TOY BIZ INC, S-3/A, 1996-08-07

TOY BIZ INC
S-3/A, 1996-08-07
DOLLS & STUFFED TOYS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996

REGISTRATION NO. 333-07455
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2
TO

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TOY BIZ, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3944 13-3711775
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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333 EAST 38TH STREET
NEW YORK, NEW YORK 10016
(212) 682-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOSEPH M. AHEARN
CHIEF EXECUTIVE OFFICER
333 EAST 38TH STREET
NEW YORK, NEW YORK 10016
(212) 682-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

Copies to:

<TABLE>

<S> <C>
JOHN N. TURITZIN, ESQ. THOMAS E. CONSTANCE, ESQ.
BATTLE FOWLER LLP KRAMER, LEVIN, NAFTALIS & FRANKEL
75 EAST 55TH STREET 919 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 856-7000 (212) 715-9100
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>
EXPLANATORY NOTE

This Registration Statement contains a prospectus relating to a public
offering in the United States and Canada (the 'U.S. Offering') of an aggregate
of 2,560,000 shares of Class A Common Stock, par value $.01 per share ('Class A
Common Stock'), of Toy Biz, Inc., together with a separate prospectus cover page
relating to a concurrent offering outside the United States and Canada (the
'International Offering') of an aggregate of 640,000 shares of Class A Common
Stock. The complete prospectus for the U.S. Offering follows immediately after
this Explanatory Note. After such prospectus is the alternate cover page for the
International Offering. All other pages of the prospectus for the U.S. Offering
are to be used for both the U.S. Offering and the International Offering.

<PAGE>

Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall
not constitute an offer to sell, or the solicitation of an offer to buy,
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED AUGUST 7, 1996

3,200,000 SHARES

[Logo]

TOY BIZ, INC.
CLASS A COMMON STOCK
------------------------

OF THE 3,200,000 SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE, OF
TOY BIZ, INC. BEING OFFERED HEREBY, 2,560,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 640,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
'UNDERWRITERS.' OF THE 3,200,000 SHARES OF CLASS A COMMON
STOCK BEING OFFERED HEREBY, 700,000 SHARES ARE BEING
SOLD BY THE COMPANY AND 2,500,000 SHARES ARE BEING
SOLD BY MARVEL (AS DEFINED HEREIN), A SELLING
STOCKHOLDER. SEE 'PRINCIPAL AND SELLING
STOCKHOLDERS.' THE COMPANY WILL NOT RECEIVE
ANY OF THE PROCEEDS FROM THE SALE OF
THE SHARES BEING SOLD BY MARVEL.

THE CLASS A COMMON STOCK ENTITLES ITS HOLDERS TO ONE VOTE PER SHARE, AND THE
CLASS B COMMON STOCK GENERALLY HAS TEN VOTES PER SHARE. IMMEDIATELY AFTER
THIS OFFERING, THE CLASS B COMMON STOCK AND THE CLASS A COMMON STOCK
BENEFICIALLY OWNED BY THE PRINCIPAL STOCKHOLDERS WILL REPRESENT
APPROXIMATELY 93% OF THE COMBINED VOTING POWER (ASSUMING THE
U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED)
WITH RESPECT TO SUBSTANTIALLY ALL MATTERS SUBMITTED FOR
THE VOTE OF ALL STOCKHOLDERS.

THE CLASS A COMMON STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE
SYMBOL 'TBZ.' ON AUGUST 5, 1996, THE REPORTED LAST SALE PRICE
OF THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $16 5/8 PER SHARE.

------------------------

SEE 'RISK FACTORS' BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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PRICE $ A SHARE

------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share................................. $ $ $ $
Total(3).................................. $ $ $ $
</TABLE>

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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(2) Before deduction of expenses payable by the Company estimated at
$500,000.

(3) Isaac Perlmutter and Avi Arad, each a Selling Stockholder, have granted
the U.S. Underwriters an option, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 480,000 additional Shares,
consisting of up to 384,000 Shares as to Mr. Perlmutter and 96,000
Shares as to Mr. Arad, at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions, proceeds

to Company and proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively.
See 'Underwriters.'

------------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Kramer, Levin, Naftalis & Frankel, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about August , 1996 at
the office of Morgan Stanley & Co. Incorporated, New York, N. Y., against
payment therefor in immediately available funds.

------------------------
MORGAN STANLEY & CO.
INCORPORATED
CS FIRST BOSTON
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.

August , 1996

<PAGE>
[PHOTOS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
------------------------

The Toy Biz logo and name are trademarks of the Company. Baby Loves to
Talk(Registered), Pretty and Me(Registered) and Jumpsie(Registered) are
registered trademarks of the Company. Baby Tumbles Surprise(Trademark), Baby So
Real(Trademark), Wild & Wacky Painter(Trademark), Pooch, the Good
Puppy(Trademark), Pretty Sparkle Dancer(Trademark), Battle Builders(Trademark),
Take Care of Me Twins(Trademark) and Caboodles(Trademark) are trademarks of the
Company. Marvel Super Heroes(Trademark), Marvel Super-Villains(Trademark),
X-Men(Registered), X-Force(Trademark), Generation X(Trademark),
Wolverine(Registered), Nightcrawler(Trademark), Colossus(Trademark),
Storm(Trademark), Cyclops(Trademark), Bishop(Registered), Gambit(Trademark),
Spider-Man(Registered), Captain America(Registered), Fantastic Four(Trademark),
Mr. Fantastic(Trademark), The Human Torch(Trademark), Invisible
Woman(Trademark), The Thing(Trademark), The Incredible Hulk(Registered),
Thor(Trademark), The Silver Surfer(Trademark), Daredevil(Trademark), Iron
Man(Registered), The Punisher(Registered), Dr. Strange(Trademark), Ghost
Rider(Trademark), Hero Caps(Registered) and Cable(Trademark) are trademarks of
Marvel Characters, Inc. and are used with permission. Bots Master(Registered) is
a registered trademark of Creativite et Developpement, a French movie and
television program producer ('C&D'). Gerber(Registered) is a registered
trademark of Gerber Products Company ('Gerber'). Coleman(Registered) is a
registered trademark of The Coleman Company, Inc. ('Coleman'). Space
Strikers(Trademark) is a registered trademark of Saban Entertainment, Inc.
('Saban'). Hercules: The Legendary Journeys(Trademark) and Xena: Warrior
Princess(Trademark) are trademarks of MCA Television Ltd., used under license by
MCA/Universal Merchandising, Inc. ('MCA/Universal'), and Flipper(Trademark)
((Copyright)Flipper) is a trademark and copyright of The Flipper Group. Disney's
The Hunchback of Notre Dame ((Copyright)Disney), Disney's Toy Story
((Copyright)Disney) and Disney's 101 Dalmatians ((Copyright)Disney), are
copyrights of The Walt Disney Company ('Disney'), and Sky Dancers(Registered)
and Dragonflyz(Trademark) are trademarks of Abrams Gentile Entertainment, Inc.
Batman(Registered) and Looney Tunes(Registered) are registered trademarks of
Warner Bros. Apple(Registered) and the Apple logo are registered trademarks of
Apple Computer, Inc. ('Apple'), registered in the United States and other
countries. Muppets Tonight(Trademark), Muppet Babies(Trademark) and Muppet
Treasure Island(Trademark) are trademarks of Jim Henson Productions, Inc.
('Henson'). NASCAR(Registered) is a registered trademark of the National
Association for Stock Car Auto Racing, Inc. ('NASCAR'). Revlon(Registered) is a
registered trademark of Revlon Consumer Products Corporation. Sony

Wonder(Registered) is a registered trademark of Sony Wonder, a division of Sony
Music Entertainment, Inc. All other trademarks appearing in this Prospectus are
the property of their respective holders.

<PAGE>

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF
OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

------------------------

For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company, any Selling Stockholder or any
Underwriter that would permit a public offering of the Class A Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company, the Selling
Stockholders and the Underwriters to inform themselves about and to observe any
restrictions as to the offering of the Class A Common Stock and the distribution
of this Prospectus.

In this Prospectus references to 'dollars' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.

------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 9
Use of Proceeds................................ 16
Price Range of Class A Common Stock............ 16
Dividend Policy................................ 16
Capitalization................................. 17
Selected Financial Information................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 30
Management..................................... 45

Principal and Selling Stockholders............. 48

<CAPTION>
PAGE
----
<S> <C>
Certain Transactions........................... 50
Description of Capital Stock................... 56
Shares Eligible for Future Sale................ 59
Certain Federal Income Tax Consequences to
Non-United States Holders.................... 61
Underwriters................................... 63
Legal Matters.................................. 66
Experts........................................ 66
Additional Information......................... 66
Incorporation of Certain Information by
Reference.................................... 67
Index to Financial Statements and Financial
Statement Schedule........................... F-1
</TABLE>

------------------------

CAUTIONARY STATEMENT FOR PURPOSES OF THE 'SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Private Securities Litigation Reform Act of 1995 provides a new 'safe
harbor' for certain forward-looking statements. The factors discussed under
'Risk Factors,' among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this Prospectus,
including, without limitation, in 'Business' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations,' filings by the
Company with the Securities and Exchange Commission (the 'Commission'), in the
Company's press releases and in oral statements made by authorized officers of
the Company. When used in this Prospectus, the words 'estimate,' 'project,'
'anticipate,' 'expect,' 'intend,' 'believe,' and similar expressions are
intended to identify forward-looking statements.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the U.S. Underwriters' over-allotment option. See 'Underwriters.'
Unless the context otherwise requires, all references in this Prospectus to the
Company include the Company, its subsidiary and their respective predecessors,
and all references to Marvel mean Marvel Entertainment Group, Inc., a Delaware
corporation, and its subsidiaries other than the Company. The Class A Common
Stock, par value $.01 per share, of the Company (the 'Class A Common Stock') and
the Class B Common Stock, par value $.01 per share, of the Company (the 'Class B
Common Stock') are herein collectively referred to as the 'Common Stock.'
References to the 'Offering' shall refer to the offering of the Class A Common
Stock in the United States and Canada by the U.S. Underwriters and outside the
United States and Canada by the International Underwriters. References to the
Selling Stockholders refer to Marvel and Messrs. Perlmutter and Arad.

THE COMPANY

Toy Biz, Inc. (the 'Company') designs, markets and distributes a variety of
toys in the United States and internationally under various licenses, including
an exclusive, perpetual and royalty-free license, subject to certain limitations
(the 'Marvel License'), from Marvel, the Company's largest stockholder. The
Company also designs, markets and distributes its own line of proprietary toys.
The Company believes that the experience and creativity of its senior management
in the development and marketing of its toys afford it the ability to attract
significant licenses of popular characters and trademarks as well as prominent
inventors for the development of new licensed and proprietary toys. The Company
had net sales, operating income and net income per share of approximately $196.4
million, $47.0 million and $1.05, respectively, in 1995, reflecting significant
growth from the Company's 1991 net sales and operating income of approximately
$45.1 million and $177,000, respectively.

The Marvel License permits the Company to produce a broad range of toys
based on Marvel's more than 3,500 characters (the 'Marvel Characters'). The
Company believes that media events associated with Marvel Characters and other
characters on which the Company bases its toys increase overall consumer
awareness and popularity of these characters. The Company seeks to capitalize on
the popularity generated by media exposure of certain Marvel Characters, such as
Spider-Man(Registered) and X-Men(Registered), by emphasizing those characters in
its toy lines. The Spider-Man(Registered) and X-Men(Registered) Marvel
Characters are currently featured in weekly half-hour animated television
programs which have consistently been among the highest rated Saturday morning
children's programs since they began to be regularly broadcast in February 1995
and October 1992, respectively. The Spider-Man(Registered) program is also
featured in major television markets around the world. The Fantastic
Four(Trademark) and Iron Man(Registered) groups of Marvel Characters are
featured on the Marvel Action Universe, weekly, syndicated animated television

programming currently carried in over 90% of the television markets in the
United States. Avi Arad ('Mr. Arad'), one of the principal stockholders and a
Director of the Company, is the executive producer of each of these programs.
Marvel Characters are also regularly depicted in Marvel comic books.

To enhance further the media exposure of the Marvel Characters, the Company
and Marvel intend to form Marvel Studios ('Marvel Studios'). The objective of
Marvel Studios is to facilitate the release of live action and animated feature
films and television programming based on the Marvel Characters in order to
create greater consumer interest in these characters and related merchandise,
including toys. The Company believes that the advertising and promotion of
feature films, as well as any films or television programming based on the
Marvel Characters, will create consumer interest in the Marvel Characters and
could create revenue opportunities for the Company by helping to generate sales
from action figures, other children's toys and other products for which the
Company holds the rights under the Marvel License. The Company intends to
invest, from time to time, up to $50 million in the aggregate in preferred
equity interests of Marvel Studios (the 'Preferred Equity Interests'). Marvel
has advised the Company that it intends to invest, from time to time, up to $50
million in the aggregate in common equity interests of Marvel Studios (the
'Common Equity Interests') funded in part with the net proceeds from the sale of
its shares of Class A Common Stock in the Offering. See 'Risk Factors--Risks
Related to Marvel Studios,' 'Use of Proceeds,' 'Business--Marvel Studios,'
'Principal and Selling Stockholders' and 'Certain Transactions--Marvel Studios.'

4
<PAGE>
Tonight(Trademark) and Muppet Babies(Trademark). The Company has also
obtained licenses to produce certain products for a number of motion
pictures, including widely-distributed, first-run feature films such as
Flipper(Trademark), licensed by MCA/Universal, and Muppet Treasure
Island(Trademark), licensed by Henson, for which the Company has
produced mainly plush items. These motion pictures also include a
made-for-television movie entitled Generation X(Trademark), which
premiered in prime time on the Fox Network, for which the Company has
manufactured and distributed mainly action figures. The Company has
obtained licenses to produce certain products for other motion pictures
released or planned for release by Disney and MCA/Universal Studios.

interactive CD-ROM products, planned under a licensing agreement with NASCAR and
various well-known race car drivers. In addition to products designed and
produced under licenses from others, the Company also designs, produces and
distributes a line of proprietary children's toys, including Baby Tumbles
Surprise(Trademark), Baby So Real(Trademark), Wild and Wacky Painter(Trademark)
and Battle Builders(Trademark). Baby Tumbles Surprise(Trademark) was the leading
promotional doll in the United States, as measured in unit sales, in 1995.

To broaden and expand further its merchandise lines and license agreements,
the Company acquired the assets of two toy-related businesses, Spectra Star,
Inc. ('Spectra Star') and Quest Aerospace Education, Inc. ('Quest'), in the
second half of 1995. Spectra Star produces kites and other products including
yo-yo's, flying discs, nap mats and kite accessories marketed under the Spectra
Star(Registered) brand name. Many of these products are sold under character
licenses, including Disney's The Hunchback of Notre Dame ((Copyright)Disney),
Disney's Toy Story ((Copyright)Disney), Disney's 101 Dalmatians
((Copyright)Disney), Sky Dancers(Registered), Dragonflyz(Trademark) and Warner
Bros.' Batman(Registered) and Looney Tunes(Registered). With the acquisition of
Spectra Star, the Company believes that it has a substantial share of the United
States kite market. Quest produces small model rockets and thereby further
augments the Company's activity toy category.

GROWTH STRATEGY

The Company has achieved significant growth since 1991. The Company's net
sales more than quadrupled, growing from approximately $45.1 million in 1991 to
approximately $196.4 million in 1995. The Company's net sales growth has been
driven principally by growth in sales of the Company's action figure toys based
on the Marvel Characters and, more recently, by sales of the Company's
proprietary dolls and activity toys. The Company's growth strategy is to:

o Continue to build on the popularity of the Marvel Characters by utilizing
additional Marvel Characters and by expanding into new product lines in
order to capitalize on portrayals of the Marvel Characters on television
and in movies, comic books and other media. The Company believes that
feature films and television programming developed by Marvel Studios will
create additional consumer interest in the Marvel Characters and could
create opportunities to design and market toys based on the Marvel
Characters in these projects.

o Expand its licensed product lines by targeting and obtaining licenses
from third parties, with an emphasis on well-known consumer brand names,
such as Gerber(Registered), Apple(Registered), Sony Wonder(Registered)
and NASCAR(Registered), and popular characters appearing in film and
television programs, such as the Muppets(Trademark), Flipper(Trademark),
Hercules: The Legendary Journeys(Trademark) and Disney's The Hunchback of
Notre Dame ((Copyright) Disney).

o Diversify its proprietary product lines through the development of
products, such as Baby Tumbles Surprise(Trademark), by the Company's
in-house creative and technical staff and the engagement of independent
toy inventors.

o Broaden international distribution of existing and future product lines

through the development of strategic relationships with independent
distributors in key markets.

o Pursue potential acquisitions of other toy businesses or product lines
which are consistent with the Company's growth strategy, such as Spectra
Star and Quest.

BACKGROUND

The Company was incorporated in Delaware on March 18, 1993 by Marvel, Isaac
Perlmutter ('Mr. Perlmutter') and Mr. Arad (together with Marvel and Mr.
Perlmutter, the 'Principal Stockholders'), as successor to Toy Biz, Inc., a
Delaware corporation incorporated in 1990 and subsequently renamed Zib Inc.
('Zib'), and its foreign sales affiliate, Toy Biz International Ltd., a Hong
Kong corporation (collectively, the 'Predecessor Company'). On March 2, 1995,
the Company completed an initial public offering (the 'IPO') of 2,750,000 shares
of Class A Common Stock. The Company's principal executive offices are located
at 333 East 38th Street, New York, New York 10016, and its telephone number is
(212) 682-4700.

<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered:
Class A Common Stock offered by the
Company............................... 700,000 Shares
Class A Common Stock offered by
Marvel................................ 2,500,000 Shares
---------
Total Class A Common Stock Offered.... 3,200,000 Shares
=========
U.S. Offering........................... 2,560,000 Shares
International Offering.................. 640,000 Shares
Common Stock to be outstanding after the
Offering(1)............................. 20,337,862 Shares of Class A Common Stock
----------
7,394,000 Shares of Class B Common Stock
==========
27,731,862 Shares of Common Stock
</TABLE>

- ------------------

(1) Based on the number of shares outstanding as of June 15, 1996. Excludes an
aggregate of 1,318,138 shares of Class A Common Stock reserved for issuance
under the Company's 1995 Stock Option Plan (the 'Stock Option Plan') as of
June 15, 1996, including 1,050,150 shares as to which options were then
outstanding, of which 650,900 were exercisable on such date. Excludes 59,091
shares of Class A Common Stock issuable upon the conversion of outstanding
shares of Series A Preferred Stock. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources' and 'Description of Capital Stock.'

<TABLE>
<S> <C>
Use of proceeds to the Company............ The net proceeds to the Company from the issuance and sale of the
700,000 shares of Class A Common Stock offered hereby by the Company
(after deduction of the underwriting discount and estimated offering
expenses) are estimated to be approximately $10.6 million. The
Company intends to use the net proceeds to fund a portion of its $50
million capital commitment to Marvel Studios by purchasing, from time
to time, Preferred Equity Interests of Marvel Studios. Pending such
use, the net proceeds will be used for working capital and general
corporate purposes. See 'Use of Proceeds,' 'Business--Marvel
Studios' and 'Certain Transactions--Marvel Studios.' The Company will
not receive any of the proceeds from the sale of the shares by the
Selling Stockholders.

Voting rights............................. The Class A Common Stock and the Class B Common Stock vote as a
single class with respect to all matters submitted to a vote of
stockholders, with each share of Class A Common Stock entitled to one
vote and each share of Class B Common Stock entitled to ten votes.
All of the Class B Common Stock is beneficially owned by Marvel. Two
shares of Class B Common Stock are owned of record by voting trusts
(the 'Class B Voting Trusts'), of which Mr. Perlmutter and Mr. Arad
are the trustees and Marvel is the sole beneficiary. Immediately
after the Offering, Marvel will have approximately 78% of the
combined voting power of the Common Stock. Except with respect to
voting, each class of Common Stock has identical rights. For a
description of certain consent rights of holders of Class B Common
Stock, see 'Certain Transactions--Stockholders' Agreement and Class B
Voting Trusts' and 'Description of Capital Stock.'
New York Stock Exchange ('NYSE') symbol... 'TBZ'
</TABLE>

RISK FACTORS

SEE 'RISK FACTORS' FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING AN INVESTMENT IN THE CLASS A COMMON STOCK.

<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION

The following tables present summary historical combined or consolidated
financial data for the business of the Company and the Predecessor Company (see
Notes (1) and (2) below) for the three year period ended December 31, 1995,
which were derived from the audited financial statements of the Company's
business, and the three month periods ended March 31, 1995 and 1996, which were
derived from the unaudited financial statements of the Company which, in the
opinion of management of the Company, have been prepared on the same basis as
the audited combined or consolidated financial statements and include all
adjustments (consisting of normal and recurring adjustments and accruals)
necessary for a fair presentation of such information. Results for the three
months ended March 31, 1996 are not necessarily indicative of results for any
interim period or the entire year.

