b) Debentures, Preferred Stock, Warrants
Schedule 3.1(a) Company Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Consents and Approvals
Schedule 3.1(g) Litigation
Schedule 4.20(b) Ownership Percentages
ii.
SECURITIES EXCHANGE AGREEMENT
THIS SECURITIES EXCHANGE AGREEMENT, dated September 2, 1998 (this
"Agreement"), by and among YES! ENTERTAINMENT CORPORATION, a Delaware
corporation (the "Company"), INFINITY INVESTORS LIMITED, a corporation organized
and existing under the laws of Nevis, West Indies ("Infinity"), GLACIER CAPITAL
LIMITED, a corporation organized and existing under the laws of Nevis, West
Indies ("Glacier") and INFINITY EMERGING OPPORTUNITIES LIMITED, a corporation
organized and existing under the laws of Nevis, West Indies ("Emerging") (each
of Infinity, Glacier and Emerging an "Investor," and collectively, the
"Investors").
WHEREAS, the Company, Infinity and Fairway Capital Limited ("Fairway" and
collectively with Infinity, the "Original Purchasers") are parties to that
certain Amended and Restated Convertible Debenture and Convertible Preferred
Stock Purchase Agreement, dated as of March 18, 1997 (the "March Purchase
Agreement"), pursuant to which, among other things, (i) the Company issued and
sold to the Original Purchasers an aggregate of $1,566,667 principal amount of
the Company's 5% convertible debentures, due January 28, 2000 (collectively, the
"March Debentures"), (ii) the Company issued 85,000 shares of its Series A
Convertible Preferred Stock (the "Series A Preferred") to the Original
Purchasers, and (iii) the Company delivered Common Stock Purchase Warrants
exercisable into 300,000 shares of Common Stock (collectively, the "Warrants");
WHEREAS, the Company, the Original Purchasers and Cappello & Laffer Capital
Corp. ("Cappello") are parties to that certain Amended and Restated Securities
Purchase Agreement, dated July 25, 1997 (the "July Purchase Agreement"), which
amended and restated the March Purchase Agreement on July 25, 1997 pursuant to
which, among other things, (a) the Company issued and delivered to the Original
Purchasers and Cappello in exchange for the March Debentures and the Series A
Preferred they then held (i) an aggregate amount of 390,846 shares of the
Company's Series B Preferred Stock (the "Series B Preferred") and (ii) an
aggregate amount of $1,956,021.49 of the Company's 5% Convertible Debentures Due
April 30, 2000 (the "July Debentures");
WHEREAS, (a) on December 31, 1997, Fairway transferred all of its Series B
Preferred and July Debentures to Glacier, and (b) on May 15, 1998, Infinity sold
$100,000 of its July Debentures to Emerging, in each case in a private
transaction under Section 4(2) of the Securities Act of 1933, as amended;
WHEREAS, subject to the terms of this Agreement the Company and the
Investors desire to exchange the Investors' Series B Preferred for 348,670
shares of the Company's Series C Preferred Stock (the "Series C Preferred") and
to exchange the Investors July Debentures for the Company's new 5% Convertible
Debentures, due April 30, 2002 (the "Debentures);
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1.
SECTION 1. CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement Effective Date" shall mean September 2, 1998.
"BNY" means BNY Financial Corporation, 1290 Avenue of the Americas, New
York, New York 10104.
"BNY Bank Obligations" means the borrowings and interest due thereon
(including, without limitation, any interest accruing after the commencement of
any case, proceeding or other action relating to the liquidation, dissolution,
assignment for the benefit of creditors, receivership, arrangement, bankruptcy,
insolvency or reorganization of the Company regardless of whether such interest
is allowable, payable or accruable to BNY in such case, proceeding or other
action) under the Receivables Agreement, as the same may from time to time be
amended, supplemented, otherwise modified, replaced or refinanced.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York or the State of California are authorized or required by law or other
government actions to close.
"Certificate of Designation" means the Amended and Restated Certificate of
Designation in the form of Exhibit A attached hereto, which is to be filed by
the Company with the Secretary of State of the State of Delaware on or prior to
the Closing Date.
"Closing" and "Closing Date" are as defined in Section 2.2(a).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, par value $.001 per share, of the Company, stock of any other
class into which such shares may hereafter be reclassified or changed and any
other equity securities of the Company hereafter designated as Common Stock.
"Conversion Date" when used in connection with the Debentures shall have
the meaning set forth therein, and when used in connection with the Preferred
Stock shall have the meaning set forth in the Certificate of Designation.
2.
"Conversion Price" when used in connection with the Debentures shall have
the meaning set forth therein, and when used in connection with the Preferred
Stock shall have the meaning set forth in the Certificate of Designation.
"Conversion Ratio" when used in connection with the Debentures shall have
the meaning set forth therein, and when used in connection with the Preferred
Stock shall have the meaning set forth in the Certificate of Designation.
"Debentures" means the Company's 5% Convertible Debentures, due April 30,
2002, in the form attached hereto as Exhibit B, to be issued in accordance with
and subject to the terms and conditions hereof and "Debenture" means any of
them.
"Disclosure Materials" means, collectively, the SEC Documents and the
Schedules to this Agreement furnished by or on behalf of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, right of first refusal, charge or security interest of any kind in
or on such asset or the revenues or income thereon or therefrom.
