<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MONARCH AVALON, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: $6,000,000
(5) Total fee paid: $1,200
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previous paid:
(2) Form, Schedule or registration statement no.:
(3) Filing party:
(4) Date Filed:
<PAGE>
MONARCH AVALON, INC.
4517 Harford Road
Baltimore, Maryland 21214
September 17, 1998
Dear Stockholder:
Your Company cordially invites you to attend the 1998 Annual Meeting of
Stockholders which will be held at 11:00 A.M. on October 23, 1998, at the
Center Club, Legg Mason Building, 100 Light Street, Baltimore, Maryland.
The Notice of Annual Meeting and Proxy Statement accompanying this letter
describe the business to be transacted at the Annual Meeting. A copy of the
Annual Report to Stockholders is also enclosed herewith.
Whether you plan to attend or not, we urge you to sign, date and return
the enclosed proxy card in the postage-paid envelope provided, in order that
as many shares as possible may be represented at the Annual Meeting. Return-
ing your proxy does not deprive you of your right to attend the Annual
Meeting and vote your shares in person.
A majority of the outstanding shares of Common Stock must be represented
at the Annual Meeting in order to transact business, and accordingly, the
vote of every stockholder is important. Your cooperation in returning your
executed proxy promptly will be appreciated.
Sincerely,
Jackson y. Dott
President
<PAGE>
MONARCH AVALON, INC.
4517 Harford Road
Baltimore, Maryland 21214
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 23, 1998
TO THE STOCKHOLDERS OF MONARCH AVALON, INC.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of Monarch Avalon, Inc., a Delaware corporation (the
"Company"), will be held at 11:00 A.M. local time on October 23, 1998, at
the Center Club, Legg Mason Building, 100 Light Street, Baltimore, Maryland
for the following purposes:
1. To consider and vote upon a proposal to approve (A) the Asset Purchase
Agreement dated as of August 3, 1998 (the "Asset Purchase Agreement") between
the Company and HIAC XII Corp., a Delaware corporation and an indirect wholly-
owned subsidiary of Hasbro, Inc., a Rhode Island corporation; and (B) the sale
of substantially all the business, operations and assets of the Games Business
of the Company as contemplated by the Asset Purchase Agreement (the "Proposed
Transaction") which may be deemed to be a sale of substantially all the property
and assets of the Company pursuant to Section 271 of the Delaware General
Corporation Law;
2. To consider and vote upon a proposal to approve an amendment to the
Company's Certificate of Incorporation to change the name of the Company to
Monarch Services Inc., effective upon the consummation of the Proposed
Transaction;
3. To elect a Board of four Directors to hold office for the ensuing year
and until their successors are elected and qualified;
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent accountants for the fiscal year ending April 30, 1999;
5. To consider any other matter which may properly come before the Annual
Meeting.
All the above matters are more fully described in the accompanying Proxy
Statement. Under the General Corporation Law of the State of Delaware,
stockholders do not have appraisal rights in connection with the Proposed
Transaction.
The Board of Directors has fixed the close of business on September 11,
1998 as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the Annual Meeting or any adjournment thereof, and
only record holders of Common Stock at the close of business on that day are
entitled to notice of and to vote at the Annual Meeting.
EACH STOCKHOLDER IS CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, HOWEVER, STOCKHOLDERS
ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY
STOCKHOLDER ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE
HAS PREVIOUSLY RETURNED A PROXY CARD.
By Order of the Board of Directors,
Steven M. Szekely,
Secretary
Baltimore, Maryland
September 17, 1998
<PAGE>
MONARCH AVALON, INC.
4517 HARFORD ROAD
BALTIMORE, MARYLAND 21214
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
October 23, 1998
GENERAL INFORMATION CONCERNING THE SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Monarch Avalon, Inc. (the
"Company") to be voted at the Company's 1998 Annual Meeting of Stockholders to
be held October 23, 1998 at 11:00 a.m., prevailing local time, and any
adjournments and postponements thereof (the "Annual Meeting"). A stockholder
may revoke his proxy at any time prior to its use by execution of another proxy
bearing a later date or by notifying the Secretary of the Company in writing.
Copies of this Proxy Statement, the attached Notice of 1998 Annual Meeting of
Stockholders, and the enclosed form of proxy were first mailed to the Company's
stockholders on or about September 14, 1998. The Company's principal executive
offices are located at 4517 Harford Road, Baltimore, Maryland 21214 and its
telephone number is (410) 254-9200.
The cost of preparing, assembling and mailing the proxy materials and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expense of transmitting copies of the proxy materials to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies otherwise than by use of the mails,
but certain officers and regular employees of the Company may, without
additional compensation, use their personal efforts, by telephone or otherwise,
to obtain proxies and the Company reserves the right to engage a proxy
solicitation firm to conduct a telephone or other solicitation if appropriate in
the opinion of the Board of Directors. All costs of such proxy solicitation
firm, if engaged, will be borne by the Company.
The Proposals. At the Annual Meeting, the Company's stockholders will
consider and vote upon proposals to: (1) approve the proposed asset purchase
agreement (the "Asset Purchase Agreement") dated as of August 3, 1998 between
the Company and HIAC XII Corp., an indirect subsidiary of Hasbro, Inc.
(collectively, "Hasbro") and the sale of substantially all the business,
operations and assets of the Games Business of the Company as contemplated by
the Asset Purchase Agreement (the "Proposed Transaction") which may be deemed to
be a sale of substantially all the property and assets of the Company pursuant
to Section 271 of the Delaware General Corporation Law (the "DGCL") for $6
million in cash plus the assumption of certain liabilities (the "Proposed
Transaction"); (2) approve an amendment (the "Amendment") to the Company's
Certificate of Incorporation to change the name of the Company to Monarch
Services Inc., effective upon consummation of the Proposed Transaction; (3)
elect a Board of four Directors to hold office for the ensuing year and until
their successors are elected and qualify; and (4) approve and ratify the
appointment of Deloitte & Touche LLP as the Company's independent accountants
for the fiscal year ending April 30, 1999. If the Proposed Transaction is
completed, the Board of Directors intends to concentrate its efforts on the
Company's Printing and Publishing Businesses.
<PAGE>
Approval by the Board. The Company's Board of Directors has unanimously
approved, and recommends that the Company's stockholders approve, the Asset
Purchase Agreement and the Proposed Transaction (collectively, the "Proposed
Transaction"), the Amendment, the election of the nominated Directors and the
ratification of the appointment of Deloitte & Touche LLP as the Company's
independent accountants.
Voting of Proxies; Revocability of Proxy. A proxy card in the accompanying
form, which is properly executed, duly returned to the Secretary of the Company
and not revoked prior to exercise, will be voted in accordance with the
instructions indicated in the proxy card. If no instructions are given with
respect to any matter specified in the Notice of Annual Meeting to be acted upon
at the Annual Meeting, the proxies named therein will vote the shares
represented thereby in favor of the proposal to approve the Proposed
Transaction, in favor of the proposal to approve the Amendment, in favor of the
election of the nominated Directors and in favor of the ratification of the
appointment of Deloitte & Touche LLP as the Company's independent accountants.
Each stockholder who has executed a proxy and returned it to the Secretary of
the Company may revoke the proxy by notice in writing to the Secretary of the
Company, or by attending the Annual Meeting in person and requesting the return
of the proxy, in either case at any time prior to the voting of the proxy.
Presence at the Annual Meeting does not itself revoke the proxy. In addition,
any later dated proxies returned on a timely basis would revoke proxies
submitted prior thereto. A stockholder who attends the Annual Meeting in person,
may, if he or she wishes, vote by ballot at the Annual Meeting, thereby
canceling any proxy previously given by such stockholder.
Solicitation of Proxies. Proxies are being solicited by and on behalf of
the Company. Accordingly, the costs of the solicitation will be borne by the
Company. In addition to solicitation by the use of mails, proxies may be
solicited by Directors, officers and employees of the Company in person or by
telephone, facsimile transmission or other means of communication. Such
Directors, officers and employees of the Company will not be additionally
compensated, but will be reimbursed for out-of-pocket expenses in connection
with such solicitation. Arrangements will also be made with brokers and dealers,
custodians, nominees and fiduciaries to assist the Company in the solicitation
of proxies, including for forwarding of proxy materials to beneficial owners of
common stock of the Company, $0.25 par value per share (the "Common Stock"),
held of record by such persons, and the Company will reimburse such brokers,
dealers, custodians, nominees and fiduciaries for reasonable expenses incurred
in connection therewith but will not otherwise compensate such persons. The
Company does not currently intend to retain outside proxy solicitors to solicit
proxies by use of the mails, in person, by telephone, by facsimile transmission
or by other means of communication; however, the Company reserves the right to
retain outside proxy solicitors if necessary. The costs of outside proxy
solicitors, if retained, will be borne by the Company.
<PAGE>
Record Date. The Board of Directors has fixed the close of business on
September 11, 1998 as the record date (the "Record Date") for the determination
of the stockholders entitled to notice of, and to vote at, the Annual Meeting.
Quorum; Vote Required. As of the Record Date, there were 1,619,820 shares
of Common Stock issued and outstanding and entitled to vote. Each share of
issued and outstanding Common Stock entitles the holder thereof to one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
Teller of Elections appointed for the Annual Meeting and will determine whether
or not a quorum is present. Where, as to any matter submitted to the
stockholders for a vote, proxies are marked as abstentions (or stockholders
appear in person but abstain from voting), such abstentions will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the stockholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter and has not received instructions from the
beneficial owner, a broker non-vote, those shares will not be considered as
present and entitled to vote with respect to that matter; however, such shares
will be considered present for purposes of a quorum. A majority of the shares of
Common Stock issued, outstanding and entitled to vote at the Annual Meeting,
present in person or represented by proxy, shall constitute a quorum at the
Annual Meeting.
As the affirmative vote of the majority of the shares of Common Stock
entitled to vote will be necessary for the approval of the Proposed Transaction
and the approval of the Amendment, abstentions and broker nonvotes will have the
same effect as votes against the Proposed Transaction and against the Amendment.
The election of each Director requires a plurality of the votes present and
entitled to vote. The approval of each other proposal requires the affirmative
vote of the holders of a majority of the shares represented at the Annual
Meeting and entitled to vote.
Section 2.10 of Article II of the Company's Bylaws requires compliance with
a procedure under which a stockholder may nominate a candidate for election as
Director at an annual meeting. The nomination is required to be (i) written
(ii) delivered to, or mailed and received at, the executive offices of the
Company not less than 60 days nor more than 90 days prior to the date of the
scheduled annual meeting and (iii) accompanied by (A) the name, age, business
address and residence of the stockholder and each person whom the stockholder
proposes to nominate for election or re-election as a Director, (B) the
principal occupation or employment of such persons, (C) the number of shares of
Company stock which are beneficially owned by such persons that is required to
be disclosed in solicitations of proxies with respect to nominees for election
as Directors, pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, and (E) the name and address, as they appear on the Company's
books, of the stockholder making the nomination and any other stockholder known
by such stockholder to support such nomination, and the number of shares of
Company stock beneficially owned by all such stockholders. If notice or public
disclosure of the date of the annual meeting occurs less than 70 days prior to
the date of the annual meeting, stockholders must deliver to the Company, or
mail and have received at the Company, the nomination and the required attendant
information no later than the close of business on the tenth day following the
earlier of (i) the day on which such notice of the date of the annual meeting
was mailed or (ii) the day on which such public disclosure was made. This
discussion is intended to summarize Section 2.10 of Article II of the Company's
Bylaws, and is qualified in its entirety by reference to the Company's Bylaws.
<PAGE>
No Appraisal Rights. Under DGCL, stockholders of the Company do not have
appraisal rights in connection with the Proposed Transaction.
PROPOSAL ONE: THE PROPOSED SALE OF THE GAMES BUSINESS
At the Annual Meeting, the Company's stockholders will consider and vote
upon a proposal to approve the Asset Purchase Agreement (a copy of which is
attached to this Proxy Statement as Annex A and is incorporated herein by
reference) between the Company and Hasbro and the sale of substantially all the
business, operations and assets of the Games Business of the Company, as
contemplated by the Asset Purchase Agreement, which may be deemed to be a sale
of substantially all the property and assets of the Company pursuant to Section
271 of the DGCL, for $6 million in cash plus the assumption of certain
liabilities and a proposal to approve the Amendment to the Company's Certificate
of Incorporation that would change the name of the Company to Monarch Services
Inc., effective upon consummation of the Proposed Transaction.
BACKGROUND
The terms of the Proposed Transaction were the result of arm's-length
negotiations between the Company and Hasbro and their respective
representatives. The following is a brief description of the background of the
Proposed Transaction and the negotiations leading to the execution of the Asset
Purchase Agreement.
The Company is currently engaged in three separate businesses, games,
printing, and publishing. The games business, operated predominantly under the
name "The Avalon Hill Game Company," develops, manufactures and markets a wide
variety of strategy, sports and family-oriented board games, as well as a line
of software games designed for use on microcomputers (the "Games Business"). The
printing business, operated under the name "Monarch Services" provides
commercial printing and graphic arts services to a wide range of business
customers and manufactures envelopes (the "Printing Business"). The publishing
business, operated through a wholly-owned subsidiary, Girl's Life, Inc.,
publishes a bi-monthly magazine for young girls ages seven to fourteen (the
"Publishing Business").
Since 1994, the Company's management has disclosed that it is experiencing
adverse trends in the Games Business. Specifically, management has noted that
the games industry has been characterized by difficult marketing conditions,
including shorter shelf lives and higher sales returns. In response to these
trends and especially the Company's operating results in the second half of the
1995 fiscal year, the Company announced, in July 1995, that it would explore
strategic business and financial alternatives including possible business
combinations, dispositions of assets or divisions or other similar transactions.
<PAGE>
Accordingly, the Company engaged the investment banking group of Mercantile
Bankshares Corp. ("Mercantile"), as its financial advisor to investigate
possible alternatives. As a result of Mercantile's investigation, the Company
decided upon a sale of the Games Business. With Mercantile's assistance,
management approached approximately thirty potential purchasers, including
Hasbro during late 1995 and early 1996. This effort was unsuccessful in
identifying an acceptable purchaser and in lieu of continuing the sales effort,
the Board of Directors determined (i) to suspend active efforts to find an
acceptable purchaser, (ii) to continue to consider any serious offers to
purchase the Games Business that might be directed to the Company and (iii) to
concentrate its efforts on managing the Games Business and to improve its
operating results. During 1997 and the first three quarters of 1998, despite
the efforts of the Company to improve the operating results of the Games
Business, the financial performance and market share of the Games Business
continued to deteriorate.
In February 1998, Hasbro approached the Company with an offer of $6.0
million in cash to purchase the assets of the Games Business excluding cash,
accounts receivable, accounting systems, machinery, equipment, furniture and
fixtures. In early March, the Company received a proposed agreement which set
forth the terms upon which Hasbro was willing to purchase the assets of the
Games Business including the following: an offer to purchase such assets and
assume certain liabilities for $6 million; a no-shopping provision, which
prohibited the Company from pursuing a transaction with, or responding to
inquiries from, other potential purchasers for the period of the agreement; a
termination fee of $1,200,000 in the event the transaction was not approved by
stockholders; survival of certain representations and warranties indefinitely
and others for five years following the closing of a sale transaction; an
indemnity limitation of $6 million; and an indemnity deductible of $60,000.
At a special meeting on March 9, 1998, the Board of Directors was formally
apprised of the offer. The officers of the Company reviewed with the Directors
the status of the market for the Games Business and management's inability to
overcome the adverse trends facing the Games Business during the previous three
years despite a healthy economy. The officers also discussed the past
unsuccessful efforts of the Company to find a buyer for the Games Business. The
Directors then discussed the potential for the success of the Games Business
given the size of its market, increased competition, the Company's market share
and the difficulty in increasing such market share given the Company's limited
financial, technical and marketing resources. The Board of Directors then
directed management to commence negotiations with Hasbro for the sale of the
assets of the Games Business. The Board further directed management to retain
Ferris Baker Watts, Incorporated ("Ferris") as financial advisor to the Board of
Directors in connection with such negotiations with the expectation that Ferris
would provide a "fairness opinion" to the Board of Directors in connection with
the Proposed Transaction.
<PAGE>
After execution of a confidentiality agreement, representatives of Hasbro
were given access to the Company and its employees and conducted extensive due
diligence reviews. Management and legal counsel proceeded to negotiate the
terms of the Asset Purchase Agreement, more particularly described below,
including, without limitation, stockholder approval provisions, the no-shopping
provisions, indemnification provisions including the deductible and indemnity
cap, the termination fee, the conduct of the business prior to the closing of
the Proposed Transaction (the "Closing"), the terms of the non-competition
provisions and the content and duration of representations and warranties.
The Board of Directors of the Company met again on April 6, 1998 and
reviewed in detail the status of negotiations including the status of the
termination fee, the no-shopping provisions and the claims cap and deductible.
A representative of Ferris attended the meeting and reviewed Ferris' due
diligence results, its methodology and its preliminary conclusion that the
proposed transaction was fair to stockholders from a financial point of view
subject to the final terms of the Asset Purchase Agreement.
Management, legal counsel and Hasbro continued negotiations through May and
early June. Hasbro agreed to lower the termination fee to $1 million; decrease
the duration of certain representations and warranties to approximately two and
one-half years; permit the Board of Directors to recommend a proposal from a
competing purchaser to stockholders for approval under certain circumstances;
decrease the claims cap to $1 million; increase the claims deductible to
$100,000; and limit the Company's representations and warranties. However,
Hasbro continued to insist on the no-shopping provision and requested an
additional provision requiring the Board of Directors to submit the transaction
to the Company's stockholders even if the Board of Directors were to withdraw
its recommendation of the Proposed Transaction.
At its meeting on July 9, 1998, the Board reviewed Hasbro's amended offer
in detail and reviewed the history of the Company's previous efforts to find an
acceptable purchaser. Prior to the July 9, 1998 Board meeting, Ferris
distributed a draft fairness opinion to the members of the Board of Directors of
the Company. A representative of Ferris attended the July 9, 1998 Board
meeting, made a presentation to the Board with respect to the Proposed
Transaction, issued its final opinion indicating that the Proposed Transaction
is fair to the Company's stockholders from a financial point of view, in
substantially the form of the draft opinion that was previously distributed, and
answered questions pertaining to its due diligence, methodology and the contents
of the fairness opinion.
<PAGE>
The Directors then reviewed the advantages to be gained by proceeding with
Hasbro under the terms set forth in the proposed Asset Purchase Agreement. The
Board agreed that the Proposed Transaction represented an advantageous valuation
for the Games Business. The Board discussed the likelihood of Hasbro
terminating discussions if the Board rejected the termination fee, no-shopping
provision and exclusivity provision or delayed executing the proposed Asset
Purchase Agreement. The Board weighed the financial value of the Proposed
Transaction against the disadvantage of restricting the Company's access to
other potential purchasers. Given that previous efforts to find an qualified
purchaser had proven unsuccessful and that since such efforts were suspended no
other qualified purchaser had expressed interest, the Board determined that
there was little likelihood of any other qualified purchaser submitting a higher
offer. Accordingly, the Board determined that it was not in the Company's best
interest to risk losing the offer from Hasbro or delaying any transaction, to
attempt to find a competing purchaser. The Board then unanimously voted to
approve the Proposed Transaction and to recommend that the stockholders approve
the Proposed Transaction at the Annual Meeting. The Asset Purchase Agreement, as
previously approved, was executed by the Company and Hasbro on August 3, 1998.
On August 3, 1998, the day immediately preceding the public announcement of
the Proposed Transaction, the range of the bid and ask prices on the Nasdaq
SmallCap Market were $1.50 and $2.00 respectively.
INTERESTS OF MANAGEMENT AND THE BOARD OF DIRECTORS
Except in their capacities as stockholders of the Company, no Director or
executive officer of the Company or any of their associates has any substantial
interest, direct or indirect, in the Proposed Transaction, nor will any such
persons derive any extra or special benefit not shared on a pro rata basis by
all other stockholders of the Company.
REASONS FOR ENGAGING IN THE PROPOSED TRANSACTION
The Board of Directors believes that the Proposed Transaction represents a
favorable valuation for the Games Business which, due to certain adverse trends
that it has been experiencing over at least the past several years, has not
contributed sufficient revenues to provide a reasonable return to the
stockholders. The Proposed Transaction will enable the Company to concentrate
on the Printing and Publishing Businesses and preserve its cash resources.
Although the Board believes the Proposed Transaction and the strategy of
concentrating on the Printing and Publishing Businesses is in the best interests
of the stockholders, there are significant risks inherent in this strategy,
which are more particularly described under "Risk Factors" below.
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The terms of the Proposed Transaction were the result of arm's length
negotiations between the Company and Hasbro and their respective
representatives. In the course of reaching their decision to approve the
Proposed Transaction, the Board of Directors consulted with Ferris as well as
with management. In voting upon the Proposed Transaction, the Board considered
in detail all the factors they deemed relevant to their decision, including the
amount and nature of the consideration to be received for the Games Business,
the financial results of the Company since 1994, the current and historical
stock prices for the Common Stock, the likely profitability of the Company if
the Games Business were retained in view of the limited size of the market of
the Games Business, the difficulties in developing new products with limited
financial and technical resources, the market share of the Games Business, the
increased competition faced by the Games Business, the risks and costs inherent
in attempting to expand the market share or the overall market for the products
of the Games Business, the limited ability of the Games Business to compete
successfully in the games industry as a result of the reduction of the research
and development efforts of the Games Business, the limited number of potential
purchasers of the Games Business and the likelihood of selling the Games
Business to another purchaser on more favorable terms, the advantages of
concentrating the Company's limited resources on the Printing and Publishing
Businesses which may have greater potential for generating a return to the
Company's stockholders than the Games Business. The Board considered that all of
the factors cited above were supportive of a recommendation to approve the
Proposed Transaction.
Although the Board also considered the risks and uncertainties inherent in
the strategy of concentrating its efforts on the very competitive Printing and
Publishing Businesses, given the Company's limited resources, the Board did not
consider these negative factors to be significant in view of the limited
prospects for the Company if the Games Business were retained and the expected
advantages to be gained from the Proposed Transaction.
Based on the information available to the Board, the advice of Ferris and
the fact that no other offer from a qualified buyer was identified in the past
three years, the Board concluded that no other party was likely to consummate a
transaction on terms more favorable to the Company's stockholders than the terms
offered by Hasbro.
After considering these factors (to which the Board did not assign specific
weights) and after consultation with Ferris, the Board unanimously approved the
Proposed Transaction, and recommends that the stockholders approve the Proposed
Transaction at the Annual Meeting.