The information in these tables is qualified by and should be read in
conjunction with the 'Selected Financial Information,' 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' and the financial
statements of the Company and the Predecessor Company and notes thereto included
elsewhere in this Prospectus.

For certain recent quarterly results of the Company, see 'Management's
Discussion and Analysis of Financial Condition and Results of Operations--Recent
Quarterly Results.'

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------- ----------------------------
1993 1994 1995 1995
------- -------- -------- ----------------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)(2)
Net sales......................................... $89,744 $156,525 $196,395 $ 27,888
Cost of sales..................................... 41,990 73,490 88,397 13,398
------- -------- -------- ----------
Gross profit...................................... 47,754 83,035 107,998 14,490
Selling, general and administrative
expenses(3)(4)(5)............................... 28,093 38,263 48,234 7,717
Depreciation and amortization..................... 4,097 8,609 12,750 1,695
Compensatory stock option(6)...................... 10,909 4,091 -- --
------- -------- -------- ----------
Operating income.................................. 4,655 32,072 47,014 5,078
Interest expense.................................. (1,197) (1,862) (490) (413)
Other income, net................................. 559 65 1,050 180
------- -------- -------- ----------
Income before income taxes........................ 4,017 30,275 47,574 4,845
Income tax expense (pro forma in 1993)(7)......... (1,639) (12,261) (19,172) (1,986)
------- -------- -------- ----------

Net income........................................ $ 2,378 $ 18,014 $ 28,402 $ 2,859
------- -------- -------- ----------
------- -------- -------- ----------
Net income per share(7)........................... $ .09 $ .67 $ 1.05 $ .11
Weighted average number of common and common
equivalent shares outstanding (assumes
27,000,000 shares outstanding for periods prior
to 1995)........................................ 27,000 27,000 27,115 27,000

1996
----------------------------

<S> <C>
STATEMENT OF OPERATIONS DATA:(1)(2)
Net sales......................................... $ 38,369
Cost of sales..................................... 19,733
----------
Gross profit...................................... 18,636
Selling, general and administrative
expenses(3)(4)(5)............................... 11,369
Depreciation and amortization..................... 2,144
Compensatory stock option(6)...................... --
----------
Operating income.................................. 5,123
Interest expense.................................. (28)
Other income, net................................. 194
----------
Income before income taxes........................ 5,289
Income tax expense (pro forma in 1993)(7)......... (2,116)
----------
Net income........................................ $ 3,173
----------
----------
Net income per share(7)........................... $ .12
Weighted average number of common and common
equivalent shares outstanding (assumes
27,000,000 shares outstanding for periods prior
to 1995)........................................ 27,201
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(8)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 84,007 $ 84,007

Total assets.......................................................................... 133,763 144,348
Total debt............................................................................ -- --
Redeemable preferred stock(9)......................................................... 1,611 1,611
Stockholders' equity.................................................................. 114,637 125,222
</TABLE>

(Footnotes on next page)

7
<PAGE>
(Footnotes from previous page)
- ------------------
(1) The combined statement of operations data for the year ended December 31,
1993 includes the combined results for the four month period ended April 30,
1993 of the business of the Predecessor Company, which was then wholly owned
by Mr. Perlmutter and Toy Biz International Ltd., a Hong Kong company
indirectly controlled by the Predecessor Company. The statement of
operations data for the other periods represent the consolidated results of
the Company. There was no change in the carrying value of the Company's
assets as a result of the April 30, 1993 transaction (see Note 1 of notes to
audited financial statements).

(2) The year ended December 31, 1993 includes thirteen months of results of Toy
Biz International Ltd. as a result of changing Toy Biz International Ltd.'s
year end from November 30 to December 31. The sales and operating loss of
Toy Biz International Ltd. for the month of December 1992 were not
significant.

(3) During the four month period ended April 30, 1993, the Predecessor Company
incurred approximately $259,000, in fees and commissions to an affiliate of
Mr. Perlmutter as compensation for its assistance in establishing
relationships with customers of the Predecessor Company. No such fees and
commissions were incurred after April 30, 1993.

(4) During the four month period ended April 30, 1993, the Predecessor Company
incurred royalties to Marvel of approximately $970,000, under a license for
Marvel Characters. No such royalties were incurred after April 30, 1993.
During the eight month period ended December 31, 1993 and the years ended
December 31, 1994 and 1995, the Company reimbursed Marvel for services
provided by Marvel or purchased from third-party providers for the Company
of approximately $875,000, $498,000 and $306,000, respectively.

(5) The results for the combined year ended December 31, 1993 include
approximately $2,000,000 of bonuses paid by the Predecessor Company to
employees in connection with the formation of the Company.

(6) Represents non-cash compensation expense associated with the vesting and
exercise of a compensatory stock option granted to Mr. Arad in connection
with the formation of the Company.

(7) For the taxable periods from January 18, 1990 until April 30, 1993, the
Predecessor Company was subject to taxation under Subchapter S of the
Internal Revenue Code of 1986, as amended (the 'Code'). As a result, the

Predecessor Company was not subject to federal and certain state income
taxes as its sole stockholder included the results of its operations in his
personal income for these tax purposes. Provision for income taxes for a
portion of 1993 reflects income tax expense (at an assumed effective
combined tax rate of approximately 40%) on a pro forma basis as if the
Predecessor Company had not been an S corporation.

(8) Adjusted to reflect the sale of the 700,000 shares of Class A Common Stock
offered by the Company hereby at an estimated offering price of $16.625 per
share (the reported last sale price of the Class A Common Stock on the NYSE
on August 5, 1996) and the application of proceeds therefrom (after
deducting underwriting discounts and commissions and estimated offering
expenses). Total assets as adjusted reflect application of the estimated net
proceeds from the Offering to fund a portion of the Company's $50 million
capital commitment to Marvel Studios by purchasing, from time to time,
Preferred Equity Interests of Marvel Studios. Pending such use, the net
proceeds will be used for working capital and general corporate purposes.
Working capital as adjusted does not reflect application of any net proceeds
from the Offering. See 'Use of Proceeds.'

(9) Reflects 59,091 shares of redeemable convertible Series A preferred stock,
$.01 par value, of the Company (the 'Series A Preferred Stock') of which
27,273 shares are held in escrow to secure indemnification obligations to
the Company by the seller of the Spectra Star business. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'

<PAGE>

RISK FACTORS

Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, before
purchasing the shares of Class A Common Stock offered hereby.

RELIANCE ON THE MARVEL LICENSE AND OTHER LICENSE AGREEMENTS

The Company markets many of its products under character licenses from
others. Approximately 56% and 34% of the Company's U.S. net sales* in 1995 and
the three months ended March 31, 1996, respectively, were derived from the sale
of products based on Marvel Characters, and approximately 13% and 20% of the
Company's U.S. net sales in 1995 and the three months ended March 31, 1996,
respectively, were derived from the sale of products marketed under other
licenses. See 'Business--Licensing and Related Rights--Marvel License
Agreement.' In addition, a substantial portion of the Company's international
sales are of products based on Marvel Characters. A loss of the Marvel License
would have a material adverse effect on the Company.

Although the Marvel License includes more than 3,500 Marvel Characters, a
key source of revenues for the Company since 1992 has been sales of Marvel's
X-Men(Registered) and, since late 1994, Spider-Man(Registered) action figures.
Sales of toys based on the X-Men(Registered) and Spider-Man(Registered) groups
of characters accounted for approximately 21% and 17%, respectively, of the
Company's U.S. net sales in 1995. There can be no assurance that, as existing
Marvel Character based toys mature, the Company will be able to develop new toys
whose sales levels will match or exceed the sales levels of such existing Marvel
Character based toys. See '--Changing Consumer Preferences.'

The Company expects that Marvel will continue to consider various
opportunities involving the commercial exploitation of the Marvel Characters. If
such opportunities relate to the manufacture and distribution of products other
than any of the categories of toys and toy related products covered by the
Marvel License, Marvel is free to pursue such opportunities directly or with
others. There can be no assurance that Marvel will offer any such business
opportunities to the Company or that such opportunities will be offered on terms
acceptable to the Company. See 'Business--Products' and '--Licensing and Related
Rights--Other License Agreements' and 'Certain Transactions--Marvel Studios.'

If Avi Arad & Associates ceases to be involved in the product development
and marketing of the licensed products, Gerber may terminate its license
agreement with the Company (the 'Gerber License') immediately. The Gerber
License, pursuant to which the Company had net sales of approximately $13.5
million in 1995, provides that in the event of any change of ownership, control
or management of the Company, without Gerber's prior written approval, Gerber
may terminate the Gerber License. Although the Company does not believe that the
Offering should be deemed to be a change in ownership of the Company within the
meaning of the Gerber License, and Gerber has not informed the Company that it
intends to terminate the Gerber License, there can be no assurance that Gerber
would not claim that its License with the Company was immediately terminable as
a result of the Offering. Termination of the Gerber License could have a

material adverse effect on the Company.

In general, the Company's other license agreements have terms of one to
four years. There can be no assurance that any of the Company's license
agreements can be renewed upon their expiration, or if so, at acceptable royalty
rates, or that the Company will be able to secure licenses for additional
characters that will achieve the same degree of popularity as the Company's
existing licensed characters and third party trademarks. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,'
'Business--Products' and '--Licensing and Related Rights' and 'Certain
Transactions.'

- ------------------
* The Company computes net sales by deducting sales allowances, including
allowances for returns, volume discounts and cooperative advertising, from its
gross sales. The Company does not track sales allowances by product line, but
rather accrues sales allowances as an overall percentage of gross sales. Where
information concerning net sales by product line is provided in this
Prospectus, the Company has estimated net sales by attributing sales
allowances to each product line in proportion to the individual product line's
percentage of gross sales. Sales allowances may vary as a percentage of gross
sales due to changes in the Company's product mix, defective product
allowances, volume discounts or other sales allowances.

9
<PAGE>
DEPENDENCE ON KEY PERSONNEL

The Company is dependent to a substantial extent upon the expertise and
services of its senior management personnel and upon the expertise and services
of Mr. Arad, who is a Director and Principal Stockholder of and consultant to
the Company. Many of the Company's products are those in which Mr. Arad played a
significant development role. Mr. Arad is also involved in the development of,
and receives a royalty on net sales of, the Company's products based on the
Marvel Characters. The Company expects that, in connection with the formation of
Marvel Studios, Mr. Arad's consulting agreement with the Company (the
'Consulting Agreement') will be extended to expire in April 1999. Mr. Arad is
also a party to an employment agreement (the 'New World Employment Agreement')
with New World Animation, Ltd. ('New World Animation'), a media production
company affiliated with Marvel which produces television shows and films,
including television shows and films based on the Marvel Characters. In
addition, Mr. Arad is the President of Marvel Films, a unit of Marvel which
works in conjunction with New World Animation in the development of television
shows and films based on Marvel Characters. The New World Employment Agreement
expires in 1998, and Mr. Arad has the right to terminate the New World
Employment Agreement at any time. The Consulting Agreement and the New World
Employment Agreement give Mr. Arad discretion to allocate his business time
between the Company and New World Animation as Mr. Arad determines to be
appropriate. If Mr. Arad terminates the New World Employment Agreement, he will
be required to devote to the Company only the time necessary to perform the
functions required by the Consulting Agreement, but not less than one-half of
his business time. Upon such termination of the New World Employment Agreement,
he may thereafter devote the remainder of his time to any activities that he

chooses, subject only to certain restrictions on his ability to compete with the
Company. The Company expects that in connection with the formation of Marvel
Studios, the Consulting Agreement will be amended in order to permit Mr. Arad to
devote a portion of his business time to Marvel Studios and that Mr. Arad will
enter into an agreement with Marvel Studios which will reflect his new duties
and compensation with Marvel Studios, which will be substantially similar to,
and will replace, the New World Employment Agreement. The Company will have no
right to intellectual property developed by Mr. Arad while engaged in such other
activities. On July 17, 1996, New World Animation's parent company, New World
Communications Group Incorporated ('NWCG'), announced that NWCG had entered into
an agreement providing for the sale of NWCG to News Corporation (the 'NWCG
Sale'). The Company expects that prior to the NWCG Sale, Mr. Arad will have
entered into an employment agreement with Marvel Studios and that such
employment agreement will replace the New World Employment Agreement. The loss
of Mr. Arad's services or his failure to allocate sufficient time to the Company
would have a material adverse effect on the Company. See 'Certain
Transactions--Arad Consulting Agreement.' The loss of the services of any of the
Company's senior management personnel could have a material adverse effect on
the Company. The Company does not currently maintain key-man life insurance on
any of its personnel or Mr. Arad. Certain members of the Company's senior
management devote substantial amounts of time to the affairs of affiliates of
Marvel. See 'Management' and 'Certain Transactions.'

CONCENTRATED CUSTOMER BASE

Like other major toy companies, the Company is dependent upon toy retailers
and mass merchandisers to distribute its products. The retail toy business is
highly concentrated, with the top five retailers accounting for approximately
54% of the United States market for retail toy sales in 1995. The Company's five
largest customers accounted in the aggregate for approximately 84% and 72% of
the Company's U.S. gross sales in 1995 and the three months ended March 31,
1996, respectively. An adverse change in, or termination of, the Company's
relationship with one or more of its major customers could have a material
adverse effect on the Company. In recent years, the retail chain store industry,
and the toy retail industry in particular, have undergone significant
consolidation. To the extent that this consolidation continues, the Company's
distribution base could shrink, thereby concentrating an even greater percentage
of the Company's sales in a smaller number of retailers and increasing the
remaining toy retailers' ability to negotiate more favorable terms and prices
from the Company. See 'Business--Industry Background' and '--Customers,
Marketing and Distribution.'

10
<PAGE>
DEPENDENCE ON NON-U.S. MANUFACTURERS

The Company's products are manufactured in the People's Republic of China
('China'), Mexico and the United States. International manufacturing is subject
to a number of risks, including fluctuations in currency exchange rates,
transportation delays and interruptions, political and economic disruptions, the
impositions of tariffs, import and export controls and changes in governmental
policies. While the Company has not experienced any material adverse effects due
to such risks, there can be no assurance that such events will not occur in the

future, with the result of possible increases in costs and delays of, or
interferences with, product deliveries resulting in losses of revenues and the
goodwill of the Company's customers.

The Company conducts a substantial portion of its manufacturing operations
through the use of independent manufacturers located in China, none of which has
a long-term contract with the Company. China is currently accorded 'Most Favored
Nation' trading status by the United States, and products imported from China
are therefore subject to normal United States import duties. The Most Favored
Nation status of China is reviewed annually by the United States government.
Extension of that status is subject to political uncertainties. In June 1996,
China's Most Favored Nation status was extended for one year. As a result of
opposition to certain policies of the Chinese government, there has been, and in
the future may be, opposition to the extension of Most Favored Nation status for
China. If China were to lose Most Favored Nation status, the cost of importing
products from China would increase significantly, which could have a material
adverse effect on the Company.

In addition, China may be subject to retaliatory trade restrictions imposed
by the United States under various provisions of the Trade Act of 1974, as
amended, including 'Super 301,' which regulates unfair trade practices, and
'Special 301,' which regulates protection of intellectual property. Super 301
authority permits the United States Trade Representative (the 'USTR') to impose
a variety of trade sanctions against a foreign nation which the USTR determines
is engaging in unfair trade practices. Special 301 authority permits the USTR to
impose a variety of trade sanctions against a foreign nation which the USTR
determines is tolerating violations of intellectual property rights.

In June 1994, the USTR identified China as a priority foreign country under
Special 301 and announced an investigation of China's intellectual property
rights practices. In early February 1995, the USTR concluded that China's
intellectual property practices were unreasonable and constituted a burden on
United States commerce. Pursuant to this conclusion, the USTR announced that
duties on various products imported from China would be increased to 100% later
that month. On the day the increase was scheduled to take effect, however, the
United States and China signed an agreement on the enforcement of intellectual
property rights and the threat of sanctions was withdrawn.

In May 1996, after determining that China was not enforcing crucial
portions of the 1995 agreement, the USTR announced that a retaliatory increase
in duties would go into effect on June 17, 1996, unless China began satisfactory
compliance. The sanctions, as in 1995, raised duties on various products
imported from China to 100%. Once again, the sanctions were averted when on June
17, 1996, the United States and China reached an agreement on stricter
enforcement of the 1995 agreement.

There can be no assurance that future trade relations between the United
States and China will be free of punitive tariffs or of the trade disputes that
can follow the imposition of such tariffs. Although toys such as those which the
Company produces in China were not subject to the increased duties threatened in
February 1995 or May-June 1996, there is no assurance that they will be exempt
from or unaffected by duties in future sanctions. Future import quotas,
increased tariffs on goods imported from China, or other retaliatory measures
could result in significant supply disruptions or higher merchandise costs to

the Company.

In the event of a disruption in China affecting the manufacture and
shipment of toys by the Company, there can be no assurance that alternate
sources of manufacturing could be arranged, or, if so, on terms acceptable to
the Company. See 'Business--Manufacturing.'

RAPID EXPANSION; GROWTH STRATEGY

Although the Predecessor Company acquired its business in 1990, the Company
was formed by the Principal Stockholders to carry on the business of the
Predecessor Company in April 1993. In recent years, the Company has experienced
significant and rapid sales growth. A substantial portion of the Company's
revenues is generated from sales of its Marvel Character products, and in
particular, its X-Men(Registered) and Spider-Man(Registered) action

11
<PAGE>
figures and, in 1995, promotional dolls and activity toys. There can be no
assurance that the Company will be able to maintain its present level of sales
or continue to experience sales growth. There can be no assurance that if the
Company continues to experience sales growth it can do so without adversely
affecting its profitability. Implementation of the Company's growth strategy is
subject to contingencies beyond management's control, including economic
conditions, ability to obtain licenses at a reasonable cost and competition.
Accordingly, there can be no assurance that the Company's growth strategy will
prove to be effective or that management's goals will be achieved. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business--Growth Strategy.'

CHANGING CONSUMER PREFERENCES

As a result of changing consumer preferences for various toys, many
products in the toy industry are successfully marketed for a limited period,
sometimes only one or two years. The Company derives a substantial portion of
its revenues from a limited number of popular toys. In particular, the success
of the Company is dependent in large part on the continued popularity of the
X-Men(Registered), Spider-Man(Registered) and other Marvel Characters and of
action figures generally, as well as on the Company's ability to develop new
products and to secure new licenses. In 1995 and the first quarter of 1996, as
some of the Company's Marvel Character based action figures such as
X-Men(Registered) and Spider-Man(Registered) have matured, sales of such toys
have declined. There can be no assurance that such declines will not continue or
accelerate or that, as existing Marvel Character based toys mature, the Company
will be able to develop new toys whose sales levels match or exceed sales levels
of such existing Marvel Character based toys. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations' and 'Business--Products.'

The success of many of the Company's products is dependent on the
popularity generated by television programs, movies and other media events.
There can be no assurance that any scheduled or anticipated television program,
movie or other media event will occur at all or result in substantial
promotional value to the Company's products. In addition, there can be no

assurance that Marvel Studios will successfully produce any films or television
programming or that, if released, any such films or television programming will
positively affect the Company's net sales or net income. See '--Risks Related to
Marvel Studios' and 'Business--Growth Strategy.'

RISKS RELATED TO MARVEL STUDIOS

The Company intends to use the net proceeds from the issuance and sale of
the Class A Common Stock offered hereby by the Company, which are estimated to
be approximately $10.6 million, to invest, from time to time, in the Preferred
Equity Interests of Marvel Studios. The feature film and television industries
in which Marvel Studios will operate are highly competitive and involve a
substantial degree of risk. The Company has no experience in the production of
feature films or television programs and Marvel has limited experience in the
production of feature films and television programs. Although the Company and
Marvel intend to form Marvel Studios, the formation of Marvel Studios is subject
to the negotiation and execution of definitive documentation.

It is anticipated that Marvel will control Marvel Studios, and therefore
Marvel Studios could take actions not approved by the Company's designees to the
governing body of Marvel Studios. The Company will not be able to control the
timing of its contributions to Marvel Studios or the projects that Marvel
Studios decides to finance. There can be no assurance that the films or
television projects which Marvel Studios will seek to produce, whether or not
successful, will result in promotional value to the Company or affect the sales
of the Company's products. Film studios and television networks often receive
merchandise participations in conjunction with the production of movie and
television projects. The Company will be obligated to reimburse Marvel Studios
for all merchandise participations for the Company's products paid by Marvel
Studios to a film studio or television network without the ability to approve
these merchandise participations. Although Marvel has advised the Company that,
for seven years from the date of formation of Marvel Studios, Marvel will grant
Marvel Studios the first opportunity to license Marvel Characters on a
royalty-free basis for use in its film and television projects, if Marvel
Studios determines not to take advantage of any such opportunities, Marvel may
seek to develop such film and television projects on its own.