"Liquidation Preference" is as set forth in the Certificate of Designation.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(a).
"Per Share Market Price," when used in connection with the Debentures shall
have the meaning set forth therein, and when used in connection with the
Preferred Stock or the Underlying Shares shall have the meaning set forth in the
Certificate of Designation.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of the Company's Series C Convertible
Preferred Stock, par value $.001 per share, with the respective rights,
preferences and privileges set forth in the Certificate of Designation.
"Prepayment Date" is as defined in the Debenture.
"Prepayment Price" is as defined in the Debenture.
"Receivables Agreement" means the Accounts Receivable Management and
Security Agreement, dated as of July 31, 1995, among the Company and BNY, as
amended.
"Redemption Date" shall have the meaning set forth in the Certificate of
Designation.
"Redemption Price" shall have the meaning set forth in the Certificate of
Designation.
3.
"Registration Rights Agreement" means the Amended and Restated Registration
Rights Agreement dated July 25, 1998 among the Original Purchasers and Cappello,
as the same may be amended, supplemented or otherwise modified in accordance
with its terms, including pursuant to Section 5.14 hereof.
"SEC Documents" shall have the meaning set forth in Section 3.1(k).
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning set forth in Section 2.1(d).
"Short Sales" shall mean any sale of a security which the seller does not
own (as defined below) or any sale which is consummated by the delivery of a
security borrowed by, or for the account of, the seller. A person shall be
deemed to "own" a security if:
(1) he or his agent is title to it; or
(2) he has purchased, or has entered into an unconditional contract,
binding on both parties thereto, to purchase it but has not yet received it; or
(3) he owns a security convertible into or exchangeable for it and has
tendered such security for conversion or exchange; or
(4) he has an option to purchase or acquire it and has exercised such
option; or
(5) he has rights or warrants to subscribe to it and has exercised such
rights or warrants, provided, however, that a person shall be deemed to own
securities only to the extent that he has a net long position in such
securities.
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
"Trading Day" means (a) a day on which the Common Stock is traded on the
Nasdaq National Market or Nasdaq SmallCap Market or principal national
securities exchange or market on which the Common Stock has been listed or
quoted, or (b) if the Common Stock is not listed or quoted on the Nasdaq
National Market or Nasdaq SmallCap Market or any principal national securities
exchange or market, a day on which the Common Stock is traded in the over-the-
counter market, as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding its functions of reporting
prices).
"Transaction Documents" shall have the meaning set forth in Section 3.1(b).
"Transfer Agent" shall have the meaning set forth in Section 4.15.
"Underlying Securities Registration Statement" means the registration
statement contemplated by the Registration Rights Agreement and relating to the
Underlying Shares and Warrant Shares.
4.
"Underlying Shares" means the shares of Common Stock issuable upon the
conversion of the Debentures and the Shares in accordance with their terms and
the Certificate of Designation.
"Warrants" shall be as defined in the preamble to this Agreement.
"Warrant Shares" shall have the meaning set forth in Section 3.1(d).
SECTION 2. EXCHANGE OF SECURITIES
2.1 EXCHANGE OF SECURITIES; ISSUANCE OF SECURITIES.
(a) INFINITY. Subject to the terms and conditions set forth in this
Agreement, Infinity shall receive and the Company shall issue and deliver upon
surrender by Infinity of the July Debentures and Series B Preferred currently
held by it: (i) Debentures in an aggregate principal amount of $1,545,787.50
(the "Infinity Debenture") and (ii) 313,454 shares of Series C Preferred Stock
(the "Infinity Preferred Shares").
(b) EMERGING. Subject to the terms and conditions set forth in this
Agreement, Emerging shall receive and the Company shall issue and deliver upon
surrender by Emerging of the July Debentures currently held by it Debentures in
an aggregate principal amount of $100,638.89 (the "Emerging Debenture").
(c) GLACIER. Subject to the terms and conditions set forth in this
Agreement, Glacier shall receive and the Company shall issue and deliver upon
surrender by Glacier of the July Debentures and Series B Preferred currently
held by it: (i) Debentures in an aggregate principal amount of $189,494.20 (the
"Glacier Debenture") and (ii) 35,216 shares of Series C Preferred Stock (the
"Glacier Preferred Shares").
(d) DEFINITIONS. The Infinity Debenture, the Emerging Debenture and
the Glacier Debenture are sometimes collectively referred to herein as the
"Debentures." The Infinity Preferred Shares and the Glacier Preferred Shares are
sometimes referred to collectively herein as the "Shares." The Shares,
Debentures and Underlying Shares are sometimes collectively referred to as the
"Securities."