<PAGE>
OPINION OF FERRIS, BAKER WATTS, INCORPORATED
As described above under "Background," Ferris delivered its written opinion
to the effect that, based upon the assumptions made, matters considered and
limits of the review undertaken, as described in the opinion, the Proposed
Transaction, as set forth in the Asset Purchase Agreement, is fair to the
Company's stockholders from a financial point of view.
The full text of the Ferris opinion, dated July 9, 1998, is attached hereto
as Annex B. Stockholders are urged to read the opinion in its entirety
including the portions thereof describing the assumptions made, matters
considered and limits of the review undertaken by Ferris. Ferris' opinion is
directed only to the fairness from a financial point of view of the cash
consideration to be received by the Company and does not constitute a
recommendation to any stockholder of the Company as to how the stockholder
should vote on the Proposed Transaction. The summary of the opinion of Ferris
set forth in this Proxy Statement is qualified in its entirety by reference to
the full text of the opinion. A summary of the terms under which Ferris was
retained by the Company is set forth below.
In arriving at its opinion, Ferris reviewed: (i) a draft of the Asset
Purchase Agreement between Hasbro and the Company dated July 2, 1998; (ii)
selected audited public and unaudited internal financial information of the
Company; and (iii) management's financial projections for the Company under its
current operations and upon completion of the Proposed Transaction. Ferris held
discussions with the members of the management of the Company regarding the past
and current business operations and financial condition as well as the future
prospects of the Company. Ferris reviewed specific data regarding the valuation
of companies in the Company's industry and utilized its own expertise in merger,
acquisition and divestiture transactions and valuations. In rendering its
opinion, Ferris assumed and relied upon the accuracy and completeness of all
financial and other information reviewed for purposes of the opinion whether
publicly available or provided to Ferris by the Company, and Ferris has not
assumed any responsibility for independent verification of such information.
Ferris's opinion was based upon economic, market and other conditions as in
effect on and information made available to Ferris as of April 6, 1998. No
limitations were imposed on Ferris with respect to the scope of its review, its
investigations or its procedures in arriving at its opinion. Ferris did not
express an opinion as to the relative merits of the Proposed Transaction or any
other strategic alternatives that might be available to the Company.
Based on and subject to the foregoing, Ferris considered several valuation
methods to evaluate the effect of the transaction on stockholders of the Company
including: 1) the discounted future free cash flows of the Company, 2) the
earnings and multiple comparisons to publicly traded companies engaged in
similar businesses, 3) the merger and acquisition activity of companies engaged
in similar businesses, and 4) the control premiums paid by acquirers over the
market price of target companies prior to the takeover announcement date.
Ferris relied most heavily upon the discounted future free cash flows method due
to the fact that, of the methods used, it is the only method that derives value
from the cash flows that should be generated from the business or assets under
consideration. The conclusion reached by Ferris regarding the transaction price
using the discounted future free cash flow valuation method is supported by the
other valuation methods utilized.
<PAGE>
The discounted future free cash flows method used by Ferris is premised on
the assumption that a buyer purchases a time series of free cash flows that are
generated by the assets of a business. This analysis separates and ascribes
value only to the cash flows that can ultimately be taken out of the business.
Cash that is generated but used to sustain the business (such as increases in
working capital and capital expenditures) creates no incremental value to the
buyer. These free cash flows are then discounted to the present at the firm's
weighted average cost of capital. The weighted average cost of capital can be
described as the average price a company must pay to attract both debt and
equity to properly capitalize the firm's growth. It is this series of free cash
flows that, when discounted to the present, and after subtracting claims by debt
holders and others, represents the economic value of a firm to its stockholders.
Under the earnings and multiple comparison method, Ferris compared the
asset purchase price to the relative value of publicly traded companies which
can be considered comparable to the Games Business. This analysis was performed
to ensure that the Company was receiving adequate consideration in the Proposed
Transaction. Ferris' analysis centered on developers, manufacturers and
distributors of toys and games. Because the Company believes that the Games
Business currently has a negative contribution margin and management believes
that this trend may continue in the foreseeable future, Ferris did not rely on
earnings based approaches to value the Games Business. Instead, Ferris focused
on price to revenue multiples derived from the publicly traded comparable
companies. The purchase price compared favorably to the mean, median and high
values derived from the publicly traded comparable companies.
The comparable sale transactions method examines publicly available records
for sale transactions in the Company's industry. This method of valuation is
often difficult to perform due to the lack of publicly available financial data
on the target company. However, Ferris compared this transaction to two
publicly disclosed acquisitions involving companies in the toy industry. Based
on Ferris' analysis, the price to revenue multiple implied in the Proposed
Transaction, compares favorably with the mean and median price of revenue
multiples paid in such transactions.
The Control Premium Study is published quarterly by Houlihan Lokey Howard &
Zukin, Inc. and analyzes stock prices of target companies prior to takeover
announcements and adjusts for takeover speculation. Ferris' review of market
data for the fourth quarter of 1997 indicated that the premium implied in the
intrinsic value of the Company's stock upon completion of the Proposed
Transaction compared favorably with the two transactions involving toy
manufacturers in the fourth quarter of 1997.
<PAGE>
The foregoing does not purport to be a complete description of Ferris'
written opinion, its discussions with the Board of Directors or its methodology
in rendering its opinion. Ferris believes that its analyses must be considered
as a whole and that selecting portions of those analyses or the factors
considered by Ferris, rather than considering all of the analyses and factors,
could create an incomplete view of the procedures underlying its opinion. The
process of preparing a fairness opinion involves many procedures, analyses and
factors and is not readily susceptible to a partial or summary description. In
arriving at its opinion, Ferris made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the Company's control. Ferris' analyses, estimates and views
as to values developed in connection with its opinion are not necessarily
indicative of actual values, which may be significantly more or less, and do not
purport to be appraisals or necessarily reflect the prices at which businesses
may actually be sold. The full text of Ferris's written opinion is set forth in
Appendix B to the Proxy Statement.
Ferris specializes in providing advice and access to capital for technology
companies in the mid-Atlantic region. Ferris provides financial advisory
services, on a fee basis, primarily to corporations in connection with mergers,
acquisitions, divestitures, leveraged buy-outs and valuations. The Company
selected Ferris to render its opinion on the basis of its expertise.
The Company retained Ferris, under the terms of an agreement (the "Ferris
Agreement") dated March 16, 1998 as the Company's exclusive financial advisor in
connection with (1) the possible sale of a majority of the net assets of the
Company to Hasbro or another acquirer and (2) the issuance by Ferris to the
Board of Directors or the opinion of Ferris that the financial consideration to
be paid to the Company's stockholders in any such sale is fair to the Company
for a financial point of view.
Ferris was paid an initial cash fee of $15,000 upon execution of the
agreement and an additional fee equal to $35,000 upon delivery by Ferris of its
opinion (the "Transaction Fee"). In addition to the initial cash fee and the
Transaction Fee, the Company has agreed to reimburse Ferris for all of its out-
of-pocket expenses (including legal fees and expenses), incurred in connection
with the engagement whether or not the Proposed Transaction is consummated. In
the event that Ferris is required to participate in discussions, deliver
additional information and provide additional services as a result of review by
the Securities and Exchange Commission or applicable state securities
authorities of documents filed with such entities in connection with the
Proposed Transaction, the Company will pay to Ferris an amount equal to $200.00
per hour for all time spent by Ferris personnel in performing such additional
services and shall reimburse Ferris for all out-of-pocket expenses incurred by
Ferris in connection therewith. If Ferris serves as an expert witness, or gives
or prepares testimony, the Company shall pay to Ferris an amount equal to $1,600
per person per day for preparation, travel and testimony in any legal proceeding
resulting from the Proposed Transaction. No further fees are due to Ferris upon
consummation of the Proposed Transaction.
The Company has agreed to indemnify and hold harmless Ferris against any
losses, claims, damages, liabilities, awards, costs and expenses, including but
not limited to attorneys' fees to which it may become subject as a result of its
rendering of services pursuant to the Ferris Agreement.
<PAGE>
CONDUCT OF BUSINESS FOLLOWING THE PROPOSED TRANSACTION; USES OF PROCEEDS
If the Proposed Transaction is approved, substantially all of the
assets associated with the Games Business will be sold to Hasbro, which may be
deemed to be a sale of substantially all the property and assets of the Company
pursuant to Section 271 of the DGCL. The Company will have two continuing
operating businesses, the Printing Business and the Publishing Business. The
Board has not determined the final uses of the proceeds from the Proposed
Transaction; however, the Board has determined to invest part of the proceeds in
the Publishing Business to build the franchise of Girls' Life magazine.
Proceeds invested in the Publishing Business may be used for promotional
mailings of Girl's Life, advertising, promotions and other incentives to expand
newsstand sales, and efforts to develop additional advertising revenue.
While the Board has not yet determined the other uses of the proceeds, the
Board has considered expansion of the capabilities of the Company's Printing
Business and its sales force. The Board has also considered the acquisition of
other entities in complementary lines of business to the Company; however, the
Board has not identified any acquisition candidates at this time and no
agreements, commitments or understandings have been made with any potential
candidates. In addition, the Board of Directors has considered but has not
determined whether to distribute a portion of the proceeds to stockholders or to
undertake a stock repurchase.
A vote in favor of the Proposed Transaction will effectively constitute a
vote in favor of changing the nature of the Company's business. In the event the
Board of Directors determines to use part of the proceeds of the Proposed
Transaction to acquire a business entity, the stockholders may not have an
opportunity to vote on such acquisition. See "Risk Factors."
Under the terms of the Asset Purchase Agreement, the Company has
agreed to change its name upon consummation of the Proposed Transaction.
Accordingly, if the Proposed Transaction is approved, the Company must amend its
Certificate of Incorporation to change the Company's name. The Board of
Directors proposes to change the name of the Company to Monarch Services Inc.
See "Proposal No. 2 - The Amendment."
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
The DGCL governs stockholders' rights in connection with the Proposed
Transaction. Under the applicable provisions of DGCL, the Company's
stockholders will have no right in connection with the Proposed Transaction to
seek appraisal of their shares of Common Stock.
<PAGE>
ACCOUNTING TREATMENT OF PROPOSED TRANSACTION
If the Proposed Transaction is approved by the stockholders, the
Company
will record the proposed and planned disposition under Accounting Principles
Board Opinion No. 30, discontinued operations treatment with a financial
accounting measurement date as of the date of stockholder approval. See
"Unaudited Pro Forma Financial Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTION
The Proposed Transaction should have no direct income tax
consequences to the
Company's stockholders. The Proposed Transaction will be reported as a sale of
assets for
federal income tax purposes in 1998.
THE COMPANY WILL NOT SEEK AN OPINION OF COUNSEL WITH RESPECT TO THE
ANTICIPATED TAX CONSEQUENCES. THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME
TAX CONSEQUENCES IS INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT
CONSTITUTE LEGAL ADVICE TO ANY STOCKHOLDER. THE COMPANY RECOMMENDS THAT EACH
STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISER REGARDING THE TAX CONSEQUENCES OF
THE PROPOSED TRANSACTION.
CERTAIN INFORMATION CONCERNING HASBRO
HIAC XII Corp., a Delaware corporation, is an indirect, wholly-owned
subsidiary of Hasbro, Inc., a Rhode Island corporation, a designer, manufacturer
and marketer of toys, games, interactive software, puzzles and infant products.
Hasbro's principal executive offices are located at 1027 Newport Avenue,
Pawtucket, RI 02862 and its telephone number is (401) 431-8697. Hasbro will
fund the purchase price from available working capital.
All information contained in this Proxy Statement relating to Hasbro
has been supplied by Hasbro to the Company.
<PAGE>
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS AFTER THE PROPOSED TRANSACTION
Certain Cautionary Information. In connection with the Private Securities
Litigation Reform Act of 1995 (the "Litigation Reform Act"), the Company is
hereby disclosing certain cautionary information to be used in connection with
written materials and oral statements made by or on behalf of its employees and
representatives that may contain "forward-looking statements" within the meaning
of the Litigation Reform Act. Such statements consist of any statement other
than a recitation of historical fact and can be identified by the use of forward
- - -looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The listener or reader is cautioned that all forward-looking
statements are necessarily speculative and there are numerous risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements. The discussion below
highlights some of the more important risks identified by the Company, but
should not be assumed to be the only factors that could affect future
performance. The reader or listener is cautioned that the Company does not have
a policy of updating or revising forward-looking statements and thus he or she
should not assume that silence by management over time means that actual events
are bearing out as estimated in such forward-looking statements.
Operating Results. The Company has reported a net loss of $1.725 million or
$1.06 per share for fiscal 1998. The Games Business contributed approximately
35% and 50% of the Company's net sales in fiscal 1998 and 1997, respectively.
As a result of the Proposed Transaction, the Company will be entirely dependent
on the Printing and Publishing Businesses for its success. Accordingly, its
operations will be less diversified and the Company believes the effect of risks
pertaining to the Publishing and Printing Businesses, including those listed
below, on the Company's future results of operations will be increased. There
can be no assurance that the Company's strategy of concentrating on the
Publishing and Printing Businesses will be successful and that the Company will
be profitable in future periods.
Use Of Proceeds; Possible Acquisition. The Company has indicated that it
may use part of the proceeds of the Proposed Transaction to acquire an entity in
a complementary line of business to the Company. The Company may be required to
compete for desirable acquisition candidates with a large number of established
and well financed entities, including venture capital firms, with significantly
greater financial resources and technical expertise than the Company. Further,
the stockholders may not have an opportunity to vote on any such acquisition.
If an acquisition is effected, the success of the Company will depend to a great
extent on the operations, financial condition, management and prospects of the
entity the Company may acquire. As the Company has not determined whether to
seek an acquisition and since it has no arrangement, agreement or understanding
with a particular business entity, the specific risks presented by any such
business cannot be described or assessed at this time. The Company's investment
in a new business opportunity may be highly illiquid and there can be no
assurance that any such investment will be successful.
<PAGE>
Dividends. The Board of Directors has considered but has not determined
whether to distribute a portion of the proceeds of the Proposed Transaction to
stockholders or to undertake a stock repurchase. The payment of dividends will
depend on the Company's need for capital, its earnings, if any, its financial
requirements and other factors.
Competition. The Publishing and Printing Businesses are intensely
competitive and populated by numerous competitors including large companies with
substantially greater financial, technical and marketing resources than those of
the Company. Competition in the printing industry is largely based on price,
quality, range of services offered, distribution capabilities, ability to
service the specialized needs of customers, availability of printing time on
appropriate equipment and use of state-of-the-art technology. The Company
competes for commercial business not only with large national printers, but also
with smaller regional printers. The Company also believes that excess capacity
in the industry, especially during periods of economic downturn, may result in
downward pricing pressure and intensified competition in the printing industry.
Given these factors, there can be no assurance that the Company will be able to
continue to compete successfully against existing or new competitors, and the
failure to do so may have a material adverse effect on the results of the
printing business. Further, the Printing Business has in the past provided
printing services to the Games Business. Accordingly, the Company will be
required to compete in the printing industry to replace this business.
Competition in the magazine industry is intense with numerous other publishers
and retailers, as well as other media, competing for readers and advertising
revenue.
Technological Change. Technology in the printing industry has evolved and
continues to evolve. As technology continues to evolve and as its customers'
needs become more specialized and sophisticated, the Company will likely be
required to invest significant additional capital in new and improved technology
in order to maintain and enhance the quality and competitiveness of, and to
expand, its products and services. If the Company is unable to acquire new and
improved technology, facilities and equipment or to develop and introduce
enhanced or new products and services, the results of operations and cash flows
of the Printing Business could be materially adversely affected.
Effect Of Increases In Paper And Postage Costs. The price of paper is a
significant expense of the Company's Publishing and Printing Businesses and
began to rise around mid-year 1994 and continued to rise more dramatically in
1995 and early 1996. In mid-1996 paper prices began to fall. Paper price
increases may have an adverse effect on the Company's future results. Postage
for product and magazine distribution is also a significant expense of the
Company. The Company uses the U.S. Postal Service for distribution of many of
its products and magazine. Postage costs increase periodically and can be
expected to increase in the future. No assurances can be given that the Company
can pass such cost increases through to its customers.
<PAGE>
Limited Market For Publishing Business. Girls' Life magazine is targeted to
girls ages seven to fourteen. Since Girls' Life's target audience is limited by
age and gender, Girls' Life, unlike other magazines that appeal to broader age
groups, must replace a large portion of its readership each year due to
maturation of audience. Accordingly, Girls' Life's promotional expenses that
are designed to replace and expand its readership may be higher than other
magazines with comparable circulation. There can be no assurance that Girls'
Life will be able to replace its existing readers and expand its circulation
going forward. Any decrease in Girls' Life's circulation, due to demographic or
other factors, can be expected to have a material adverse effect on the revenues
of the Publishing Business.
Control By Principal Stockholders. A. Eric Dott and, his son, Jackson Y.
Dott, the Company's Chairman and President, respectively, beneficially own an
aggregate of approximately 43% of the outstanding voting securities of the
Company. Accordingly, these stockholders have the ability, acting together, to
exercise significant control over fundamental corporate transactions requiring
stockholder approval, including without limitation the election of Directors,
approval of merger transactions involving the Company and sales of all or
substantially all of the Company's assets. A. Eric Dott and Jackson Y. Dott have
entered into a voting agreement and irrevocable proxy with HIAC XII Corp.
pursuant to which they have, with respect to all shares of Common Stock that
they beneficially own, agreed to vote, and have granted an irrevocable proxy to
HIAC XII Corp. to vote in favor of the Proposed Transaction. See "Ownership of
Voting Securities--Voting Agreement and Irrevocable Proxy."
TERMS OF THE ASSET PURCHASE AGREEMENT
Although the following is a summary of the material elements of the Asset
Purchase Agreement, it is not complete and is qualified in its entirety by
reference to the copy of the Asset Purchase Agreement attached as ANNEX A to
this Proxy Statement, which stockholders are urged to read in its entirety.
Capitalized terms used but not defined herein shall have the respective meanings
set forth in the Asset Purchase Agreement.
THE ASSET PURCHASE AGREEMENT
General. Pursuant to the terms of the Asset Purchase Agreement, in
consideration of the transfer to Hasbro of substantially all of the Assets
relating to the Games Business of the Company, other than Excluded Assets,
Hasbro has agreed to pay to the Company an amount in cash of $6,000,000 (the
"Purchase Price"), and to assume the Assumed Liabilities.
The Purchase Price is payable at the Closing by wire transfer in
immediately available funds to the Company's bank account.
<PAGE>
The closing of the Proposed Transaction (the "Closing") is scheduled to
occur on the second business day after the Stockholder Approval is obtained (the
"Closing Date"). The obligations of the parties to consummate the Proposed
Transaction are subject to certain customary conditions such as the accuracy of
representations and warranties in the Asset Purchase Agreement, the performance
of the covenants set forth therein, the absence of certain legal actions or
proceedings prohibiting consummation of any of the transactions contemplated by
the Asset Purchase Agreement and the Stockholder Approval.
Assets to be Transferred. The Assets to be transferred to Hasbro are
substantially all of the assets of the Games Business, including all of the
Company's rights, title and interest in and to all of the properties, contracts,
rights and other assets (of every kind, nature, character and description,
whether tangible or intangible, whether accrued, contingent or otherwise and
wherever situated), that are exclusively used in the Games Business and not
scheduled by Hasbro, including, the following: (i) all Tooling, supplies, raw
materials, work-in-process and finished goods inventory; (ii) all Contracts
currently, formerly or to be used in the Games Business including certain board
game inventory returned after the Closing; (iii) all customer and supplier
lists; (iv) all prepaid expenses; (v) all Intellectual Property; (vi) all works
in progress relating to products in development for the Games Business; (vii)
Permits; (viii) the Company's books and records; (ix) other files, indices,
market research studies, surveys, reports, analyses and similar information; (x)
the goodwill of the Games Business in or arising from the Assets and the
business represented thereby; (xi) all e-mail and Internet addresses; (xii) all
sales data, brochures, catalogues, literature, forms, mailing lists, art work,
photographs and advertising material, in whatever form or media; (xiii) all
claims, causes of action, choses in action, rights of recovery and rights of set
- - -off of any kind in favor of the Company and pertaining to, or arising out of,
the Assets or offsetting any Assumed Liabilities; (xiv) the magazine known as
"The General"; and (xv) the activity known as "Avaloncon".
Excluded Assets consist of: (i) all rights that accrue or will accrue to
the Company under the Asset Purchase Agreement; (ii) all cash and cash
equivalents; (iii) the Company's accounting systems and software; (iv) the
Company's accounts receivable; (v) the Company's machinery, equipment (other
than Tooling), furniture and fixtures; (vi) assets relating to "Civilization,"
"Advanced Civilization," "Sid Meier's Civilization - Build an Empire to Stand
the Test of Time," "Civilization Collectible Card Game," "Varient Trading
Cards," "Western Expansion Kit," and "1830 Railroads and Robber Barons" in any
media including but not limited to board games and computer games; (vii) the
assets of the Publishing Business and the Printing Business; (viii) the
Company's corporate charter, qualifications to conduct business as a foreign
corporation, arrangements with registered agents, taxpayer and other
identification numbers, seals, minute books, stock transfer books, blank stock
certificates, and other documents relating to the organization, maintenance and
existence of the Company as a corporation; (ix) the Company's stock market
listing and other documents relating to the organization and maintenance of such
listing; (x) the Company's computer hardware; (xi) the Company's graphic arts
equipment; (xii) all insurance policies maintained by the Company; and (xiii)
and all Contracts and other assets excluded by Hasbro.
<PAGE>
Assumed Liabilities consist of (i) all liabilities and obligations of the
Company arising after the Closing Date under any Contracts assigned to Hasbro
that are scheduled by the Company and not excluded by Hasbro and (ii) all
liabilities or obligations relating to the Games Business arising through acts
or omissions of Hasbro in conducting the Games Business after the Closing in
respect of which a third-party seeks to hold the Company liable and to which
there is no independent basis for the Company's liability with respect thereto.