The Company's capital commitment to Marvel Studios will exceed its net
proceeds from the Offering. The Company intends to fund the balance of its
capital commitment from available cash. Given the start-up nature of

12
<PAGE>

Marvel Studios, neither the amount to be spent by Marvel Studios in the
foreseeable future nor the amount or timing of the capital contributions by the
Company or Marvel to Marvel Studios has been determined. There can be no
assurance that the Company will have sufficient cash on hand to fund its
commitment to Marvel Studios when it is required to do so. The Company's Credit
Agreement currently permits the Company to invest in Preferred Equity Interests
only an amount up to its net proceeds from the Offering plus certain other
amounts permitted pursuant to investment criteria in the Credit Agreement, to
the extent available. The Company believes it will be able to obtain consent to

fund its full commitment to Marvel Studios as those contributions are required
to be made, although there can be no assurance it will be able to do so.
Although the Company is not required, and has no present intention, to invest
more than $50 million in Marvel Studios, the Company's Board of Directors may
decide to do so in the future if investments in Marvel Studios in excess of that
amount are deemed to be in the best interests of the Company. In the event the
Company is called upon to make additional capital contributions to Marvel
Studios in excess of $50 million and its Board of Directors elects not to make
these capital contributions or the Company does not have sufficent cash to do
so, to the extent that Marvel makes its additional capital contributions to
Marvel Studios, the Company's interest in Marvel Studios will be diluted.

Marvel Studios will compete for talent, creative material and financing for
its projects with other entities, many of which are larger, have more experience
in the film and television production industries and have greater financial
resources. The success of an individual feature film or television program
depends upon unpredictable and changing factors, such as consumer preferences,
distribution and promotional arrangements, ability to obtain broadcast
clearances, ability to obtain capital and critical approval. Therefore, there
can be no assurance that any of Marvel Studios' projects will result in
production and release of a feature film or television program and that, even if
produced and released, these feature films and television programs will be
successful. The rights to produce feature films based on certain of the Marvel
Characters are currently licensed to third parties. Some of those rights are in
dispute. There can be no assurance that Marvel will be able to reacquire or
restructure these rights for development by Marvel Studios or otherwise enhance
the likelihood that any such films or television programming will be produced.
There can be no assurance that the Company will receive any return on or the
principal of its investment in Marvel Studios. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources,' 'Business--Marvel Studios' and '--Growth Strategy' and 'Certain
Transactions--Marvel Studios.'

COMPETITION

The Company competes with many larger, better capitalized toy companies in
the design and development of new toys, the procurement of licenses, adequate
retail shelf space for its products, and in the marketing and distribution of
its products. There can be no assurance that the Company will be able to compete
effectively against such companies. See 'Business--Competition.'

SEASONALITY

Sales. Traditionally, the Company, like the toy industry in general, has
experienced a significant seasonal pattern in sales and net income due to the
greater demand for toys during the Christmas season. During 1993, 1994 and 1995,
77%, 70% and 69%, respectively, of the Company's U.S. net sales were realized
during the months of July through December. The Company expects that its
business will continue to experience a significant seasonal pattern for the
foreseeable future. One of the Company's strategies has been to diversify its
products into toy lines other than action figures, which currently make up a
substantial portion of the Company's sales. Moreover, to the extent that the
Company diversifies into product lines which are more seasonal than action

figures, the Company's business may experience greater seasonality. See
'Business--Growth Strategy.'

Working Capital. The seasonality of the Company's business requires cash
funding of its working capital requirements to provide for increased inventory
levels and trade accounts receivable prior to the Christmas season. To build its
inventory in anticipation of the Christmas season, the Company manufactures
products and pays its suppliers throughout the year, although a majority of the
Company's shipments occur in the last five months of the year. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality.'

13
<PAGE>
INVENTORY MANAGEMENT

Each of the Company's top five customers uses, to some extent, inventory
management systems which track sales of particular products and rely on reorders
being rapidly filled by suppliers rather than on large inventories maintained by
retailers to meet consumer demand. These systems reduce a retailer's investment
in inventory and increase pressure on suppliers like the Company to fill orders
promptly and shift a portion of the retailer's inventory risk onto the supplier.
Production of excess products by the Company to meet anticipated retailer demand
could result in markdowns and increased inventory carrying costs for the Company
on even its most popular items. In addition, if the Company fails to anticipate
the demand for products, it may be unable to provide adequate supplies of
popular toys to retailers in a timely fashion, particularly during the Christmas
season, and may consequently lose sales. See '--Seasonality' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'

CONTROL BY MARVEL; STOCKHOLDERS' AGREEMENT AND CLASS B VOTING RIGHTS

Marvel currently owns, and upon completion of the Offering will continue to
own, all of the outstanding shares of Class B Common Stock except for two shares
of Class B Common Stock which will be owned by the Class B Voting Trusts, and
Mr. Arad and Mr. Perlmutter will own an aggregate of approximately 67% of the
outstanding shares of Class A Common Stock. The Class A Common Stock entitles
its holders to one vote per share on all matters submitted to a vote of the
holders of the Company's Common Stock, and the Class B Common Stock generally
entitles its holders to ten votes per share on all matters submitted to the
holders of the Company's Common Stock. Each of Messrs. Arad and Perlmutter have
the right to vote the share of Class B Common Stock held by his respective Class
B Voting Trust in his absolute discretion until the termination of such trust.
Immediately following the Offering, Marvel will have approximately 78%, and the
Principal Stockholders collectively will have approximately 93%, of the combined
voting power of the outstanding shares of Common Stock, except as otherwise
provided by law. Accordingly, Marvel will continue to be able to control the
vote on all matters submitted to a vote of the holders of the Company's Common
Stock and elect the entire Board of Directors, except that Marvel intends to
maintain at least two Directors who are neither officers or directors of the
Company or its affiliates (the 'Independent Directors') and except as otherwise
provided by law. In addition, Marvel will be able to approve those matters by

written consent, without the necessity of holding a meeting of stockholders. The
Company's certificate of incorporation (the 'Certificate') provides that certain
fundamental transactions may not be consummated and the Company's Chief
Executive Officer may not be removed without the unanimous consent of the
holders of the Class B Common Stock (the 'Class B Stockholders') voting as a
class. The Principal Stockholders are parties to a stockholders' agreement (the
'Stockholders' Agreement') which provides, among other things, that they will
vote their respective shares of Common Stock to elect as Directors of the
Company (a) eight individuals designated by Marvel, including the Independent
Directors (the 'Marvel Directors'), (b) two individuals designated by Mr.
Perlmutter (the 'Perlmutter Directors') and (c) one individual designated by Mr.
Arad (the 'Arad Director'). The Credit Facility, as defined below, requires that
Marvel continue to control the Company. Control by Marvel and such rights of
unanimous consent of the Class B Stockholders may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of the Company, including sales of assets, mergers or other
business combinations. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,' 'Certain
Transactions--Stockholders' Agreement and Class B Voting Trusts' and
'Description of Capital Stock.'

Certain indebtedness of Marvel and its direct and indirect parent companies
impose restrictions that limit the ability of Marvel and its subsidiaries,
including the Company, to incur debt, make restricted payments, enter into
transactions with affiliates and sell or transfer assets.

INTERNATIONAL SALES

The Company's international sales have increased significantly since 1994,
constituting approximately 10% and 19% of the Company's net sales in 1995 and
the three months ended March 31, 1996, respectively. As a result, the Company's
operations may be affected adversely by the disruption of trade with the
countries in which the Company's customers are located, whether as a result of
political changes or instability, war, the imposition of regulations relating to
international sales, the imposition of or increase in duties, taxes and other
charges on international sales, fluctuations in the value of the dollar against
international currencies, or restrictions on

14
<PAGE>
international currency transactions. See '--Dependence on Non-U.S.
Manufacturers' and 'Business--Manufacturing.'

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. In addition, the Credit Facility restricts the ability of the Company to
pay dividends. See 'Dividend Policy' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have a total of
20,337,862 shares of Class A Common Stock and 7,394,000 shares of Class B Common
Stock outstanding (based on the number of shares outstanding on June 15, 1996).
The 13,656,000 outstanding shares of Class A Common Stock held by Messrs.
Perlmutter and Arad and 7,394,000 shares of Class A Common Stock issuable upon
conversion of the shares of the Class B Common Stock held by Marvel and the
Class B Voting Trusts for each of Messrs. Perlmutter and Arad (in each case
after giving effect to the sale of shares offered hereunder), each of whom may
be deemed to be an 'affiliate' of the Company, will continue to be 'restricted'
securities within the meaning of Rule 144 under the Securities Act of 1933, as
amended (the 'Securities Act' or 'Act'). Generally, under Rule 144, a person,
including a person who may be deemed an 'affiliate' of the Company, who has held
restricted shares for two years may sell such shares, subject to certain volume
limitations and other restrictions, without registering them under the Act. The
Company, its directors, executive officers and the Principal Stockholders have
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated ('Morgan Stanley') on behalf of the Underwriters, they will not,
subject to certain exceptions, during the period commencing on the date hereof
and ending 90 days after the date of this Prospectus, (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, granting any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly any shares of Class A
Common Stock or any securities convertible or exchangeable for Class A Common
Stock (whether such shares or any such securities are now owned by the Company's
directors, executive officers or the Principal Stockholders or are hereafter
acquired), or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Class A Common Stock, whether any such transaction described in clause (1)
or (2) above is to be settled by delivery of Class A Common Stock or such other
securities in cash or otherwise. The foregoing restrictions shall not apply to
the sale of any shares of Class A Common Stock pursuant to this Offering or
pursuant to the Stock Option Plan or stock options outstanding as of the date of
this Prospectus. In addition, the Company's directors, executive officers and
Principal Stockholders have agreed that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, they will not during the period
commencing on the date hereof and ending 90 days after the date of this
Prospectus, make any demand for or exercise any right with respect to the
registration of any shares of Class A Common Stock or any security convertible
into or exercisable or exchangeable for Class A Common Stock. Each of the
Principal Stockholders would be entitled to sell his or its shares of Common
Stock under Rule 144, subject to those volume limitations and restrictions, and
with the consent of Morgan Stanley on behalf of the Underwriters immediately
after the Offering. Rule 144 generally also permits sales of restricted shares,
without any volume limitations, by a person who has not been an 'affiliate' of
the Company for at least three months preceding the sale of such shares and who
has held those restricted shares for at least three years. Pursuant to a
registration rights agreement with the Company (the 'Registration Rights
Agreement'), the Principal Stockholders have certain rights to require the
Company to register some or all of the shares of Class A Common Stock currently
owned or issuable upon conversion of the Class B Common Stock held by them. See
'Certain Transactions--Registration Rights Agreement' and 'Shares Eligible for
Future Sale.' No prediction can be made as to the effect, if any, that future

sales of shares, or the availability of shares for future sales, will have on
the market price of the shares of Common Stock from time to time. The sale of
substantial amounts of shares of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. See 'Shares Eligible for Future Sale.'

<PAGE>
USE OF PROCEEDS

The Company is selling 700,000 shares of Class A Common Stock in the
Offering. The net proceeds from the issuance and sale of the 700,000 shares of
Class A Common Stock offered hereby by the Company, after deduction of the
underwriting discount and estimated Offering expenses, are estimated to be
approximately $10.6 million (assuming an offering price of $16.625 per share,
the reported last sale price of the Class A Common Stock on the NYSE on August
5, 1996). The Company intends to use the net proceeds to fund a portion of its
capital commitment to Marvel Studios, by purchasing, from time to time,
Preferred Equity Interests of Marvel Studios. Pending such use, the net proceeds
will be used for working capital and general corporate purposes or will be
invested in short-term, marketable investment grade securities. The Company
intends to fund its remaining obligations to purchase Preferred Equity Interests
from available cash. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,'
'Business--Marvel Studios' and 'Certain Transactions--Marvel Studios.'

The Company will not receive any proceeds from the sale of Class A Common
Stock by the Selling Stockholders.

PRICE RANGE OF CLASS A COMMON STOCK

Since the IPO of the Company's Class A Common Stock at $18.00 per share in
March 1995, the Class A Common Stock has been traded on the NYSE under the
symbol 'TBZ.' The following table sets forth for the
periods indicated the high and low sale prices per share of the Class A Common
Stock as reported by the NYSE:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter (March 2 to March 31)............................................ $21 1/8 $18 5/8
Second Quarter................................................................. 20 1/4 16 3/8
Third Quarter.................................................................. 26 1/4 18
Fourth Quarter................................................................. 25 1/8 20 1/4

1996
First Quarter.................................................................. 24 3/4 17 7/8
Second Quarter................................................................. 22 3/8 17 5/8
Third Quarter (through August 5)............................................... 20 1/4 16 5/8
</TABLE>

A recent reported last sale price of the Class A Common Stock as reported
on the NYSE is set forth on the cover page of this Prospectus. As of June 15,

1996, there were approximately 71 holders of record of the Class A Common Stock.

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. It is the current policy of the Company's Board of Directors (the
'Board') to retain any earnings to finance the operation and expansion of the
Company's business. The payment of any cash dividends in the future will depend
upon the Company's earnings, financial condition and capital needs and on other
factors deemed relevant by the Board. In addition, the Company's Credit Facility
restricts the ability of the Company to pay cash dividends. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'

<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to the sale of the 700,000 shares of
Class A Common Stock offered by the Company at an estimated offering price of
$16.625 per share (the reported last sale price of the Class A Common Stock on
the NYSE on August 5, 1996) and the use of the net proceeds therefrom as set
forth under 'Use of Proceeds.' The information set forth below is qualified by
and should be read in conjunction with 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the financial statements and
notes thereto.

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents......................... $ 8,551 $ 8,551
-------- --------------
-------- --------------
Borrowings under Credit Facility.................. $ -- $ --
-------- --------------
Total short-term debt................... $ -- $ --
-------- --------------
-------- --------------
Long-term debt.................................... $ -- $ --
Redeemable convertible Series A preferred stock,
$.01 par value, 59,091 shares issued and
outstanding convertible into 59,091 shares of

Class A Common Stock, maximum redemption value
$1,950,000 at August 31, 1999(1)................ 1,611 1,611
Stockholders' equity:
Preferred Stock, $.01 par value,
25,000,000 shares authorized;
59,091 shares issued and outstanding
as redeemable convertible Series A
preferred stock, $.01 par value....... -- --
Class A Common Stock, $.01 par value,
100,000,000 shares authorized,
17,134,529 issued and outstanding,
20,334,529 shares issued and
outstanding, as adjusted(2)(3)........ 171 203
Class B Common Stock, $.01 par value,
20,000,000 shares authorized,
9,894,000 issued and outstanding,
7,394,000 shares issued and
outstanding, as adjusted(2)........... 99 74
Additional paid-in capital........................ 61,290 71,868
Retained earnings................................. 53,077 53,077
-------- --------------
Total stockholders' equity.............. 114,637 125,222
-------- --------------
Total capitalization.................. $116,248 $126,833
-------- --------------
-------- --------------
</TABLE>

- ------------------
(1) Includes 59,091 shares of Series A Preferred Stock outstanding, of which
27,273 shares are held in escrow to secure indemnification obligations to
the Company by the seller of the Spectra Star business.

(2) Excludes an aggregate of 1,321,471 shares of Class A Common Stock reserved
for issuance under the Stock Option Plan at March 31, 1996, including
1,068,318 shares as to which options were then outstanding of which 655,066
options were immediately exercisable. Excludes 59,091 shares of Class A
Common Stock issuable upon the conversion of outstanding shares of Series A
Preferred Stock. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources' and
'Description of Capital Stock.'

(3) As of June 15, 1996, there were 17,137,862 issued and outstanding shares of
Class A Common Stock. As of such date, after giving effect to the Offering,
there will be 20,337,862 shares of Class A Common Stock issued and
outstanding.

(4) Stockholders' equity as adjusted reflects application of the Company's
estimated net proceeds from the Offering to fund a portion of the Company's
$50 million capital commitment to Marvel Studios by purchasing Preferred
Equity Interests of Marvel Studios. Pending such use, the net proceeds will

be used for working capital and general corporate purposes or will be
invested in short-term, marketable investment grade securities. Cash and
cash equivalents as adjusted does not reflect application of any net
proceeds from the Offering. See 'Use of Proceeds.'

<PAGE>
SELECTED FINANCIAL INFORMATION

The following tables present selected combined or consolidated financial
data for the business of the Company and the Predecessor Company (see Notes (1)
and (2) below) for the five year period ended December 31, 1995, which were
derived from audited financial statements of the Company's business, and the
three month periods ended March 31, 1995 and 1996, which were derived from the
unaudited financial statements of the Company which, in the opinion of the
management of the Company, have been prepared on the same basis as the audited
combined or consolidated financial statements and include all adjustments
(consisting of normal and recurring adjustments and accruals) necessary for a
fair presentation of such information. Results for the three months ended March
31, 1996 are not necessarily indicative of results for any interim period or the
entire year. The information in these tables should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the financial statements of the Company and the Predecessor
Company and notes thereto included elsewhere in this Prospectus.

For certain recent quarterly results of the Company, see 'Management's
Discussion and Analysis of Financial Condition and Results of Operations--Recent
Quarterly Results.'

<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------------------------ -----------------------------------------------------------------
FOUR EIGHT
YEAR ENDED MONTHS MONTHS THREE MONTHS ENDED
DECEMBER 31, ENDED ENDED YEAR ENDED DECEMBER 31, MARCH 31,
------------------ APR. 30, DEC. 31, ------------------------------- ------------------
1991 1992 1993 1993 1993 1994 1995 1995 1996
------- ------- -------- -------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:(1)(2)
Net sales.................. $45,068 $57,934 $ 10,175 $ 79,569 $89,744 $156,525 $196,395 $27,888 $38,369
Cost of sales.............. 22,867 29,710 5,308 36,682 41,990 73,490 88,397 13,398 19,733
------- ------- -------- -------- ------- -------- -------- ------- -------
Gross profit............... 22,201 28,224 4,867 42,887 47,754 83,035 107,998 14,490 18,636
Selling, general and
administrative
expenses(3)(4)(5)........ 19,254 23,099 5,840 22,253 28,093 38,263 48,234 7,717 11,369
Depreciation and
amortization............. 2,770 2,471 638 3,459 4,097 8,609 12,750 1,695 2,144
Compensatory stock
option(6)................ -- -- -- 10,909 10,909 4,091 -- -- --
------- ------- -------- -------- ------- -------- -------- ------- -------
Operating income (loss).... 177 2,654 (1,611) 6,266 4,655 32,072 47,014 5,078 5,123

Interest expense........... (655) (1,294) (476) (721) (1,197) (1,862) (490) (413) (28)
Other income, net.......... 39 120 237 322 559 65 1,050 180 194
------- ------- -------- -------- ------- -------- -------- ------- -------
Income (loss) before income
taxes.................... (439) 1,480 (1,850) 5,867 4,017 30,275 47,574 4,845 5,289
Income tax (expense)
benefit (pro forma in
1991, 1992, four months
ended April 30, 1993 and
combined year ended
December 31, 1993)(7).... 176 (592) 740 (2,379) (1,639) (12,261) (19,172) (1,986) (2,116)
------- ------- -------- -------- ------- -------- -------- ------- -------
Net income (loss).......... $ (263) $ 888 $ (1,110) $ 3,488 $ 2,378 $ 18,014 $ 28,402 $ 2,859 $ 3,173
------- ------- -------- -------- ------- -------- -------- ------- -------
------- ------- -------- -------- ------- -------- -------- ------- -------
Net income per share(7).... $ -- $ -- $ -- $ .13 $ .09 $ .67 $ 1.05 $ .11 $ .12
Weighted average number of
common and common
equivalent shares
outstanding (assumes
27,000,000 shares outstanding
for periods prior to 1995)... -- -- -- 27,000 27,000 27,000 27,115 27,000 27,201
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
----------------------- ------------------------------------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
----------------------- ------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)...... $(1,010) $ (844) $24,780 $ 39,839 $ 85,174 $68,184 $ 84,007
Total assets................... 26,525 28,852 56,877 104,723 152,218 98,764 133,763
Borrowings under credit
facility..................... -- -- 4,500 21,500 -- -- --
Due to stockholders and
affiliated companies......... 16,255 13,407 15,746 16,845 -- -- --
Redeemable preferred
stock(8)..................... -- -- -- -- 3,016 -- 1,611
Stockholders' equity........... 1,908 2,384 16,283 38,416 111,332 85,420 114,637
</TABLE>

(Footnotes on next page)

18
<PAGE>
(Footnotes from previous page)
- ------------------
(1) The years ended December 31, 1991 and 1992 and the four month period ended

April 30, 1993 represent the combined results of the business of the
Company, which was then wholly owned by Mr. Perlmutter, and Toy Biz
International Ltd., a Hong Kong company indirectly controlled by the
Predecessor Company. The eight month period ended December 31, 1993, and the
years ended December 31, 1994 and 1995 and the three-month periods ended
March 31, 1995 and 1996 represent the consolidated results of the Company.
There was no change in the carrying value of the Company's assets as a
result of the April 30, 1993 transaction (see Note 1 of notes to audited
financial statements).