2.2 CLOSING.
(a) The closing of the exchange of the Debentures and the Shares (the
"Closing") shall take place at the offices of Cooley Godward LLP, Five Palo Alto
Square, 3000 El Camino Real, Palo Alto, California 94306, immediately following
the execution hereof, or at such other time and/or place as the Investors and
the Company may agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(b) At the Closing (A) the Company shall deliver (i) the Debentures
and certificates representing the Shares to be issued and delivered to each
Investor, as specified in Section 2.1 hereto, and (ii) to the Persons entitled
thereto, all other documents, instruments and writings required to have been
delivered at or prior to the Closing by the Company pursuant to this Agreement;
(B) each Investor shall deliver to the Company (i) the July Debentures and
Series B Preferred, as specified in Section 2.1 and (ii) all documents,
instruments and writings
5.
required to have been delivered at or prior to the Closing by such Investor
pursuant to this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in the SEC Documents
(collectively, the "Subsidiaries"). Each of the Subsidiaries is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the full corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. Each of the Company and the Subsidiaries is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not individually or in
the aggregate have a material adverse effect on the results of operations,
assets, prospects or financial condition of the Company and the Subsidiaries,
taken as a whole (a "Material Adverse Effect").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Debentures and the Certificate of Designation and
otherwise to carry out its obligations hereunder and thereunder. This Agreement,
the Debentures, and the Certificate of Designation are collectively referred to
as the "Transaction Documents." The execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each Transaction Document has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company and each of the Subsidiaries is set forth in the latest
Form 10-Q filed by the Company with the Commission on August 14, 1998. No shares
of Common Stock are entitled to preemptive or similar rights. Except as
specifically disclosed in the Form 10-K filed by the Company for the year ended
December 31, 1997 and options granted under the Company's stock option plans
subsequent to December 31, 1997, there are no outstanding options, warrants,
script rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become
6.
bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock except upon conversion
of the July Debentures, the Debentures, Series B Preferred, the Shares and the
Warrants. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate of incorporation, bylaws or other
charter documents.
(d) ISSUANCE OF DEBENTURES AND SHARES. The Debentures have been duly
and validly authorized for issuance, offer and sale pursuant to this Agreement
and, when issued and delivered as provided hereunder against payment in
accordance with the terms hereof, shall be valid and binding obligations of the
Company enforceable in accordance with their terms free and clear of all Liens.
The Shares are duly authorized and, when issued and paid for in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable. The
Company has and at all times while the Debentures, Shares and Warrants are
outstanding will maintain an adequate reserve of shares of Common Stock to
enable it to perform its obligations under this Agreement, the Debentures, the
Certificate of Designation and Warrants and in no circumstances shall such
reserved and available shares of Common Stock be less than the sum of (i) 5
million shares prior to obtaining Stockholder Approval, and following the
obtaining of Stockholder Approval, the number of Underlying Shares plus 10
million, assuming in each case such conversion occurred on the Agreement
Effective Date, and assuming the payment of dividends and interest in additional
Shares and Debentures, and (ii) the number of shares of Common Stock which would
be issuable upon exercise in full of the Warrants (the "Warrant Shares"). When
issued in accordance with the terms hereof, the Debentures and the Certificate
of Designation, the Underlying Shares will be duly authorized, validly issued,
fully paid nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its certificate of incorporation or bylaws
(each as amended through the date hereof) or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party or by which any property or asset of the Company is bound
or affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) or
(iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any Transaction
Document, (y) have a Material Adverse Effect or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
Transaction Document. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, do not have a
Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as obtained prior to the execution
hereof, neither the Company nor any Subsidiary is required to obtain any
consent,
7.
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than (i) the filing of an amendment with the
Commission of the Underlying Securities Registration Statement and the making of
the applicable blue-sky filings under state securities laws, each as
contemplated by the Registration Rights Agreement, which shall be filed in the
time periods set forth in the Registration Rights Agreement, (ii) the filing of
the Certificate of Designation with the Secretary of State of the State of
Delaware, which shall occur prior to the Closing, and (iii) other than, in all
other cases, where the failure to obtain such consent, waiver, authorization or
order, or to give or make such notice or filing, could not, individually or in
the aggregate, (x) adversely affect the legality, validity or enforceability of
any of the Transaction Documents, (y) have a Material Adverse Effect or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Documents.
(g) LITIGATION; PROCEEDINGS. There is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of their respective assets or properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of the Transaction Documents, Underlying Shares or
Warrant Shares or (ii) could, individually or in the aggregate, adversely impair
the Company's ability to perform fully on a timely basis its obligations under
the Transaction Documents.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as could not,
in any such case, individually or in the aggregate, (y) adversely affect the
legality, validity or enforceability of any of the Transaction Documents, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under the Transaction Documents.
(i) CERTAIN FEES. No fees or commission will be payable by the Company
to any broker, finder, investment banker or bank with respect to the
consummation of the transactions contemplated hereby.
(j) PRIVATE OFFERING. Assuming (without any independent investigation
or verification by or on behalf of the Company) the accuracy of the
representations and warranties of the Investors set forth in Section 3.2, the
offer and sale of the Debentures, Shares, and the Underlying Shares are exempt
from registration under Section 5 of the Securities Act. Neither the Company nor
any person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Convertible Debentures or Shares under the Securities Act) which
might subject the offering, issuance or sale of the Debentures, Shares, the
Underlying Shares or the Warrant Shares to the registration requirements of
Section 5 of the Securities Act.
8.