Excluded Liabilities consist of all debts, obligations, contracts or
liabilities arising out of the conduct of the Games Business which are not
Assumed Liabilities including the following: (i) all liabilities and
obligations incurred in connection with or related to the Excluded Assets; (ii)
all liabilities and obligations for Taxes of the Company; (iii) all liabilities
and obligations whatsoever to any current or former employee of the Games
Business, including without limitation, any liability or obligation that arises
under any Plan, or any other employee benefit arrangement or policy, or under
applicable law; (iv) all attorneys', accountants', brokers' or finder's fees or
other costs or expenses of the Company incurred in connection with the Asset
Purchase Agreement or the transactions contemplated thereby; (v) all
liabilities, obligations and costs arising out of or relating to any product
liability suit, action, claim or proceeding, whether for personal injury or
property damages against the Company or any of its Affiliates relating to
products sold or manufactured by or on behalf of, or services performed, by the
Games Business prior to the Closing Date, whether a claim therefor is asserted
before or after the Closing Date, and whether or not the claim is an
indemnification claim by a licensor or other party to a contract against Hasbro
or its affiliates as assignee of the Company under a Contract, including liabili
ties, obligations and costs arising under or relating to any obligation to
replace or repair a product sold or re-perform services performed or damages
incurred to a product sold in the ordinary course of business; (vi) all
liabilities, obligations and costs of the Company and the Games Business from or
relating to any Environmental Claim, Cleanup, Release or presence of any Hazard
ous Materials, or violation of any Environmental Law whether known or unknown;
(vii) all liabilities for accrued and current liabilities and accounts payable
of the Games Business; and (viii) all liabilities and obligations of the Company
arising before the Closing Date under any Contracts (including, without
limitation, all royalties accrued under any Contracts prior to the Closing Date
even if payable after the Closing Date) and all liabilities and obligations of
the Company whenever arising under any other contracts or agreements including
without limitation with respect to the magazine known as "The General"
(including the Company's obligation of such magazine pursuant to the Asset
Purchase Agreement) and the activity known as "Avaloncon" (including the
Company's obligations in connection with conducting the conference known as
"Avaloncon" in August 1998).
<PAGE>
Representations and Warranties. The Asset Purchase Agreement contains
various representations and warranties of the Company including, among others,
representations and warranties related to: corporate organization and similar
corporate matters; authorization and enforceability; non-contravention of the
Proposed Transaction of the Company's certificate of incorporation or by-laws,
and non-violation of laws and binding agreements; consents and approvals;
compliance with laws, licenses and permits pertaining to the Games Business;
accuracy of financial statements provided to Hasbro; inventories and backlog;
absence of certain changes since April 30, 1998; absence of litigation;
condition and title to Assets and properties; taxes and tax returns; contracts;
Intellectual Property; and disclosure.
The Asset Purchase Agreement contains various representations and
warranties of Hasbro including, among others, representations and warranties
related to: corporate organization and similar corporate matters; author-
ization and enforceability; non-contravention of the Proposed Transaction of
Hasbro's certificate of incorporation or by-laws and nonviolation of laws;
consents and approvals; absence of brokers; absence of legal proceedings
challenging the validity of the Asset Purchase Agreement and disclosure.
The representations and warranties survive the Closing until March 31, 2001
or, in respect of tax matters and compliance with applicable law, until 90 days
after the expiration of the applicable statutes of limitations, or, in respect
of organization and authority, title to the Assets, and brokers, for a period of
six years following the Closing.
No Shopping. Pursuant to the Asset Purchase Agreement, the Company has
agreed that until the Closing Date it will not to solicit, initiate or encourage
the submission of proposals or offers from any person relating to any merger,
acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the Assets or of the Games Business, or any equity
interest in, the Company or any business combination involving the Company, or
participate in any negotiation regarding, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek a such a Transaction, or disclose
(except in the ordinary course of business or with the prior written consent of
Hasbro), directly or indirectly, to any person any information concerning the
Company 's business and books or records of the Company.
<PAGE>
Covenants. Pursuant to the Asset Purchase Agreement, prior to the Closing,
the Company has agreed (i) to use its best efforts, with respect to Material and
Scheduled Products, and to reasonably cooperate with Hasbro, with respect to
other products, to obtain any consent, approval or amendment required to assign
all agreements and licenses pertaining to the Games Business to Hasbro; (ii) to
use reasonable efforts to cause the facilities, books, records, personnel,
accountants, distributors, sales representatives and agents of the Company to be
made available for review or interviews, as the case may be, by such agents and
employees of Hasbro during normal business hours on reasonable notice, and to
provide or cause to be provided to Hasbro such other information with respect to
the Games Business as Hasbro shall reasonably request including without
limitation, providing to Hasbro copies of the Contracts; (iii) to maintain,
preserve and insure the Assets, to comply with all applicable Legal
Requirements, to conduct the Games Business in the ordinary course, not to
transfer the Assets or the Games Business other than inventory in the ordinary
course of business, to preserve and protect all Permits, and not to enter into
Contracts or obligations with respect to the Games Business or allow rights in
the Assets to lapse; (iv) to notify vendors, suppliers and other Persons in
possession of Assets that the Assets will be owned by Hasbro from and after the
Closing Date; (v) to recommend that the stockholders vote in favor of the
Proposed Transaction and to use its Best Efforts to solicit from the
stockholders proxies in favor of such matters and to obtain the Stockholder
Approval, unless (A) the Company receives a Competing Proposal, (B) Hasbro does
not offer to revise the terms of the Proposed Transaction to provide terms more
favorable, (C) Ferris provides a written opinion to the Board of Directors of
the Company that the Competing Proposal is superior from a financial point of
view to the Proposed Transaction, and (D) the Company determines, with the
advice of counsel, that its failure to recommend such Competing Proposal would
constitute a breach of fiduciary duty; (vi) to call and hold a meeting of its
stockholders as promptly as reasonably practicable for the purpose of voting
upon the adoption of the Asset Purchase Agreement and obtaining the Stockholder
Approval which obligation shall exist irrespective of the presence of a
Competing Proposal and the withdrawal of the Board of Director's recommendation
of the Proposed Transaction; (vii) to terminate publication of "The General";
(viii) to conduct the "Avaloncon" conference in August 1998; and (ix) to provide
Hasbro a list of the audited inventory and update such list as of the date of
the Asset Purchase Agreement and the Closing.
Agreement Not to Compete. With certain limitations, the Company has agreed
that, for a period of three full years after the Closing Date, neither the
Company or any of its Affiliates, shall: (i) engage in a Competing Business
anywhere in the world whether such engagement shall be as owner, partner, agent,
consultant or stockholder (except as the holder of not more than two percent of
the outstanding shares of a corporation whose stock is listed on any national or
regional securities exchange or reported by the National Association of
Securities Dealers Automated Quotation System or any successor thereto); (ii)
solicit the employment of or hire any person while such person is in the employ
of Hasbro or its Affiliates; (iii) solicit any Person who is a customer of the
Games Business at the Closing Date for purposes of selling to such customer any
product that competes with any product made by the Games Business as of the
Closing Date; (iv) induce or attempt to induce any individual, business,
corporation, firm, partnership or other business entity that is a customer or
supplier to Hasbro or any distributor or seller of products of Hasbro, or that
is otherwise a contracting party with Hasbro, to terminate or otherwise
adversely change or cancel any written or oral agreement with Hasbro; or
(v) assist any other Person to be so engaged.
<PAGE>
Indemnification. The Company has agreed to indemnify and hold harmless
Hasbro and its Directors, officers, employees, affiliates, controlling persons,
agents and representatives and their successors and assigns from and against all
Damages as a result of or arising out of (i) a breach of any representation or
warranty of the Company, (ii) the breach of or failure to perform any covenant
or agreement of the Company, (iii) any and all liabilities and obligations other
than Assumed Liabilities, including any pending or threatened legal proceedings
and all other Excluded Liabilities and (iv) any failure of the Company to comply
with applicable bulk sales laws.
Hasbro has agreed to indemnify and hold harmless the Company, and its
Directors, officers, employees, affiliates, controlling persons, agents and
representatives and their successors and assigns from and against all Damages as
a result of or arising out of (i) a breach of any representation or warranty of
Hasbro, (ii) the breach of or failure to perform any covenant or agreement of
Hasbro, (iii) the Assumed Liabilities or (iv) any reasonable legal fees and
expenses payable by the Company to defend a claim that any action taken by the
Company in conformity with the terms of the Asset Purchase Agreement in
connection with the approval of the Asset Purchase Agreement is in contravention
of (a) Section 271 of the DGCL or (b) Delaware law as expressed in Revlon, Inc.
v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) and its progeny
(the "Legal Indemnity").
Any calculation of Damages for purposes of indemnification under the Asset
Purchase Agreement shall be net of (a) any Tax Benefit to the Indemnified Party
arising from such Damages and (b) any insurance reimbursement in respect of
Damages actually received by the Indemnified Party.
No indemnification shall be available to Indemnified Parties for Damages
arising solely from a breach of any representation or warranty until the
aggregate amount of such Damages exceeds $100,000, respectively, and then to the
full extent of such Damages not to exceed: (i) for claims made on or after the
Closing Date and on or before December 31, 1999, $4 million; (ii) for claims
made on or after January 1, 2000 and on or before December 31, 2001, $3 million;
and (iii) for claims made on or after January 1, 2002, $2 million. The Legal
Indemnity shall not exceed $400,000 in the aggregate.
Expenses and Transfer Taxes. Each party has agreed to bear its own fees and
expenses in respect of the Proposed Transaction and to split all Transfer Taxes
payable in connection with the Proposed Transaction.
Termination. The Asset Purchase Agreement may be terminated at any time
prior to the Closing, whether before or after the Stockholder Approval: (i)
by mutual written consent of Hasbro and the Company; (ii) by either Hasbro
or the Company: (A) if the Closing shall not have been consummated by December
31, 1998; (B) if the Stockholder Approval shall not have been obtained at a
stockholders meeting duly convened therefor or at any adjournment or post-
ponement thereof; or (C) if certain Restraints shall be in effect and shall
have become final and nonappealable; (iii) by Hasbro, if the Company shall have
breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in the
Asset Purchase Agreement, which breach or failure to perform would give rise to
the failure of certain closing conditions; (iv) by the Company, if Hasbro shall
have breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in the
Asset Purchase Agreement, which breach or failure to perform would give rise to
the failure of certain closing conditions; or (v) by Hasbro, if a Competing
Proposal is submitted to the Company's stockholders.
<PAGE>
Effect of Termination. In the event that the Asset Purchase Agreement is
terminated by Hasbro or the Company because the Stockholder Approval has not
been obtained or by Hasbro because a Competing Proposal is submitted to the
Company's stockholders, the Company shall pay within twenty business days of
such termination to Hasbro $1,000,000 in immediately available funds.
The Board of Directors of the Company believes that the Proposed
Transaction is in the best interests of, and is fair to, the Company and its
stockholders. The Board of Directors unanimously approved the Proposed
Transaction, and unanimously recommends that the stockholders vote FOR approval
of the Proposed Transaction at the Annual Meeting.
PROPOSAL NO. 2 - AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY
Under the terms of the Asset Purchase Agreement, the Company has agreed to
change its name to a name that will not include the word "Avalon" upon
consummation of the Proposed Transaction. Accordingly, if the Proposed
Transaction is approved, the Company must amend its Certificate of Incorporation
to change the Company's name. The Board of Directors proposes to change the name
of the Company to "Monarch Services Inc." if the Proposed Transaction is
approved. By voting to approve the Amendment, stockholders will authorize the
Board of Directors to amend the Certificate of Incorporation to change the name
of the Company if the Proposed Transaction is consummated. If the Proposed
Transaction is not approved or consummated, the proposed Amendment will not be
filed and the name of the Company will not be changed. Approval of the proposed
amendment to the Certificate of Incorporation to change the name of the Company
requires the affirmative vote of a majority of the outstanding shares of the
Company's Common Stock. The Company's Board of Directors recommends a vote FOR
the Amendment at the Annual Meeting.
PROPOSAL THREE: ELECTION OF DIRECTORS
The Board of Directors of the Company has fixed the number of Directors at
four. Mr. A. Eric Dott, Mr. Jackson Y. Dott, Mr. David F. Gonano and Mrs. Helen
Delich Bentley have been nominated for a term of one year and until their
successors are elected and qualified. Each of the nominees is a member of the
present Board of Directors. Proxies solicited hereby cannot be voted for a
greater number of persons than the number of nominees named. If at the time of
the Annual Meeting any of the nominees should be unable or decline to serve, the
discretionary authority provided in the proxy may be exercised to vote for a
substitute or substitutes. The Board of Directors has no reason to believe that
any substitute nominee or nominees will be required.
The Board of Directors recommends that stockholders vote FOR the election
of each of the nominees. Unless contrary instructions are given, the persons
named in the accompanying proxy will vote all proxies in favor of the nominees
listed above to serve for the coming year and until their successors are elected
and qualified.
<PAGE>
DIRECTORS AND OFFICERS
The address of each of the Directors and officers of the Company is c/o
Monarch Avalon, Inc., 4517 Harford Road, Baltimore, MD 21214.
Name, Age, Director Principal Occupation(s) and
Since Business Experience During
Past 5 Years
A. Eric Dott, Age 71 1970 Chairman of the Board of the
Company since 1990. Mr. Dott
is the father of Jackson Y.
Dott, President of the
Company.
Jackson Y. Dott, Age 40 1987 President, Treasurer and
Chief Executive Officer at
the Company since 1990. Mr.
Dott is the son of A. Eric
Dott, Chairman of the
Company.
David F. Gonano, Age 51 1996 Certified Public Accountant,
Tax Partner of Wolpoff and
Company, LLP since 1992,
Personal Financial
Specialist.
Helen Delich Bentley, Age 74 1995 President of Helen Bentley
and Associates, Inc. since
1995; Consultant for The Port
of Baltimore since 1995;
Member of the U.S. House of
Representatives from 1985-
1995.
Steven M. Szekely, Age 74 N/A Executive Vice President of
the Company since 1979 and
Secretary of the Company
since 1990.
Marshall Chadwell, Age 58 N/A Chief Financial Officer of
the Company since 1996;
Controller of the Company
since 1995. Served as
Business Manager of Wesley,
Inc. from 1991 to 1995.
COMMITTEES OF THE BOARD OF DIRECTORS, DIRECTOR COMPENSATION AND MEETING
ATTENDANCE
The Board of Directors met five times during the last fiscal year. The
Board has a standing Audit Committee, but does not have nominating or
compensation committees. The Audit Committee consists of David F. Gonano and
Helen Delich Bentley. The Committee met with the Company's independent
accountants once during the last fiscal year. The Audit Committee recommends
engagement of the Company's independent accountants, reviews the arrangements
and scope of the audit and the performance of the independent accountants,
reviews the financial statements, considers comments made by the independent
accountants with respect to the Company's system of internal accounting control
and reviews non-audit services provided by the Company's independent
accountants. No Director attended less than 75% of the aggregate number of
meetings of the Board of Directors and any Board committee on which such
Director served.
<PAGE>
The Company's Directors receive no cash compensation for their services as
Directors. As compensation for services as a Director of the Company, on
October 3, 1997, Helen Delich Bentley and David F. Gonano were each granted
options to purchase 40,000 shares of the Company's Common Stock for $2.00 per
share that will expire on September 30, 1998
CERTAIN TRANSACTIONS
Mr. A. Eric Dott is the joint owner with his wife of certain real property
located in Baltimore, Maryland comprising approximately 32,000 square feet and
utilized as offices and plant by the Company under a lease expiring in 1999
subject to renewal through 2001. The lease calls for an annual net rental of
$107,131.20 through June, 2001. The management of the Company believes that the
terms of its lease with the Dotts are comparable to those which would be
obtainable in leases with non-affiliated parties.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or allocated to the
chief executive officer for services rendered to the Company in all capacities
during the years ended April 30, 1996, 1997 and 1998. Compensation paid to each
other executive officer of the Company did not exceed $100,000 in any such year.
Summary Compensation Table
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Year Salary Underlying
Principal ($) Options
Position
Jackson Y. Dott 1998 59,800 40,000(1)
Chief Executive Officer 1997 43,100 40,000(2)
1996 43,100 40,000(3)
______________________
(1) This option will expire on September 30, 1998.
(2) This option expired without exercise on September 30, 1997.
(3) This option expired without exercise on September 30, 1996.
STOCK OPTION EXERCISES AND HOLDINGS
The following table includes the number of shares covered by all remaining
unexercised stock options held by the Company's Chief Executive Officer as of
April 30, 1998, segregated on both an exercisable and unexercisable basis. Also
reported is the value for "in-the-money" options which represents the difference
between the exercise price of any such remaining unexercised options and the
year-end market price of the Common Stock.
<PAGE>
Aggregated Option Exercises In Fiscal Year Ended April 30, 1998
And Fiscal Year-End Option Values
Number of Value of
Unexercised Unexercised In-
Options at FY-End the-Money Options
at FY-End (2)
Name Shares
Acquired
on Value
Exercise Realized Exer- Unexer- Exer- Unexer-
# ($) ciable cisable cisable cisable
Jackson Y. Dott 0 0 40,000(1) 0 $10,000 $0
(1) This option will expire on September 30, 1998.
(2) Based on the closing price of the Common Stock on the Nasdaq National
Market as of April 30, 1998.
Option Grants In Fiscal Year Ended April 30, 1998
(Individual Grants)
% of
Number Total
of Options Exercise Market
Securities Granted Price Price Expiration
Underlying to (S/Share) on Date Date
Name Options Employees of Grant
Granted in Fiscal
Year
Jackson Y. Dott 40,000 33.3% $2.00 1 7/8 9/30/98
PROPOSAL FOUR: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the stockholders and on the recommendation of
the Audit Committee, the Board of Directors has appointed Deloitte & Touche LLP
as independent accountants to audit the financial statements for the year ending
April 30, 1999. Representatives of Deloitte & Touche LLP are expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
The Board of Directors recommends that stockholders vote FOR ratification of
Deloitte & Touche LLP as independent accountants.
<PAGE>
OWNERSHIP OF VOTING SECURITIES
Only stockholders of record of outstanding Common Stock of the Company at
the close of business on September 11, 1998 are entitled to notice of and to
vote at the Annual Meeting. On September 11, 1998, 1,619,820 shares of Common
Stock were outstanding.
VOTING AGREEMENT AND IRREVOCABLE PROXY
In connection with the Proposed Transaction, Mr. A. Eric Dott, the
Company's Chairman and beneficial owner of 173,490 shares of Common Stock and
currently exercisable options to purchase 80,000 shares of Common Stock, and
Mr. Jackson Y. Dott, the Company's President and beneficial owner of 427,529
shares of Common Stock and currently exercisable options to purchase 40,000
shares of Common Stock, have entered into a voting agreement (the "Voting
Agreement") and irrevocable proxy (the "Irrevocable Proxy") with HIAC XII Corp.
Pursuant to the Voting Agreement and the Irrevocable Proxy and until the
earlier to occur of the Closing or the termination of the Asset Purchase
Agreement, Mr. E. Dott and Mr. J. Dott have, with respect to all shares of
Common Stock that they beneficially own, agreed to vote, and have granted an
irrevocable proxy to HIAC XII Corp. to vote: (i) to approve the Asset Purchase
Agreement and the transactions contemplated thereby, including the change of
the name of the Company to a name not including the word "Avalon"; (ii) against
any action or agreement that will result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the Company
under the Voting Agreement or the Asset Purchase Agreement; and (iii) against
(A) any extraordinary corporate transaction, such as a merger, rights offering,
reorganization, recapitalization or liquidation involving the Games Business,
(B) a sale or transfer of the Assets of the Games Business, other than in the
ordinary course of business or pursuant to the Asset Purchase Agreement, or the
issuance of any securities of the Company (except options to purchase Company
Common Stock granted to Directors of the Company and the related issuance of
Company Common Stock upon exercise of such options in accordance with the terms
thereof, provided, that after the approval of such options, the number of
shares of the Company Common Stock outstanding plus the number of shares of
Company Common Stock reserved for issuance pursuant to such options to
Directors shall be equal to the current number of shares of Company Common
Stock outstanding plus the number of shares of Company Common Stock reserved
for issuance pursuant to existing options to Directors) or of any subsidiary
holding or having any rights to any of the Assets, (C) any change in the
executive officers or Board of Directors of the Company, (D) any change in the
present corporate structure of the Company or the Business or (E) any action
that is intended, or could reasonably be expected, to materially impede,
interfere with, delay, postpone or adversely affect the approval of the Asset
Purchase Agreement and the transactions contemplated by the Asset Purchase
Agreement. Mr. E. Dott and Mr. J. Dott have also agreed for the term of the
Asset Purchase Agreement not to dispose of any shares of Common Stock that they
beneficially own.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of September 11, 1998 by (i) each person that
is known by the Company to beneficially own or exercise voting or dispositive
control over 5% or more of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Directors as a group. Except as otherwise indicated in
the footnotes to the table, the persons named below have sole voting and
disposition power with respect to the shares beneficially owned by such persons.
In general, a person is deemed to be a "beneficial owner" of a security if that
person has or shares the power to vote or direct the voting of such security, or
the power to dispose or direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which the person has
the right to acquire beneficial ownership within 60 days.
<PAGE>
Name and Address of Amount and Nature of Percent of Class(1)
Beneficial Owner Beneficial Ownership
HIAC XII Corp. 712,019 (2)(3) 41.4%
1027 Newport Avenue,
Pawtucket, RI 02862
Hasbro, Inc. 721,019 (3)(4) 41.4%
1027 Newport Avenue
Pawtucket, RI 02862
Jackson Y. Dott 467,529 (5) 28.2%
Monarch Avalon, Inc.
4517 Harford Road
Baltimore, Md 21214
A. Eric Dott 253,490 (6) 14.9%
Monarch Avalon, Inc.
4517 Harford Road
Baltimore, Md 21214
Helen Delich Bentley 43,080 (5) 2.6%
Monarch Avalon, Inc.
4517 Harford Road
Baltimore, Md 21214
David F. Gonano 40,000 (5) 2.4%
Monarch Avalon, Inc.
4517 Harford Road
Baltimore, Md 21214
All Directors and 804,099 (7) 44.2%
Executive Officers
as a group (4 persons).
_________________
(1) The calculation of percent of class is based on the number of shares of
Common Stock outstanding as of September 11, 1998 assuming exercise of the
currently exercisable options held by such nominee.
(2) Power to vote with respect to certain matters and power to restrict
disposition may be deemed to be shared with Jackson Y. Dott, with respect
to 467,529 of such shares, and A. Eric Dott, with respect to 253,490 of
such shares, pursuant to Voting Agreement and Irrevocable Proxy. HIAC XII
Corp. disclaims beneficial ownership of such shares.
(3) Includes shares issuable on the exercise of options to purchase 80,000
shares held by A. Eric Dott and options to purchase 40,000 shares held by
Jackson Y. Dott with respect to which voting power may be deemed to be
shared with HIAC XII Corp. and Hasbro, Inc. pursuant to the Voting
Agreement and the Irrevocable Proxy. HIAC XII Corp. and Hasbro, Inc. have
no right to require the exercise of the options held by Mr. E. Dott and Mr.