(2) The four month period ended April 30, 1993 and the year ended December 31,
1993 include five months and thirteen months, respectively, of results of
Toy Biz International Ltd. as a result of changing Toy Biz International
Ltd.'s fiscal year end from November 30 to December 31. The sales and
operating loss of Toy Biz International Ltd. for the month of December 1992
were not significant.

(3) During the years ended December 31, 1991 and 1992 and the four month period
ended April 30, 1993, the Predecessor Company accrued approximately
$4,151,000, $1,026,000 and $259,000, respectively, in fees and commissions
to an affiliate of Mr. Perlmutter as compensation for its assistance in
establishing relationships with customers of the Predecessor Company. No
such fees and commissions were incurred after April 30, 1993.

(4) During the years ended December 31, 1991 and 1992 and the four month period
ended April 30, 1993, the Predecessor Company accrued royalties to Marvel of
approximately $1,820,000, $812,000 and $970,000, respectively, under a
license for Marvel Characters. No such royalties were incurred after April
30, 1993. During the eight month period ended December 31, 1993 and the
years ended December 31, 1994 and 1995, the Company reimbursed Marvel for
services provided by Marvel or purchased from third-party providers for the
Company of approximately $875,000, $498,000 and $306,000, respectively.

(5) The results for the four month period ended April 30, 1993 and combined year
ended December 31, 1993 include approximately $2,000,000 of bonuses paid by
the Predecessor Company to employees in connection with the formation of the
Company.

(6) Represents non-cash compensation expense associated with the vesting and
exercise of a compensatory stock option granted to Mr. Arad in connection
with the formation of the Company.

(7) For the taxable periods until April 30, 1993, the Predecessor Company was
subject to taxation under Subchapter S of the Code. As a result, the
Predecessor Company was not subject to Federal and certain state income
taxes, as its sole stockholder included the results of its operations in his
personal income for these tax purposes. Provision for income taxes for the
aforementioned periods reflects income tax (expense) benefit (at an assumed
effective combined tax rate of 40%) on a pro forma basis as if the
Predecessor Company had not been an S corporation.

(8) Reflects 59,091 shares of Series A Preferred Stock outstanding, of which
27,273 shares are held in escrow to secure indemnification obligations to
the Company by the seller of the Spectra Star business. See 'Management's

Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and
results of operations of the Company and its subsidiaries should be read in
conjunction with the financial statements and the notes thereto, included
elsewhere in this Prospectus.

OVERVIEW

As a result of changing consumer preferences, many of the Company's
products are successfully marketed for only a limited period. In addition, the
success of many of the Company's products is dependent on the popularity
generated by television programs and other media events featuring the characters
on which those products are based. The Company's product mix, therefore, tends
to change frequently as the Company attempts to adapt to these changing
preferences and the changing popularity resulting from these media events.

The Company has achieved significant growth since 1991. The Company's net
sales more than quadrupled, growing from approximately $45.1 million in 1991 to
approximately $196.4 million in 1995. At the same time, the Company's operating
income increased from approximately $177,000 in 1991 to approximately $47.0
million in 1995. The Company's growth in the years 1992 through 1994 was largely
attributable to increased sales of X-Men(Registered) and, in late 1994,
Spider-Man(Registered) action figures. In 1995, the Company experienced
increased sales in its line of proprietary dolls, due largely to the
introduction of Baby Tumbles Surprise(Trademark), and the Company's sales of
Marvel Characters products remained relatively constant, reflecting increased
sales of Spider-Man(Registered) and other Marvel action figures. In 1995 and the
first quarter of 1996, as some of the Company's Marvel Character based action
figures such as X-Men(Registered) and Spider-Man(Registered) have matured, sales
of such toys have declined. There can be no assurance that such declines will
not accelerate or continue. These declines were more than offset by increased
revenues from the Company's other products including activity toys, a result of
its acquisition of Spectra Star, and girls' toys, reflecting the success of its
Baby Tumbles Surprise(Trademark) promotional doll.

The Company computes net sales by deducting sales allowances, including
allowances for returns, volume discounts and cooperative advertising, from its

gross sales. Once percentage allowances are agreed upon with the Company's
customers for these matters, the Company allows customers to deduct these
percentage allowances from remittances. In the case of cooperative advertising,
the Company selectively monitors customer performance to determine fulfillment,
but does not verify that customers fulfill their commitments in all cases. The
Company does not track any of its sales allowances by product line, but rather
accrues sales allowances as an overall percentage of gross sales. Where
information concerning net sales by product line is provided in this Prospectus,
the Company has estimated net sales by attributing sales allowances to each
product line in proportion to the individual product line's percentage of gross
sales. Sales allowances have varied as a percentage of gross sales due to
changes in the Company's product mix, defective product allowances, volume
discounts or other sales allowances. Among the years ended December 31, 1993,
1994 and 1995, the most significant variation in sales allowances occurred in
1993, when a significant increase in sales allowances resulted primarily from
the introduction of new products in 1993 which had a higher defective return
experience than the Company's overall defective return experience in 1994 and
1995.

The Company capitalizes expenditures for molds, tools and equipment and
product and package design costs incurred in the development of its products
('Capitalized Product Costs'). See note 1 of notes to financial statements
appearing elsewhere in this Prospectus. The Company amortizes Capitalized
Product Costs over the anticipated three year useful life of its products. Due
to changing consumer preferences and the introduction of competing products, the
Company has discontinued certain products in the first or second year following
their introduction, leading to write-offs of related unamortized Capitalized
Product Costs. As a result of the product discontinuations noted above, the
Company had accelerated write-offs of Capitalized Product Costs of

20
<PAGE>
approximately $754,000, $1.3 million and $1.9 million in 1993, 1994 and 1995,
respectively. Because the Company writes off any remaining related unamortized
Capitalized Product Costs when it discontinues a product, the Company expects to
continue to experience write-offs of varying magnitude in future periods.

On September 11, 1995, the Company acquired certain assets and assumed
certain liabilities of Spectra Star. On November 29, 1995, the Company acquired
certain assets and assumed certain liabilities of Quest. See '--Liquidity and
Capital Resources.'

The Company expects that its gross profit as a percentage of net sales will
decline in the future because of an increased proportion of international sales,
a decreased proportion of sales of action figures and potential sales under the
Company's planned F.O.B. program. The Company's international sales historically
have been made at lower gross margins than its U.S. sales. However,
international sales are subject to lower operating expenses in certain
instances. For example, the Company does not generally incur any advertising or
commission expense on its international sales. Therefore, the Company believes
that international sales contribute to operating income at a rate approximately
the same as U.S. sales. The Company's sales of action figures, which the Company
believes benefit from high consumer demand during periods of positive media
exposure, historically have been made at higher gross margins than the Company's
other product categories. The Company anticipates that products sold under its

F.O.B. program will be made at lower gross margins for the same reasons as its
international sales. The Company believes that products sold through its planned
F.O.B. program will involve little advertising, inventory carrying costs or
accounts receivable risk. As a result, the Company believes that while gross
margins may be lower on sales of products sold through the F.O.B. program, a
greater proportion of gross margin dollars may be contributed to operating
income. See 'Business--Customers, Marketing and Distribution.'

The Company's selling, general and administrative expenses increased during
1995 and the first three months of 1996 as a percentage of net sales. The
Company believes a higher level of selling, general and administrative expenses
is likely to continue. The higher level reflects the increasing portion of net
sales which are derived from non-Marvel licenses, and are subject to royalty
expense, the Company's acquisition of Spectra Star which, as a manufacturing
operation, has a higher level of selling, general and administrative expenses
than the other operations of the Company, and the Company's continuing
expenditures on sales and administrative infrastructure to support future growth
in the Company's operations.

To enhance further the media exposure of the Marvel Characters, the Company
and Marvel intend to form Marvel Studios. The objective of Marvel Studios is to
facilitate the release of live action and animated feature films and television
programming based on the Marvel Characters in order to create greater consumer
interest in these characters and related merchandise, including toys. The
Company believes that the advertising and promotion of feature films, as well as
any films or television programming based on the Marvel Characters, will create
consumer interest in the Marvel Characters and could create revenue
opportunities for the Company by helping to generate sales from action figures,
other children's toys, and other products for which the Company holds the rights
under the Marvel License. The Company intends to invest, from time to time, up
to $50 million in the aggregate in Preferred Equity Interests of Marvel Studios.
Marvel has advised the Company that it intends to invest, from time to time, up
to $50 million in the aggregate in the Common Equity Interests of Marvel Studios
funded in part with the net proceeds from the sale of its shares of Class A
Common Stock in the Offering. In addition, the Company will be obligated to
reimburse Marvel Studios for all merchandise participations for the Company's
products paid by Marvel Studios to a film studio or television network without
the ability to approve these merchandise participations. See 'Risk
Factors--Risks Related to Marvel Studios,' 'Use of Proceeds,' '--Liquidity and
Capital Resources,' 'Business--Marvel Studios' and 'Certain Transactions--Marvel
Studios.'

21
<PAGE>
SEASONALITY

Because of greater retail demand for toy products during the Christmas
season, the toy industry generally is highly seasonal in nature. The Company has
experienced this seasonal pattern in its sales and profitability. The following
table illustrates the seasonality of the Company's U.S. net sales by quarter for
1993, 1994, 1995 and the first three months of 1996. See '--Recent Quarterly

Results.'

U.S. NET SALES BY QUARTER

<TABLE>
<CAPTION>
1993 1994 1995 1996
--------------------- --------------------- --------------------- ------
QUARTER AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT
- --------------- ------ ---------- ------ ---------- ------ ---------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1st............ $ 7.0 9% $16.5 12% $26.9 15% $31.2
2nd............ 11.8 14 25.6 18 27.7 16
3rd............ 25.0 31 33.2 23 49.7 28
4th............ 36.9 46 67.4 47 71.5 41
------ --- ------ --- ------ ---
Total.......... $80.7 100% $142.7 100% $175.8 100%
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---
</TABLE>

The Company expects that its business will continue to experience a
significant seasonal pattern for the foreseeable future, although the Company's
acquisition in September 1995 of Spectra Star's kite business, which typically
experiences a seasonal pattern of greater sales during the first three months of
the year, may, to some limited extent, offset the Company's traditional
seasonality. There can be no assurance that such offset will occur.

RECENT QUARTERLY RESULTS

On July 24, 1996, the Company announced results for the three months ended
June 30, 1996. The Company announced that net sales increased to $45.8 million
in the three months ended June 30, 1996 compared to $30.4 million in the three
months ended June 30, 1995 and that net income increased to $4.6 million or
$0.17 per share compared to $4.3 million or $.16 per share in the three months
ended June 30, 1995.

The Company's net sales increased as a result of the continued success of
the Company's promotional dolls and activity toys in domestic markets and boys'
action figure toys in international markets. These combined increases more than
offset decreases in U.S. sales of boys' action figures. Gross profit increased
by 24% to $22.9 million compared to $18.4 million in the three months ended June
30, 1995. Operating expenses increased compared to the three months ended June
30, 1995 due to the development and marketing of the Company's expanded product
line, the bulk of which is planned to be shipped in the second half of 1996.

U.S. promotional doll sales increased to $11.3 million compared to $1.7
million in the three months ended June 30, 1995 due to continued strong sales of
the Company's Baby Tumbles Surprise(Trademark) promotional doll and shipments of
new items in the Company's 1996 promotional doll line. U.S. sales of activity
toys increased to $3.1 million compared to $888,000 in the three months ended
June 30, 1995 due to continued sales of Spectra Star(Registered) brand kites.
International sales increased to $13.3 million compared to $2.7 million in the
three months ended June 30, 1995 primarily due to expanded sales of
Spider-Man(Registered) and Hercules: The Legendary Journeys(Trademark) action
figures and related toys, as distribution of the U.S. television series based on
those characters continues to spread to additional world markets.

22
<PAGE>

The following table sets forth certain unaudited consolidated financial
data of the Company for the three months ended June 30, 1995 and 1996:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
---------------------------
1995 1996
---------------------- ----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales......................................... $ 30,435 $ 45,814
Cost of sales..................................... 12,015 22,939
---------- ----------
Gross profit.................................... 18,420 22,875
---------- ----------
Operating expenses:
Selling, general and administrative............. 9,145 12,961
Depreciation and amortization................... 2,294 2,442
---------- ----------
Total operating expenses..................... 11,439 15,403
---------- ----------
Operating income.................................. 6,981 7,472
Interest (income), net............................ (346) (184)
---------- ----------
Income before provision for income taxes........ 7,327 7,656
Provisions for income taxes....................... 3,004 3,062
---------- ----------
Net income...................................... $ 4,323 $ 4,594
---------- ----------
---------- ----------
Net income per share.............................. $ .16 $ .17
---------- ----------

---------- ----------
Weighted average number of common and common
equivalent shares outstanding................... 27,000 27,134
---------- ----------
---------- ----------
</TABLE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain income and
expense items expressed as a percentage of net sales for such periods.

PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED MARCH
31, 31,
---------------------- --------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 46.8 47.0 45.0 48.0 51.4
------ ------ ------ ------ ------
Gross profit.......................... 53.2 53.0 55.0 52.0 48.6
------ ------ ------ ------ ------
Selling, general and administrative
expenses.............................. 31.3 24.4 24.6 27.7 29.6
Depreciation and amortization........... 4.6 5.5 6.5 6.1 5.6
Compensatory stock option............... 12.1 2.6 -- -- --
------ ------ ------ ------ ------
Total operating expenses.............. 48.0 32.5 31.1 33.8 35.2
------ ------ ------ ------ ------
Operating income........................ 5.2 20.5 23.9 18.2 13.4
Interest expense........................ (1.3) (1.2) (.2) (1.5) (.1)
Other income, net....................... .6 -- .5 .7 .5
------ ------ ------ ------ ------
Income before income taxes.............. 4.5 19.3 24.2 17.4 13.8
Income tax expense (pro forma in
1993)................................. 1.8 7.8 9.7 7.1 5.5
------ ------ ------ ------ ------
Net income............................ 2.7% 11.5% 14.5% 10.3% 8.3%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>

23
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 AND 1995

The Company's net sales increased approximately 38% to approximately $38.4

million for the first quarter of 1996 from approximately $27.9 million in the
first quarter of 1995. The Company analyzes net sales utilizing the following
categories: boys', girls', infant/preschool, activity, discontinued items and
international as set forth in the table below.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
--------------
1995 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
U.S. Net Sales by Product Category
Boys'........................................... $21.0 $12.7
Girls'.......................................... 1.0 7.5
Infant/Preschool................................ 2.0 1.3
Activity........................................ 1.6 9.3
Discontinued Items.............................. 1.3 .4
------ ------
Total U.S. Net Sales......................... 26.9 31.2
International Sales............................... 1.0 7.2
------ ------
Total Net Sales.............................. $27.9 $38.4
------ ------
------ ------
</TABLE>

Sales in the activity toys category had a net increase of approximately
$7.7 million in the first quarter of 1996, due primarily to kite sales from the
new Spectra Star division offset in part by decreases in sales of pinball games
and Hero Caps(Registered). Sales in the girls' toys category increased
approximately $6.5 million in the first quarter of 1996, due to continued strong
sales of the Company's Baby Tumbles Surprise(Trademark) promotional doll, as
well as the introduction of the Company's Take Care of Me Twins(Trademark) and
Flipper(Registered) products. These combined increases more than offset the net
decrease of $8.3 million in U.S. sales of boys' action figures. The decrease in
U.S. sales of boys' action figures resulted from decreases in sales of
X-Men(Registered), Spider-Man(Registered), Iron Man(Registered) and Fantastic
Four(Registered) action figures, partially offset by sales of the Company's new
Hercules: The Legendary Journeys(Trademark) line. Sales of action figures in the
1995 period benefitted from the introduction of the Iron Man(Registered) and
Fantastic Four(Registered) lines and the continued rollout of the
Spider-Man(Registered) line, which was introduced in the fourth quarter of 1994.
On a worldwide basis, sales of boys' toys were relatively unchanged, since the
substantial increase in international sales is comprised largely of boys'
products. The Company's sales of Marvel Characters products on a worldwide basis
remained relatively constant in the first quarter of 1996 versus the first
quarter of 1995, as increased sales in Spider-Man(Registered) action figures
offset decreased sales in X-Men(Registered) products.

Gross profit increased approximately 29% to approximately $18.6 million for

the first quarter of 1996 from approximately $14.5 million in the first quarter
of 1995. Gross profit as a percentage of net sales decreased to approximately
49% in the first quarter of 1996 from approximately 52% in the first quarter of
1995 due to changes in the Company's product mix and the effect of a higher
percentage of international sales, which typically have a lower gross margin
than U.S. sales.

Selling, general and administrative expenses increased approximately 47% to
approximately $11.4 million (approximately 30% of net sales) in the first
quarter of 1996 from approximately $7.7 million (approximately 28% of net sales)
in the first quarter of 1995. The increase of $3.7 million was due to increased
royalties, advertising and miscellaneous selling and administrative expenses as
a result of sales growth, and additional salaries and consulting expense
attributable to the Company's expanded product lines.

Depreciation and amortization expense increased approximately 26% to
approximately $2.1 million in the first quarter of 1996 from approximately $1.7
million in the first quarter of 1995. The increase was due primarily to
increased amortization of product tooling costs resulting from increased
investment in product tooling to support the Company's growth and expanded
product lines.

The Company had net interest income of approximately $166,000 for the first
quarter of 1996, compared with net interest expense of approximately $233,000
for the first quarter of 1995. This represents net improvement of approximately
$399,000, due primarily to repayment of indebtedness with a portion of the
proceeds of the IPO and net interest income on the balance of these proceeds.

24
<PAGE>
Income before taxes increased approximately 9% to approximately $5.3
million for the first three months of 1996 from approximately $4.8 million for
the first three months of 1995. Slightly less than half of the Company's income
before taxes for this period was attributable to sales of Spectra
Star(Registered) products.

Provision for income taxes increased from approximately $2.0 million for
the first three months of 1995 to approximately $2.1 million for the first three
months of 1996, while the effective tax rate decreased from 41% for the first
three months of 1995 to 40% for the first three months of 1996 due to a change
in the allocation of state and local taxes as a result of the Spectra Star
acquisition.

As a result of the above, net income increased to approximately $3.2
million in the first quarter of 1996 from approximately $2.9 million in the
first quarter of 1995.

YEARS ENDED DECEMBER 31, 1995 AND 1994

The Company's net sales increased approximately 25% to approximately $196.4
million for 1995 from approximately $156.5 million in 1994. Substantially all of
the increase in net sales resulted from sales of new products. Spectra Star,
which was acquired in the second half of 1995, produced net sales of $4.6
million. Net sales for these periods by the Company's product categories are set

forth in the table below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1994 1995
------- -------
(IN MILLIONS)
<S> <C> <C>
U.S. Net Sales by Product Category
Boys'........................................... $110.4 $105.5
Girls'.......................................... 12.7 37.7
Infant/Preschool................................ 7.3 13.5
Activity........................................ 6.1 15.5
Discontinued Items.............................. 6.2 3.6
------- -------
Total U.S. Net Sales......................... 142.7 175.8
International Sales............................... 13.8 20.6
------- -------
Total Net Sales.............................. $156.5 $196.4
------- -------
------- -------
</TABLE>

U.S. sales of boys' toys decreased approximately $4.9 million, as the
introduction of new lines of action figures, such as Iron Man(Registered),
Fantastic Four(Registered), Ghost Rider(Registered) and Hercules(Registered) and
the growth in sales of the Company's Spider-Man(Registered) line was more than
offset by the decrease in sales of the Company's X-Men(Registered) line.
However, as a category, total worldwide net sales of boys' toys were relatively
unchanged, since the substantial increase in international sales is comprised
largely of boys' products.