(k) SEC DOCUMENTS. The Company has filed all forms, reports and
documents required to be filed by it under the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, since March 18, 1995 (the foregoing reports
being collectively referred to herein as the "SEC Documents") on a timely basis,
or has received a valid extension of such time of filing. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited and unaudited consolidated balance sheets of the Company
and its Subsidiaries contained in the SEC Documents, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
indicated, except that unaudited financial statements contained therein do not
contain notes and may be subject to normal audit adjustments and normal annual
adjustments and fairly present the financial condition of the Company and its
consolidated Subsidiaries as of and for the dates thereof and, except as
indicated therein, reflects all claims against and all material debts and
liabilities of the Company and its consolidated Subsidiaries, fixed or
contingent, as at and for the dates thereof; and the related statements of
income, stockholders' equity and changes in cash flows fairly present the
results of the operations of the Company and its consolidated Subsidiaries and
the changes in financial position for the period indicated. Since the date of
the financial statements included in the Company's last filed Quarterly Report
on Form 10-Q, there has been no event, occurrence or development that has had a
Material Adverse Effect which is not specifically disclosed in any of the
Disclosure Materials.
(l) FORM S-3 ELIGIBILITY. The Company meets the registrant
requirements set forth in connection with offerings by persons other than the
issuer set forth in the General Instructions of Form S-3 promulgated under the
Securities Act.
(m) INVESTMENT COMPANY. The Company is not, and following the Closing
will not be, an Affiliate of an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(n) SOLICITATION MATERIALS. The Company did not solicit any offer to
buy or sell the Debentures, the Shares, or the Underlying Shares by means of any
form of general solicitation or advertising.
(o) MARGIN REQUIREMENTS. The Company will not use the proceeds of the
offer and sale of the Debentures and Shares hereunder, directly or indirectly,
immediately, incidentally or ultimately, (i) to purchase or carry Margin Stock
(as such term is defined under Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time) or to extend credit to
others for the purpose of purchasing or carrying Margin Stock or to refund
indebtedness originally incurred for such purpose, or (ii) for any purpose which
entails a violation of, or which is inconsistent with, the provisions of
Regulations T, U or X of the Board of Governors of the Federal Reserve System.
9.
3.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of the
Investors, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Investor is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority to enter into and to consummate the transactions contemplated hereby
and otherwise to carry out its obligations hereunder and thereunder. The
acquisition of the Debentures and Shares purchased by such Investor hereunder
has been duly authorized by all necessary action on the part of such Investor.
This Agreement has been duly executed and delivered by such Investor and
constitutes the valid and legally binding obligation of such Investor,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to, or affecting generally
the enforcement of, creditors' rights and remedies or by other general
principles of equity.
(b) INVESTMENT INTENT. Such Investor is acquiring the Debentures and
Shares to be purchased by it hereunder, and the Underlying Shares relating to
such Debentures and Shares, for its own account for investment purposes only and
not with a view to or for distributing or reselling such Debentures, Shares or
Underlying Shares or any part thereof or interest therein, without prejudice,
however, to such Investor's right, subject to the provisions of this Agreement
and the Registration Rights Agreement, at all times to sell or otherwise dispose
of all or any part of such Debentures, Shares or Underlying Shares, pursuant to
under an effective registration statement under the Securities Act or pursuant
to an available exemption from the registration requirements thereunder and in
compliance with applicable state securities laws.
(c) INVESTOR STATUS. At the time such Investor was offered the
Debentures and Shares to be acquired by it hereunder, it was and at the date
hereof, it is, an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
(d) INVESTMENT COMPANY. The Investor is not, and following the Closing
and issuance of the Debentures and Shares will not be, nor is it an Affiliate of
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(e) EXPERIENCE OF INVESTOR. Such Investor, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of an investment in the securities to be acquired by it hereunder, and has
so evaluated the merits and risks of such investment.
(f) ABILITY OF INVESTOR TO BEAR RISK OF INVESTMENT. Such Investor is
able to bear the economic risk of an investment in the securities to be acquired
by it hereunder and, at the present time, is able to afford a complete loss of
such investment.
10.
(g) PROHIBITED TRANSACTIONS. The securities to be acquired by such
Investor hereunder are not being acquired, directly or indirectly, with the
assets of any "employee benefit plan," within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(h) ACCESS TO INFORMATION. Such Investor acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the securities offered hereunder and the merits and risks of investing in
such securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in such securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials.
(i) RELIANCE. Such Investor understands and acknowledges that (i) the
Debentures and the Shares being offered and sold to it hereunder are being
offered and sold without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
under Regulation D promulgated thereunder and (ii) the availability of such
exemption, depends in part on, and that the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and such Investor hereby
consents to such reliance.
The Company acknowledges and agrees that the Investors make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
SECTION 4. OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) If any Investor should decide to dispose of any portion of the
principal amount of the Debentures, or any of the Shares to be purchased by it
hereunder (and upon conversion thereof, any Underlying Shares), such Investor
understands and agrees that it may do so only (i) pursuant to an effective
registration statement under the Securities Act, (ii) to the Company or (iii)
pursuant to an available exemption from registration under the Securities Act.
As a condition to any transfer of any Debentures, Shares or Underlying Shares
other than pursuant to an effective registration statement or to the Company,
the Company may require that the transferor provide to the Company an opinion of
counsel experienced in the area of United States securities laws selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer of such
Debentures, Shares, or Underlying Shares, as the case may be, is being made
pursuant to an exemption under the Securities Act. Any transfer of the
Underlying Shares shall be subject to the transfer and sales restrictions set
forth in Section 4.19(b) of this Agreement.
11.