J. Dott.
(4) HIAC XII Corp. is an indirect wholly owned subsidiary of Hasbro, Inc.
Accordingly, shares that may be deemed to be owned by HIAC XII Corp. may be
deemed to be owned by Hasbro, Inc. Hasbro, Inc. disclaims beneficial
ownership of such shares.
(5) Includes 40,000 shares purchasable upon the exercise of a currently
exercisable option.
(6) Includes 80,000 shares purchasable upon the exercise of a currently
exercisable option.
(7) Included in the shares beneficially owned are 200,000 shares purchasable by
the Directors and executive officers as a group upon exercise of currently
exercisable options held by them.
<PAGE>
VOTE REQUIRED TO APPROVE MATTERS
A quorum for the meeting requires the presence in person or by proxy of
holders of a majority of the outstanding shares of Common Stock. The election
of each Director requires a plurality of the votes present and entitled to vote.
The approval of each other proposal requires the affirmative vote of the holders
of a majority of the shares represented at the Annual Meeting and entitled to
vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Teller of Elections appointed for the Annual Meeting and will determine
whether or not a quorum is present. Where, as to any matter submitted to the
stockholders for a vote, proxies are marked as abstentions (or stockholders
appear in person but abstain from voting), such abstentions will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the stockholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter; however, such shares will be
considered present for purposes of a quorum.
Section 2.10 of Article II of the Company's Bylaws requires compliance with
a procedure under which a stockholder may nominate a candidate for election as
Director at an annual meeting. The nomination is required to be (i) written
(ii) delivered to, or mailed and received at, the executive offices of the
Company not less than 60 days nor more than 90 days prior to the date of the
scheduled annual meeting and (iii) accompanied by (A) the name, age, business
address and residence of the stockholder and each person whom the stockholder
proposes to nominate for election or re-election as a Director, (B) the
principal occupation or employment of such persons, (C) the number of shares of
Company stock which are beneficially owned by such persons that is required to
be disclosed in solicitations of proxies with respect to nominees for election
as Directors, pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, and (E) the name and address, as they appear on the Company's
books, of the stockholder making the nomination and any other stockholder known
by such stockholder to support such nomination, and the number of shares of
Company stock beneficially owned by all such stockholders. If notice or public
disclosure of the date of the annual meeting occurs less than 70 days prior to
the date of the annual meeting, stockholders must deliver to the Company, or
mail and have received at the Company, the nomination and the required attendant
information no later than the close of business on the tenth day following the
earlier of (i) the day on which such notice of the date of the annual meeting
was mailed or (ii) the day on which such public disclosure was made. This
discussion is intended to summarize Section 2.10 of Article II of the Company's
Bylaws, and is qualified in its entirety by reference to the Company's Bylaws.
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is Selected Financial Data for the Company. The Historical
Selected Financial Data is derived from the Company's Annual Report to
Stockholders for the year ended April 30, 1998, a copy of which is included with
this Proxy Statement. The Pro Forma selected financial data has been derived
from the pro forma financial statements included herein. The following
information should be read in conjunction with such report.
($ in thousands, except per share information)
Historical
---------------------------------------------------------
Quarter
Ended
Years Ended April 30, July 31,
1994 1995 1996 1997 1998 1998
Net sales
Games $ 3,278 $ 4,686 $ 3,395 $ 3,950 $ 2,844 $ 214
Printing and
envelope
manufacturing 2,433 2,404 2,522 2,734 2,587 569
Publishing - 264 602 1,180 2,800 498
------- ------- ------- ------- ------- ---------
$ 5,711 $ 7,354 $ 6,519 $ 7,864 $ 8,231 $ 1,281
======= ======= ======= ======= ======= =========
Net (loss) income $ (94) $ (725) $ (585) $ 179 $(1,725) $ (576)
Total assets $ 6,700 $ 6,245 $ 5,556 $ 6,312 $ 5,329 $ 4,778
Per common
share data:
(Loss) income(1) $ (0.06) $ (0.45) $ (0.36) $ 0.11 $ (1.06) $ (0.36)
Book value $ 3.74 $ 3.31 $ 2.95 $ 3.06 $ 1.99 $ 1.69
<PAGE>
($ in thousands, except per share information)
Pro Forma
----------------------
Year Quarter
Ended Ended
April 30, July 31,
1998 1998
Net sales
Games $ 0 $ 0
Printing and envelope
manufacturing 2,587 569
Publishing 2,800 498
--------- --------
$ 5,387 $ 1,067
========= ========
Net income
(loss) $ (1,405) $ (419)
Total assets $ 9,631 9,190
Per common share data:
(Loss)
income (1) $ (0.87) $ (0.26)
Book Value $ 4.17 $ 3.96
(1) Basic and diluted
Note: There were no long-term obligations and no redeemable preferred
stock outstanding during any of the periods and also there were
no cash dividends declared during any of the periods.
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The purpose of the pro forma information is to present the effect of the August
3, 1998 agreement by the Company to sell certain assets and its games business
to HIAC VII Corp. and Hasbro, Inc. for $6,000,000 cash (the Transaction). The
unaudited pro forma consolidated statement of financial position represents the
Company's financial position at April 30, 1998 and July 31, 1998 as if the
Transaction had occurred on that date. The unaudited pro forma consolidated
statement of operations represents the results of the Company's operations
for the year ended April 30, 1998 as if the Transaction had occurred on May
1, 1997 and May 1, 1998, respectively. The unaudited pro forma entries are
based upon available information and certain assumptions and estimates that
the Company believes are reasonable under the circumstances. The unaudited
pro forma results do not purport to be indicative of the results that would
have been obtained had the Transaction occurred at the beginning of the
period presented, nor are they intended to be a projection of future results.
The unaudited proforma financial information should be read in conjunction
with the notes thereto.
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF APRIL 30, 1998
- - -----------------------------------------------------------------------------
($ in thousands)
Prof Forma Pro Forma Pro Forma
Entries Entries to As Adjusted
to Remove Dispose of for Games
Historical Games Games Business
Consolidated Business Business Disposition
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,738 $ 6,000 (b) $ 7,738
Accounts receivable, net 973 973
Inventories 1,968 $ (1,650) (a) 318
Other current assets 47 (15) (a) 32
------- -------- ------- ---------
Total current assets 4,726 (1,665) 6,000 9,061
PROPERTY AND EQUIMENT, net 558 558
OTHER ASSETS AND DEFERRED
CHARGES 45 ( 43) (a) 2
------- -------- ------- ---------
TOTAL ASSETS $ 5,329 $ (1,708) $ 6,000 $ 9,621
======= ======== ======= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 352 $ 352
Accrued expenses 723 $ 182 (b) 905
Income taxes payable 589 (c) 589
Deferred subscription
revenues 1,024 1,024
------- -------- ------- ---------
Total current liabilities 2,099 771 2,870
------- -------- ------- ---------
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 527 527
Capital surplus 3,378 3,378
Retained (deficit) earnings (553) 3,521 (d) 2,968
------- ------- ------- ---------
3,352 3,521 6,873
Treasury stock (122) (122)
------- ------- ------- ---------
Total stockholders' equity 3,230 3,521 6,751
------- ------- ------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,329 $ 0 $ 4,292 $ 9,621
======= ======= ======= =========
See notes to unaudited pro forma consolidated financial information.
<PAGE>
MONARCH AVALON, INC. AND SUBSIBIDARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
- - -----------------------------------------------------------------------------
($ in thousands)
Pro Forma Pro Forma
Entries As Adjusted
to Remove for Games
Historical Games Business
Consolidated Business Disposition
Net sales $ 8,231 $ (2,844) (e) $ 5,387
Cost of goods sold 6,106 (943) (e) 5,163
-------- --------- ---------
Gross profit 2,125 (1,901) 224
-------- --------- ---------
Selling, general and administrative
expenses 3,502 (1,778) (e) 1,724
Research and development 443 (443) (e)
-------- --------- ---------
Operating expenses 3,945 (2,221) 1,724
-------- --------- ---------
Loss from operations (1,820) (320) (1,500)
Other income, net 95 95
-------- --------- ---------
Loss before income taxes (1,725) (320) (1,405)
Provision for income taxes 0 0
-------- --------- ---------
Net loss $ (1,725) $ (320) $ (1,405)
======== ========= =========
Basic and diluted loss
per share $ (1.06) $ (0.19) $ (0.87)
======== ========= =========
See notes to unaudited pro forma consolidated financial information.
Description of Unaudited Pro Forma Entries
- - ------------------------------------------
(a) Represents Games Business (Games) historical amounts at April 30, 1998.
(b) Represents proceeds of the disposition transaction and resulting direct
costs of the disposition transaction.
(c) Represents the estimated income taxes payable resulting from the
Transaction.
(d) Represents estimated gain net of related income taxes from the
Transaction.
(e) Represents Games historical amounts for the quarter ended April 30, 1998.
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF JULY 31, 1998
- - -----------------------------------------------------------------------------
($ in thousands)
Pro Forma Pro Forma Pro Forma
Entries Entries to As Adjusted
to Remove Dispose of for Games
Historical Games Games Business
Consolidated Business Business Disposition
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,337 $ $ 6,000(g) $ 7,337
Accounts receivable, net 756 756
Inventories 1,910 (1,527)(f) 383
Other current assets 210 (16)(f) 194
------- -------- ------- -------
Total current assets 4,213 (1,543) 6,000 8,670
PROPERTY AND EQUIPMENT, net 517 517
OTHER ASSETS AND DEFERRED
CHARGES 48 (45) 3
------- ------- ------- -------
TOTAL ASSETS $ 4,778 $(1,588) $ 6,000 $ 9,190
======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 300 $ 300
Accrued expenses 698 $ 182(g) 880
Income taxes payable 477(h) 477
Deferred subscription
revenues 1,126 1,126
------- ------- ------ -------
Total current liabilities $ 2,124 659 2,783
------- ------- ------ -------
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 527 527
Capital surplus 3,378 3,378
Retained (deficit) earnings (1,129) 3,753(i) 2,624
------- ------- ------- -------
2,776 3,753 6,529
Treasury stock (122) (122)
------- ------- ------- -------
Total stockholders' equity 2,654 3,753 6,407
------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,778 $ 0 $ 4,412 $ 9,190
======= ======= ======= =======
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR QUARTER ENDED JULY 31, 1998
- - -----------------------------------------------------------------------------
($ in thousands except per share amounts)
Pro Forma Pro Forma
Entries As Adjusted
to Remove for Games
Historical Games Business
Consolidated Business Disposition
Net sales $ 1,281 $ (214)(j) $ 1,067
Cost of goods sold 1,394 (216)(j) 1,178
------- -------- -------
Gross loss (113) (2) (111)
Selling, general and
administrative expenses 383 (65) 318
Research and development 90 (90)
------- -------- -------
Operating expenses 473 (155) 318
------- -------- -------
Loss from operations (586) (157) (429)
Other income, net 10 10
------- -------- -------
Loss before income taxes (576) (157) (419)
Provision for income taxes 0 0
------- -------- -------
Net loss $ (576) $ (157) $ (419)
======= ======== =======
Basic and diluted loss
per share $ (0.36) $ (0.10) $ (0.26)
======= ======== =======
See notes to unaudited proforma consolidated financial information.
Description of Unaudited Pro Forma Entries
- - ------------------------------------------
(f) Represents Games Business (Games) historical amounts at July 31, 1998.
(g) Represents proceeds of the disposition transaction and resulting direct
costs of disposition transaction.
(h) Represents the estimated income taxes payable resulting from the
transaction.
(i) Represents estimated gain net of related income taxes from the trans-
action.
(j) Represents Games historical amounts for the quarter ended July 31, 1998.
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
- - -----------------------------------------------------------------------------
1.BASIS OF PRESENTATION
The unaudited pro forma consolidated financial information presented is based
on the Company's historical financial position and results of operations as
of and for the year ended April 30, 1998 and as of and for the quarter
ended July 31, 1998, reflecting the effect of the disposition of the Games
Business from the consolidated entity. The pro forma entries related to
the statement of financial position were computed assuming the Transaction
was consummated at April 30, 1998 and July 31, 1998 and include entries to
remove the assets sold and to record the receipt of the cash proceeds,
direct transaction costs and estimated income taxes payable. The pro
forma entries related to the statement of operations were computed assuming
the transaction was consummated at the beginning of the year ended April
30, 1998 and at the beginning of the quarter ended July 31, 1998, but do
not include cash proceeds, direct costs and income taxes resulting from
the Transaction. The pro forma consolidated financial information does not
reflect any interest income that might have been earned on the cash
proceeds. The unaudited pro forma financial information has been prepared
in accordance with the instructions to Article 11, Regulation S-X.
2.EARNINGS (LOSS) PER SHARE
Earnings (loss) per share data have been computed based upon the 1,619,820
weighted average number of common shares outstanding during the period.
3.TAX EFFECTS OF PRO FORMA ADJUSTMENTS
The tax effects of the Transaction in the statement of financial position are
calculated at the statutory rates in effect at April 30, 1998 and July 31,
1998, after deducting available net operating tax loss carryforward amounts.
<PAGE>
Managements discussion and analysis of financial condition and results of
operation and the Company's audited Financial Statements as of 4/30/98 are
incorporated by reference to the 1998 Annual Report to Stockholders.
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For purposes of this discussion, references to "fiscal 1999" are to the fiscal
year ending April 30, 1999, and references to "fiscal 1998" are to the fiscal
year ended April 30, 1998.
RESULTS OF OPERATIONS
Monarch consists of two divisions, games and printing. Girls' Life, Inc., a
wholly-owned subsidiary, publishes a magazine.
Sales of products in the games division, primarily board games and software
games designed for use on microcomputers, are somewhat seasonal in nature
because of increased retail game sales during the Christmas season, while
sales of the Company's other products (envelopes, printing and graphic arts
services and Girls' Life magazine) are not seasonal. The timing of new
releases of the Company's games also may affect sales in the games division.
RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 1999 AND 1998
Net sales decreased by $347,000 or 21% in the first quarter of fiscal 1999 as
compared to the first quarter of fiscal 1998. Sales in the games division
decreased by $527,000 or 71% in the first quarter of fiscal 1999 compared to
the first quarter of fiscal 1998 as a result of increased returns of computer
games during the first quarter of fiscal 1999 compared to the first quarter in
1998. Net of returns, computer game sales for the first quarter of fiscal
1999 was a negative $75,000. On August 4, 1998, the Company announced that it
has entered into a definitive agreement to sell the games division of the
Company to a newly formed subsidiary of Hasbro, Inc. for $6,000,000 in cash.
The assets being sold include trademarks, copyrights and other intellectual
propery rights, inventory and tooling. In light of the Company's agreement
to sell the assets of the games division, and pursuant to such agreement, the
Company has taken steps to cut costs in the games division. Such steps have
included curtailment of the research and development and sales and marketing
activities of the games division and layoffs of games division employees.
Management expects that the result of such steps will be to further decrease
sales of the games division during the remainder of fiscal 1999. Sales in
the printing division decreased by $3,000 in the first quarter of fiscal
1999 or 0.5% from the first quarter of fiscal 1998 due to competition in the
printing business. Sales of Girls' Life magazine in the first quarter of
fiscal 1999 increased by $184,000 or 58% from the first quarter of fiscal
1998. The increase in sales of Girls' Life magazine relates primarily to
the increase in promotional and direct mailing advertising of the magazine
and increased revenue from newsstand sales and advertising.
Gross profit decreased by $563,000 or 125% during the first quarter of fiscal
1999 compared to the first quarter of fiscal 1998. Consolidated gross margin
was a negative 9% of net sales during the first quarter of fiscal 1999 as
compared to 28% during the first quarter of fiscal 1998. The decrease in
gross margin primarily related to the return of computer games.
Operating expenses were 37% of net sales in the first quarter of fiscal 1999
as compared to 45% in the first quarter of fiscal 1998. Operating expenses
for the first quarter of fiscal 1999 decreased by $256,000 or 35% from the
same period in fiscal 1998, primarily because of lower promotional and
advertising expenses for publishing sales and lower royalties and research
and development costs for game sales.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1998, the Company has cash and cash equivalents of approximately
$1,337,000, a decrease of $401,000 from the amount at April 30, 1998. The
decrease resulted from cash used in operations of $401,000. The Company's
cash and cash equivalents are subject to variation based upon the timing of
receipts and the payment of payables.
At July 31, 1998, the Company has no debt with third party lenders.
YEAR 2000 DISCLOSURE
The Company has reviewed existing computer programs, including software and
hardware, and plans to replace the existing software and hardware by the end
of 1998 at an estimated cost of under $100,000. Company management does not
believe the change over to new software and hardware will have a material
effect on the Company's business, operations or financial condition.
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNADUDITED)
(000'S Omitted)
July 31, April 30,
1998 1998
-------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,337 $ 1,738
Accounts receivable, net 756 973
Inventories, net 1,910 1,968
Other current assets 210 47
------- -------
TOTAL CURRENT ASSETS 4,213 4,726
PROPERTY AND EQUIPMENT 4,634 4,634
Less allowance for depreciation (4,117) (4,076)
------- -------
517 558
OTHER ASSETS AND DEFERRED CHARGES 48 45
------- -------
TOTAL ASSETS $ 4,778 $ 5,329
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 300 $ 352
Accrued expenses 698 723
Deferred subscription revenues 1,126 1,024
------- -------
TOTAL CURRENT LIABILITIES 2,124 2,099
STOCKHOLDERS' EQUITY
Preferred Stock - par value $.01 per share:
Authorized 100,000 shares; no shares
issued
Common Stock - par value $.25 per share:
Authorized 3,000,000 shares; shares
issued - 2,109,985; shares outstanding
1,619,820 on July 31, 1998 and
April 30, 1998 527 527
Capital surplus 3,378 3,378
Retained (deficit) earnings (1,129) (553)
-------- -------
2,776 3,352
Treasury stock at par - shares
outstanding 490,165 on July
31, 1998 and April 30, 1998 (122) (122)
-------- -------
2,654 3,230
-------- -------
TOTAL LIABILITES AND STOCKHOLDERS' EQUITY $ 4,778 $ 5,329
======== =======
<PAGE>
MONARCH AVALON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
July 31,
--------------------
1998 1997
---- ----
(000's Omitted, except per share data)
Net sales $ 1,281 $ 1,628
Cost of goods sold 1,394 1,178
------- -------
Gross (loss) profit (113) 450
Selling, general and
administrative expenses 383 616
Research and development 90 113
------- -------
Operating expenses 473 729
------- -------
Loss from operations (586) (279)
Other income, net 10 23
------- -------
Loss before income taxes (576) (256)
Provision for income taxes 0 0
------- -------
Net loss (576) (256)
------- -------
Loss per share $ (.36) $ (.16)
------- -------
Weighted average shares
outstanding 1,619,820 1,619,820
--------- ---------
<PAGE>
MONARCH AVALON, INC. AND SUBSISIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended
July 31,
------------------
1998 1997
---- ----
(000's omitted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from operations $ (576) $ (256)
------- -------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 41 13
Changes in accounts receivable,
inventories, other assets,
accounts payable, accrued
expenses and deferred
subscription revenue 134 (164)
------- -------
Net cash used in operating activities (401) (407)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 0 (59)
------- -------
Net cash used in investing activities 0 (59)
------- -------
Net decrease in cash and cash equivalents (401) (466)
Cash and cash equivalents at beginning of
period 1,738 2,131
------- -------
Cash and cash equivalents at end
of period $ 1,337 $ 1,665
------- -------
<PAGE>
COMMON STOCK MARKET PRICES
The Company's common stock is traded on the Nasdaq SmallCap Market under
the symbol MAHI. The number of stockholders of record on July 15, 1998
was 601.
High and low closing sale prices for the quarter ended July 31 for the
last two years as reported on the Nasdaq SmallCap and/or the Nasdaq
National Market were:
Fiscal 1998 Fiscal 1997
Quarter Price Price
Ended High Low High Low
-------- -------- -------- --------
May 31 2-3/4 1-3/4 2-1/2 2-1/2
June 30 2-1/8 2-1/8 2-5/8 2-3/8
July 31 1-3/4 1-3/4 3 2-9/16
Such prices reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not represent actual transactions. The Company has
not paid any cash dividends since April 1987. Although the board of
directors will continue to review the Company's profitability with respect
to the resumption of dividends, there can be no assurance as to the timing
or amount of any future dividends.
<PAGE>
DESCRIPTION OF THE COMPANY
The Company was incorporated in Delaware on December 20, 1976 as a
commercial printing company and as the successor to a developer and publisher of
strategy board games that originally entered the games industry in 1958. On
December 14, 1993, the Company incorporated a subsidiary, Girls' Life, Inc. in
Maryland. Girls' Life commenced substantial operations with the release of its
initial bi-monthly publication in August 1994.
The Company operated in three business segments during 1998: games,
printing and publishing. All segments share certain facilities and operate under
common management. The games segment develops, manufactures and markets a wide
variety of strategy, sports and family-oriented board games, as well as a line
of software games designed for use on microcomputers. The games segment
contributed $2,844,000 in net sales or approximately 35% of the Company's total
revenue in 1998.
Monarch Services, the printing segment, provides commercial printing and
graphic arts services to a wide range of business customers and manufactures
envelopes. Monarch Services also serves as the production facility for the games
segment, producing printed materials and boxes for games. Monarch Services also
provides printing services to the publishing segment, producing promotional and
direct mail literature for the magazine. Interdivision sales or transfers are
accounted for at prices comparable to unaffiliated customer sales. The printing
segment contributed $2,587,000 in net sales or approximately 31% of the
Company's total revenue in 1998.
Girls' Life, Inc. publishes a magazine for young girls ages seven to
fourteen. The magazine, Girls' Life, was launched in August 1994. It is a bi-
monthly publication but the magazine may eventually be published monthly. In
September 1996 the Company announced a joint venture with the Girl Scouts of the
U.S.A. that gave the Company direct access to the Girl Scouts' mailing list,
which includes 860,000 girls and 60,000 adult troop leaders. The publishing
segment contributed $2,800,000 in net sales or approximately 34% of the
Company's total revenue in 1998.
GAMES SEGMENT
Board Games
The Company has a line of strategy, sports and family-oriented board games.
The Company's predecessor first entered the games market in 1958 when it
introduced its first strategy game. Since that time, it has become a significant
player in the strategy games portion of the games market, which consists
primarily of teenagers and adults who are "game hobbyists". The games are
designed to be challenging, and in many cases the typical playing time for a
game is three to six hours.