U.S. sales of girls' toys increased approximately $25.0 million due to the
successful introduction of Baby Tumbles Surprise(Trademark), which was the
leading promotional doll in the U.S. based on unit volume in 1995, as well as
the national introduction of Baby So Real(Trademark) and Pooch, the Good
Puppy(Trademark) in 1995, offset by a decrease in sales of Jumpsie(Registered)
and Caboodles(Trademark) products. Sales in the activity toy category increased
approximately $9.4 million from 1994 to 1995 with the introduction of the Wild &
Wacky Painter(Trademark) and, to a lesser extent, a CD-ROM-based product and the
initial sales of kites and other toys under the Spectra Star(Registered) brand.
The infant/preschool category increased from approximately $7.3 million in U.S.
net sales in 1994 to approximately $13.5 million in 1995, due to the continued
expansion of the Company's infant/preschool line under the Gerber License.

Gross profit increased approximately 30% to approximately $108.0 million in
1995 from approximately $83.0 million in 1994. Gross profit as a percentage of
net sales increased from approximately 53% in 1994 to approximately 55% in 1995
due to additional sublicensing revenues and improved product margins, offset in
part by the effect of a higher percentage of international sales, which
typically have a lower gross margin than U.S. sales.

Selling, general and administrative expenses increased approximately 26% to
approximately $48.2 million (approximately 25% of net sales) in 1995 from
approximately $38.3 million (approximately 24% of net sales) in 1994. The
increase of approximately $10.0 million was due to increased advertising,
royalties and miscellaneous selling and administrative expenses, which increased
as a result of sales growth, and additional salaries and consulting expense
attributable to the Company's expanded product lines.

25
<PAGE>
Depreciation and amortization expense increased to approximately $12.8
million in 1995 from approximately $8.6 million in 1994. This increase was
primarily attributable to increased amortization of product tooling costs
resulting from increased investment in product tooling to support the Company's
growth and expanded product line.

In connection with the formation of the Company, Mr. Arad was granted an
option (the 'Arad Stock Option'), providing Mr. Arad with the right to acquire
10% of the common stock of the Company at a price substantially below the
appraised value of the Company's common stock at that time. The Company
recognized approximately $4.1 million in 1994 as a non-recurring, non-cash
compensation expense related to the Arad Stock Option. The amount by which the
appraised value of the shares of stock issuable on exercise of the Arad Stock
Option exceeded the exercise price of the Arad Stock Option was treated as
compensation expense and amortized from the date of grant in 1993 through March
1994. See 'Certain Transactions--Formation Agreement.'

The Company had net interest income of approximately $560,000 for 1995,
compared with net interest expense of approximately $1.8 million for 1994. This
represents a net improvement of approximately $2.4 million due primarily to
decreased borrowings and the temporary investment of excess cash generated from
operating activities and net proceeds raised in the IPO.

Income before taxes increased to approximately $47.6 million in 1995 from
approximately $30.3 million in 1994.

Provision for income taxes increased from approximately $12.3 million in
1994 to approximately $19.2 million in 1995, while the effective tax rate
decreased from 40.5% in 1994 to 40.3% in 1995 due to a change in the allocation
of state and local taxes as a result of the Spectra Star acquisition.

As a result of the above, net income increased to approximately $28.4
million in 1995 from approximately $18.0 million in 1994.

YEARS ENDED DECEMBER 31, 1994 AND 1993

The operating results for the year ended December 31, 1993 include the
consolidated results of four months of U.S. operations of the Predecessor
Company and eight months of operations of the Company. In addition, the
operating results for 1993 include five months of international operations of a
Hong Kong corporation which was the Predecessor Company's international sales
affiliate, and eight months of operations of the Company's wholly-owned
international sales subsidiary. The sales and operating results of such

affiliate for the month of December 1992 were not significant.

The Company's net sales increased approximately 74.4% to approximately
$156.5 million for 1994 from approximately $89.7 million for 1993. Substantially
all of the increase in net sales resulted from increased unit volume,
principally as a result of increased sales of products based on Marvel
Characters. Net sales for these periods by the Company's product categories are
set forth in the table below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1993 1994
------- -------
(IN MILLIONS)
<S> <C> <C>
U.S. Net Sales by Product Category
Boys'........................................... $63.7 $110.4
Girls'.......................................... 16.4 12.7
Infant/Preschool................................ -- 7.3
Activity........................................ .3 6.1
Discontinued Items.............................. .3 6.2
------- -------
Total U.S. Net Sales......................... 80.7 142.7
International..................................... 9.0 13.8
------- -------
Total Net Sales.............................. $89.7 $156.5
------- -------
------- -------
</TABLE>

The increase in the Company's U.S. net sales resulted primarily from
increased sales of the Company's boys' toys and continued growth in sales of
X-Men(Registered) action figures. The increase in boys' products also reflected
a significant benefit from the introduction of the Company's
Spider-Man(Registered) line of toys in late 1994, which more than offset
decreases in sales of certain non-licensed boys' toys. The Company believes that
the increase in U.S.
26
<PAGE>
sales of X-Men(Registered) action figures was attributable to the increased
popularity of the X-Men(Registered) characters generally, which resulted in part
from the popularity of the X-Men(Registered) animated television series and the
expansion of the Company's X-Men(Registered) product line. Similarly, the
increase in the Company's international sales was primarily the result of
increased international sales of the X-Men(Registered) action figures following
the introduction of the X-Men(Registered) animated television
show in various international markets. The Company believes that sales of its
Spider-Man(Registered) product line were enhanced by the debut of the
Spider-Man(Registered) animated television series on the Fox Children's Network
in November 1994.

The Company experienced decreased sales of girls' toys due primarily to the
discontinuation of its Pretty and Me(Registered) and Baby Loves to
Talk(Registered) products, which had reached the end of their product life
cycles, partially offset by the introduction of the Company's
Jumpsie(Registered) product. Infant/preschool product sales represent initial
shipments of pre-school products under the Gerber License which began in the
third quarter of 1994. The increase in sales of activity toys was primarily
related to the introduction of the Company's Mighty Morphin Power
Rangers(Registered) pinball games. The increase in sales of discontinued items
was attributable to sales of carryover inventory of the discontinued products
mentioned above, as well as sales of the Company's Nature's Nursery(Registered)
product line which was introduced and discontinued in 1994.

Gross profit increased approximately 74% to approximately $83.0 million in
1994 from approximately $47.8 million in 1993. Gross profit as a percentage of
net sales remained relatively constant at approximately 53% for both 1994 and
1993 as increased sales of the Company's X-Men(Registered) and Spider-
Man(Registered) action figures, which have higher gross margins, were offset by
the discontinuation and close-out of certain products in 1994, as described
above, as well as the introduction of the Company's line of Gerber(Registered)
infant and toddler products, which have lower gross margins than the Company's
other product categories.

Selling, general and administrative expenses increased approximately 36% to
approximately $38.3 million (approximately 24% of net sales) in 1994 from
approximately $28.1 million (approximately 31% of net sales) in 1993. This
increase was due to increased advertising expense, royalties, warehousing and
miscellaneous selling and administrative expenses, which increased as a result
of sales growth, and additional salaries and consulting expense attributable to
the need for additional personnel and services to support the Company's expanded
product line. Included in selling, general and administrative expenses during
1993 are commissions paid to Mr. Perlmutter and royalties paid to Marvel. These
combined payments totaled approximately $1.2 million in 1993, with no further
expenses incurred after April 1993. Also included in selling, general and
administrative expenses in 1993 are bonuses totalling approximately $2.0 million
paid to certain executives of the Company in connection with the formation of
the Company.

Depreciation and amortization expense increased to approximately $8.6
million in 1994 from approximately $4.1 million in 1993. This increase was
primarily attributable to increased amortization of product tooling costs
resulting from increased investment in product tooling to support the Company's
growth and expanded product line.

The Company recognized approximately $4.1 million in 1994 and $10.9 million
in 1993 as a nonrecurring non-cash compensation expense related to the Arad
Stock Option.

Net interest expense increased to approximately $1.8 million in 1994 from
approximately $1.2 million in 1993. This increase resulted from additional
borrowings used to finance the growth of the Company's business and higher
interest rates on the Company's borrowings.

Income before taxes increased to approximately $30.3 million in 1994 from

approximately $4.0 million in 1993.

Provision for income taxes increased substantially from approximately $2.4
million, or 59% of income before income taxes in 1993, to approximately $12.3
million, or 40.5% of income before taxes in 1994. In connection with its
formation in April 1993, the Company changed its status from an S corporation to
a C corporation. The Company's effective tax rate in 1993 was higher than it
would have been if the Company had been a C corporation for the entire 1993
period, as the Company was unable to record a tax benefit for losses incurred by
the Company during the first four months of 1993 when the Company was an S
corporation.

As a result of the above, net income increased to approximately $18.0
million in 1994 from approximately $2.4 million (pro forma) in 1993.

27
<PAGE>
BACKLOG

Customer open orders were approximately $7.4 million on March 31, 1996,
compared with $6.2 million on March 31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operating activities (used) or provided net cash of
approximately ($2.1 million), ($1.5 million) and $35.5 million in 1993, 1994 and
1995, respectively.

Net cash used by operating activities was approximately $7.4 million in the
first quarter of 1996, while net cash provided by operating activities was
approximately $14.3 million in the first quarter of 1995. The net decrease in
net cash provided by operating activities resulted primarily from higher sales
in late 1995 and in the first quarter of 1996, the receivables of which, due to
industry dating practices in 1995/1996, were not due as of March 31, 1996. The
decrease in the Company's current liabilities from December 31, 1995 to March
31, 1996 is due to the payment, pursuant to normal trade terms, of liabilities
related to the Company's fourth quarter 1995 product shipments.

Cash used in investing activities in 1993, 1994 and 1995 was approximately
$7.4 million, $17.2 million and $25.1 million, respectively, and consisted of
capital expenditures for molds, tools and equipment for the production of new
products, as well as capitalized product and package design expenditures.
Included in the $25.1 million in 1995 was approximately $9.0 million in
available cash used for the acquisition of Spectra Star and Quest.

Cash provided by financing activities in 1993, 1994 and 1995 was
approximately $11.9 million, $18.1 million and $8.0 million, respectively. In
1995, cash provided by financing activities consisted principally of net
proceeds from the IPO of $44.1 million, offset by the repayment of notes to Mr.
Perlmutter and Marvel, which totalled approximately $15.1 million, and by
repayments of funds previously borrowed under the Credit Facility, as defined
below, with the balance used for working capital and general corporate purposes.

On March 2, 1995, the Company completed the IPO by issuing 2,750,000 shares

of its Class A Common Stock at $18 per share. The net proceeds to the Company of
$44.1 million, after deducting fees and expenses, were used to pay outstanding
amounts due under subordinated notes which totalled approximately $15.1 million
in principal and approximately $2.0 million in interest, with the balance used
for working capital and general corporate purposes.

In March 1995, the Company entered into a three year $30 million revolving
line of credit with a syndicate of banks for which Chemical Bank serves as
administrative agent (the 'Credit Facility'). Substantially all of the assets of
the Company were pledged to secure borrowings under this Credit Facility.
Borrowings under the Credit Facility bear interest at either Chemical Bank's
alternate base rate or at the Eurodollar rate plus the applicable margin. The
applicable margin is 3/4 of 1% to 1% to be determined based on the Company's
financial performance. The Credit Facility requires the Company to pay a
commitment fee of 3/8 of 1% per annum on the average daily unused portion of the
Credit Facility. The Company had no outstanding indebtedness under the line of
credit as of June 30, 1996.

The Credit Facility contains various financial covenants, as well as
restrictions, on new indebtedness, prepaying or amending subordinated debt,
acquisitions and similar investments, the sale or transfer of assets, capital
expenditures, limitations on restricted payments, dividends, issuing guarantees
and creating liens. The Credit Facility also requires an annual reduction, of
outstanding borrowings to zero for a period of 45 consecutive days, commencing
during the first six months of each calendar year. In addition, the Credit
Facility also requires that Marvel continue to control the Company and that the
Marvel License remain in effect.

Certain indebtedness of Marvel and of Marvel's direct and indirect parent
companies impose restrictions that limit the ability of Marvel and its
subsidiaries, including the Company, to incur debt, make restricted payments,
enter into transactions with affiliates and sell or transfer assets.

On September 11, 1995, the Company acquired certain assets and assumed
certain liabilities of Spectra Star. The purchased assets are comprised of the
kite and toy manufacturing, and design and marketing businesses of Spectra Star.
The consideration for the acquisition included: (a) payment by the Company of an
amount not to exceed the sum of $9.2 million to satisfy liabilities of Spectra
Star; (b) the issuance by the Company of a

28
<PAGE>

maximum of 130,303 shares of Series A Preferred Stock (the 'Series A Preferred
Stock') with a maximum redemption value of $4.3 million, with each share
convertible at any time after March 10, 1996 into one fully paid and
non-assessable share of Class A Common Stock; (c) a three-year earnout not to
exceed $900,000 based upon the Company's sales of certain products acquired in
the acquisition; and (d) $400,000 in cash. Of the 130,303 shares of Series A
Preferred Stock issuable in connection with the Spectra Star acquisition,
112,121 shares were issued at the closing of the acquisition and 18,182 shares
will be issued upon the acquisition of Spectra Star's manufacturing facility in
San Luis, Mexico. See 'Use of Proceeds,' 'Business--General,' '--Properties' and
'Description of Capital Stock.'

The acquisition was financed by the Company's cash on hand and the issuance
of the Series A Preferred Stock. As of December 31, 1995, the Company used
approximately $8.8 million of cash to satisfy Spectra Star's liabilities and
recognized approximately $9.6 million in goodwill from the acquisition. On March
18, 1996, 53,030 shares of the Series A Preferred Stock were acquired by the
Company for approximately $1.4 million upon exercise of a contractual put right.
Holders of Series A Preferred Stock have the right, subject to certain
conditions, to require, on one occasion, the Company to register under the
Securities Act shares of Class A Common Stock issuable upon conversion of their
Series A Preferred Stock. In addition, the holders of Series A Preferred Stock
have certain rights to participate in registrations by the Company of its Class
A Common Stock.

The purchase price for Quest, including cash payments and assumption of
liabilities, totaled approximately $400,000. The Company utilized available cash
to finance the acquisition of Quest.

In connection with the Company's investment in Marvel Studios, the Company
will be required to purchase Preferred Equity Interests from time to time of up
to $50 million in the aggregate to finance the operations of Marvel Studios. The
net proceeds to the Company from the Offering are intended to be used to fund a
portion of such amounts, with any remaining capital calls to be funded from
available cash. Given the start-up nature of Marvel Studios, neither the amount
to be spent by Marvel Studios in the foreseeable future nor the amount or timing
of the capital contributions by the Company or Marvel to Marvel Studios has been
determined. Neither the Company nor Marvel expects the capital calls for Marvel
Studios to exceed the Company's available cash. The Company's Credit Agreement
currently permits the Company to invest in Preferred Equity Interests an amount
up to its net proceeds from the Offering plus certain other amounts permitted
pursuant to investment criteria in the Credit Agreement, to the extent
available. The Company believes it will be able to obtain consent to fund its
full commitment to Marvel Studios as those contributions are required to be
made, although there can be no assurance it will be able to do so. Pending
capital calls, the Company will use the net proceeds from the Offering for
working capital and general corporate purposes. See 'Use of Proceeds,'
'Business--Marvel Studios,' and '--Growth Strategy' and 'Certain
Transactions--Marvel Studios.'

The seasonal nature of the Company's business causes its working capital
needs and, thus, the Company's need for borrowed funds to be highest during the
months of October and November. The Company believes that the net proceeds of
the Offering, pending investment in Marvel Studios, net cash provided by
operating activities and available borrowings under the Credit Facility will be
sufficient to meet the Company's peak working capital needs and capital
expenditure requirements, including the Company's capital commitments to Marvel
Studios, for the foreseeable future.

The Company expects that capital expenditures during 1996, principally for
molds, tools and equipment, will be approximately $17 million and that these
expenditures will be funded by net cash provided by operating activities.

As part of the Company's growth strategy, it evaluates potential
acquisitions of other toy businesses or product lines which the Company believes

will complement its existing business. As of the date of this Prospectus, the
Company has no present understanding or agreement with respect to any
acquisitions. In connection with any future acquisition opportunities, the
Company may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors. See 'Use of Proceeds' and
'Business--Growth Strategy.'

INFLATION

The Company does not believe that the relatively moderate rates of
inflation in the United States in recent years have had a significant effect on
its operations.
29

<PAGE>
BUSINESS

GENERAL

The Company designs, markets and distributes a variety of toys in the
United States and internationally under various licenses, including an
exclusive, perpetual and royalty-free license, subject to certain limitations,
from Marvel, the Company's largest stockholder. The Company also designs,
markets and distributes its own line of proprietary toys. The Company believes
that the experience and creativity of its senior management in the development
and marketing of its toys afford it the ability to attract significant licenses
of popular characters and trademarks as well as prominent inventors for the
development of new licensed and proprietary toys. The Company had net sales,
operating income and net income per share of approximately $196.4 million, $47.0
million and $1.05, respectively, in 1995, reflecting significant growth from the
Company's 1991 net sales and operating income of approximately $45.1 million and
$177,000, respectively.

The Marvel License permits the Company to produce a broad range of toys
based on Marvel's more than 3,500 characters. The Company believes that media
events associated with Marvel Characters and other characters on which the
Company bases its toys increase overall consumer awareness and popularity of
these characters. The Company seeks to capitalize on the popularity generated by
media exposure of certain Marvel Characters, such as Spider-Man(Registered) and
X-Men(Registered), by emphasizing those characters in its toy lines. The
Spider-Man(Registered) and X-Men(Registered) Marvel Characters are currently
featured in weekly half-hour animated television programs which have
consistently been among the highest rated Saturday morning children's programs
since they began to be regularly broadcast in February 1995 and October 1992,
respectively. The Spider-Man(Registered) program is also featured in major
television markets around the world. The Fantastic Four(Trademark) and Iron
Man(Registered) groups of Marvel Characters are featured on the Marvel Action
Universe, weekly, syndicated animated television programming currently carried
in over 90% of the television markets in the United States. Mr. Arad is the
executive producer of each of these programs. Marvel Characters are also
regularly depicted in Marvel comic books. See '--Marvel Studios.'

In addition to the Marvel Characters, the Company sells toys using
well-recognized consumer brand names and popular non-Marvel Characters, the
latter including characters depicted in network, syndicated or cable television
programs such as Hercules: The Legendary Journeys(Trademark), Xena: Warrior
Princess(Trademark), Flipper(Trademark), Muppets Tonight(Trademark) and Muppet
Babies(Trademark). The Company has also obtained licenses to produce certain
products for a number of motion pictures, including widely-distributed, first-
run feature films such as Flipper(Trademark), licensed by MCA/Universal, and
Muppet Treasure Island(Trademark), licensed by Henson, for which the Company has
produced mainly plush items. These motion pictures also include a
made-for-television movie entitled Generation X(Trademark), which premiered in
prime time on the Fox Network, for which the Company has manufactured and
distributed mainly action figures. The Company has obtained licenses to produce
certain products for other motion pictures released or planned for release by
Disney and MCA/Universal.

The Company's toys are also designed, marketed and distributed under
well-known consumer brand names, including children's dolls and infant and
toddler teaching toys under the Gerber(Registered) trademark, a range of
tabletop pinball games licensed by Disney, electronic learning toys planned
under the Apple(Registered) trademark, a line of children's toys with a camping
and outdoor theme planned under the Coleman(Registered) trademark, and radio,
remote-controlled and motorized vehicles, as well as action figures and
interactive CD-ROM products planned under a licensing agreement with NASCAR and
various well-known race car drivers. In addition to products designed and
produced under licenses from others, the Company also designs, produces and
distributes a line of proprietary children's toys, including Baby Tumbles
Surprise(Trademark), Baby So Real(Trademark), Wild and Wacky Painter(Trademark)
and Battle Builders(Trademark). Baby Tumbles Surprise(Trademark) was the leading
promotional doll in the United States, as measured in unit sales, in 1995.

To broaden and expand further its merchandise lines and license agreements,
the Company acquired two toy-related businesses, Spectra Star and Quest,
in the second half of 1995. Spectra Star produces kites and other
products including yo-yo's, flying discs, nap mats and kite accessories
marketed under the Spectra Star(Registered) brand name. Many of these
products are sold under character licenses, including Disney's The
Hunchback of Notre Dame ((Copyright)Disney), Disney's Toy Story
((Copyright)Disney), Disney's 101 Dalmatians ((Copyright)Disney), Sky
Dancers(Registered), Dragonflyz(Trademark) and Warner Bros.'
Batman(Registered) and Looney Tunes(Registered). With the acquisition of
Spectra Star, the

30
<PAGE>
Company believes that it has a substantial share of the United States
kite market. Quest produces small model rockets under the
Quest(Trademark) trademark and thereby further augments the Company's
activity toy category.