(b) The Investors agree to the imprinting, so long as required by the
terms of this Section 4.1(b), of the following legend on certificates
representing the Debentures, the Shares, and the Underlying Shares, to be
modified as applicable:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
THIS [ ] IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSION
SET FORTH IN A SECURITIES EXCHANGE AGREEMENT, DATED AS OF SEPTEMBER 2,
1998, BETWEEN YES! ENTERTAINMENT CORPORATION ("THE COMPANY") AND THE
ORIGINAL HOLDER HEREOF. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
The legend set forth above shall be removed upon the conversion of
Debentures or Shares represented by such certificate at any time after an
Underlying Securities Registration Statement has been declared, and so long as
such Underlying Securities Registration Statement remains effective under the
Securities Act or, if not converted during such time, at such other time as in
the opinion of counsel to the Company experienced in the area of United States
securities laws such legend is no longer required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The certificates representing the
Debentures, Shares, and Underlying Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends may be
removed as set forth above in the immediately preceding sentence, or, with
respect to legends required pursuant to state securities laws, when such legends
are no longer required under the applicable requirements of such securities
laws. The Company agrees that it will provide each Investor, upon request, with
a substitute certificate or certificates, free from such legend at such time as
such legend is no longer applicable at no charge. Each Investor agrees that, in
connection with any transfer of Underlying Shares by it pursuant to an effective
registration statement under the Securities Act, such Investor will comply with
all applicable prospectus delivery requirements of the Securities Act. The
Company makes no representation, warranty or agreement as to the availability of
any exemption from registration under the Securities Act with respect to any
resale of the Debentures, Shares, or Underlying Shares.
4.2 STOP TRANSFER INSTRUCTION. For so long as an Underlying Securities
Registration Statement is effective or the Investor complies with Section 4.1,
the Company shall
12.
not issue any stop transfer instruction or make any notation on its records with
respect thereto to any transfer agent (including the Transfer Agent) of the
Company and shall issue shares of Common Stock upon a conversion of Debentures
or Shares or exercise of Warrants in accordance with Section 4.1.
4.3 FURNISHING OF INFORMATION.
(a) As long as any Investor owns Debentures, Shares or Underlying
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act and to furnish to each
Investor within ten days of each such filing true and complete copies of all
such filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to each Investor annual
and quarterly financial statements, together with a management discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.
(b) The Company shall deliver copies to the Investors of any documents
or financial statements it delivers to BNY pursuant to Sections 11(a), 11(b),
11(c) or 11(d) of the Receivables Agreement concurrently with such delivery to
BNY, provided that the Company shall not be obligated to deliver the
accountant's consent required under Section 11 of the Receivables Agreement and
shall not deliver to the Investors the other materials it is required to deliver
to BNY under such Section 11.
4.4 COPIES AND USE OF DISCLOSURE MATERIALS. The Company consents to the use
of the SEC Documents, and any amendments and supplements thereto, by the
Investors in connection with resales of the Underlying Shares to the extent such
resales are not pursuant to an effective registration statement.
4.5 BLUE SKY LAWS. The Company shall qualify the Underlying Shares under
the securities or Blue Sky laws of such jurisdictions as each Investor may
request and shall continue such qualification at all times through the third
anniversary of the Closing Date; provided, however, that the Company shall not
be required in connection therewith to qualify as a foreign corporation where it
is not now so qualified, or take any action that would subject the Company to
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
4.6 INTEGRATION. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Debentures, the Shares or the Underlying Shares in a manner that would require
the registration under the Securities Act of the sale of the Debentures, the
Shares or the Underlying Shares to the Investors.
13.
4.7 CERTAIN AGREEMENTS.
(a) The Company shall not and shall cause the Subsidiaries not to,
without the consent of the Investors, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Investors under the Transaction Documents; (ii) repay, repurchase
or offer to repay, repurchase or otherwise acquire in excess of 10,000 shares of
its Common Stock (counting since March 17, 1997), other than shares which may be
repurchased from employees of the Company in connection with the termination of
their employment with the Company; or (iii) enter into any agreement with
respect to any of the foregoing.
(b) The Company may not force any conversion or call a redemption of
any portion of the principal amount of the Debentures until such time as all of
the Shares have been converted or redeemed in accordance with the terms hereof
and the Certificate of Designation.
4.8 LISTING OF UNDERLYING SHARES. The Company shall, within seven (7)
Business Days of the Closing Date, file with the Nasdaq National Market an
additional shares listing application covering such Underlying Shares and
Warrant Shares that shall not have been previously covered by a Nasdaq
additional shares listing and shall take all steps necessary to cause such
application to be approved as soon as possible thereafter. The Company shall
also take all steps necessary to cause such shares to be listed on any other
national securities exchange or market on which the Common Stock is then listed
as soon as possible after the Closing Date. The Company shall provide to each
Investor evidence of such filings and listings, and shall maintain such listings
as long as any Investor holds Debentures, Shares, Warrants, Underlying Shares or
Warrant Shares. In the event the aggregate number of Underlying Shares and
Warrant Shares exceeds the number covered by the additional shares listing
application filed with the Nasdaq National Market, the Company shall promptly
file one or more appropriate listing applications to continually list for
trading a number of such additional shares, as the Company and the Investors
shall reasonably agree.