<PAGE>
The Company's sports and family-oriented board games are also designed for
use by the teenage and adult recreational market. The Company's predecessor
entered this portion of the games market in the mid 1960's and expanded through
the acquisition of the Sports Illustrated Games Division from Time, Inc. in
1976, through agreements with independent games developers and through the
internal development of new games. The Company markets a variety of games
including games of mass-market appeal and wargame simulations.
Software Games
The Company also develops, produces and markets under the name
"Microcomputer Games" a line of software games which are designed for use on
microcomputers. The first games were introduced in June 1980. The line includes
strategy, sports and family-oriented games; some are derivations of the
Company's existing board games and others have been developed as unique computer
games with playing characteristics that could not be achieved in board games.
Computer game sales accounted for approximately 24% of total game sales for
fiscal 1998.
Research and Product Development
Research and product development are essential aspects of the Company's
game business. The Company regularly receives ideas for games from outside
creative sources, and from time to time purchases rights to existing games from
other companies in the games business. In most cases, the Company enters into an
agreement requiring it to make payments of royalties based on game sales. The
cost of research and development for fiscal 1998 was approximately $443,000 and
approximately $394,000 for fiscal 1997. These costs were charged to operations
as incurred.
Copyrights and Trademarks
The Company's games and magazine are generally protected by registered
trademarks and copyrights in the United States and foreign countries to the
extent that such protection is available. Such protection is of considerable
importance in the games business. The duration of the protection provided by
these rights is generally in excess of the economic life of any particular game
or magazine issue.
<PAGE>
PRINTING AND ENVELOPE SEGMENT
Monarch Services offers a full line of printing and graphic arts services
to a wide range of customers in the industrial, financial and advertising
fields. Its services include offset and letterpress printing, design and idea
conception, finished art, and direct mailing. Monarch Services also manufactures
various types and sizes of envelopes to customer order.
Monarch Services is also the production arm for the games segment. It
designs the graphics for and prints all of the Company's games, and manufactures
the boxes in which the games are sold. Monarch Services also provides printing
services to Girls' Life magazine. It designs and prints promotional and direct
mail literature for the magazine. During fiscal 1998 game production and
publishing production accounted for approximately 25es on an interdivision
basis. The loss of game and publishing production would leave Monarch
Services' with significant over capacity.
PUBLISHING SEGMENT
GIRLS' LIFE
Girls' Life is intended to be an intelligent, non-condescending and easily
read magazine targeted to girls ages seven to fourteen. The philosophy behind
the graphic representation and every article presented is that girls are
important, independent, and intelligent people with opinions of their own. These
articles seek to reinforce that message and inspire confidence in a girl's
thoughts, opinions, and feelings. Editorial material is created by the
magazine's staff as well as through outside writers.
MARKETING
The Company's games are marketed in the United States and abroad. In the
United States, board games are primarily sold to toy jobbers, toy stores,
department stores, large retail chains and book stores. The Company's line of
games for personal computers is sold primarily to software wholesalers and
computer stores which sell both hardware and software. Except for certain direct
order sales to consumers, all United States sales are made through sales
representative organizations which are paid on a commission basis. In fiscal
1998 and 1997, games sales to the Company's ten largest United States customers
accounted for approximately 29% and 47%, respectively, of total game sales. Two
customers of computer games accounted for approximately 7% and 5%,
respectively, of total net sales in 1998.
The Company uses direct mail, trade and consumer publications, and trade
shows to introduce and promote its games.
Printing and graphic arts services and envelopes are marketed primarily in
the Baltimore-Washington area through Company sales personnel who are
compensated on a salary and commission basis.
<PAGE>
Girls' Life is sold by subscription and on the newsstand. Subscriptions are
sold by direct-mail solicitation, insert cards and other traditional sources.
Newsstand copies are distributed internationally by Warner Publisher Services.
FOREIGN OPERATIONS; EXPORT SALES
Sales of games abroad are made to independent distributors located in
various countries. Export sales were $303,000 for fiscal 1998, $466,000 for
fiscal 1997 and $561,000 for fiscal 1996. The following table shows for each of
the Company's last three fiscal years, export sales of its games and magazine to
the Company's four largest foreign markets.
Sales (in dollars)
Region 1998 1997 1996
Japan $10,800 $10,100 $21,900
Canada 70,000 143,000 102,300
United Kingdom 106,700 106,400 222,000
Australia 40,600 68,200 55,100
SEASONALITY; CUSTOMER FINANCING TERMS
The Company's games business is somewhat seasonal in nature because of
increased retail game sales during the Christmas season. Sales are highest
during the periods August through October when retailers purchase stock for that
season, and February through April when large customers take deliveries in order
to take advantage of discounts and payment terms offered by the Company for
volume purchases on an "early buy" basis. The early purchase program, which is a
common industry practice, together with the need to maintain an inventory of
finished games in order to satisfy reorder requests quickly, results in a
substantial working capital requirement. To date, the Company has met this
requirement through the internal generation of funds.
The Company's printing and publishing segments are not seasonal in nature.
The Company offers credit terms to its trade customers for the purchase of
its products. Payments are due from the Company's trade customers based upon
sales and purchase arrangements which may vary depending upon the identity of
the customer and the nature of the product. In some instances, trade customers
may receive credit for unsold merchandise, or may exchange unsold merchandise
for new products.
<PAGE>
COMPETITION
There are a number of companies engaged in the sale of board and software
games, including a number which are significantly larger than the Company. While
the Company considers itself to be a player in the strategy games market, the
overall board game market, including sports and family games, is dominated by a
few large companies. The Company considers the primary competitive factors for
its line to be the challenge and play appeal of the computer and board games it
develops.
Competition in the games business is principally based on product quality
and features, the compatibility of computer games with popular platforms,
company or product line brand name recognition, access to distribution channels,
marketing effectiveness, reliability and ease of use, price and technical
support. Significant financial resources also have become a competitive factor
in the games business, principally due to the substantial cost of product
development and marketing that is required to support best-selling titles. In
addition, competitors with broad product lines and popular titles typically have
greater leverage with distributors and other customers who may be willing to
promote titles with less consumer appeal in return for access to such
competitor's most popular titles. Retailers typically have a limited amount of
shelf space, and there is intense competition among game producers for adequate
levels of shelf space and promotional support from retailers. The Company
believes that its pricing is generally competitive for the types of games that
it sells.
Competition in the printing business is largely based on price, quality,
range of services offered, distribution capabilities, ability to service the
specialized needs of customers, availability of printing time on appropriate
equipment and use of state-of-the-art technology. The Company competes for
commercial business not only with large national printers, but also with smaller
regional printers.
Competition in the magazine industry is intense with numerous other
publishers and retailers, as well as other media, competing for readers and
advertising revenue. The Company considers the primary competitive factors to be
the underlying philosophy of Girls' Life and the market segment being served.
RAW MATERIALS
The principal raw materials used by the Company are finished paper,
paperboard and ink. The Company generally purchases its requirements for each of
these items from single sources, but the Company believes there are, at present,
numerous sources from which its requirements could be met. The price of paper is
a significant expense of the Company's publishing and printing businesses and
began to rise around mid-year 1994 and continued to rise more dramatically in
1995 and early 1996. In mid-1996 paper prices began to fall. Paper price
increases may have an adverse effect on the Company's future results.
<PAGE>
EMPLOYEES
At April 30, 1998, the Company employed approximately 100 full time
personnel, including 17 executive and administrative personnel, 12 research and
development personnel and 71 production personnel. None of the Company's
employees are represented by a union.
PROPERTIES
The Company leases property at the following locations for the following
purposes:
1. 4517 Harford Road, Baltimore, Maryland 21214. This property contains the
Company's offices as well as its printing plant. The property is leased through
2006.
2. 6500 Quad Avenue, Baltimore, Maryland 21205. This property contains a
manufacturing and warehouse facility and the lease expires on May 14, 2000.
The Company leases the Harford Road property from A. Eric Dott who is the
Chairman and a major stockholder of the Company. Although not negotiated at arms
length, management believes the terms of the lease with Mr. Dott are comparable
to lease terms for like properties in the same geographic area.
Management believes that the Company's leased premises are generally
adequate for the Company's business going forward.
LEGAL PROCEEDINGS
Companies in the game and publishing industries are, in the ordinary course
of business, made the subject of actions alleging copyright infringement and
other actions. Such actions may allege large damages. The Company has, on an
infrequent basis, had such claims made against it.
INFORMATION INCORPORATED BY REFERENCE
Information provided in the Company's 1998 Annual Report, that is being
distributed to Stockholders with this Proxy Statement, under the captions
Consolidated Financial Statements, Notes to Consolidated Financial Statements,
Consolidated Quarterly Results, Independent Auditors' Report, Common Stock
Market Prices and Dividends, and Management's Discussion and Analysis of
Financial Condition and Results of Operations is incorporated herein by
reference. Any statement contained herein, in any supplement hereto or in a
document incorporated or deemed incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein, in any supplement hereto or in any
subsequently filed document that also is or is deemed to be incorporated by
reference therein 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 Proxy Statement or any supplement hereto.
<PAGE>
DATE FOR SUBMISSION OF STOCKHOLDERS PROPOSALS
Stockholders' proposals intended to be presented at the 1999 Annual Meeting
of Stockholders must be received by the Company no later than May 18, 1999 to be
considered for inclusion in the Company's proxy statement and form of proxy for
that meeting. Proposals should be sent to the Secretary of the Company at the
executive offices of the Company. For details concerning eligibility, extent
and limitations respecting the right to include proposals, stockholders should
consult the proxy regulations of the Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act") requires that the Company's Directors and executive officers, and persons
who own more than 10% of the Company's outstanding Common Stock, file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of change in ownership of the Common Stock of the Company. The same
persons are also required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms that they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, all required filing requirements under Section
16(a) of the Securities Exchange Act of 1934, were filed in fiscal year 1998.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors is not aware
of any matters, other than those stated above, that may be brought before the
Annual Meeting. The persons named in the enclosed form of proxy or their
substitutes will vote said proxy in respect of any such business in accordance
with their best judgment.
By Order of the Board of Directors
Steven M. Szekely,
Secretary
September 17, 1998
<PAGE>
ANNEX A
ASSET PURCHASE AGREEMENT
by and among
MONARCH AVALON, INC.,
HIAC XII CORP.,
an indirect wholly owned subsidiary of
Hasbro, Inc.,
and
HASBRO, INC.,
to the extent set forth in Article IV hereof.
Dated as of August 3, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE AND SALE OF ASSETS
AND ASSUMPTION OF LIABILITIES
SECTION 1.1 Purchase and Sale..........................1
SECTION 1.2 Assumed Liabilities........................6
SECTION 1.3 Excluded Liabilities.......................6
SECTION 1.4 Purchase Price.............................8
SECTION 1.5 Closing....................................8
SECTION 1.6 Deliveries by Seller.......................8
SECTION 1.7 Deliveries by Buyer........................9
ARTICLE II
RELATED MATTERS
SECTION 2.1 Books and Records of the Business.........10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.1 Organization and Authority of Seller......11
SECTION 3.2 Contents and Approvals: No Violations....12
SECTION 3.3 Absence of Material Adverse Changes, etc..13
SECTION 3.4 Title; Properties and Assets Necessary
for Conduct of Business...................14
SECTION 3.5 Contracts.................................15
SECTION 3.6 Inventory and Backlog.....................15
SECTION 3.7 Intellectual Property.....................15
SECTION 3.8 Litigation................................18
SECTION 3.9 Compliance with Applicable Law............18
SECTION 3.10 Taxes.....................................18
SECTION 3.11 Certain Fees..............................19
SECTION 3.12 Financial Statements......................19
SECTION 3.13 Business Relations........................19
SECTION 3.14 Warranties................................19
SECTION 3.15 Disclosure 19
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.1 Corporate Organization and Authority......20
SECTION 4.2 Consents and Approvals: No Violations....21
SECTION 4.3 Litigation................................21
SECTION 4.4 Certain Fees..............................21
SECTION 4.5 Disclosure................................21
ARTICLE V
COVENANTS
SECTION 5.1 Consents; Assignments.....................22
SECTION 5.2 Allocation of Purchase Price..............22
SECTION 5.3 Agreement Not to Compete or Solicit.......23
SECTION 5.4 Nondisclosure of Proprietary Data.........24
SECTION 5.5 Investigation by Buyer....................25
SECTION 5.6 Preservation of Business..................26
SECTION 5.7 Buyer's Responsibility....................27
SECTION 5.8 Notice to Vendors and Suppliers...........27
SECTION 5.9 Seller Stockholders Meeting...............28
SECTION 5.10 No Shopping; Competing Proposal...........28
SECTION 5.11 Accounts Receivable of Seller and Returns
of Inventory..............................29
SECTION 5.12 Termination of Publication of the General.30
SECTION 5.13 Avaloncon Conference......................30
SECTION 5.14 List of Inventory.........................30
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to
Effect the Closing........................30
SECTION 6.2 Conditions to Obligations of Buyer........31
SECTION 6.3 Conditions to Obligations of Seller.......31
SECTION 6.4 Frustration of Closing Conditions.........32
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination...............................32
SECTION 7.2 Effect of Termination.....................33
SECTION 7.3 Amendment.................................34
SECTION 7.4 Extension; Waiver.........................34
<PAGE>
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
SECTION 8.1 Survival..................................34
SECTION 8.2 Seller's Agreement to Indemnify...........35
SECTION 8.3 Buyer's Agreement to Indemnify............35
SECTION 8.4 Certain Limitations.......................36
SECTION 8.5 Notice and Opportunity to Defend..........36
SECTION 8.6 Insurance, Tax Benefits...................37
ARTICLE IX
DEFINITIONS
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Further Assurances........................45
SECTION 10.2 Notices...................................46
SECTION 10.3 Severability..............................47
SECTION 10.4 Assignment; Binding Effect................47
SECTION 10.5 No Third Party Beneficiaries..............48
SECTION 10.6 Interpretation............................48
SECTION 10.7 Entire Agreement..........................48
SECTION 10.8 Governing Law.............................49
SECTION 10.9 Specific Performance......................49
SECTION 10.10 Counterparts..............................49
SECTION 10.11 Publicity.................................49
SECTION 10.12 Submission to Jurisdiction................50
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of August 3,
1998, by and among Monarch Avalon, Inc., a Delaware corporation ("Seller"), HIAC
XII CORP., a Delaware corporation ("Buyer") and an indirect wholly-owned
subsidiary of Hasbro, Inc., a Rhode Island corporation ("Hasbro"), and, to the
extent set forth in Article IV hereof, Hasbro.
W I T N E S S E T H
WHEREAS, Seller, among other things, is engaged in the development,
manufacture, marketing and sale of games in a variety of media (the "Business");
and
WHEREAS, pursuant to the terms and conditions set forth in this
Agreement, Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, substantially all of the assets and rights of the Business (other than
those specifically excluded as described in this Agreement), and to assume
certain liabilities relating thereto;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
AND ASSUMPTION OF LIABILITIES
SECTION 1.1 Purchase and Sale.
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(a) Assets. In reliance on the representations, warranties, covenants
and agreements set forth in this Agreement and subject to paragraphs (c) and (d)
of this Section 1.1 and to the other terms and conditions of this Agreement,
Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer
shall purchase, acquire and accept from Seller, in each case free and clear of
all Liens, substantially all of the assets of the Business, including all of
Seller's rights, title and interests in and to all of the properties, contracts,
rights and other assets (of every kind, nature, character and description,
whether tangible or intangible, whether accrued, contingent or otherwise and
wherever situated), that are exclusively used in the Business and are not set
forth as "Assets Used in Printing Business or Publishing Business" in Section
1.1(a) of the Seller Disclosure Schedule (the "Assets"), including, without
limitation, the following:
<PAGE>
(i) Any and all tools, dies, molds, plates, film, artwork, color
reproductions, jigs, assembly line and test fixtures, rights to use all computer
software and codes (such rights being subject to the Contracts listed in Section
1.1(a)(ii) of the Seller Disclosure Schedule), and files relating to interactive
entertainment products, art objects for the creation and packaging of games
(collectively, "Tooling"), supplies, raw materials, work-in-process and finished
goods inventory that are exclusively used in the Business, including board game
inventory returned after the Closing Date to Seller as described in Section 3.6
hereof;
(ii) All rights and incidents of ownership of Seller in, to and
under all contracts, option agreements, licenses and sublicenses related to the
Intellectual Property (as defined below) currently, formerly or to be used
exclusively in the Business (the "Contracts"), including the Contracts listed in
Section 1.1(a)(ii) of the Seller Disclosure Schedule;
(iii) All customer and supplier lists pertaining exclusively to the
Business;
(iv) All prepaid expenses pertaining exclusively to the Business;
(v) Any and all of the following and all statutory and/or common
law rights throughout the world in, arising out of, or associated therewith:
(a) all patents and applications therefor, including docketed patent disclosures
awaiting filing, reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof, (b) all inventions (whether
patentable or not), inventions disclosures and improvements, all trade secrets,
proprietary information, know-how, manufacturing, engineering and technical draw
ings and specifications, processes, designs and technology; (c) all works of
authorship, "moral rights", copyrights (including derivative works thereof),
mask works, copyright and mask work registrations and applications therefor; (d)
all trade names, trade dress, logos, product names, trademarks and service
marks, trademark and service mark registrations and applications together with
the good will of the business symbolized by the names and the marks; (e) all
rights to use computer software including all source code, object code,
firmware, development tools, files, records and data, all media on which any of
the foregoing is recorded; (f) Uniform Resource Locators, World Wide Web site
addresses and domain names; (g) any similar, corresponding or equivalent rights
to any of the foregoing; (h) all documentation related to any of the foregoing;
and (i) all goodwill associated with any of the foregoing (collectively, the
"Intellectual Property"), owned by Seller, that are used exclusively in the
Business, including the Intellectual Property listed in Sections 1.1(a)(v),
3.7(a), and 3.7(c) of the Seller Disclosure Schedule;
<PAGE>
(vi) all works in progress relating to products in development for
the Business by or on behalf of Seller;
(vii) All of Seller's permits, licenses, approvals, consents and
authorizations by any Governmental Entity (collectively, "Permits"), that are
primarily used or held for use exclusively in the Business excluding those
Permits solely limited to the conduct of the Business at the Seller's physical
location in Baltimore, Maryland (the "Premises");
(viii) Subject to Section 2.1, all of the Seller's books and
records relating exclusively to the Business, including, without limitation, all
product archives, quality records and engineering designs;
(ix) Subject to Section 2.1, all of the Seller's other files,
indices, market research studies, surveys, reports, analyses and similar
information relating exclusively to the Business;
(x) The goodwill of the Business in or arising from the Assets and
the business represented thereby;
(xi) All e-mail and Internet addresses used exclusively in the
Business;
(xii) All sales data, brochures, catalogues, literature, forms,
mailing lists, art work, photographs and advertising material, in whatever form
or media relating exclusively to the Business;
(xiii) All claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind in favor of the Seller and pertaining
to, or arising out of, the Assets or offsetting any Assumed Liabilities;
(xiv) The magazine known as "The General"; and
(xv) The activity known as "Avaloncon".
<PAGE>
(b) Instruments of Transfer. The sale, assignment, transfer and delivery
of the Assets shall be effected by delivery by Seller and Buyer of the Bill of
Sale.
(c) Excluded Assets. Notwithstanding anything contained in paragraph (a)
of this Section 1.1 to the contrary, the Assets shall not include any of the
following (the "Excluded Assets"): (i) all rights that accrue or will accrue to
Seller under this Agreement or the Related Agreements; (ii) all cash and cash
equivalents; (iii) Seller's accounting systems and software; (iv) Seller's
accounts receivable; (v) Seller's machinery, equipment (other than Tooling),
furniture and fixtures; (vi) any Assets related to the game "Civilization,"
"Advanced Civilization," "Sid Meier's Civilization - Build an Empire to Stand
the Test of Time," "Civilization Collectible Card Game," "Varient Trading
Cards," "Western Expansion Kit," and "1830 Railroads and Robber Barons" in any
media including but not limited to board games and computer games;(vii) the
assets of the Publishing Business and the Printing Business including but not
limited to those assets listed in Section 1.1(a) of the Seller Disclosure
Schedule; (viii) Seller's corporate charter, qualifications to conduct business
as a foreign corporation, arrangements with registered agents, taxpayer and
other identification numbers, seals, minute books, stock transfer books, blank
stock certificates, and other documents relating to the organization, mainte
nance and existence of the Seller as a corporation; (ix) Seller's listing on the
Nasdaq National Market and other documents relating to the organization and
maintenance of such listing; (x) Seller's computer hardware; (xi) Seller's
graphic arts equipment; (xii) all insurance policies maintained by the Seller;
and (xiii) all Contracts and other assets listed in Section 1.1(c) of the Seller
Disclosure Schedule. Subject to Section 5.5, Buyer reserves the right, in its
sole discretion, to exclude from the Assets any Contract related to products
which are not Material Products (as hereinafter defined) or Scheduled Products
(as hereinafter defined) and the Assets associated therewith by notice to
Seller.
<PAGE>
(d) Nonassignability. Anything contained in this Agreement or any
Related Agreement to the contrary notwithstanding, neither this Agreement nor
any Related Agreement shall constitute an assignment, transfer, sublicense or
sublease of, or an agreement to assign, transfer, sublicense or sublease, any
right, title or interest in, to or under any, contract, option agreement,
license or sublicense, or any claim or right to any benefit arising thereunder
or resulting therefrom, if an attempted assignment, transfer, sublicense or
sublease thereof, without the consent or waiver of a third party thereto
(including a Governmental Entity) would constitute a breach thereof or a
violation of any Legal Requirement, or in any way adversely affect the rights of
Buyer or Seller thereunder, unless and until such consent or waiver has been
duly obtained or such assignment, transfer, sublicense or sublease has otherwise
become lawful.
SECTION 1.2 Assumed Liabilities. In reliance on the representations,
warranties, covenants and agreements set forth in this Agreement and subject to
the terms of this Agreement, at the Closing, and concurrently with the purchase
described in Section 1.1 hereof, Buyer shall assume and be responsible for, and
hereby agrees to pay, honor, discharge or perform in due course, the following
liabilities and obligations of Seller in connection with the Business (the
"Assumed Liabilities"):
(a) All liabilities and obligations of Seller arising after the Closing
Date under any Contracts assigned to Buyer pursuant to Section 1.1(a)(ii) that
are set forth in Section 1.1(a)(ii) of the Seller Disclosure Schedule and not
excluded by Buyer either on Section 1.1(c) of the Seller Disclosure Schedule or
pursuant to the last sentence of Section 1.1(c).