MARVEL STUDIOS

To enhance further the media exposure of the Marvel Characters, the Company
and Marvel intend to form Marvel Studios. The objective of Marvel Studios is to
facilitate the release of live action and animated motion pictures and
television programming based on the Marvel Characters in order to create greater
consumer interest in these characters and related merchandise, including toys.
The Company believes that the advertising and promotion of feature films, as
well as any films or television programming based on the Marvel Characters, will
create consumer interest in the Marvel Characters and could create revenue
opportunities for the Company by helping to generate sales from action figures,
other children's toys and other products for which the Company holds the rights
under the Marvel License. The Company believes that the popularity of the
X-Men(Registered) and Spider-Man(Registered) animated Saturday morning shows
have resulted in significant increases in U.S. net sales by the Company of
X-Men(Registered) and Spider-Man(Registered) toys. Since the introduction of the
X-Men(Registered) animated television program in 1992, the Company's U.S. net
sales of X-Men(Registered) toys totaled approximately $169.6 million through
March 31, 1996. The Company's Spider-Man(Registered) product line, introduced in

conjunction with Spider-Man(Registered) animated television show in the fourth
quarter of 1994, has generated U.S. net sales of $55.2 million from the fourth
quarter of 1994 through the first quarter of 1996. Certain television projects
in which Marvel is currently engaged, including the program featuring The
Incredible Hulk(Trademark) and the programming to be developed by the Fox
Children's Network ('FCN'), as discussed below, are expected to be assigned to
Marvel Studios. See '--Growth Strategy.'

The Company believes that Marvel Studios will facilitate the release of
motion pictures and television programming based on Marvel Characters by giving
Marvel Studios greater control over the development of such projects compared to
the present practice of only licensing the use of Marvel Characters in a film or
television project to an unrelated third party. There are typically four stages
of development of a television program or feature film: (i) development, which
generally includes script writing and marketing a property to a production
studio; (ii) pre-production, which is the planning, budgeting, staffing and
general preparation stage prior to filming; (iii) production or principal
photography, which is the filming and daily operational activities associated
with filming; and (iv) post-production, which includes, among other things,
final editing, compositing and audio mixing of production, ultimately leading to
the delivery of a completed project to an exhibitor or network. Marvel Studios
is expected to facilitate the process by acting as the executive producer and
developing a 'package' which includes phases (i) and possibly (ii), including
the creation of a screenplay, development of the script, creation of a budget,
and possibly engaging a director and casting one or more principal actors. Once
'packaged,' Marvel Studios intends to sell the package to major studios and
networks for production and release.

In certain instances, in order to develop a film or television project,
Marvel Studios may also enter phase (iii) or (iv) above and may co-finance or
solely finance a movie project, but will seek to offset its expenditures by
preselling certain rights, such as international distribution, merchandising
and/or home video rights. It is expected that Marvel Studios will not finance a
movie project unless it believes the revenue opportunities for the Company and
Marvel merit production and release. In addition, in certain circumstances
Marvel Studios is likely to co-finance and may solely finance the production of
television programming.

The Company and Marvel expect Marvel Studios to utilize the experience that
the Company and Marvel have developed over the years in licensing the Marvel
Characters for television and film projects and capitalizing on related toy
sales. Mr. Arad, an executive producer of the highly rated X-Men(Registered) and
Spider-Man(Registered) Saturday morning television shows, is expected to be the
creative head of Marvel Studios and an executive producer of all film and
television projects of Marvel Studios. The rights to produce feature films based
on certain of the Marvel Characters are currently licensed to third parties.
Some of those rights are in dispute. There can be no assurance that Marvel will
be able to reacquire or restructure these rights for development by Marvel
Studios or otherwise enhance the likelihood that any such films or television
programming will be produced.

The Company intends to invest, from time to time, up to $50 million in the
aggregate in Preferred Equity Interests of Marvel Studios. Marvel has advised

the Company that it intends to invest, from time to time, up to $50 million in
the aggregate in Common Equity Interests of Marvel Studios funded in part with
the net proceeds

31
<PAGE>

from the sale of its shares of Class A Common Stock in the Offering.
Pending such use, Marvel will use its net proceeds from the Offering to
repay debt and for working capital and general corporate purposes. The
Preferred Equity Interests will represent 25% of the equity of Marvel
Studios with the Common Equity Interests held by Marvel representing 75%
of the equity. The Preferred Equity Interests will participate in any
distribution of income in proportion to its equity interest and will
participate in any distribution in connection with a dissolution or
liquidation and will have a preference on dissolution or liquidation
equal to the amount of the Company's investment. The capital
contributions of Marvel and the Company will be made in equal amounts.
Although the Company is not required, and has no present intention, to
invest greater than $50 million in Marvel Studios, the Company's Board
of Directors may decide to do so in the future if investments in Marvel
Studios in excess of that amount are deemed to be in the best interests
of the Company. The governing body of Marvel Studios will be comprised
of three Marvel designees and two designees of the Company. Action of
the governing body of Marvel Studios will require the affirmative vote
of three designees, except that the vote of at least one designee of the
Company will be required whenever the sum of the net worth of Marvel
Studios plus the amount of the unfunded capital commitments of the
Company and Marvel falls below $50 million. Marvel has advised the
Company that, for seven years from the date of formation of Marvel
Studios, Marvel will grant to Marvel Studios the first opportunity to
license Marvel Characters on a royalty-free basis for use in its film
and television projects. If Marvel Studios determines not to take
advantage of any such opportunities, Marvel may seek to develop such
film and television projects on its own. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources' and 'Certain Transactions--Marvel Studios.'

GROWTH STRATEGY

The Company's net sales growth has been driven principally by growth in
sales of the Company's action figure toys based on the Marvel Characters and,
more recently, proprietary dolls and activity toys. The Company's growth
strategy is to:

o CONTINUE TO BUILD ON THE POPULARITY OF THE MARVEL CHARACTERS BY UTILIZING
ADDITIONAL MARVEL CHARACTERS AND BY EXPANDING INTO NEW PRODUCT LINES IN
ORDER TO CAPITALIZE ON PORTRAYALS OF THE MARVEL CHARACTERS ON TELEVISION
AND IN MOVIES, COMIC BOOKS AND OTHER MEDIA. THE COMPANY BELIEVES THAT
FEATURE FILMS AND TELEVISION PROGRAMMING DEVELOPED BY MARVEL STUDIOS WILL
CREATE ADDITIONAL CONSUMER INTEREST IN THE MARVEL CHARACTERS AND COULD
CREATE OPPORTUNITIES TO DESIGN AND MARKET TOYS BASED ON THE MARVEL
CHARACTERS IN THESE PROJECTS.

The Company believes that media events associated with the Marvel
Characters increase overall consumer awareness and popularity of these
characters. The Company intends to continue to develop its Marvel Character
product base by introducing additional Marvel Characters and product lines to
take advantage of publicity provided to the Marvel Characters by Marvel's comic
books, animated television programs and other media events. The Company's
planned investment in Marvel Studios is intended to promote this strategy.

For example, the X-Men(Registered) and Spider-Man(Registered) lines of
Marvel Characters are currently featured in weekly half-hour animated television
programs carried on FCN. Since they began to be regularly broadcast in October
1992 and February 1995, respectively, the X-Men(Registered) and
Spider-Man(Registered) television programs have consistently been among the
highest rated Saturday morning children's programs. The Spider-Man(Registered)
program is also featured in major television markets around the world. In
anticipation of the premiere of the Spider-Man(Registered) animated television
show, the Company introduced a line of Spider-Man(Registered) related products
in October 1994. The Fantastic Four(Trademark) and Iron Man(Registered) groups
of Marvel Characters are featured as half-hour segments on the Marvel Action
Universe in over 90% of the television markets in the United States. Product
lines based on the Fantastic Four(Trademark) and Iron Man(Registered) groups of
Marvel Characters were released by the Company in late 1994 in conjunction with
the premiere of the Marvel Action Universe. The Company believes that the
success of these programs has been an important factor in supporting U.S. net
sales of products utilizing the Marvel Characters. The Company believes that
feature films and television programming developed by Marvel Studios will create
additional consumer interest and opportunities to capitalize on portrayals of
Marvel Characters in such projects. See 'Business-- Marvel Studios' and
'Certain Transactions--Marvel Studios.'

Marvel is currently engaged in certain other television projects, including
an animated series featuring The Incredible Hulk(Registered), which is expected
to be broadcast on the United Paramount Network ('UPN') beginning in

32
<PAGE>
the fall of 1996. Marvel has advised the Company that it currently
expects the net production costs of such series for the fall of 1996 to
be approximately $4 million, and such costs would be partially offset by
any sales of video cassettes or international distribution rights to the
series. Additional television projects include programming to be
developed by FCN, pursuant to its recently announced arrangement with
Marvel. Under the terms of the arrangement, FCN, a leading children's
programming service in the United States, will have the exclusive
television and distribution rights, subject to certain limitations, to
The Silver Surfer(Trademark), Daredevil(Trademark) and Captain
America(Registered) and certain other designated Marvel Characters.
Pursuant to the agreement, FCN has committed to fund the development of
at least seven Marvel Characters over the next seven years of which the
first two projects are expected to be The Silver Surfer(Trademark) and
Captain America(Registered) with at least one of these projects to debut
on FCN beginning in the fall of 1997 as a 13 episode series. FCN has
also committed to produce a minimum of 52 episodes of programming based

on a minimum of four Marvel Characters during the seven year term of the
agreement. Marvel expects to reimburse FCN a portion of its production
costs. The arrangements with FCN and UPN are expected to be assigned by
Marvel to Marvel Studios.

A number of additional entertainment projects featuring the Marvel
Characters are in various stages of development. In July 1996, Marvel announced
the formation of Marvel Online, a license and joint venture with America Online,
Inc., which is intended to develop interactive on-line comics, CD-ROMs and
merchandise related to the Marvel Characters. In June 1994, Marvel announced
several new projects involving the use of the Marvel Characters. At that time,
Marvel announced an agreement with Acclaim Entertainment, Inc. ('Acclaim')
whereby Acclaim purchased rights from Marvel to develop interactive
entertainment software based on several Marvel Characters. Marvel also has
licensed to MCA/Universal Studios exclusive use of its characters for theme
parks. MCA/Universal Studios is initially developing a theme park featuring,
among others, the Marvel Characters at Universal Studios Florida. Additionally,
Marvel entered into a joint venture with Robert Earl and Keith Barish, founders
of the Planet Hollywood restaurant chain, to develop a chain of restaurants
based on the Marvel Characters. However, there can be no assurance that any of
these projects will be completed, or if so, in the form currently contemplated.

o EXPAND ITS LICENSED PRODUCT LINES BY TARGETING AND OBTAINING LICENSES
FROM THIRD PARTIES, WITH AN EMPHASIS ON WELL-RECOGNIZED CONSUMER BRAND
NAMES, SUCH AS GERBER(REGISTERED), APPLE(REGISTERED), SONY
WONDER(REGISTERED) AND NASCAR(REGISTERED), AND POPULAR CHARACTERS
APPEARING IN FILM AND TELEVISION PROGRAMS, SUCH AS THE
MUPPETS(TRADEMARK), FLIPPER(TRADEMARK), HERCULES: THE LEGENDARY
JOURNEYS(TRADEMARK) AND DISNEY'S THE HUNCHBACK OF NOTRE DAME
((COPYRIGHT)DISNEY).

The Company has used its success as a marketer of Marvel licensed products
as a means of attracting other non-Marvel licenses, such as its licenses from
Gerber, Apple, MCA/Universal, NASCAR, Sony Wonder, Disney and Henson (owner of
the Muppets(Trademark)). The Company intends to seek new third party licenses to
broaden its toy lines and to enter new product categories. By continuing to
pursue a variety of third party licenses, the Company hopes to benefit its
future business in two ways: by adding licensed products that allow the Company
to develop products based on an established brand name, and by adding highly
promotional licenses which can be exploited for potentially greater but more
volatile sales.

o DIVERSIFY ITS PROPRIETARY PRODUCT LINES THROUGH THE DEVELOPMENT OF
PRODUCTS, SUCH AS BABY TUMBLES SURPRISE(TRADEMARK), BY THE COMPANY'S
IN-HOUSE CREATIVE AND TECHNICAL STAFF AND THE ENGAGEMENT OF INDEPENDENT
TOY INVENTORS.

The Company's objective of diversifying into a broad range of product
categories has historically focused on licensed items. The Company has typically
introduced only a limited number of products, such as My Pal 2(Registered), Baby
Loves to Talk(Registered), Pretty and Me(Trademark), Jumpsie(Registered), Baby
Tumbles Surprise(Trademark) (the leading promotional doll in the United States,
as measured in unit sales in 1995), Baby So Real(Trademark), Wild & Wacky
Painter(Trademark) and Pooch, the Good Puppy(Trademark) which are proprietary to

the Company and not based on third party character licenses. The Company
believes that proprietary products can provide significant visibility to
the Company among consumers, toy retailers and other toy industry
professionals. The Company intends to continue to target the
introduction of approximately three to five of these items each year.

33
<PAGE>
o BROADEN INTERNATIONAL DISTRIBUTION OF EXISTING AND FUTURE PRODUCT LINES
THROUGH THE DEVELOPMENT OF STRATEGIC RELATIONSHIPS WITH INDEPENDENT
DISTRIBUTORS IN KEY MARKETS.

The Company's international sales have grown approximately 49% from
approximately $14 million in 1994 to approximately $21 million in 1995. The
Company believes that markets outside the United States continue to present
significant opportunities, particularly in sales of its products based on the
Marvel Characters, as animated television series based on the Marvel Characters
are introduced in international television markets and as United States toy
retailers expand abroad. Currently, the Spider-Man(Registered) animated
television show is aired in major television markets around the world. The Iron
Man(Registered) and Fantastic Four(Registered) animated television programs air
in selected non-U.S. markets. Historically, the Company's international sales
have been at lower gross margins than its U.S. sales. However, certain expenses
are generally lower on international sales than on U.S. sales. For example, the
Company does not generally incur any advertising or commission expense on its
international sales. Therefore, the Company believes that these sales contribute
to net income at a rate approximately the same as U.S. sales. The Company is
currently seeking to expand its distribution in key international markets
through independent distributors.

o PURSUE POTENTIAL ACQUISITIONS OF OTHER TOY BUSINESSES OR PRODUCT LINES
WHICH ARE CONSISTENT WITH THE COMPANY'S GROWTH STRATEGY, SUCH AS SPECTRA
STAR OR QUEST.

As part of the Company's growth strategy, it evaluates potential
acquisitions of other toy businesses or product lines which the Company believes
will complement its existing business, such as Spectra Star and Quest. As of the
date of this Prospectus, the Company has no understanding or agreement with
respect to any acquisitions. In connection with any future acquisition
opportunities, the Company may incur debt or issue debt or additional equity
securities depending on market conditions and other factors.

There can be no assurance that the Company will successfully implement all
or any part of its growth strategy.

INDUSTRY BACKGROUND

According to the Toy Manufacturers of America, Inc. ('TMA'), an industry
trade group, total U.S. shipments of toys, excluding video games, were
approximately $13.4 billion in 1995. This represented an approximately 3%
increase from 1994. Retail sales of non-video game toys also increased during
this period. In 1995, sales by retailers of non-video toys rose to an estimated
$17.4 billion, which represented an approximately 6.7% increase over retail
sales in 1994.

In recent years, leading toy retailers have gained significant market
share. They generally feature a large selection of toys, some at discount
prices, and maintain lean inventories to reduce their own inventory risk.
Continued consolidation among discount-oriented retailers can be expected to
require toy companies to keep prices low and to implement and maintain
production and inventory control methods permitting them to respond quickly to
changes in demand.

According to the TMA, the United States is the world's largest toy market,
followed by Japan and Western Europe. The Company believes that the
international markets continue to represent a significant opportunity for
expansion. Large American toy manufacturers (such as Hasbro, Mattel and Tyco)
hold dominant market shares in many international countries, although their
market shares are lower outside the United States. While the Company has
historically realized lower gross margins on international sales of its toys,
the selling, general and administrative expenses associated with those
international sales are typically less than those expenses associated with U.S.
sales.

PRODUCTS

The Company has historically marketed a variety of toy products designed
for children of different age groups. The Company's current product strategy
seeks broad expansion and diversification of its product lines. See '--Licensing
and Related Rights.' The Company's product categories consist of boys', girls',
infant/preschool and activity. The chart below sets forth both U.S. net sales
for each of these lines, as well as U.S. net sales for discontinued items and
international sales:

34
<PAGE>
NET SALES BY PRODUCT CATEGORY

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------
1993 1994 1995 1995 1996
----- ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Boys'......................... $63.7 $110.4 $105.5 $21.0 $12.7
Girls'........................ 16.4 12.7 37.7 1.0 7.5
Infant/Preschool.............. -- 7.3 13.5 2.0 1.3
Activity...................... .3 6.1 15.5 1.6 9.3
Discontinued Items............ .3 6.2 3.6 1.3 .4
----- ------ ------ ------ ------
Total U.S. Net Sales........ 80.7 142.7 175.8 26.9 31.2
International Sales........... 9.0 13.8 20.6 1.0 7.2
----- ------ ------ ------ ------
Total Net Sales............. $89.7 $156.5 $196.4 $27.9 $38.4

----- ------ ------ ------ ------
----- ------ ------ ------ ------
</TABLE>

Boys' Products

Boys' products consist of Marvel Character as well as other licensed
character action figures. The Marvel License includes more than 3,500 Marvel
Characters, all of which are available to the Company for toy development. The
Company expects that Marvel will continue to be an extensive source of popular
characters for toy production. To date, the segment of the Marvel Universe that
has been most successfully developed by the Company is the X-Men(Registered)
group of Marvel Characters, consisting of over 300 characters. The Company
believes that the popularity of the X-Men(Registered) is primarily a result of
that group's long-standing success as a comic book title, as well as the success
of FCN's animated X-Men(Registered) television show. The Company has taken
advantage of the growth of the X-Men(Registered) group of characters by
introducing new assortments of action figures, playsets and vehicles.

The Spider-Man(Registered) product line capitalizes on the animated
television series which is broadcast on FCN as a weekly Saturday morning
television show. The toy line supporting Spider-Man(Registered) is broad,
consisting of various assortments of action figures in different size ranges,
along with vehicles and playsets. The Company also markets boys' toys based on
characters portrayed in the Marvel-related Iron-Man(Registered) and Fantastic
Four(Trademark) syndicated television programs. In 1995, the Company introduced
a line of Ghost Rider(Trademark) action figures and accessories in reaction to
expanding consumer preferences within the Marvel Universe of characters. In 1996
the Company introduced Generation X(Trademark) action figures and plans to
introduce a line of The Incredible Hulk(Registered) and Venom(Registered) action
figures in the second half of 1996.

The Company's boys' business is also comprised of other non-Marvel
Character genres supported by television advertising and broadcasts. In 1995,
the Company began to produce a line of action figures and playsets based on
characters portrayed in the Hercules: The Legendary Journeys(Trademark) and
Xena: Warrior Princess(Trademark) syndicated television programs. The Company
intends to introduce a line of construction and vehicle playsets under the
Battle Builders(Trademark) brand.

Girls' Products

Girls' products consist largely of proprietary items. The Company's girls
business has continued to thrive with the introduction in 1995 of several dolls
at price points designed to attract a variety of potential consumers. Baby
Tumbles Surprise(Trademark), which has been newly expanded into a line of
related products, was the leading promotional doll in the United States, as
measured in unit sales in 1995. The Company has marketed Baby So Real(Trademark)
and Pooch, the Good Puppy(Trademark), both of which received advertising support
and considerable consumer demand.

Because of the Company's marketing success in the doll category, the
Company has continued to attract new doll concepts from third-party inventors.
Both Baby Tumbles Surprise(Trademark) and Baby So Real(Trademark), Bendy

Wendy(Trademark) and Take Care of Me Twins(Trademark) are products of such
third-party inventors.

Infant/Preschool Products

Based on the name recognition and the goodwill associated with the
Gerber(Registered) name, in the fall of 1994, the Company began to produce a
line of dolls, as well as infant and toddler learning toys with the
Gerber(Registered) trademark and/or the famous trademark Gerber(Registered) baby
face icon. The preschool line consists of dolls with the famous
trademarked baby face, which are manufactured with different features in
a variety of sizes to attain a variety of price points, and electronic
and non-electronic learning toys which are designed to help an infant's
cognitive

35
<PAGE>
development. The preschool category is competitive at the retail level,
and the Company began in 1995 to ship sufficient quantities of
Gerber(Registered) product to begin to achieve considerable shelf space.
The Company plans to continue to expand the line with new and a rotating
series of dolls and learning toys each year.