4.9 INVESTOR'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR DELISTED.
In the event that at any time within the three-year period after the date
hereof, trading in the shares of the Common Stock is suspended on or delisted
from the Nasdaq National Market (other than as a result of the suspension of
trading in securities on such market generally or temporary suspensions pending
the release of material information and other than a suspension of trading if
the Common Stock is quoted on the Nasdaq SmallCap Market within one Business Day
after such suspension), at each Investor's option exercisable by five Business
Days prior written notice to the Company, the Company shall repay, redeem, or
repurchase as applicable, all of the Debentures owned by each Investor at the
Prepayment Price as calculated on the date of such notice, all of the Shares
owned by each Investor at the Redemption Price as calculated on the date of such
notice, all of the Warrants at the Warrant Repurchase Price as calculated on the
date of such notice as provided in the July Purchase Agreement, and all of the
Underlying Shares at the Per Share Market Price as calculated on the date of
such notice and interest on such amounts at the rate of 15% per annum accruing
from the fifth (5th) Business Day after such notice until the repurchase price
under this Section 4.9 is paid in full.
14.
4.10 NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision of this
Agreement to the contrary, if any repurchase or redemption otherwise required
under this Agreement or the Registration Rights Agreement would be prohibited by
the relevant provisions of Delaware General Corporation Law, such repurchase
shall not be effected unless and until it is permitted under such law; provided,
however, that interest payable by the Company with respect to any such
repurchase or redemption shall continue to accrue in accordance with Section
4.9.
4.11 REPURCHASE RESTRICTIONS. Notwithstanding any provision of this
Agreement to the contrary, if any repurchase or redemption otherwise required
under this Agreement or the Registration Rights Agreement would be prohibited in
the absence of consent from any institutional lender of the Company or any of
the Subsidiaries which has an outstanding loan balance in excess of $1 million,
the Company shall use its best efforts to obtain such consent as promptly as
practicable after the repurchase or redemption is required and such repurchase
or redemption shall not be effected unless and until such consent is obtained.
Interest payable by the Company with respect to any such repurchase or
redemption shall continue to accrue until such consent is obtained and the
repurchase price therefor paid. Nothing contained in this Section 4.11 shall be
construed as a waiver by the Investor of any rights it may have by virtue of any
breach of any representation or warranty of the Company herein as to the absence
of any requirement to obtain any such consent.
4.12 LEGAL OPINION. The Company shall cause the legal opinion of Cooley
Godward LLP in the form of Exhibit D, to be delivered at the Closing.
4.13 NOTICE OF BREACHES. Each party shall give prompt written notice to
the other party of any breach by it of any representation, warranty or other
agreement contained in this Agreement or in the Registration Rights Agreement,
as well as any events or occurrences arising after the date hereof and prior to
the Closing, which would reasonably be likely to cause any representation or
warranty or other agreement of such party, as the case may be, contained herein
to be incorrect or breached as of such Closing Date. However, no disclosure by
either party pursuant to this Section 4.13 shall be deemed to cure any breach of
any representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall promptly
notify each Investor of any notice or claim (written or oral) that it receives
from any lender of the Company to the effect that the consummation of the
transactions contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Debentures and Shares a copy of any written statement in
support of or relating to such claim or notice.
4.14 CONVERSION PROCEDURES. Exhibit F sets forth the procedures that are
to followed in addition to the tendering of a Conversion Notice hereunder with
respect to the conversion of the Debentures or Shares including the form of
legal opinion, if necessary, that shall be rendered to the Transfer Agent and
such other information and instructions as may be reasonably necessary to enable
the Investors to exercise its right of conversion smoothly and expeditiously.
15.
4.15 TRANSFER AGENT. Boston EquiServe shall act as transfer agent (the
"Transfer Agent") of the Company. The Company may not remove or replace the
Transfer Agent as its transfer agent without the written consent of the
Investors.
4.16 NEW DIRECTORS. Within 10 days after the Closing Date, the Company
shall cause a majority of its Board of Directors to elect each of Stuart
Chasanoff and Barrett Whissman to the Board.
4.17 RESTRICTION ON DEBT. The Company covenants and agrees that from and
after the date hereof and so long as any of the Debentures remain outstanding,
or the Company shall have any obligation to the Investors hereunder or pursuant
hereto, the Company shall not, and shall not permit any Subsidiary to, without
the prior written consent of the Investors in each instance incur, create,
assume, guarantee or suffer to exist, or become or remain liable directly or
indirectly, for or on account of any indebtedness, obligations or liabilities
that rank pari passu with or senior to the indebtedness, obligations and
liabilities represented by the Debentures, except under the BNY Bank Obligations
or any obligations to any of the Investors or their respective successors and
permitted assigns.
4.18 RESTRICTION ON SHORT SALES. Each Investor covenants and agrees not to
engage in any Short Sales of Common Stock so long as the Investors or any of
their affiliates, as defined in the Exchange Act, hold any Shares or Debentures;
provided, however, that each Investor may engage in sales of Common Stock
issuable to an Investor upon conversion or upon exercise of a Warrant, made
within 72 hours prior to the time notice of conversion is given, or such Warrant
is exercised, as applicable.