(b) All liabilities or obligations relating to the Business arising
through acts or omissions of Buyer in conducting the Business after the Closing
in respect of which a third-party seeks to hold Seller liable and to which there
is no independent basis for Seller's liability with respect thereto.
<PAGE>
SECTION 1.3 Excluded Liabilities. Notwithstanding anything in this
Agreement to the contrary, Buyer shall not assume and shall be deemed not to
have assumed and be responsible for, and Seller shall be solely and exclusively
liable and responsible for all debts, obligations, contracts or liabilities
arising out of the conduct of the Business which are not Assumed Liabilities
(the "Excluded Liabilities"), including without limitation the following
illustrative examples:
(a) All liabilities and obligations incurred in connection with or
related to the Excluded Assets;
(b) All liabilities and obligations for Taxes of Seller;
(c) All liabilities and obligations whatsoever to any current or former
employee of the Business, including without limitation, any liability or
obligation that arises under any Plan, or any other employee benefit arrangement
or policy, or under applicable law;
(d) All attorneys', accountants', brokers' or finder's fees or other
costs or expenses of Seller incurred in connection with this Agreement or the
transactions contemplated hereby;
(e) All liabilities, obligations and costs arising out of or relating to
any product liability suit, action, claim or proceeding, whether for personal
injury or property damages against Seller or any of its Affiliates relating to
products sold or manufactured by or on behalf of, or services performed, by the
Business prior to the Closing Date, whether a claim therefor is asserted before
or after the Closing Date, and whether or not the claim is an indemnification
claim by a licensor or other party to a contract against Buyer or its affiliates
as assignee of Seller under a Contract, including liabilities, obligations and
costs arising under or relating to any obligation to replace or repair a product
sold or re-perform services performed or damages incurred to a product sold in
the ordinary course of business;
(f) All liabilities, obligations and costs of Seller and the Business
from or relating to any Environmental Claim, Cleanup, Release or presence of any
Hazardous Materials, or violation of any Environmental Law whether known or
unknown;
<PAGE>
(g) All liabilities for accrued and current liabilities and accounts
payable of the Business; and
(h) All liabilities and obligations of Seller arising before the Closing
Date under any Contracts (including, without limitation, all royalties accrued
under any Contracts prior to the Closing Date even if payable after the Closing
Date) and all liabilities and obligations of Seller whenever arising under any
other contracts or agreements including without limitation with respect to the
magazine known as "The General" (including under Section 5.12 hereof) and the
activity known as "Avaloncon" (including under Section 5.13 hereof).
SECTION 1.4 Purchase Price. The purchase price for the Assets shall be
$6,000,000 in cash (the "Purchase Price"), payable at the Closing in immediately
available funds.
SECTION 1.5 Closing. Subject to the terms and conditions of this
Agreement, including satisfaction or waiver of all conditions as set forth in
Article VI, the Closing shall take place at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York on the second business
day after the stockholders meeting called by Seller pursuant to Section 5.9
hereof, at which the holders of a majority of the outstanding stock of the
Seller vote in favor of (and not against) the adoption of this Agreement and the
change of name of the Seller to a name that shall not include the word "Avalon"
("Stockholder Approval").
SECTION 1.6 Deliveries by Seller. At the Closing, Seller shall deliver
or cause to be delivered to Buyer (unless delivered previously) the following:
(a) the Bill of Sale;
(b) the Other Instruments;
(c) a certificate signed by the Chairman or President of Seller, dated
the Closing Date, in form and substance reasonably satisfactory to Buyer,
certifying to the fulfillment of the conditions set forth in Sections 6.1(b) and
6.2 and to the fact that at the stockholders meeting called by Seller pursuant
to Section 5.9 hereof, the holders of a majority of the outstanding stock of the
Seller voted in favor of (and not against) adoption of this Agreement and the
sale of the Assets on the terms and conditions contemplated hereby;
<PAGE>
(d) opinion of Venable, Baetjer and Howard, LLP, counsel to Seller, dated
the Closing Date, in form and substance reasonably acceptable to Buyer;
(e) copies of the consents referred to in Section 5.1; and
(f) all other documents, instruments and writings necessary to consummate
the transaction contemplated hereby or expressly required to be delivered by
Seller at or prior to the Closing pursuant to this Agreement.
SECTION 1.7 Deliveries by Buyer. At the Closing, Buyer shall deliver
or cause to be delivered to Seller (unless previously delivered) the following:
(a) the Purchase Price, by wire transfer of $6,000,000 in immediately
available funds to such bank account or accounts as shall be designated by
Seller prior to the Closing;
(b) the Bill of Sale;
(c) a certificate signed by an authorized officer of Buyer, dated the
Closing Date, in form and substance reasonably satisfactory to Seller,
certifying to the fulfillment of the conditions specified in Sections 6.1(b) and
6.3; and
(d) opinion of Phillip H. Waldoks, Senior Vice President-Corporate Legal
Affairs and Secretary of the Buyer, dated the Closing Date, in form and
substance reasonably acceptable to Seller;
(e) all other documents, instruments and writings (including, if
necessary, the Other Instruments) necessary to consummate the transactions
contemplated hereby or expressly required to be delivered by Buyer at or prior
to the Closing pursuant to this Agreement.
<PAGE>
ARTICLE II
RELATED MATTERS
SECTION 2.1 Books and Records of the Business.
---------------------------------
(a) Seller agrees to deliver to Buyer or make available to Buyer, at or
as soon as practicable after the Closing, as requested by Buyer, (i) all books
and records of Seller to the extent such books and records relate exclusively to
the Business and (ii) a copy of that portion of all other books and records that
relate to the Business (in the case of each of (i) and (ii) above, including,
but not limited to, correspondence, memoranda and the like). Notwithstanding
the foregoing and except as otherwise provided in Section 2.1(b), Seller shall
not be obligated to provide (i) any books and records that relate solely to, or
(ii) any distinct portion of any books and records that relate solely to, Seller
as a whole or any businesses, divisions or Subsidiaries of Seller other than the
Business.
(b) For a period of two years and six months following the Closing, or
for such longer periods as may be required to satisfy applicable laws,
regulations or agreements, (i) Seller shall retain all books and records
relating to the Business that are integrated or non-separable from the books and
records related to any businesses, divisions or Subsidiaries of Seller other
than the Business and (ii) Buyer shall retain all other books and records of the
Business, including, without limitation, all other such books and records of the
Business required to be retained pursuant to obligations imposed by any
Government Contract, statute, rule or regulation (such books and records of the
Business collectively, the "Records").
(c) For a period of two years and six months following the Closing, or
for such longer periods as may be required to satisfy applicable laws,
regulations or agreements, or record retention requirements for Government
Contracts, (i) each party hereto shall provide to duly authorized
representatives of the other party and their Affiliates who wish to review any
Records for bona fide business reasons reasonable access, during regular
business hours, to (A) employees of such party, if any, who are familiar with
such Records and who can assist such representatives of such other party, at
such other party's own expense, in locating, explaining or otherwise reviewing
such Records and (B) use of such party's copying facilities, clerical services
and telephone in a reasonable manner at such other party's own expense and
(ii) neither Seller nor Buyer shall dispose of or destroy any Records within
such period without written permission of the other.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows; provided, however, that
notwithstanding any other provision of this Agreement, (i) Seller makes no repre
sentation or warranty with respect to any Assets that do not pertain to the
Material Products and/or the Scheduled Products and (ii) Seller makes no
representation or warranty as to the sufficiency or adequacy under Delaware law
of any Stockholder Approval obtained without or against the recommendation of
the Board of Directors of Seller and to the extent that any such Stockholder
Approval is determined by a Governmental Entity to be insufficient or inadequate
under Delaware law such inadequacy or insufficiency shall not be considered a
breach of any provision of this Agreement by the Seller:
SECTION 3.1 Organization and Authority of Seller.
------------------------------------
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate the Business properties owned,
leased and operated by it and to carry on the operations of the Business as now
being conducted by it. Seller is duly qualified and in good standing to do
business in Maryland as a foreign corporation.
(b) Seller has all requisite corporate power and authority to execute and
deliver this Agreement and the Related Agreements and to perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Related Agreements by Seller and the performance by Seller of its obligations
hereunder and thereunder have been duly and validly authorized by the Board of
Directors of Seller and except for the Stockholder Approval, the filing of
Articles of Amendment with the Secretary of State of Delaware with respect to
the change of name of Seller and any related filing with the State Department of
Assessments and Taxation of Maryland that are required to maintain Seller's
qualification to do business in Maryland, no other corporate or stockholder
action on the part of Seller is necessary to authorize the execution, delivery
and performance of this Agreement and the Related Agreements. Seller represents
and warrants that, on or prior to the date of this Agreement, the Board of
Directors of Seller has deemed it expedient and for the best interests of Seller
to enter into this Agreement and perform its obligations hereunder. Prior to or
as of the date of this Agreement, the Board of Directors of Seller has adopted a
resolution that it deems this Agreement expedient and for the best interests of
the Seller. This Agreement has been duly executed and delivered by Seller and
constitutes, and when executed and delivered, each of the Related Agreements to
be executed and delivered by Seller, will constitute, assuming, in each
instance, due authorization, execution and delivery of this Agreement and the
Related Agreements by Buyer, a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms.
<PAGE>
SECTION 3.2 Consents and Approvals: No Violations.
--------------------------------------
(a) Neither the execution and delivery of this Agreement or the Related
Agreements by Seller nor the performance by Seller of its obligations hereunder
and thereunder will (i) conflict with or result in any breach of any provision
of the Certificate of Incorporation or Bylaws of Seller; (ii) except as set
forth in any Contract listed, or as otherwise set forth, in Section 1.1(a)(ii)
of the Seller Disclosure Schedule, to Seller's Knowledge, result in (with or
without the giving of notice or lapse of time or both) a violation or breach of,
or constitute a default or give rise to any right of termination, cancellation
or acceleration under any of the terms, conditions or provisions of any note,
mortgage, letter of credit, other evidence of indebtedness, guarantee, lease or
any Contract or similar instrument or obligation to which Seller is a party, or
by which any of the Assets pertaining to the Material Products (as hereinafter
defined) or the Scheduled Products (as hereinafter defined) may be bound or
(iii) violate any order, injunction or decree of any Governmental Entity to
which the Seller or the Assets or the Business is subject, or violate any
statute, rule or regulation of any Governmental Entity to which Seller, the
Assets or the Business is subject as of the date of this Agreement, the
violation of which statute, rule or regulation will have a material adverse
effect on the Assets or the Business or result in a material impairment of
Seller's ability to perform its obligations under this Agreement ("Material
Adverse Effect").
(b) Except for the filing of Articles of Amendment with the Secretary of
State of Delaware with respect to the change of name of Seller and any related
filing with the State Department of Assessments and Taxation of Maryland
referenced above, no filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity is required in
connection with the execution and delivery of this Agreement or the Related
Agreements by Seller or the performance by Seller of its obligations hereunder
or thereunder.
SECTION 3.3 Absence of Material Adverse Changes, etc.
----------------------------------------
Since April 30, 1998, (a) there has not been any material adverse change
in the Assets (other than changes resulting from changes in general economic
or financial conditions or changes affecting generally the industry in which
the Business operates); (b) Seller has not suffered any loss or damage
(whether or not covered by insurance) to the Assets that has resulted in, or
is reasonably likely to have a Material Adverse Effect; and (c) Seller has
not sold, disposed of, or otherwise transferred any Assets except in the
ordinary course of business or as otherwise permitted by this Agreement.
<PAGE>
SECTION 3.4 Title; Properties and Assets Neces-sary for Conduct of
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Business.
- - --------
(a) Section 3.4(a) of the Seller Disclosure Schedule contains a true and
accurate list of all Tooling used exclusively in connection with the operation
of the Business. Except as set forth in any Contract listed, or as otherwise
set forth, in Section 1.1(a)(ii) of the Seller Disclosure Schedule, Seller owns
the Assets related to the Material Products and has and shall deliver to Buyer,
good, valid and marketable title to, all of such Assets, in each case, free and
clear of all mortgages, pledges, security interests, liens (including Tax liens,
except liens for taxes not yet due), charges, options or other encumbrances of
any nature whatsoever (collectively, "Liens"). Except as set forth in any
Contract listed, or as otherwise set forth, in Section 1.1(a)(ii) of the Seller
Disclosure Schedule, to Seller's Knowledge, Seller owns the Assets related to
the Scheduled Products and has and shall deliver to Buyer, good, valid and
marketable title to, all of such Assets, in each case free and clear of all
Liens.
(b) The assets used in the Business and also used in the Printing
Business or Publishing Business are set forth on Section 1.1(a) of the Seller
Disclosure Schedule. Other than the Excluded Assets, the Assets include all
properties and assets necessary to permit the Business to be conducted as
currently conducted. Other than the Excluded Assets, all of the assets used
solely in the conduct of the Business are included in the Assets. Except as set
forth in Section 3.4(a) of the Seller Disclosure Schedule, all Tooling listed
(or required to be listed) in Section 3.4(a) of the Seller Disclosure Schedule
are usable and operable to manufacture the Material Products and the Scheduled
Products in the ordinary course of business. Such items are sufficient to make
each Material Product and each Scheduled Product (as defined below) in the
quantities that such Material Products and Scheduled Products have been
manufactured in the past or, if higher, in the quantities currently being
manufactured.
<PAGE>
SECTION 3.5 Contracts, License Agreement and Sublicense Agreements.
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Section 1.1(a)(ii) of the Seller Disclosure Schedule includes a complete
and correct list of all Contracts, including all amendments thereto. True and
complete copies of the Contracts and all written amendments thereto have been
made available to Buyer for review. Seller is not a party to or bound by any
oral Contracts. Except as set forth in any Contract listed, or as otherwise set
forth, in Section 1.1(a)(ii) of the Seller Disclosure Schedule, to Seller's
Knowledge, each such Contract pertaining to the Material Products (as
hereinafter defined) or the Scheduled Products (as hereinafter defined) is in
full force and effect and enforceable against the parties to each such Contract
in accordance with their respective terms, and none of Seller, nor any other
party thereto, is in breach of, or default under, any such Contract, and no
event has occurred that with notice or passage of time or both would constitute
such a breach or default thereunder by Seller or any other party thereto.
SECTION 3.6 Inventory and Backlog. The inventories of Seller related
to products currently manufactured in the Business consist of raw materials,
goods in process and finished goods in merchantable condition that conform to
applicable toy manufacturing standards and are saleable or usable in the
ordinary course of business. The inventories of Seller shall include any and
all board (but not computer) games that have been sold prior to the Closing that
subsequently are returned to Seller in exchange for a credit in the form of a
refund or, if applicable, in satisfaction of Seller's accounts receivable. No
items included in inventories of Seller are or will be pledged as collateral or
held by Seller on consignment from others.
<PAGE>
SECTION 3.7 Intellectual Property. Sections 1.1(a)(v), 3.7(a) and 3.7
(c) of the Seller Disclosure Schedule contain a complete and correct list of all
domestic and foreign trademarks, service marks, certification marks, collective
marks, collective membership marks, copyrights, registrations and applications
for registration for any of the foregoing, patents and applications therefor,
trade secrets, trade names, service names, logos, and assumed names exclusively
used in the Business. The foregoing, together with the royalty rights, rights
of enforcement for both known and unknown past infringement, and licenses
thereof and thereto, is a complete and correct list of all Intellectual Property
that is required to conduct the Business as it is now conducted except
Intellectual Property that is included in the Excluded Assets. With respect to
all products which are identified as "Material Products" in Section 3.7(a) of
the Seller Disclosure Schedule (the "Material Products") and except as set forth
in any Contract listed, or as otherwise set forth, in Section 1.1(a)(ii) of the
Seller Disclosure Schedule or as set forth in Section 1.1(a)(v) of the Seller
Disclosure Schedule, all patents, trademarks and copyrights or applications or
registrations for any of the foregoing included in the Intellectual Property are
in the name of Seller or the Avalon Hill Game Company or the Avalon Hill
Company, and Seller has the right to use, or where applicable, license or
sublicense to others, the Intellectual Property pertaining to the Material
Products with respect to products and services for which, and in the geographic
areas where, such Intellectual Property pertaining to the Material Products is
currently being used or where the applicable Contract permits such use. There
are no pending or, to Seller's Knowledge, threatened claims challenging the
validity of, or Seller's ownership and use in the Business of, any such
Intellectual Property pertaining to all products of the Business which are
identified as "Scheduled Products" in Section 3.7(c) of the Seller Disclosure
Schedule (the "Scheduled Products") or Material Products. With respect to
Material Products, all due and owed maintenance fees and renewal filings in
connection with each such registration, issuance or application have been paid
or filed, as the case may be. Except as set forth in any Contract listed, or as
otherwise set forth, in Section 1.1(a)(ii) of the Seller Disclosure Schedule:
(a) with respect to all Material Products, Seller has not transferred ownership
of, or granted any license of a right to use, or authorized the retention of any
rights to use, any Intellectual Property pertaining to such Material Products to
any other Person, and with respect to all Scheduled Products, to Seller's
Knowledge, Seller has not transferred ownership of, or granted any license of a
right to use, or authorized the retention of any rights to use, any Intellectual
Property pertaining to such Scheduled Products to any other Person; (b) with
respect to all Material Products, there are no present or future royalty
obligations arising from the use of the Intellectual Property pertaining to such
Material Products and with respect to all Scheduled Products, to Seller's
Knowledge, there are no present or future royalty obligations arising from the
use of the Intellectual Property pertaining to such Scheduled Products; (c) with
respect to all Material Products, Seller has exclusive ownership and right to
use the Intellectual Property pertaining to such Material Products, including
all improvements thereon, and with respect to all Scheduled Products, to
Seller's Knowledge, Seller has exclusive ownership and right to use the
Intellectual Property pertaining to such Scheduled Products, including all
improvements thereon. With respect to all Material Products or Scheduled
Products, to Seller's Knowledge, except as set forth in any Contract listed, or
as otherwise set forth, in Section 1.1(a)(ii) of the Seller Disclosure Schedule,
neither the sale of such Material Products or Scheduled Products nor the use of
the Intellectual Property pertaining to the Material Products or Scheduled
Products in the Business as it is conducted currently or has been conducted in
the past, (a) infringes upon or misappropriates the Intellectual Property of any
Person; (b) violates the rights of any Person (including rights to privacy or
publicity), or (c) constitutes unfair competition or trade practices under the
laws of any jurisdiction. Except as set forth in any Contract listed, or as
otherwise set forth, in Section 1.1(a)(ii) of the Seller Disclosure Schedule,
Seller has received no notice from any Person claiming that the sale of the
Scheduled Products or the Material Products or the use of the Intellectual
Property pertaining to the Scheduled Products or the Material Products
infringes upon or misappropriates the Intellectual Property of any Person or
constitutes unfair competition or trade practices under the laws of any
jurisdiction, nor to Seller's Knowledge is there any basis therefor. With
respect to all Material Products, Seller has used and will continue to use
reasonable efforts to protect against infringement or misappropriation of the
Intellectual Property included in the Assets and pertaining to the Material
Products.
<PAGE>
SECTION 3.8 Litigation. As of the date of this Agreement, there is no
claim, action or proceeding pending or, to Seller's Knowledge, threatened by or
against Seller, that names Seller as a party, or to Seller's Knowledge, is
otherwise by or before any Governmental Entity with respect to the Assets or the
Business or that challenges the validity of this Agreement or the Related
Agreements or the ability of Seller to perform its obligations hereunder or
thereunder or to convey to Buyer good, valid and marketable title to the Assets.
There is no outstanding order, judgment, injunction, award or decree of any
Governmental Entity or any settlement agreement that names Seller as a party or,
to Seller's Knowledge, is otherwise binding upon Seller or the Assets which
affects the ownership, use or operation of the Business or the Assets.
SECTION 3.9 Compliance with Applicable Law. Seller is in compliance
with all applicable laws, ordinances, rules and regulations of any federal,
state, local or foreign governmental authority applicable to the Business and
its operations. All Permits required to conduct the Business (other than those
limited to the conduct of the Business at the Premises) have been obtained, are
in full force and effect and are being complied with in all material respects.
Seller has had no correspondence with the Consumer Products Safety Commission
since 1993 with respect to any product or any customer complaints regarding the
safety of any product. Seller has made all requisite disclosures to the customs
service or any applicable Governmental Entity, and such disclosures are in
compliance with applicable law.
SECTION 3.10 Taxes. All Tax Returns required to be filed by or with
respect to Taxes of the Business are accurate in all material respects and have
been filed in a timely manner (taking into account all lawful extensions of due
dates) and all Taxes shown to be due on such filed Tax Returns have been paid.
SECTION 3.11 Certain Fees. Seller shall be responsible for all fees and
expenses of any financial advisor employed by Seller in connection with this
Agreement or the Related Agreements or the transactions contemplated hereby or
thereby.
<PAGE>
SECTION 3.12 Financial Statements. The financial statements contained
in Seller's Annual Report on Form 10-KSB for the fiscal year ended April 30,
1998 (the "Financial Statements") have been prepared in accordance with U.S.
generally accepted accounting principles, subject, in the case of interim
financial statements, to normal accounting year-end adjustments, none of which
will be material, in each case applied on a consistent basis from period to
period, except as disclosed in the notes to such financial statements. The
Financial Statements fairly present the financial condition of Seller at the
respective dates thereof and the results of the operations of the Seller, for
the periods then ended, subject, in the case of interim financial statements, to
normal accounting year-end adjustments, none of which will be material.
SECTION 3.13 Business Relations. Section 3.13 of the Seller Disclosure
Schedule contains a list of the ten largest customers and ten largest suppliers
of the Business. To Seller's Knowledge, its relations with the customers and
suppliers of the Business are good.
SECTION 3.14 Warranties Section 3.14 of Seller Disclosure Schedule sets
forth (i) the text of all product warranties issued by Seller in relation to
products of the Business that are still in effect as of the date hereof and (ii)
a summary of all asserted warranty or consumer product claims related to the
Assets since December 31, 1996.
SECTION 3.15 Disclosure. This Agreement and the certificates and other
agreements to be furnished on the Closing Date to Buyer by or on behalf of
Seller pursuant hereto, to Seller's Knowledge, do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements contained herein or
therein in light of the circumstances under which they were made, not
misleading.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND HASBRO
Each of Buyer and Hasbro represents and warrants to Seller as follows:
SECTION 4.1 Corporate Organization and Authority.