Activity Products

The Company augmented its activity toy business with the acquisition of the
kite, outdoor and flying toy businesses of Spectra Star. The Spectra
Star(Registered) brand name accounts for a substantial share of the United
States kite business, and depends on license-driven products. The Company's kite
licenses relate to a variety of motion picture and television programs from such
licensors as Disney, MCA/Universal and Warner Bros. Under the Marvel License,
the Company also manufactures kite products drawing upon popular Marvel
Character groups. The Company also introduced in 1995 in its activity toy
category a line of CD-ROM comic books for each of the X-Men(Registered),
Spider-Man(Registered), Iron Man(Registered) and Fantastic Four(Trademark)
Marvel Characters. The Company's activity toy products also include the
Quest(Trademark) model rocketry toys associated with the business acquired from
Quest. The Company also introduced in 1995 a proprietary activity toy, the Wild
& Wacky Painter(Trademark), which met with a favorable retail reaction in 1995.
The Company plans to introduce a line of pinball games related to various Disney
movies, as well as a line of multi-activity game tables.

LICENSING AND RELATED RIGHTS

In carrying out its business strategy, the Company continuously monitors
the introduction of licensable properties and intends to pursue new licenses
where it believes such licenses fit with the Company's core product lines or
where they may add to the Company's core product mix.

In 1995, the Company produced a majority of its products under licenses
which it has obtained from third parties. Some of these licenses confer rights
to exploit original concepts developed by toy inventors and designers. Other
licenses, referred to as character licenses, such as the Marvel License, permit
the Company to manufacture and market toys based on characters owned by others

which have or develop their own popular identity, often through exposure in
various media such as television programs, movies, cartoons and books. Other
licenses, referred to as trademark or brand name licenses, permit the Company to
produce toys bearing the recognized consumer trademark or brand name owned by
the licensor. In return for these rights (other than those under the Marvel
License), the Company pays royalties to its licensors.

A determination to acquire a character license must frequently be made
before the commercial introduction of the property in which a licensed character
appears, and such license arrangements often require the payment of
non-refundable advances or guaranteed minimum royalties. Accordingly, the
success of a character licensing program is dependent upon the ability of the
Company to accurately assess the future success and popularity of the character
properties which it is evaluating, to bid for such properties on a selective
basis in accordance with such evaluation and to capitalize on the properties for
which it has obtained licenses in an expeditious manner. The success of the
trademark licensing program depends in part on whether the strength of the
licensed trademarks will produce marketing value for the toy products. There can
be no assurance that product produced under the licenses acquired by the Company
will obtain significant market acceptance.

Royalties paid by the Company to licensors and inventors typically range
from 4% to 14% of net sales, with certain products, such as electronic products,
generally having higher royalty rates. In certain cases the Company may pay both
character and inventor royalties for the same item. Most licenses extend for one
to four years and are renewable at the option of the Company subject to the
satisfaction of minimum guaranteed payments or the attainment of certain sales
levels during the initial term of the license. As of December 31, 1995, the
Company was obligated to make an aggregate of approximately $1.5 million in
payments of guaranteed royalties under these licenses in 1996 and approximately
an additional $5.4 million thereafter. In addition, certain license agreements
require the Company to fulfill minimum royalty obligations in order to maintain
or renew the license agreements. The Company's license agreements with Gerber
and Coleman require the Company to expend certain amounts on promotion of
licensed products. The Company's royalty expense in 1995 was approximately $10.3
million. In the future, royalty rates and minimum guaranteed payments may
increase or decrease depending upon various competitive forces in the toy
industry. The Marvel License is royalty-free. The Company's license agreements
also generally include quality control and cross indemnity provisions and in
some instances terminate at the option of the licensor upon a change in control
of the Company.

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Marvel License Agreement

In connection with the formation of the Company, Marvel granted the Company
the Marvel License, an exclusive, perpetual and royalty-free license to
manufacture and distribute a broad range of toys based upon the Marvel
Characters and properties in which it owns copyrights, trademarks or tradenames.
The Marvel License covers all characters (including the associated copyrights
and trademarks) owned by Marvel and disseminated under the Marvel
Comics(Registered) trademark. The Marvel License currently covers more than
3,500 different Marvel Characters, including: Marvel Super Heroes(Trademark),

X-Men(Registered) and X-Force(Trademark) (including Wolverine(Registered),
Nightcrawler(Trademark), Colossus(Trademark), Storm(Trademark),
Cyclops(Trademark), Bishop(Registered) and Gambit(Trademark));
Spider-Man(Registered); Captain America(Registered); Fantastic Four(Trademark)
(including Mr. Fantastic(Trademark), The Human Torch(Trademark), Invisible
Woman(Trademark) and The Thing(Trademark)); The Incredible Hulk(Registered);
Thor(Trademark); The Silver Surfer(Trademark); Daredevil(Trademark); Iron
Man(Registered); The Punisher(Registered); Dr. Strange(Trademark); Ghost
Rider(Trademark); Cable(Trademark) and the other Marvel Characters. The Marvel
License authorizes the Company to produce various specified categories of toys
and toy-related products, including action figures and accessories, dolls,
dress-up play items and play sets, costumes (other than Halloween costumes),
pre-school products, board and other games, puzzles, model kits, outdoor toys
and Hero Caps(Registered) (a game similar to pogs). Among the products not
included in the Marvel License are video games. The Marvel License extends in
perpetuity unless terminated as described below and does not require the payment
of royalties.

The Marvel License restricts Marvel, subject to the Company's prior
consent, from manufacturing, using, distributing or advertising the licensed
products and from granting other licenses to use the Marvel Characters in
connection with the licensed products.

The Marvel License provides that the licensed products produced by the
Company shall be suitable in style, appearance and quality as determined by
Marvel. The Marvel License further provides that the Company submit for approval
rough designs, concepts, pre-production sketches and models of licensed
products. The Marvel License also contains customary cross-indemnification
provisions.

If the Company fails to substantially attain its annual performance goals
for sales of any category of licensed products, Marvel has the right to require
the Company to enter into one or more sublicenses with respect to that category
of licensed products on terms and conditions that Marvel reasonably determines.

Under separately negotiated sublicense agreements, the Company has granted
to various third parties sublicenses to sell and distribute certain toys based
upon the Marvel Characters. Typically, these sublicenses are for specified
articles, such as children's costumes, board games or plush items, and are based
upon a limited group of Marvel Characters. The Company typically grants a
sublicensee the right to sell and distribute its defined set of licensed
articles in a particular territory, which is often a single country, for a
limited time period, which is typically one to two years, in return for royalty
payments. Most of the Company's sublicense agreements contain minimum royalty
guarantees due over the term of the sublicense agreements. These sublicense
agreements also typically contain quality control and cross indemnification
provisions. Revenue derived from the Company's sublicense arrangements was
approximately $800,000 in 1994 and approximately $3.3 million in 1995.

Other License Arrangements with Marvel

Marvel has licensed the Company to use the Marvel Characters in the
production of bicycle safety helmets. The license agreement provides that Marvel
is entitled to receive royalty payments based on the Company's net sales of

bicycle helmets and provides for a guaranteed minimum royalty. The Company is
not currently producing bicycle safety helmets.

The Company expects that Marvel will continue to consider various
opportunities involving the commercial exploitation of the Marvel Characters.
Under the Marvel License, if such opportunities relate to the manufacture and
distribution of any of the categories of toys and toy related products covered
by the Marvel License, those opportunities can be pursued commercially only by
the Company. On the other hand, if such opportunities relate to the
manufacture and distribution of other types of products, Marvel is free
to pursue such opportunities directly or with others. However, while
Marvel is under no obligation to do so, Marvel may offer any of these
business opportunities to the Company. The terms of any arrangement with
regard to these business opportunities would be subject to negotiation
between the Company and Marvel. There can be no assurance that Marvel
will offer any business opportunities not covered by the Marvel License
to the Company or that such opportunities will be offered on terms
acceptable to the Company.

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<PAGE>
The Marvel License extends only to the specified categories of toys and toy
related products covered thereby, and Marvel is free to pursue directly or with
others business opportunities involving the commercial exploitation of the
Marvel Characters in connection with the manufacture and distribution of other
types of products. See 'Certain Transactions.'

Master License Agreement

Mr. Arad and the Company are parties to a license agreement which amended
the licenses between Mr. Arad and the Predecessor Company outstanding at the
time of the Company's formation and which governs the licensing of new material
to the Company by Mr. Arad thereafter. The license agreement provides that Mr.
Arad is entitled to receive royalty payments on net sales of Marvel
Character-based toys and on net sales of non-Marvel based toys of which Mr. Arad
is the inventor of record. In no event, however, may the total royalties payable
to Mr. Arad during any calendar year exceed $7.5 million. See 'Certain
Transactions.'

Gerber License Agreement

The Gerber License grants the Company an exclusive license to use the
Gerber(Registered) trademark in connection with the manufacture and distribution
of dolls and infant and toddler learning toys. The Gerber License extends until
December 31, 1997. The Gerber License provides for a royalty on net sales of the
licensed products, contains certain minimum sales guarantees and customary
quality control and indemnification provisions. The Gerber License is terminable
immediately by Gerber if Avi Arad & Associates ceases to be involved in the
product development and marketing of the licensed products or upon a change of
ownership, control or management of the Company without Gerber's prior approval.
Although the Company does not believe that the Offering should be deemed to be a
change in ownership of the Company within the meaning of the Gerber License, and
Gerber has not informed the Company that it intends to terminate the Gerber
License, there can be no assurance that Gerber would not claim that its license

with the Company was immediately terminable as a result of the Offering.
Termination of the Gerber License could have a material adverse effect on the
Company.

Other License Agreements

The Company is a party to a license agreement with Coleman, an affiliate of
the Company (the 'Coleman License'), which grants the Company a license to
utilize the Coleman(Registered) trademark in connection with the manufacture,
distribution and sale of certain children's toys in the United States and
Canada. The Coleman License expires December 31, 1997, subject to a three-year
extension upon certain conditions. The Coleman License provides that the Company
will pay Coleman a royalty on net sales of the Coleman licensed products and
guarantees to Coleman certain minimum annual royalties. The Coleman License
provides that the Company shall not act as a licensee of directly competitive
goods on behalf of a third-party licensor. However, nothing in the Coleman
License restricts the Company's right to buy, manufacture, import, sell or deal
in merchandise other than Coleman licensed products. The Coleman License
contains customary cross indemnification provisions. Coleman is an affiliate of
Marvel.

The Company is also a party to various license agreements with Disney which
grant the Company licenses to utilize certain of Disney's copyrights and
trademarks in connection with the manufacture, distribution and sale of certain
children's toys, mainly in the United States. Licensed products include pinball
games, kites, kite accessories, yo-yos, flying disks and tops. The licenses with
Disney, most of which extend through early 1998, allow the use of various
characters portrayed in Disney's The Hunchback of Notre Dame
((Copyright)Disney), Disney's Toy Story ((Copyright)Disney) and Disney's 101
Dalmatians ((Copyright)Disney) motion pictures and other well-known Disney
characters such as Mickey Mouse ((Copyright)Disney), Minnie Mouse
((Copyright)Disney) and Donald Duck ((Copyright)Disney). The Disney license
agreements obligate the Company to pay to Disney royalties on net sales of the
Disney licensed products and guarantee to Disney certain minimum payments.

The Company has obtained other licenses for the use of well-known
trademarks on kites and related Spectra Star(Registered) products. A license
agreement with Abrams Gentile Entertainment, Inc. ('AGE') grants the Company an
exclusive license, subject to certain limitations, to use the name, designs and
likenesses of Sky Dancers(Registered) and Dragonflyz(Trademark) in connection
with the manufacture, sale and distribution of kites, kite accessories and other
toys in the United States, Canada and Mexico. The license agreement, which
expires in December 1997, obligates the Company to pay AGE a royalty on net
sales of the licensed products.

Under a master merchandising license agreement with MCA/Universal the
Company has obtained an exclusive license, subject to certain limitations, to
use Hercules: The Legendary Journeys(Trademark) and Xena: Warrior

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<PAGE>
Princess(Trademark) in connection with the manufacture and distribution of a
variety of toys. The license agreement also grants the Company the option to
acquire the toy licensing rights to theatrical motion pictures based upon

Hercules: The Legendary Journeys(Trademark) and Xena: Warrior
Princess(Trademark). This license is worldwide except for Japan and certain
other markets. The license agreement also grants the Company an exclusive
license, subject to certain limitations, to manufacture and distribute a variety
of toys based on the television and motion picture productions of
Flipper(Trademark). The license for Flipper(Trademark) products covers the
United States and certain other countries, including Canada, the United Kingdom
and France. The MCA/Universal license agreement, which expires in December 1998,
obligates the Company to pay MCA/Universal a royalty on wholesale sales of the
licensed products and guarantees to MCA/Universal certain minimum payments.

In 1995, the Company entered into a license agreement with Henson, pursuant
to which the Company has begun to produce various plush items related to the
Henson Muppet Treasure Island(Trademark) motion picture. Under this license, the
Company has rights to manufacture various toy products based upon the new Henson
network television program Muppets Tonight(Trademark) and the existing Henson
Muppet Babies(Trademark) animated cable television program. The Henson license
agreement, which expires in December 1997, obligates the Company to pay to
Henson a royalty on net sales of the Henson licensed products and guarantees to
Henson certain minimum payments.

The Company is a party to license agreements with other licensors granting
rights to use characters or recognized consumer trademarks or brand names in the
manufacture, distribution and sale of other children's toys. Such licensors
include Apple, NASCAR, Saban, Sony Wonder and Revlon Consumer Products
Corporation.

The Company's license agreement with Apple grants the Company a license to
use the Apple(Registered) name and logo in the United States, Canada and Mexico
in connection with the manufacture, distribution and sale of certain electronic
learning aids and games for preschool children.

The Company's license agreement with NASCAR grants the Company a license to
use the NASCAR(Registered) name and trademark in the United States and Canada in
connection with the manufacture, sale and distribution of certain toys including
motorized plastic vehicles and ride-on vehicles.

The Company's license agreement with Saban Merchandising, Inc., and Saban
International N.V. grants the Company the right to use the title, logo and
characters from the television series 'Space Strikers' in connection with the
manufacture, distribution and sale of certain toys, including dolls, action
figures and kites.

The Company's license agreement with Sony Wonder, a division of Sony Music
Entertainment, Inc., grants the Company the right to use the characters and
marks from animated, public domain audiovisual productions such as 'The Jungle
King,' 'Pocahontas' and 'Noah's Ark' in connection with the manufacture,
distribution and sale in the United States and Canada of CD-ROMs.

The Company's license agreement with Revlon Consumer Products Corporation,
an affiliate of the Company, grants the Company the right to use the
Revlon(Registered) trademark on girls' dolls and play sets.

INTELLECTUAL PROPERTY RIGHTS

The Company believes that intellectual property rights, including
trademarks, patented devices and designs and copyrighted material, owned or
licensed by it represent valuable assets in the operation of its business. The
Company generally seeks trademark, patent and copyright protection in the United
States and certain other countries for intellectual property rights used in its
business to the extent that such protection is available and meaningful. The
Company believes that all material intellectual property rights necessary for
the operation of its business are adequately protected and available to it.
However, the Company believes that the loss of the rights to
the X-Men(Registered) or Spider-Man(Registered) trademarks or copyrights or of
intellectual property rights for a significant number of its more popular
products could have a material adverse effect on the Company. See '--Licensing
and Related Rights.'

DESIGN AND DEVELOPMENT

The Company's new toy products generally begin with the origination of a
toy concept by Mr. Arad or another member of the Company's 22-person product
development staff or through submissions by third parties. With the assistance
of outside artists, sculptors and engineers, the Company's product development
staff creates sketches and three-dimensional models of each proposed toy. If
made under license, the Company also solicits any required approvals from the
licensor for the product and the packaging. If the proposed product is a

39
<PAGE>

mechanical toy, the development team then prepares a working prototype and, in
many cases, a demonstration film showing the toy in operation. The time from
concept to production of a new toy can range from six to eighteen months,
depending on product complexity.

The reactions of the Company's principal retail customers to the new toy
are generally solicited on an informal basis throughout the development process,
and on a more formal basis once the prototype or demonstration film has been
prepared. The Company also uses consumer focus groups to gauge market place
acceptance. Before investing in production of a proposed new toy, the Company
solicits pre-production commitments from retailers through its sales staff and
independent manufacturer's representatives and also gauges the interest of
retailers expressed at U.S. and international toy trade shows. If the Company
obtains sufficient indications of interest, including possibly pre-production
purchase orders from retailers, the Company arranges for tools and molds to be
made by manufacturers in the Far East so that production can begin.

MANUFACTURING

The Company relies on independent parties in China to manufacture a
substantial portion of its products. The remainder of its products are
manufactured in the United States or Mexico. Decisions related to the Company's
choice of manufacturer are based on price, quality of merchandise, reliability,
and the ability of a manufacturer to meet the Company's timing requirements for
delivery. The Company is not a party to long-term contractual or other
arrangements with any manufacturer. The Company participates in electronic data

interchange programs maintained by certain of its largest customers, which
allows the Company to monitor actual store inventories and thereby to schedule
its production to meet anticipated re-orders. There can be no assurance,
however, that anticipated re-orders will, in fact, materialize.

The principal raw materials used in the production and sale of the
Company's products are plastics and paper products. Raw materials are generally
purchased by the manufacturers who deliver completed products to the Company.
The Company believes that an adequate supply of raw materials used in the
manufacture of its products is readily available from existing and alternative
sources and at reasonable prices. However, there can be no assurance that, in
the event of a disruption in the Company's supply of raw materials, the Company
could obtain these resources in a timely manner or at all.

According to the TMA, approximately 75% of the toys sold in the United
States are manufactured, either in whole or in part, overseas. Of that amount a
majority are produced in China. In 1995, a substantial portion of the Company's
products were manufactured in China. As a matter of policy, the Company uses
several different manufacturers. The Company has concentrated its production
with a limited number of major Chinese manufacturers. As a result of this
concentration, the Company believes that each of these manufacturers derives a
significant portion of its business from the Company. This concentration
reflects the Company's strategy of selecting manufacturers at which the
Company's product volume qualifies the Company as a significant customer. While
the Company is not dependent on any single manufacturer in China to supply it
with products, the Company would be affected by political or economic
disruptions affecting businesses in China generally. The Company believes that
alternate sources of manufacturing are available outside China, although there
can be no assurance that these alternate sources will prove to be adequate or
available on acceptable terms.

In June 1996, the United States extended China's 'Most Favored Nation'
status for one year. Most Favored Nation status allows products imported into
the United States from China to be accorded normal import duties. The loss of
Most Favored Nation status by China would result in a substantial increase in
import duty for the Company's products produced there and imported into the
United States, which could materially affect the Company's business.

In addition, China may be subject to retaliatory trade restrictions imposed
by the United States under various provisions of the Trade Act of 1974, as
amended, including 'Super 301,' which regulates unfair trade practices, and
'Special 301,' which regulates protection of intellectual property. Super 301
authority permits the USTR to impose a variety of trade sanctions against a
foreign nation which the USTR determines is engaging in unfair trade practices.
Special 301 authority permits the USTR to impose a variety of trade sanctions
against a foreign nation which the USTR determines is tolerating violations of
intellectual property rights.

In May 1996, after determining that China was not enforcing crucial
portions of its February 1995 intellectual property rights agreement with the
United States, the USTR announced that sanctions would go into effect on June
17, 1996, unless China began satisfactory compliance. The sanctions, which were
to raise duties on various products imported from China to 100%, were averted
when on June 17, 1996, the United States and

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<PAGE>
China reached an agreement on stricter enforcement of the 1995 agreement.
Although toys such as those which the Company produces in China were not
subject to the increased duties threatened in May-June 1996, there can be no
assurance that they will be exempt from or unaffected by duties in future
sanctions. Future import quotas, increased tariffs on goods imported from
China, or other retaliatory measures could result in significant supply
disruptions or higher merchandise costs to the Company. Other toy companies
which obtain products from China would also be affected by such a change. The
ultimate impact on the Company from such a change in trade status would depend
on several factors, including the Company's ability to procure alternative
manufacturing sources outside of China and its ability to pass resultant cost
increases to its customers as product price increases.

The Company maintains a Hong Kong office from which it regularly monitors
the progress and performance of its manufacturers and subcontractors. The
Company also uses Acts Testing Labs (H.K.) Ltd., a leading independent
quality-inspection firm, to maintain close contact with its manufacturers and
subcontractors in China and to monitor actively quality control on behalf of the
Company. The Company uses an affiliate of Acts Testing Labs (H.K.) Ltd. to
provide testing services for the limited amount of product currently produced in
the United States.