4.19 RESTRICTIONS ON CONVERSION AND SALE. (a) The Investors agree not to
convert the Series C Preferred and Debentures into or exercise the Warrants for
Common Stock until the earlier of (i) February 21, 1999 or (ii) the date an
Event of Default (as defined below) occurs. For purposes of this Agreement, the
following shall constitute an Event of Default: (i) the Company incurs more than
$100,000 in additional indebtedness (excluding trade debt incurred in the
ordinary course of business); (ii) the Company permits to exist liens on its
assets securing payment of claims or obligations in an aggregate amount of
$500,000 other than existing liens or liens securing payment of (A) the BNY Bank
Obligations, (B) the Bridge Loan (as defined below), or (C) the New Facility (as
defined below); (iii) the Company uses any of the proceeds of the Bridge Loan or
the New Facility for any purpose other than working capital in connection with
the operation of the Company's present business operations; (iv) the Company
enters into any agreement to merge with or otherwise combine its assets or
operations with any other entity or sells any material assets outside the
ordinary course of business; (v) the Company commences an action for relief
under any provision of the United States Bankruptcy Code or any similar
statutory scheme (or is made the subject of such an action and such action is
not dismissed within 30 days of commencement); (vi) the Company pays any
material additional or special compensation to any of its officers that is not
currently required under any existing agreements with its officers; (vii) the
Company enters into any material transaction with any insider or affiliate;
(viii) the Company issues any shares of stock in the Company other than in
satisfaction of existing options, warrants, conversion rights, or existing
obligations under the Company's employee benefit plans; or (ix) the Company's
stockholders fail to approve (A) the Company's issuance of more than 20% of the
Company's Common Stock upon conversion of
16.
the Debentures and Series C Preferred to the Investors pursuant to Rule 4460 of
the Nasdaq National market rules or (B) an increase in the authorized number of
shares of Common Stock sufficient to cause the number of authorized and unissued
and unreserved shares of Common Stock on such date to exceed (by not less than
10 million shares) the number of shares of Common Stock issuable upon the
conversion and exercise of all of the outstanding shares of Series B Preferred
and Series C Preferred, the July Debentures, the Debentures and the Warrants, in
each case, on or prior to December 21, 1998. The Bridge Loan shall mean that
certain $3 million loan from Infinity Investors Limited in favor of the Company
and executed on the date hereof. The New Facility shall mean the proposed $10
million loan facility which may be entered into between the Company and Infinity
Investors Limited.
(b) The Investors agree not to sell, assign or otherwise transfer
their shares of the Series C Preferred and Debentures or the Underlying Shares
or Warrants until the earlier of (i) February 21, 1999 or (ii) the date an Event
of Default occurs, except (X) in a private placement to a bona fide, independent
third-party which is not an affiliate of any of the Investors in a transaction
not entered into for the purpose of avoiding the provisions of this Section
4.19, which private placement is exempt from the registration requirements of
Section 5 of the Securities Act, (Y) pursuant to an underwritten public offering
of such securities, and (Z) the Investors may collectively sell, in any calendar
quarter, Securities that convert into Underlying Shares or Underlying Shares in
amounts up to 5% of the outstanding Common Stock on a fully diluted basis. On or
after the first to occur of (i) February 21, 1999 or (ii) the date an Event of
Default occurs, the Investors may (1) sell, assign or otherwise transfer their
shares of the Series C Preferred and Debentures or the Underlying Shares or
Warrants (A) in a private placement to a bona fide, independent third party
which is not an affiliate of any of the Investors in a transaction not entered
into for the purpose of avoiding the provisions of this Section 4.19, which
private placement is exempt from the registration requirements of Section 5 of
the Securities Act, (B) pursuant to an underwritten public offering of such
securities or (2) collectively sell, in any calendar quarter, Securities that
convert into Underlying Shares or Underlying Shares in amounts up to (but not
exceeding) 10% of the outstanding Common Stock on a fully diluted basis.
4.20 STOCKHOLDERS MEETING. As soon as practicable, the Company shall file
proxy materials with the Commission relating to a special or annual meeting of
the stockholders of the Company called for the purpose of approving (A) the
issuance (the "Issuance") of such Common Stock upon conversion of the
Debentures, Warrants and Series C Preferred pursuant to Rule 4460 of Nasdaq
National Market and (B) an increase in the authorized number of shares of Common
Stock sufficient to cause the number of authorized and unissued and unreserved
shares of Common Stock on such date to exceed (by not less than 10 million
shares) the number of shares of Common Stock issuable upon the conversion and
exercise of all of the outstanding shares of Series B Preferred and Series C
Preferred, the July Debentures, the Debentures and the Warrants (the "Special
Meeting"). The Company shall use its best efforts to clear the proxy statement
relating to the Special Meeting with the Commission as soon as practicable and
to mail the same to its stockholders as soon as practicable. The Company
covenants to hold the Special Meeting on the earliest practicable date in
compliance with Delaware law and the Company's certificate of incorporation and
bylaws as in effect on the date hereof. The Board of Directors of the Company
shall recommend to its stockholders that they vote in favor of a proposal to
approve the Issuance and against any proposal that would prevent or discourage
the Issuance. Simultaneous with the execution of this Agreement, Messrs. Donald
Kingsborough and Gary
17.
Nemetz have provided irrevocable proxies to the Investors allowing the Investors
to vote all of their shares of Common Stock at the Special Meeting in favor of
the Issuance.