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(a) Each of Buyer and Hasbro is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
(b) Each of Buyer and Hasbro has all requisite corporate power and
authority to execute and deliver this Agreement and the Related Agreements and
to perform its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Related Agreements by each of Buyer and Hasbro and the
performance by each of Buyer and Hasbro of its respective obligations hereunder
and thereunder have been duly and validly authorized by the Boards of Directors
of Buyer and Hasbro and no other corporate or stockholder action on the part of
Buyer or Hasbro is necessary to authorize the execution, delivery and
performance of this Agreement and the Related Agreements. This Agreement has
been duly executed and delivered by each of Buyer and Hasbro and constitutes,
and when executed and delivered each of the Related Agreements to be executed
and delivered by each of Buyer and Hasbro will constitute, assuming due
authorization, execution and delivery of this Agreement and the Related
Agreements by Seller, a valid and binding obligation of each of Buyer and
Hasbro, enforceable against each of Buyer and Hasbro in accordance with its
terms.
<PAGE>
SECTION 4.2 Consents and Approvals: No Violations.
--------------------------------------
(a) Neither the execution and delivery of this Agreement or the Related
Agreements by either Buyer or Hasbro nor the performance by either Buyer or
Hasbro of its obligations hereunder or thereunder will (i) conflict with or
result in any breach of any provision of the respective certificate of
incorporation or bylaws of either Buyer or Hasbro; or (ii) violate any order, in
junction, decree, statute, rule or regulation of any Governmental Entity to
which either Buyer or Hasbro is subject.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution and delivery of this Agreement or the Related Agreements by Buyer
or the performance by Buyer of their obligations hereunder and thereunder.
SECTION 4.3 Litigation. As of the date hereof, there is no claim,
action or proceeding pending or, to the knowledge of Buyer or Hasbro, threatened
against Buyer or Hasbro that challenges the validity of this Agreement or the
Related Agreements, or the ability of either Buyer or Hasbro to perform its
respective obligations hereunder or thereunder, by or before any Governmental
Entity.
SECTION 4.4 Certain Fees. Neither Buyer, Hasbro, nor any of their
respective Affiliates has employed any financial advisor or finder or incurred
any liability for any financial advisory or finders' fees in connection with
this Agreement or the Related Agreements or the transactions contemplated hereby
or thereby.
SECTION 4.5 Disclosure. This Agreement and the certificates and other
agreements to be furnished on the Closing Date to Seller by or on behalf of
Buyer pursuant hereto, to Buyer's Knowledge, do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated herein
or therein or necessary to make the statements contained herein or therein in
light of the circumstances under which they were made, not misleading.
<PAGE>
ARTICLE V
COVENANTS
SECTION 5.1 Consents; Assignments. Subject to Section 5.9, Seller
shall use its Best Efforts (as hereinafter defined) to take or cause to be taken
all action, to do or cause to be done, and Buyer shall assist and cooperate with
Seller in doing, all things necessary, proper or advisable under applicable laws
and regulations to obtain any consent, approval or amendment required to novate
and/or assign all agreements and licenses relating to the Material Products and
the Scheduled Products. Seller will reasonably cooperate with Buyer to obtain
any consent, approval, or amendment required to novate and/or assign all
agreements and licenses relating to Assets that do not pertain to the Material
Products or Scheduled Products.
SECTION 5.2 Allocation of Purchase Price. Buyer and Seller shall agree
to the allocation of the Purchase Price and the Assumed Liabilities (other than
contingent liabilities) among the Assets to be purchased hereunder (the
"Allocation"), which Allocation shall be mutually agreed upon by Buyer and
Seller as soon as practicable after the Closing Date. The Allocation shall be
made in accordance with section 1060 of the Code and applicable Treasury
Regulations. Each of Seller and Buyer shall (i) be bound by the Allocation for
purposes of determining any Taxes, (ii) prepare and file, and cause its
Affiliates to prepare and file, its Tax Returns on a basis consistent with the
Allocation and (iii) take no position, and cause its Affiliates to take no posi
tion, inconsistent with the Allocation on any applicable Tax Return, in any
proceeding before any taxing authority or otherwise. In the event that the
Allocation is disputed by any taxing authority, the party receiving notice of
the dispute shall promptly notify the other party hereto concerning resolution
of the dispute.
<PAGE>
SECTION 5.3 Agreement Not to Compete or Solicit. In order to assure
Buyer the complete benefit of the ownership of the Assets and the Business,
Seller covenants that, for a period of three full years after the Closing Date,
neither Seller or any of its Affiliates, shall: (i) engage in a business similar
to that of the Business as of the date of this Agreement (a "Competing
Business"), anywhere in the world whether such engagement shall be as owner,
partner, agent, consultant or shareholder (except as the holder of not more than
two percent (2%) of the outstanding shares of a corporation whose stock is
listed on any national or regional securities exchange or reported by the
National Association of Securities Dealers Automated Quotation System or any
successor thereto); (ii) solicit the employment of or hire any person while such
person is in the employ of Buyer or its Affiliates; (iii) solicit any Person who
is a customer of the Business at the Closing Date for purposes of selling to
such customer any product that competes with any product made by the Business as
of the Closing Date; (iv) induce or attempt to induce any individual, business,
corporation, firm, partnership or other business entity that is a customer or
supplier to Buyer or any distributor or seller of products of Buyer, or that is
otherwise a contracting party with Buyer, to terminate or otherwise adversely
change or cancel any written or oral agreement with Buyer; or (v) assist any
other Person to be so engaged; provided, however, that nothing in this Agreement
shall prevent Seller or any of its Affiliates, with respect to entities involved
in Competing Businesses ("Competing Entities") or with respect to products that
compete with the types of products made by the Business ("Competing Products"),
from (1) licensing any Intellectual Property not included in the Assets,
including but not limited to the name "Girl's Life," to any Competing Entity or
for use in connection with Competing Products; (2) exclusively in connection
with the Publishing Business, the Printing Business or the retail sale of games,
accepting advertising or other promotions regarding Competing Entities or
Competing Products; (3) exclusively in connection with the Publishing Business,
the Printing Business or the retail sale of games, endorsing Competing Products;
or (4) exclusively in connection with the Publishing Business, the Printing
Business or the retail sale of games, selling Competing Products to consumers by
mail order or otherwise and provided further, that this Section 5.3 shall not
apply to and shall in no way limit Seller's activities in connection with the
sale of Returned Computer Products (as hereinafter defined) through December 31,
1998 or the products, Contracts and Assets listed in Section 5.3 of the Seller
Disclosure Schedule. Seller acknowledges that the periods of restriction, the
geographical areas of restriction and the restraints imposed by the provisions
of this Section 5.3 are fair and reasonably required for the protection of
Buyer. In the event that any of the provisions of this Section 5.3 relating to
the geographic areas of restriction or the periods of restriction shall be
deemed to exceed the maximum area or period of time which a court of competent
jurisdiction would deem enforceable, the geographic areas and times shall, for
the purposes of this Agreement, be deemed to be the maximum areas or time
periods which a court of competent jurisdiction would deem valid and enforceable
in any state in which such court of competent jurisdiction shall be convened.
Seller acknowledges that any breach of its obligations under this Section 5.3 or
Section 5.4 may result in irreparable injury to Buyer, for which Buyer may not
have an adequate remedy at law. In the event of any such breach, Buyer may, in
its sole discretion and in addition to any other remedies available to it, bring
an action or actions against Seller for injunctive relief, specific performance
or both, and have entered a temporary restraining order, preliminary or
permanent injunction, or order compelling specific performance.
<PAGE>
SECTION 5.4 Nondisclosure of Proprietary Data. Subject to the
Confidentiality Agreement, dated February 23, 1998, between Hasbro and Seller
(the "Confidentiality Agreement"), the terms of which Confidentiality Agreement
continue in full force and effect, Seller agrees that neither it, nor any of its
Affiliates or representatives shall, at any time, make use of, divulge or
otherwise disclose, directly or indirectly, any trade secret or other
proprietary data (including, without limitation, any customer list, record or
financial information constituting a trade secret) concerning the Business that
Seller, or any of its representatives or Affiliates may have learned as a
shareholder, officer, director or employee of the Seller, unless such
information has become generally available and known to the public other than as
a result of a prohibited disclosure by Seller or any of its representatives or
Affiliates. Subject to the Confidentiality Agreement, Buyer agrees that until
the Closing is completed, neither it, nor any of its Affiliates or
representatives shall, at any time, make use of, divulge, or otherwise disclose,
directly or indirectly, any trade secret or other proprietary data (including,
without limitation, any customer list, record or financial information
constituting a trade secret) concerning the Business that Buyer, or any of its
representatives or Affiliates may have learned in connection with this Agreement
and the transactions contemplated herein, unless such information has become
generally available and known to the public other than as a result of a
prohibited disclosure by Seller or any of its representatives or Affiliates.
SECTION 5.5 Investigation by Buyer. Until the Closing Date, Buyer,
through its agents and employees, may conduct such investigation of the Business
and the financial and legal condition of the Business and the Seller as Buyer
may reasonably determine. During the course of such investigation, Seller
agrees to use reasonable efforts to cause the facilities, books, records,
personnel, accountants, distributors, sales representatives and agents of Seller
to be made available for review or interviews, as the case may be, by such
agents and employees of Buyer during normal business hours on reasonable notice,
and to provide or cause to be provided to Buyer such other information with
respect to the Business as Buyer shall reasonably request including without
limitation, providing to Buyer copies of the Contracts; provided, however, that
such requests shall not unreasonably interfere with the normal operations of
Seller. Buyer shall, no later than the date of the distribution of definitive
proxy materials prepared in connection with obtaining the Stockholder Approval,
provide Seller a list of Contracts, if any, to be excluded pursuant to the last
sentence of Section 1.1(c), and such Contracts and the Assets related thereto
shall be deemed added to Section 1.1(c) of the Seller Disclosure Schedule and
Section 5.3 of the Seller Disclosure Schedule.
<PAGE>
SECTION 5.6 Preservation of Business. Between the date hereof and the
earlier of the termination of this Agreement or the close of business on the
Closing Date, except as otherwise agreed to in writing by Buyer:
(a) Seller will maintain, preserve and insure the Assets consistent with
past practices in the ordinary course of business;
(b) Seller will comply with all applicable Legal Requirements, the
compliance with which is required for consummation of the transactions
contemplated by this Agreement;
(c) Seller will conduct the Business only in the ordinary course;
provided, however, Seller is not (i) required to continue any research and
development or marketing and sales activities (including attendance at trade
shows, advertising or other promotions) pertaining to the Business whether or
not such activities are in progress or planned as of the date of this Agreement
or have been conducted in the past, (ii) restricted from terminating personnel,
whether contractors or employees of Seller, who are employed in research and
development, manufacturing, marketing or sales activities or any other area of
the Business, (iii) required to replace board game inventory disposed of in the
ordinary course of business in accordance with past practice and (iv) permitted
to produce additional computer game inventory;
(d) Except as expressly provided in Section 5.6(f) of the Seller
Disclosure Schedule, Seller will not transfer, lease or otherwise dispose of any
of the Assets or the Business other than inventory in the ordinary course of
business, except that the sale of board games shall be in quantities and at
prices not below its price list in effect in February 1998, less ordinary and
customary discounts and promotions, all in accordance with past practices and in
no event shall any board game inventory be sold at "close out" prices or
quantities; provided, however, that Seller is permitted to offer face value
certificates for board or computer game inventory to subscribers of "The
General" in exchange for the termination of Seller's obligations under its
subscription agreements with such subscribers;
<PAGE>
(e) Seller will use reasonable efforts to preserve and protect all
Permits; and
(f) Seller will not enter into, amend, or undertake Contracts or
obligations with respect to the Business, except with respect to the Excluded
Assets, or, to Seller's Knowledge, permit, by waiver or by failing to take any
action within their control, any ownership or other rights in or to the Assets
to lapse or become void or unenforceable, except that Seller shall terminate or
cancel, at Seller's expense, the Contracts listed on Section 5.6(f) of the
Seller Disclosure Schedule as soon as practicable after the date hereof.
SECTION 5.7 Buyer's Responsibility. Buyer shall be responsible for the
transportation of the Assets at its own expense to the locations that Buyer
shall designate in Rhode Island or Massachusetts on or following the Closing.
Buyer and Seller shall each be responsible for one half (1/2) of all transfer
taxes, if any, imposed upon the transfer of the Assets. Each party shall
execute and deliver to the other at Closing all applicable and properly
completed blanket sales/use tax exemption certificates as any party may
reasonably request and prepare, including, but not limited to, blanket sale for
resale exemption certificates for the transfer of inventory purchased by Buyer
for resale.
SECTION 5.8 Notice to Vendors and Suppliers. Seller hereby agrees to
notify each vendor (including, without limitation, advertising agencies,
warehousemen and moldmakers),supplier and other Persons other than Seller or
Seller's employees who are in possession of any Assets advising such vendor,
supplier or other Persons that, as of the Closing Date, the Assets will be owned
by Buyer and shall be treated from and after the Closing Date in accordance with
instructions from Buyer.
SECTION 5.9 Seller Stockholders Meeting. Seller shall call and hold a
meeting of its stockholders as promptly as reasonably practicable after the date
hereof for the purpose of voting upon the adoption of this Agreement and
obtaining the Stockholder Approval. Such obligation shall exist irrespective of
the presence of a Competing Proposal (as defined below). Subject to Section
5.10(c), Seller, through its Board of Directors, shall recommend that Seller
stockholders vote in favor of the adoption of this Agreement and obtaining the
Stockholder Approval and shall otherwise use its Best Efforts to solicit from
its stockholders proxies in favor of such matters and to obtain the Stockholder
Approval, provided that such Best Efforts obligations shall require Seller to
engage a proxy solicitation firm in reasonable, ordinary and customary activity
commensurate with the size of Seller and the nature of the solicitation, but not
to incur extraordinary effort or expense.
<PAGE>
SECTION 5.10 No Shopping; Competing Proposal. (a) Between the date
hereof and the Closing Date, Seller shall not, directly or indirectly, through
any subsidiary, director, officer, employee, advisor, agent or otherwise, except
in connection with the acquisition contemplated hereby, (i) solicit, initiate or
encourage the submission of proposals or offers from any person relating to any
merger, acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the Assets or of the Business, or any equity interest
in, Seller or any business combination involving Seller (a "Transaction"), or
participate in any negotiation regarding, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek a Transaction, and (ii) except in the
ordinary course of business or with the prior written consent of Buyer,
disclose, directly or indirectly, to any person any information concerning
Seller's business and books or records of Seller. Seller shall immediately
cease and cause to be terminated any existing discussions or negotiations with
any parties other than Buyer conducted heretofore with respect to any
Transaction.
(b) Notwithstanding the provisions of 5.10(a), nothing contained in this
Agreement shall prevent Seller or its Board of Directors from complying with
Rule 14e-2 promulgated under the Securities Exchange Act of 1934, as amended.
(c) If, after the date hereof, (i) Seller receives a bona fide, fully
financed competing offer to enter into a Transaction (a "Competing Proposal")
and Buyer does not offer to revise the terms of this Agreement to provide terms
more favorable (from the point of view of a reasonable company in the same
position as Seller), (ii) Ferris, Baker Watts, Incorporated of Baltimore,
Maryland or another financial advisor of comparable standing provides a written
opinion to the Board of Directors of Seller that the Competing Proposal is supe
rior from a financial point of view to the transaction contemplated by this
Agreement, and (iii) Seller determines, with the advice of counsel, that its
failure to recommend such Competing Proposal would constitute a breach of
fiduciary duty, then Seller may withdraw the recommendation provided for in the
last sentence of Section 5.9 without any effect on Seller's obligation as set
forth in the first sentence of Section 5.9 hereof.
<PAGE>
Section 5.11 Accounts Receivable of Seller and Returns of Inventory.
From and after the Closing, Buyer will reasonably cooperate with Seller in the
collection of Seller's accounts receivable related to the conduct of the
Business prior to the Closing. Any accounts receivable of Seller paid to Buyer
shall be promptly paid over by Buyer to Seller. Any accounts receivable of
Buyer paid to Seller shall be promptly paid over by Seller to Buyer. All
inventory of computer games sold by Seller before the Closing Date and returned
to Seller after the Closing Date ("Returned Computer Products") shall be the
property of Seller, and Seller shall have the right to resell the Returned
Computer Products for its own account through December 31, 1998. Seller shall
maintain its technical support services for its computer games, including,
without limitation, the Returned Computer Products, for so long as shall be
necessary in the reasonable discretion of the Seller.
SECTION 5.12 Termination of Publication of The General. Between the
date hereof and the Closing, Seller shall terminate publication of the magazine
known as "The General" and Seller shall retain sole responsibility for all
expenses in connection therewith including returns or cancellations of
subscriptions, subject to Section 5.6(d).
SECTION 5.13 Avaloncon Conference. Seller shall be responsible for
conducting the conference known as "Avaloncon" in August of 1998 and shall be
responsible for any and all expenses in connection therewith. Seller shall be
under no obligation to conduct "Avaloncon" after August of 1998.
SECTION 5.14 List of Inventory. Seller hereby agrees to provide Buyer
with a list of the audited inventory for the Business as of April 30, 1998,
which list shall be updated on an unaudited basis by Seller as of the date
hereof and as of the date of Closing and delivered to Buyer as soon as
practicable following the date hereof and the date of Closing, respectively.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Closing.
The respective obligation of each party to effect the Closing is subject to the
satisfaction or waiver on or prior to the Closing of the following conditions:
(a) Stockholder Approval. The Stockholder Approval shall have been
obtained.
(b) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively, "Restraints") shall be in
effect (i) preventing the consummation of the Closing, or (ii) which otherwise
is reasonably likely to have a Material Adverse Effect, as applicable; provided,
however, that each of the parties shall have used all reasonable efforts to
prevent the entry of any such Restraints and to appeal as promptly as possible
any such Restraints that may be entered.
SECTION 6.2 Conditions to Obligations of Buyer. The obligation of Buyer
to effect the Closing is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Seller set forth herein shall be true and correct both when made and at and
as of the Closing, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a Material Adverse Effect.
(b) Performance of Obligations of Seller. Seller shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing.
<PAGE>
(c) Consents. All consents, permits and approvals in connection with
Contracts related to Material Products that may be required in connection with
the performance by Seller of its obligations under this Agreement or the
continuance of such Contracts related to Material Products with Buyer after the
Closing shall have been obtained.
SECTION 6.3 Conditions to Obligations of Seller. The obligation of
Seller to effect the Closing is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of each of Buyer and Hasbro set forth herein shall be true and correct both when
made and at and as of the Closing, as if made at and as of such time (except to
the extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality," or
"Material Adverse Effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a Material Adverse Effect.
(b) Performance of Obligations of Buyer and Hasbro. Each of Buyer and
Hasbro shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing.
SECTION 6.4 Frustration of Closing Conditions. Subject to Section 5.10,
neither Buyer nor Seller may rely on the failure of any condition set forth in
Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was
caused by such party's failure to use Best Efforts to consummate the Closing and
the other transactions contemplated by this Agreement, as required by and
subject to Section 5.1.
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after the Stockholder Approval:
(a) by mutual written consent of Buyer and Seller;
(b) by either Buyer or Seller:
(i) if the Closing shall not have been consummated by December 31,
1998, provided, however, that the right to terminate this Agreement pursuant
to this Section 7.1(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the failure of
the Closing to be consummated by such time;
(ii)if the Stockholder Approval shall not have been obtained at a
stockholders meeting duly convened therefor or at any adjournment or
postponement thereof; or
(iii) if any Restraint having any of the effects set forth in
Section 6.1(b) shall be in effect and shall have become final and
nonappealable.
(c) by Buyer, if Seller shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform would
give rise to the failure of a condition set forth in Section 6.2(a), (b) or (c);
(d) by Seller, if Buyer shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform would
give rise to the failure of a condition set forth in Section 6.3(a) or (b); or
(e) by Buyer, if a Competing Proposal is submitted to Seller's
stockholders.
<PAGE>
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement by either Buyer or Seller as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Buyer or Seller, other than the provisions of Section
3.11, Section 4.4, Section 5.4, this Section 7.2 and Article VIII, which
provisions survive such termination, and except to the extent that such
termination results from the willful and material breach by a party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement. In the event that this Agreement is terminated by Buyer or Seller
pursuant to Section 7.1(b)(ii) or Buyer pursuant to Section 7.1 (e), Seller
shall pay within twenty (20) business days of such termination to Buyer
$1,000,000 in immediately available funds.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at
any time before or after the Stockholder Approval provided, however, that after
any such approval, there shall not be made any material amendment that would
require the further approval of such stockholders unless such approval is
obtained. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Closing, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights and neither shall the
failure to insist upon strict compliance with such term or provision operate as
a waiver of, or estoppel with respect to, any subsequent or other failure to
comply.
<PAGE>
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
SECTION 8.1 Survival. The parties hereto agree that (i) the covenants
and agreements contained in this Agreement and the representations and
warranties contained in Sections 3.1, 3.4, 3.11, 4.1 and 4.4 shall survive until
six years following the Closing Date, (ii) the representations and warranties
contained in Sections 3.9 and 3.10 shall survive until 90 days after the expi
ration of the applicable statute of limitations with respect to the subject
matter thereof, and (iii) the representations and warranties contained in
Article III (other than Sections 3.1, 3.4, 3.9, 3.10 and 3.11) and Article IV
(other than Sections 4.1 and 4.4) shall survive until March 31, 2001. If notice
of a claim for indemnification pursuant to this Article VIII is given with
respect to any representation or warranty prior to the applicable expiration
date set forth in this Section 8.1, such representation or warranty shall
survive indefinitely only for the purpose of such claim until such claim is
finally resolved.
SECTION 8.2 Seller's Agreement to Indemnify. Subject to the terms and
conditions set forth herein, from and after the Closing, Seller shall indemnify
and hold harmless Buyer and its directors, officers, employees, affiliates,
controlling persons, agents and representatives and their successors and assigns
("Buyer Indemnified Parties") from and against all Damages as a result of or
arising out of (i) a breach of any representation or warranty contained in
Article III of this Agreement, (ii) the breach of or failure to perform any
covenant or agreement of Seller contained herein or in the Related Agreements,
(iii) except as otherwise expressly provided herein, any and all liabilities and
obligations other than Assumed Liabilities, including any pending or threatened
legal proceedings listed or described in or set forth in the Seller Disclosure
Schedule and all other Excluded Liabilities and (iv) any failure of Seller to
comply with applicable bulk sales laws (in consideration of which
indemnification obligation Buyer hereby waives compliance by Seller with any
applicable bulk sales laws).
<PAGE>
SECTION 8.3 Buyer's Agreement to Indemnify. Subject to the terms and
conditions set forth herein, from and after the Closing, Buyer shall indemnify
and hold harmless Seller, and its directors, officers, employees, affiliates,
controlling persons, agents and representatives and their successors and assigns
("Seller Indemnified Parties") from and against all Damages as a result of or
arising out of (i) a breach of any representation or warranty contained in
Article IV of this Agreement, (ii) the breach of or failure to perform any cove
nant or agreement of Buyer contained herein or in the Related Agreements, (iii)
the Assumed Liabilities or (iv) any reasonable legal fees and expenses payable
by Seller to defend a claim that any action taken by Seller in conformity with
the terms of this Agreement in connection with the approval of this Agreement is
in contravention of (a) Section 271 of the Delaware General Corporation Law or
(b) Delaware law as expressed in Revlon, Inc. v. MacAndrews & Forbes Holdings,
Inc., 506 A.2d 173 (Del. 1986) and its progeny.
SECTION 8.4 Certain Limitations. Notwithstanding anything to the
contrary contained herein, no indemnification shall be available to Indemnified
Parties for Damages arising solely from the provisions of Section 8.2(i) or
Section 8.3(i) until the aggregate amount of such Damages exceeds $100,000 (the
"Claims Deductible"), respectively, and then to the full extent of such Damages;
and in no event shall each Indemnifying Party's indemnification obligations
arising solely from the provisions of Section 8.2(i) or Section 8.3(i) exceed
the Claims Cap (as hereinafter defined). The indemnification provided for in
Section 8.3(iv) shall not exceed $400,000 in the aggregate.
<PAGE>
SECTION 8.5 Notice and Opportunity to Defend. If an event occurs that
entitles a Buyer Indemnified Party or a Seller Indemnified Party (together, an
"Indemnified Party"), or that an Indemnified Party believes entitles it, to
indemnification pursuant to this Article VIII, the Indemnified Party shall
notify the party from which indemnification is sought (the "Indemnifying Party")
within 20 days of the Indemnified Party's discovery or receipt of notice of such
claim; provided, however, that the failure to so notify the Indemnifying Party
shall not relieve the Indemnifying Party of its obligations hereunder, except to
the extent that the Indemnifying Party is actually prejudiced by such failure;
and provided further, however, that the Indemnifying Party shall have no
obligation to indemnify the Indemnified Party with respect to any out-of-pocket
expenses incurred in connection with a claim prior to the receipt of notice of a
claim for indemnification. In case of a claim by a third party, the
Indemnifying Party shall have the right to undertake, conduct and control the
defense thereof by so notifying the Indemnified Party in writing. If the
Indemnifying Party provides written notice to the Indemnified Party that it
elects to defend such claim, the Indemnifying Party shall be obligated to defend
such claim, at its own expense and by counsel chosen by it and reasonably
satisfactory to the Indemnified Party. In the event the Indemnifying Party
elects to provide the defense of such claim pursuant to this Section 8.5, the
Indemnified Party shall cooperate fully with the Indemnifying Party and its
counsel in the defense of such claim and shall be entitled to full access to
information with respect thereto and to participate in the defense thereof at
its own cost and expense. Whether or not the Indemnifying Party elects to
provide the defense of such claim pursuant to this Section 8.5, any compromise,
settlement or offer of settlement of such claim by Indemnifying Party or
Indemnified Party shall require the prior written consent of the Indemnified
Party or the Indemnifying Party, as the case may be, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not elect to defend any
such claim, it shall nevertheless have the right of full access to information
with respect thereto and to participate in such defense at its sole cost and
expense and shall remain liable for any indemnification obligations pursuant to
this Agreement.
<PAGE>
SECTION 8.6 Insurance, Tax Benefits. Any calculation of Damages for
purposes of indemnification pursuant to this Article VIII shall be net of (a)
any Tax Benefit (as hereinafter defined) to the Indemnified Party arising from
such Damages and (b) any insurance reimbursement in respect of Damages actually
received by the Indemnified Party.
ARTICLE IX
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules
and Regulations promulgated under the Exchange Act (as hereinafter defined).
"Agreement" has the meaning set forth in the preamble hereto.
"Allocation" has the meaning set forth in Section 5.2 hereof.
"Assets" has the meaning set forth in Section 1.1(a) hereof.
"Assumed Liabilities" has the meaning set forth in Section 1.2 hereof.
"Bill of Sale" means the duly executed bill of sale, in the form to be
agreed to by Seller and Buyer, that each shall deliver effecting the sale,
assignment, transfer and delivery of the Assets.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; provided, however, that an obligation
to use such Best Efforts under this Agreement does not require the Person
subject to that obligation to take actions (i) that would result in a materially
adverse change in the benefits to such Person under this Agreement and the
Related Agreements and the transactions contemplated herein and therein or (ii)
that would require a substantial expenditure which was disproportionate to the
benefit to be obtained.
<PAGE>
"Business" has the meaning set forth in the Preamble.
"Buyer" has the meaning set forth in the preamble hereto.
"Buyer Indemnified Parties" has the meaning set forth in Section 8.2
hereof.
"Buyer's Knowledge" means the actual knowledge of any officer of the
Buyer and/or member of the Board of Directors of Buyer, after due inquiry.
"Claims Cap" means (i) for claims made on or after the Closing Date and
on or before December 31, 1999, $4 million; (ii) for claims made on or after
January 1, 2000 and on or before December 31, 2001, $3 million; and (iii) for
claims made on or after January 1, 2002, $2 million; provided, however, that the
Claims Cap for an Indemnifying Party for each of the foregoing periods shall be
reduced by any amounts actually paid by such Indemnifying Party in satisfaction
of its indemnification obligations arising solely from the provisions of Section
8.2(i) or Section 8.3(i).
"Claims Deductible" has the meaning set forth in Section 8.4 hereof.
"Cleanup" means all actions required to: (1) clean up, remove, treat or
remediate Hazardous Materials in the indoor or outdoor environment; (2) prevent
the Release of Hazardous Materials so that they do not migrate, endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment; (3) perform pre-remedial studies and investigations and post-
remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation of Hazardous
Materials in the indoor or outdoor environment.
"Closing" means the closing of the transactions contemplated by this
Agreement.
"Closing Date" means the date of the Closing.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Business" has the meaning set forth in Section 5.3 hereof.
"Competing Entities" has the meaning set forth in Section 5.3 hereof.
"Competing Products" has the meaning set forth in Section 5.3 hereof.
"Competing Proposal" has the meaning set forth in Section 5.10(c) hereof.
"Confidentiality Agreement" has the meaning set forth in Section 5.4
hereof.
"Contracts" has the meaning set forth in Section 1.1(a)(ii) hereof.
"Damages" means all liability, demands, claims, actions or causes of
action, assessments, losses, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) asserted against or
incurred by any Indemnified Party.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, Cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence or Release of any Hazardous Materials at any
location, whether or not owned or operated by Seller, or (b) circumstances
forming the basis of any violation of any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment, including, without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, transport or
handling of Hazardous Materials.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning set forth in Section 1.1(c) hereof.
"Excluded Liabilities" has the meaning set forth in Section 1.3 hereof.
"Financial Statements shall have the meaning set forth in Section 3.12
hereof.
"Government Contract" means a mutually binding legal relationship
obligating Seller to furnish supplies or services and a government or government
agency to pay for them, including all types of commitments that obligate the
federal government of the United States to an expenditure of appropriated funds
and that, except as otherwise authorized, are in writing. In addition to
bilateral instruments, "Government Contract" includes (but is not limited to)
awards and notices of awards; job orders or task letters issued under basic
ordering agreements; letter contracts; orders, such as purchase orders, under
which the contract becomes effective by written acceptance or performance; and
bilateral contract modifications.
"Governmental Entity" means any foreign, United States, state or local
governmental entity or municipality or subdivision thereof or court, tribunal,
commission, board, bureau, agency or legislative, executive, governmental or
regulatory authority or agency.
"Hasbro" has the meaning set forth in the preamble hereto.
"Hazardous Materials" means all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. 300.5, or defined as such by,
or regulated as such under, any Environmental Law.
<PAGE>
"Indemnified Party" has the meaning set forth in Section 8.5 hereof.
"Indemnifying Party" has the meaning set forth in Section 8.5 hereof.
"Intellectual Property" has the meaning set forth in Section 1.1(a)(v)
hereof.
"Legal Requirement" means all applicable laws, statutes, ordinances,
orders, rules, regulations or requirements.
"Liens" has the meaning set forth in Section 3.4(a) hereof.
"Material Adverse Effect" has the meaning set forth in Section 3.2
hereof.
"Material Products" has the meaning set forth in Section 3.7 hereof.
"Other Instruments" means such duly executed, good and sufficient
instruments of conveyance, transfer and assignment, other than the Bill of Sale,
as shall be reasonably required by Buyer and its counsel and as shall be
necessary to convey to Buyer all of Seller's rights, title and interests in and
to the Assets.
"Permits" has the meaning set forth in Section 1.1(a)(vii) hereof.
"Person" means and includes any natural person, firm, individual,
partnership, joint venture, company, corporation, business trust, trust,
association, unincorporated organization or a Governmental Entity.
"Plan" means each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other employee benefit plan, program, agreement or arrangement,
sponsored, maintained or contributed to or required to be contributed to by
either Seller or any ERISA Affiliate for the benefit of any employee or
terminated employee of either Seller or any ERISA Affiliate, whether formal or
informal.
<PAGE>
"Premises" has the meaning set forth in Section 1.1(a)(vii) hereof.
"Printing Business" means the provision of commercial printing and
graphic arts services to third party customers and the manufacture of envelopes.
"Publishing Business" means the development, editing, marketing,
publishing, solicitation of advertising for, printing, distribution and sale of
magazines and similar periodicals, and the sale of products through any ongoing
magazines or similar periodicals of intended circulation in excess of 1,000
Persons including, but not limited to, "Girl's Life" Magazine, but the
"Publishing Business" shall in all events exclude "The General".
"Purchase Price" has the meaning set forth in Section 1.4 hereof.
"Records" has the meaning set forth in Section 2.1(b) hereof.
"Related Agreements" means those other agreements and instruments
required to be executed or delivered pursuant to this Agreement.
"Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration into the
environment (including, without limitation, ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Materials through or in the air, soil,
surface water, groundwater or property.
"Restraints" has the meaning set forth in Section 6.1(b) hereof.
"Scheduled Products" has the meaning set forth in Section 3.7 hereof.
"Seller" has the meaning set forth in the preamble hereto.
<PAGE>
"Seller Disclosure Schedule" means the disclosure schedule delivered by
Seller to Buyer substantially concurrently with the execution and delivery by
Seller of this Agreement.
"Seller Indemnified Parties" has the meaning set forth in Section 8.3
hereof.
"Seller's Knowledge" means the actual knowledge of any executive officer
of the Seller after due inquiry and/or the actual knowledge of any outside
member of the Board of Directors of Seller listed on Seller's Form 10-KSB for
the fiscal year ended April 30, 1998.
"Stockholder Approval has the meaning set forth in Section 1.5 hereof.
"Subsidiary" means with respect to any Person, any corporation or other
legal entity of which such Person owns, directly or indirectly, more than 50% of
the outstanding stock or other equity interests, the holders of which are
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
"Tax Benefit" shall mean the present value of any net reduction or
increase in Taxes attributable to any loss, deduction (including any positive or
negative changes in any depreciation or amortization deductions arising from any
adjustments to the basis of assets, including any adjustments to purchase price
arising from indemnification payments), credit or similar item for any Tax
purpose. The amount of any Tax Benefit shall be calculated (i) using the
Indemnified Party's actual effective tax rate for federal, state and local Tax
purposes at the time the indemnification payment is made; (ii) with the
assumption that all Tax Benefits will be utilized by the Indemnified Party at
the first time that such Tax Benefits are allowable under the applicable Tax law
in existence at the time the indemnification payment is made; and (iii) using
the mid-term applicable federal rate for the month in which this indemnification
payment is made as published by the Internal Revenue Service in the Internal
Revenue Bulletin.
<PAGE>
"Taxes" means all taxes, levies or other like assessments, charges or
fees (including estimated taxes, charges and fees), including, without
limitation, income, corporation, advance corporation, gross receipts, transfer,
excise, property, sales, use, value-added, license, payroll, pay as you earn,
withholding, social security and franchise or other governmental taxes or
charges, including customs duties, fees, penalties or charges, imposed by the
United States or any state, county, local or foreign government or subdivision
or agency thereof; and such term shall include any interest, penalties or
additions to tax attributable to such taxes.
"Tax Return" means any report, return, statement or other written
information required to be supplied to a taxing authority in connection with
Taxes.
"Tooling" has the meaning set forth in Section 1.1(a)(i) hereof.
"Transaction" has the meaning set forth in Section 5.10 hereof.
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Further Assurances. From time to time after the Closing
Date, at the request of any party hereto and at the expense of such party, the
parties hereto shall execute and deliver to such requesting party such documents
and take such other action as such requesting party may reasonably request in
order to consummate more effectively the transactions contemplated hereby and by
the Related Agreements.
SECTION 10.2 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and may be given by any of the following methods: (a) personal
delivery, (b) facsimile transmission, or (c) overnight delivery service.
Notices shall be sent to the appropriate party at its address or facsimile
number given below (or at such other address or facsimile number for such party
as shall be specified by notice given hereunder):
If to Buyer, to:
HIAC XII CORP.
c/o Hasbro, Inc.
1027 Newport Avenue
Pawtucket, RI 02862
Fax: (401) 727-5121
Attention: Harold P. Gordon
Vice-Chairman
with a copy to:
Hasbro, Inc.
32 West 23rd Street
New York, New York 10010
Fax: (212)741-0663
Attention: Phillip H. Waldoks
Senior Vice President-Corporate
Legal Affairs and Secretary
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-9931
Fax: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
<PAGE>
If to Seller, to:
Monarch Avalon, Inc.
4517 Harford Road
Baltimore, Maryland 21214
Fax:(410) 254-0991
Attention: Eric Dott
with a copy to:
Venable, Baetjer and Howard LLP
1800 Mercantile Bank and Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201
Fax: (410)244-7742
Attention: Neal D. Borden, Esq.
All such notices, requests, demands, waivers and communications shall be deemed
received upon (i) actual receipt thereof by the addressee, (ii) actual delivery
thereof to the appropriate address or (iii) in the case of a facsimile
transmission, upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error.
SECTION 10.3 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated herein is affected in any manner
materially adverse to any party hereto. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the par
ties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner.
SECTION 10.4 Assignment; Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned, directly or
indirectly, including, without limitation, by operation of law, by any party
hereto without the prior written consent of the other parties hereto, except
that Buyer may assign any or all of its rights hereunder to Hasbro, Inc. or to a
subsidiary of Hasbro, Inc. Subject to the preceding sentence, this Agreement
and all of the provisions hereof shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
<PAGE>
SECTION 10.5 No Third Party Beneficiaries. This Agreement is solely for
the benefit of Seller and its successors and permitted assigns, with respect to
the obligations of Buyer under this Agreement, and for the benefit of Buyer, and
its successors and permitted assigns, with respect to the obligations of Seller,
under this Agreement, and this Agreement shall not be deemed to confer upon or
give to any other third party any remedy, claim, liability, reimbursement, cause
of action or other right.
SECTION 10.6 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation." The phrase "made available" when used in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available.
The article and section headings contained in this Agreement are solely
for the purpose of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this Agreement.
SECTION 10.7 Entire Agreement. This Agreement, together with the Seller
Disclosure Schedule, the Buyer Disclosure Schedule and the exhibits and other
documents referred to herein or delivered pursuant hereto that form a part
hereof, constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, between the parties or either of them
with respect to the subject matter hereof.
SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
<PAGE>
SECTION 10.9 Specific Performance. The parties acknowledge and agree
that any breach of the terms of this Agreement would give rise to irreparable
harm for which money damages would not be an adequate remedy and accordingly the
parties agree that, in addition to any other remedies, each shall be entitled to
enforce the terms of this Agreement by a decree of specific performance without
the necessity of proving the inadequacy of money damages as a remedy.
SECTION 10.10 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
SECTION 10.11 Publicity. No press release or announcement concerning the
existence of this Agreement or transactions contemplated hereby shall be issued
by any party without the prior written consent of the other party, except that
in the event that any party shall deem such release or announcement to be
required by law, rule or regulation (including applicable Federal and State
securities laws, rules and regulations and applicable stock exchange or Nasdaq
rules) the party making the release or announcement shall allow the other party
reasonable time to comment on such release or announcement in advance of such
issuance.
SECTION 10.12 Submission to Jurisdiction. Each of the parties submits to
the exclusive jurisdiction of any state or federal court sitting in the State of
Delaware in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court.
Each of the parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety or other
security that might be required of any party with respect hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MONARCH AVALON, INC.
By: /S/ A. ERIC DOTT
------------------
Name: A. Eric Dott
Title: Chairman
HIAC XII CORP.
By: /S/ HAROLD P. GORDON
-----------------------
Name: Harold P. Gordon
Title: Executive Vice
President
Hasbro, Inc. hereby accepts and agrees to the terms of this
Agreement as set forth in Article IV and hereby guarantees the obligations of
HIAC XII CORP. under this Agreement. Hasbro, Inc. hereby acknowledges that
Monarch Avalon, Inc. may proceed directly against Hasbro, Inc. in
the event of nonperformance by HIAC XII CORP. of any obligation hereunder.
HASBRO, INC.
By: /S/ HAROLD P. GORDON
----------------------
Name: Harold P. Gordon
Title: Vice Chairman
<PAGE>
ANNEX B
Ferris, Baker Watts, Incorporated
Investments
Member NYSE, SIPC
100 Light Street
Baltimore, Maryland 21202
(410) 685-2600
July 9, 1998
Board of Directors
Monarch Avalon, Inc.
4517 Harford Road
Baltimore, Maryland 21214
Ladies and Gentlemen:
Monarch Avalon, Inc. ("MAI" or the "Company") has requested a review of the
proposed transaction (the "Transaction") involving the sale of the assets of its
board games division to HIAC xii Corp., an indirect wholly owned subsidiary of
Hasbro, Inc. (collectively the "Purchaser".) Specifically, you have requested a
review as to whether the Transaction is fair to MAI stockholders from a
financial point of view. The Transaction is described in the proposed draft
Asset Purchase Agreement (the "Agreement") dated July 2, 1998 between the
Purchaser and MAI. We were retained
by the Board of Directors and commenced our investigation on March 16, 1998.
Pursuant to the Agreement, the Purchaser will pay a total sum of $6.0
million in cash to MAI for the purchase of the Company's board games
segment assets excluding cash, accounts receivable, accounting systems,
machinery, equipment, furniture and fixtures.
In connection with the opinion, we have reviewed, among other things, i)
the Agreement between the Purchaser and the Company, ii) selected audited public
and unaudited internal financial information of MAI, and, iii) management's
financial projections for the Company under its current operations and upon
completion of the Transaction. We have held discussions with the members
of the management of MAI regarding the past and current business operations and
financial condition as well as the future prospects of the Company. We
have reviewed specific data regarding the valuation of companies in
MAI's industry and utilized our own expertise in merger, acquisition and
divestiture transactions and valuations.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by MAI, and we have
not assumed any responsibility for independent verification of such information.
We express no opinion as to the value to be received by holders of interests
who may perfect dissenters' statutory fair appraisal remedies. Based upon
the foregoing and based upon such other matters that we consider relevant,
it is our opinion that as of the date hereof the sale of the Company's
board games segment assets excluding cash, accounts receivable, accounting
systems, machinery, equipment, furniture and fixtures for $6.0 million to
the Purchaser is fair to MAI stockholders from a financial point of view.
<PAGE>
Our opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to us as of April 6,
1998. Our opinion is directed to the Board of Directors of MAI and
does not constitute a recommendation as to how a Director should vote on
matters associated with the Agreement. It is understood that subsequent
developments may affect the conclusions reached in this opinion and that
we do not have any obligation to update, revise or reaffirm this
opinion.
Very truly yours,
/s/ FERRIS, BAKER WATTS, INC.
FERRIS, BAKER WATTS, INC.
<PAGE>
MONARCH AVALON, INC.
Proxy for 1998 Annual Meeting of Stockholders
October 23, 1998
The undersigned hereby appoints A. Eric Dott and David F. Gonano, and each
of them, with full power of substitution, as proxy, to vote all shares of the
Common Stock of Monarch Avalon, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company on October
23, 1998 at 11:00 a.m., and at any adjournment or postponements thereof (the
"Annual Meeting"), on the following matters, each of which is fully described in
the proxy statement.
The Board of Directors recommends a vote FOR each of the items listed
below.
1.FOR [ ] WITHHOLD [ ] ABSTAIN [ ] Proposal to approve the asset purchase
agreement (the "Asset Purchase Agreement") dated as of August 3, 1998 between
the Company and HIAC XII Corp., an indirect subsidiary of Hasbro, Inc. and
the sale of substantially all the business, operations and assets of the
Company, as contemplated by the Asset Purchase Agreement, which may be deemed
to be a sale of substantially all the property and assets of the Company
pursuant to Section 271 of the Delaware General Corporation Law for $6
million in cash plus the assumption of certain liabilities (the "Proposed
Transaction").
2.FOR [ ] WITHHOLD [ ] ABSTAIN [ ] Proposal to approve an amendment to the
Company's Certificate of Incorporation to change the name of the Company to
Monarch Services Inc., effective upon consummation of the Proposed
Transaction.
3.FOR [ ] WITHHOLD [ ] The election of four persons to the Board of
Directors of the Company to serve until the next annual meeting of
stockholders and until their successors are elected and qualified (except as
marked to the contrary): A. Eric Dott, David F. Gonano, Jackson Y. Dott, and
Helen Delich Bentley. (To withhold authority to vote for any individual
nominee strike a line through the nominee's name).
4.FOR [ ] WITHHOLD [ ] ABSTAIN [ ] Proposal to ratify Deloitte & Touche LLP,
as independent auditors of the Company for the fiscal year ending April 30,
1998.
5.To act upon any other matter which may properly come before the Annual
Meeting.
This proxy will be voted on each of the foregoing items as specified by the
person signing it, but if no specification is made, the proxy will be voted
FOR the election of Directors and FOR the other proposals.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT MAY BE
REVOKED PRIOR TO ITS EXERCISE.
Receipt of notice of the Annual Meeting and proxy statement is hereby
acknowledged, and the terms of the notice and statement are hereby
incorporated by reference into this proxy. The undersigned hereby revokes
all proxies heretofore given for the Annual Meeting.
WITNESS the hand seal of the undersigned, this day of ,
1998.
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(Seal)
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(Seal)
Please date and then sign exactly as name appears to the right. If signing
for trusts, estates or corporations, capacity or title should be stated.
If shares are jointly owned, both owners should sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