SECTION 5. MISCELLANEOUS
5.1 FEES AND EXPENSES. The Company shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred incident to the negotiation, preparation, execution, delivery and
performance of this Agreement and the Registration Rights Agreement. The Company
shall also pay the legal fees and expenses of the Investors incurred by them in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other documents delivered at the Closing. The Company shall
pay all stamp and other taxes and duties levied in connection with the issuance
of the Debentures and Shares pursuant hereto. Each Investor shall be responsible
for such Investor's own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement.
5.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Debentures, the Certificate of Designation,
the Registration Rights Agreement, the July Purchase Agreement solely as it
relates to the Warrants (except that Sections 4.8 and 4.20 with respect to the
Warrants are hereby deleted and of no further force and effect), and the
Warrants contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 4:30 p.m. (Eastern Standard
Time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 4:30 p.m.
(Eastern Standard Time) on any date and earlier than 11:59 p.m. (Eastern
Standard time) on such date, (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be:
If to the Company: YES! Entertainment Corporation
3875 Hopyard Road
Pleasanton, CA 94588
Attn: Donald Kingsborough
Facsimile No.: (510) 734-0997
18.
With copies to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Patrick Pohlen
Facsimile No.: (415) 857-0663
If to Infinity: Infinity Investors Limited
Hunkins Waterfront Plaza
Main Street
P.O. Box 556
Charlestown, Nevis, West Indies
Attn: _________
Facsimile No.: (__) __________
If to Glacier: Glacier Capital Limited
Main Street
P.O. Box 556
Charlestown, Nevis, West Indies
Attn: _________
Facsimile No.: (__) __________
If to Emerging: Infinity Emerging Opportunities Limited
Main Street
P.O. Box 556
Charlestown, Nevis, West Indies
Attn: _________
Facsimile No.: (__) __________
With copies to: White & Case LLP
4900 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131
Attn: Thomas E Lauria
Facsimile No.: (305) 358-5744
and Mr. Stuart Chasanoff
c/o HW Finance
160 Elm Street, Suite 4000
Dallas, Texas 75201
Facsimile No.: (214) 720-1662
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the
19.
Company and the Investors, or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
5.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor the Investors may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other, except
that each Investor may assign its rights hereunder and under the Registration
Rights Agreement to an Affiliate thereof, provided, that such assignee
demonstrates to the reasonable satisfaction of the Company its satisfaction of
the representations and warranties set forth in Section 3.2 herein. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
5.8 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
5.9 SURVIVAL. Each of the representations and warranties of the Company
and the Investor contained in Article III and the agreements and covenants of
the parties contained in Article IV and this Article V shall survive until a
date that is three years after the last Closing date.
5.10 COUNTERPART SIGNATURES. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 PUBLICITY. Prior to, or concurrently with, the filing of an amended
registration statement contemplated by this transaction the Company and the
Investors shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement without the prior written consent of the
20.
other, which consent shall not be unreasonably withheld or delayed, except for
such releases, filings or public statements that are required by law. Any press
release or public statement made subsequent to the filing of the amended
registration statement contemplated by this transaction shall not contain any
statement regarding the trading on investment of the Investors in connection
with this Agreement, the March Agreement or the predecessor thereto, without
first obtaining the consent of such Investors, which consent shall not be
unreasonably withheld.
5.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Investors
will be entitled to specific performance of the obligations of the Company under
this Agreement and the Company will be entitled to specific performance of the
obligations of the Investors hereunder with respect to the subsequent transfer
of Debentures, Shares and the Underlying Shares. Each of the Company and the
Investors agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of any breach of its obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
5.14 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT. The Investors, being the
holders of at least a majority of the Registrable Securities (as defined in the
Registration Agreement), and the Company hereby agree to amend the Registration
Rights Agreement to provide the holders of the Series C Preferred and Debentures
the same rights as the holders of the Series B Preferred and the July Debentures
and such holders are hereby deemed to be parties to, and have the rights and
benefits of, the Registration Rights Agreement as though they were original
signatories thereto. The Company represents to the Investors that the
Registration Rights Agreement is in full force and effect, is an enforceable
obligation of the Company in accordance with its terms and the Company has no
claims or defenses with respect thereto, except that the enforceability of the
Registration Rights Agreement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company covenants that
within thirty (30) days of the date hereof the Company shall file an amendment
to the Underlying Securities Registration Statement to include the Series C
Preferred and Debentures or file a new registration statement as would have been
required under the Registration Rights Agreement had the Series C Preferred and
Debentures been issued with the Series B Preferred and July Debentures.
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[SIGNATURE PAGE FOLLOWS]
21.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
YES! ENTERTAINMENT CORPORATION
By: /s/ Mark Shepherd
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Name: Mark Shepherd
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Title: CEO and President
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INFINITY INVESTORS LIMITED
By: /s/ James E. Martin
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Name: James E. Martin
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Title: Director
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GLACIER CAPITAL LIMITED
By: /s/ James E. Martin
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Name: James E. Martin
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Title: Director
---------------------------------
INFINITY EMERGING OPPORTUNITIES LIMITED
By: /s/ James E. Martin
------------------------------------
Name: James E. Martin
----------------------------------
Title: Director
---------------------------------
22.