Transactions in which the Company purchases goods from manufacturers are
mostly effected in Hong Kong dollars, and, accordingly, fluctuations in Hong
Kong monetary rates may have an impact on cost of goods. However, in recent
years, the value of the Hong Kong dollar has been tied to the value of the
United States dollar, eliminating fluctuations between the two currencies. There
can be no assurance that the Hong Kong dollar will continue to be tied to the
United States dollar. Furthermore, appreciation of Chinese currency values
relative to the Hong Kong dollar could increase the cost to the Company of
products manufactured in China and thereby have a negative impact on the
Company.

The Company's Spectra Star(Registered) products are manufactured mainly in
Mexico. Pursuant to an agreement with the former owner of Spectra Star's
business, the Company reimburses all of the operating costs incurred in the
manufacture of Spectra Star(Registered) products at the former owner's Mexican
facility. The Company is required to purchase that facility. See '--Properties.'
While it expects to maintain a consistent level of manufacturing in Mexico, due
to capacity constraints of the Mexican facility, the Company does not currently
view manufacturing at that facility as an alternative to manufacturing in China.
See '--Properties.'

CUSTOMERS, MARKETING AND DISTRIBUTION

The Company markets and distributes its products throughout the world, with
sales to customers in the United States accounting for approximately 90% of the
Company's net sales in 1995.

The following table sets forth information concerning the Company's net
sales in the United States and internationally:

NET SALES

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ---------------------------------
1993 1994 1995 1995 1996
----- ------ ------ --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
U.S. Net Sales............................. $80.7 $142.7 $175.8 $26.9 $31.2
International Sales........................ 9.0 13.8 20.6 1.0 7.2
----- ------ ------ ------ ------
Total...................................... $89.7 $156.5 $196.4 $27.9 $38.4
----- ------ ------ ------ ------
----- ------ ------ ------ ------
</TABLE>

U.S. Sales

Outlets for the Company's products in the United States include specialty
toy retailers, mass merchandisers, mail order companies and variety stores, as
well as independent distributors who purchase products directly from the Company
and ship them to retail outlets. The Company's five largest customers are Toys
'R' Us, Inc. Wal-Mart Stores, Inc., Kmart Corporation, Target Stores, Inc., a
division of Dayton-Hudson Corp. and Kay-Bee Toys, a division of Consolidated
Stores, which customers accounted in the aggregate for approximately 84% and 72%
of the Company's U.S. gross sales in 1995 and the three months ended March 31,
1996.

The Company maintains a 19-person sales and marketing staff and retains
various independent manufacturers' sales representative organization in the
United States. The Company's senior management utilize sales representatives, as
well as in-house sales and marketing personnel, to facilitate its general sales
strategy.

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<PAGE>
Sales representatives utilized by the Company are paid by commissions
and bonuses, which aggregated approximately .7% of U.S. net sales in 1995. The
Company also directly introduces and markets to customers new products and
extensions to previously marketed product lines by participating in the major
trade shows in New York City, Hong Kong and Europe and through a showroom
maintained by the Company in New York City.

The Company does not sell its products on consignment and, in lieu of
accepting returns of merchandise from retailers who are unable to resell the
quantity of products which they have purchased from the Company, the Company
occasionally offers credits and other concessions to assist those retailers.

The Company utilizes an independent public warehouse in the Seattle,
Washington area, for storage of its products. The Company believes that adequate

alternative storage facilities are available. Disruptions in shipments from
China or from this facility could have a material adverse effect on the Company.

International Sales

The Company believes international markets represent a significant
opportunity for future expansion. The Company's products are sold outside the
United States through independent distributors by its Hong Kong subsidiary. The
Company's international product line generally includes products currently or
previously offered in the United States, packaged to meet local regulatory and
marketing requirements. In 1995 and the three months ended March 31, 1996, the
Company's international sales accounted for approximately 10% and 19%,
respectively, of the Company's net sales. Sales in non-U.S. countries are made
directly by the Company's Hong Kong subsidiary to independent distributors, some
of which are licensees that have acquired international distribution rights in
respect of categories of products which the Company has the right to distribute
in the U.S. International distributors ordinarily retain their own sales
representatives. The Company currently retains approximately ten international
distributors to market its products internationally. The Company retains an
independent firm in Hong Kong to oversee the shipment of the Company's
international sales. For further information with respect to net sales,
operating income and assets associated with the Company's Hong Kong subsidiary,
see note 2 of notes to the financial statements.

The non-U.S. countries in which the Company markets products principally
include the United Kingdom, Italy, France, Australia, Japan, Germany, Brazil and
Canada. Sales by the Company to international customers are ordinarily effected
in United States dollars and are secured by letters of credit. Accordingly, the
Company's revenues are not ordinarily affected by fluctuations in monetary rates
overseas. The United States dollar value in relation to other currencies,
however, may have a positive or negative impact on sales in foreign countries,
depending on the relationship of the respective currencies. Each international
distributor purchases and maintains its own inventory of the Company's products.

F.O.B. Program

The Company has hired three individuals with the intent of developing an
F.O.B. line which will supplement the Company's other products. Many major toy
companies develop a product line to be offered to their customers on a
free-on-board ('F.O.B.') basis. Sales made on an F.O.B. basis are usually
delivered dockside at the product's point of origin, with the purchaser assuming
the costs of transportation, duties and warehousing at the ultimate destination.
Products sold on an F.O.B. basis are typically complementary to a company's
domestic product lines but are not in direct competition with them. For example,
if a company were to sell a fashion doll through its regular product line, it
might choose to offer accessories for these dolls on an F.O.B. basis. The nature
of these items, and the fact that they are offered on an F.O.B. basis, is
intended to allow toy companies to sell these products with lower tooling and
development costs, direct advertising and inventory and receivables risk than
their standard lines. As a result, toy companies seek to sell F.O.B. products
at lower prices, resulting in improved margins for their customers. The Company
estimates that it will incur incremental costs in 1996 in conjunction with the
implementation of the F.O.B. line. No sales on an F.O.B. basis are anticipated
in 1996.

ADVERTISING

Although a portion of the Company's advertising budget is expended for
newspaper advertising, magazine advertising, catalogs and other promotional
materials, the Company allocates a majority of its advertising budget to
television promotion. The Company advertises on national television and
purchases advertising spots on a local basis in order to coordinate its
promotional efforts with those of its retailers. The Company believes that
television programs underlying various Company product lines increase exposure
and awareness without

42
<PAGE>
increased advertising expenditures by the Company. In addition, the Company
has also found that the exposure of its toy characters on television such as
Spider-Man(Registered), X-Men(Registered), Fantastic Four(Trademark) and Iron
Man(Registered) can significantly increase sales of the Company's products.
The Company believes that feature films and television programming developed
by Marvel Studios may create additional consumer interest in Marvel Characters
and could generate revenue from sales of toys based on Marvel Characters in
these projects. The Company's position as a licensee, in many cases, permits
it to gain favorable media exposure from advertising and other media events
commissioned by its licensors. The Company engages Tangible Media, Inc.
('Tangible Media'), an affiliate of Mr. Perlmutter, to purchase all advertising
for the Company. The Company believes that its transactions with Tangible Media
are on terms which are no less favorable to the Company than those that it
could obtain from independent third parties, and the Company may engage other
companies to perform similar services at any time. See 'Certain Transactions--
Tangible Media Advertising Consultant' and '--Government Regulations;
Insurance.' The Company retains the services of a media consulting agency for
advice on matters of advertising creativity.

COMPETITION

The toy industry is highly competitive and the Company competes with many
larger toy companies in the design and development of new toys, the procurement
of licenses and for adequate retail shelf space for its products. The larger toy
companies include Hasbro, Inc., Mattel Inc., Tyco Toys, Inc., Playmates, Inc.
and Bandai, Co., Ltd., and the Company considers Just Toys, Inc., Lewis Galoob
Toys, Inc., Happiness Express Inc., Irwin Toy Limited, Empire of Carolina, Inc.
and Ohio Art Co. to be among its competitors as well. The Company believes that
the Marvel License, other strong character and product licenses, the industry
reputation and ability of its senior management, the quality of its products and
its overhead and operational controls will enable the Company to compete
successfully. However, there can be no assurance that the Company will compete
effectively against its competitors.

GOVERNMENT REGULATIONS; INSURANCE

The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws
empower the Consumer Product Safety Commission (the 'Consumer Commission') to
protect children from hazardous toys and other articles. The Consumer Commission

has the authority to exclude from the market articles which are found to be
hazardous and can require a manufacturer to repurchase such toys under certain
circumstances. Similar laws exist in some states and cities in the United States
and in Canada and Europe. The Company maintains a quality control program
(including the inspection of goods at factories and the retention of an
independent quality-inspection firm) to ensure compliance with applicable laws.
The Company's business exposes it to potential product liability risks which are
inherent in the design, marketing and sale of children's products. With respect
to the manufacture of model rockets by the Company's Quest division, the Company
is subject to regulations, including the rules enforced by the Bureau of
Alcohol, Tobacco and Firearms and state and local fire ordinances. The Company
currently maintains product liability insurance and an umbrella liability
policy. In the event of a successful claim against the Company, a lack of
sufficient insurance coverage could have a material adverse effect on the
Company's business and operations. Moreover, though the Company maintains what
it considers to be adequate insurance, any successful claim could materially and
adversely affect the reputation and prospects of the Company.

EMPLOYEES

As of June 28, 1996, the Company had 126 employees, of whom 61 were based
at the Company's New York office, 37 were based at the Company's Arizona
facilities and 28 were based at the Company's Hong Kong office. In total, 70
employees are involved in the manufacturing or creative process, while the
balance of employees are involved in sales, marketing, finance or administrative
functions. The employees based in Hong Kong are principally engaged in
engineering, administrative, packaging and quality control activities.

PROPERTIES

The Company's principal executive offices and showroom are located in New
York City where the Company occupies approximately 17,000 square feet of office
space pursuant to a lease that expires in April 1997. Under a lease that expires
in 2004, the Company also maintains a showroom at the Toy Center Building in

43
<PAGE>
New York City, where the Company leases approximately 5,200 square feet of
display and office space. The Company also leases approximately 80,000 square
feet of warehouse space in Yuma, Arizona. In connection with the Company's
acquisition of Spectra Star, the Company is required to purchase from a
subsidiary of Spectra Star the 70,000 square foot manufacturing facility in
San Luis, Mexico that the Company currently utilizes to manufacture Spectra
Star(Registered) products. The purchase price of that facility will be 18,182
shares of Series A Preferred Stock. The Company leases approximately 2,500
square feet of manufacturing facilities in Yuma, Arizona, which are utilized to
manufacture the Company's Quest(Trademark) products. The Company believes that
additional office and warehouse space is readily available and that such new
space, together with the Company's existing facilities, will be adequate and
suitable for the operation of its business for the foreseeable future. See
'Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources,' 'Description of Capital Stock' and
'Certain Transactions.'

LEGAL PROCEEDINGS

On February 14, 1994, Robert A. McDarren and Barry Y. Piels (the
'Plaintiffs') filed a complaint in the United States District Court for the
Southern District of New York against the Company, the Predecessor Company,
Marvel and Mr. Perlmutter. The complaint as amended alleges that the Predecessor
Company violated a settlement agreement under which the Predecessor Company
agreed, among other things, to use its best efforts to help the Plaintiffs
obtain certain product molds and product licenses from Marvel. Marvel was
subsequently dismissed from the action. Mr. Perlmutter agreed, pursuant to the
formation and contribution agreement (the 'Formation Agreement'), dated March
19, 1993, relating to the Company's formation, to indemnify the Company against
any liability, including reasonable legal fees and disbursements of defending
litigation, arising out of preclosing liabilities of the Predecessor Company,
including this litigation. On April 7, 1995, the court denied the Company's
motion, and the Plaintiffs' cross-motion, for summary judgment. Accordingly, the
case stands ready for trial, although no trial date has yet been set by the
Court. The Plaintiffs seek up to $100,000,000 in compensatory and punitive
damages, as well as injunctive relief. Although there can be no assurances, the
Company believes that the ultimate outcome of the suit will not have a material
adverse effect on the Company because the Company believes that it has
meritorious defenses. In addition, Mr. Perlmutter has agreed to indemnify the
Company against any liability in connection with such action pursuant to the
Formation Agreement.

On December 28, 1995, G.D.L. Management Incorporated ('GDL') commenced an
action against the Company, Mr. Perlmutter and the Predecessor Company in the
Supreme Court of the State of New York, County of New York. The amended
complaint in that action, which was served on March 19, 1996, alleges that GDL
is entitled to receive 10% of the capital stock of the Predecessor Company
pursuant to an alleged 1990 agreement between GDL and Mr. Perlmutter and seeks
money damages based on the value of 10% of the Company's Class A Common Stock
beneficially owned by Mr. Perlmutter, as well as other consideration received by
him, and a variety of equitable remedies. Mr. Perlmutter has denied all of the
material allegations made in support of GDL's claims, and pursuant to the
Formation Agreement, agreed to indemnify the Company in respect to any liability
arising from GDL's claims. The Company has moved to dismiss GDL's amended
complaint for failure to state a cause of action. The Company does not believe
that any of the claims made against it will have a material adverse effect on
its financial position because it believes that all of the claims against it are
without merit and because of the indemnity provided to it in the Formation
Agreement. From 1987 to 1991, Mr. Ahearn was a principal of GDL. See
'Management.'

The Company is involved in various legal proceedings arising in the normal
course of business. The Company believes that the final outcome of these
proceedings will not have a material adverse effect on the Company.

44
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and Directors of the Company, their ages as of June
28, 1996 and their positions with the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Ronald O. Perelman......................... 53 Chairman of the Board of Directors and
Director
Joseph M. Ahearn........................... 41 President, Chief Executive Officer and
Director
Bobby G. Jenkins........................... 34 Chief Financial Officer, Treasurer and
Director
Daniel J. Werther.......................... 35 Executive Vice President, Senior Legal
Officer and Secretary
Andrew R. Gatto............................ 48 Executive Vice President, Marketing
Avi Arad................................... 48 Director
William C. Bevins.......................... 50 Director
Donald G. Drapkin.......................... 48 Director
Isaac Perlmutter........................... 53 Director
Terry C. Stewart........................... 50 Director
James F. Halpin............................ 44 Director
Alfred A. Piergallini...................... 49 Director
Lynn Schenk................................ 51 Director
Paul R. Verkuil............................ 56 Director
</TABLE>

DIRECTORS

The name, principal occupation for the last five years, selected
biographical information and period of service as a Director of the Company of
each Director are set forth below. Pursuant to a stockholders' agreement
discussed below, Messrs. Perelman, Bevins, Drapkin, Stewart, Jenkins, Halpin,
Piergallini and Ms. Schenk are the designees of Marvel Characters, Messrs.
Perlmutter and Ahearn are the designees of Mr. Perlmutter and Mr. Arad is the
designee of Mr. Arad. See 'Certain Transactions.'

Ronald O. Perelman has been Chairman of the Board and a Director of the
Company since March 1995. Mr. Perelman has been Chairman of the Board and Chief
Executive Officer of MacAndrews & Forbes and various affiliates since 1980. Mr.
Perelman is Chairman of the Board of Andrews Group Incorporated ('Andrews
Group'), Consolidated Cigar Corporation ('Consolidated Cigar'), Mafco
Consolidated Group Inc. ('Mafco Consolidated'), Mafco Worldwide Corporation
('Mafco Worldwide'), Marvel, Meridian Sports Incorporated ('Meridian'), NWCG and
Power Control Technologies Inc. ('PCT') and is Chairman of the Executive
Committee of Revlon, Inc. and Revlon Consumer Products Corporation. Mr. Perelman
is a director of the following corporations which file reports pursuant to the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'): Andrews Group,
Coleman, Coleman Holdings Inc., Coleman Worldwide Corporation, Consolidated
Cigar, First Nationwide Bank, A Federal Savings Bank, First Nationwide Holdings

Inc., First Nationwide (Parent) Holdings Inc., Mafco Worldwide, Marvel, Marvel
Holdings Inc. ('Marvel Holdings'), Marvel (Parent) Holdings Inc. ('Marvel
Parent'), Marvel III Holdings Inc. ('Marvel III'), Meridian, NWCG, NWCG Holdings
Corporation, New World Television, Incorporated ('New World Television'), PCT,
Revlon, Inc., Revlon Consumer Products Corporation and Revlon Worldwide
Corporation ('Revlon Worldwide').

William C. Bevins has been a Director of the Company since April 1993. Mr.
Bevins has been a director of Marvel since 1989, Chief Executive Officer of
Marvel since 1991 and President of Marvel since November 1994. Mr. Bevins has
been President and Chief Executive Officer of Andrews Group since 1988 and NWCG
since 1994 and Executive Vice President of MacAndrews Holdings since 1988. Mr.
Bevins also is a director of

45
<PAGE>
Andrews Group, Marvel Holdings, Marvel Parent, Marvel III, NWCG, NWCG Holdings
Corporation and New World Television. Mr. Bevins was a director and Chief
Financial & Administrative Officer of Turner Broadcasting System, Inc. for more
than five years prior to 1988.

Donald G. Drapkin has been a Director of the Company since April 1993. Mr.
Drapkin has been a director of Marvel since 1991. He has been Vice Chairman and
a director of MacAndrews & Forbes and Vice Chairman of various of its affiliates
since 1987. Mr. Drapkin also is a director of the following corporations which
file reports pursuant to the Exchange Act: Andrews Group, Coleman, Coleman
Holdings Inc., Coleman Worldwide Corporation, Marvel, Marvel Holdings, Marvel
Parent, Marvel III, Revlon, Revlon Products, Revlon Worldwide, The Claridge
Hotel and Casino Corporation, Algos Pharmaceutical Corporation and VIMRx
Pharmaceuticals Inc. Mr. Drapkin was a partner at the law firm of Skadden, Arps,
Slate, Meagher & Flom for more than five years prior to March 1987.

Terry C. Stewart has been a Director of the Company since April 1993. Mr.
Stewart has been a director of Marvel since 1991 and an Executive Vice President
of Marvel since January 1996. Mr. Stewart joined Marvel in 1989 as Executive
Vice President, Development and served as President and Chief Operating Officer
from September 1990 to July 1994, Vice Chairman from March 1995 to December 1995
and President and Chief Operating Officer, Marvel Comics from July 1994 until
March 1995. From 1984 to 1989, Mr. Stewart was Vice President-Business
Development at Combustion Engineering.

Isaac Perlmutter has served as a Director of the Company since April 1993
and he served as Chairman of the Board of Directors until March 1995. Mr.
Perlmutter purchased the Predecessor Company from Charan Industries, Inc. in
January 1990. Mr. Perlmutter is actively involved in the management of the
affairs of the Company and has been an independent financial investor for more
than the past five years. As an independent investor Mr. Perlmutter currently
has, or has had within the past five years, controlling ownership interests in
Remington Products Company, Westwood Industries, Inc., a manufacturer and
distributor of table and floor lamps, Job Lot Incorporated (and its predecessor
Job Lot Associates L.P.) ('Job Lot'), a discount oriented retail chain, Tangible
Media, a media buying and barter advertising agency, and REC Sound Incorporated,
a distributor of licensed novelty electronics, and is also the majority

stockholder of Classic Heroes, Inc., a distributor of apparel manufactured under
licenses from Marvel and others.

Avi Arad has served as a Director of and consultant to the Company since
April 1993. Mr. Arad has been the President and Chief Executive Officer of New
World Animation, a media production company under common control with Marvel,
since April 1993 where he has served as the Executive Producer of the
X-Men(Registered) and the Spider-Man(Registered) animated TV series currently
carried on FCN and the Fantastic Four(Trademark) and Iron Man(Registered)
animated syndicated programs. Mr. Arad has been a toy inventor and designer for
more than 20 years for major toy companies including Mattel Inc., Hasbro, Inc.
and Tyco Toys, Inc. During his career, Mr. Arad has designed or co-designed more
than 160 toys. Mr. Arad is also the owner of Avi Arad & Associates, a firm
engaged in the design and development of toys and the production and
distribution of television programs and is a beneficial owner in Classic Heroes,
Inc.

Joseph M. Ahearn has served as Chief Executive Officer and a Director of
the Company since April 1993 and as President of the Company since November
1994. From January 1990 to April 1993, Mr. Ahearn served initially as a
consultant to, and after April 1990, as an executive officer and director of the
Company's predecessor company. During such period, he served as a consultant to
other businesses affiliated with Mr. Perlmutter. From 1987 to August 1991, Mr.
Ahearn was a principal of GDL, a corporation that provides management advice and
assistance to financially distressed companies. From August 1988 to August 1991,
Mr. Ahearn, in his capacity as a principal of GDL, served as Chief Operating
Officer of Coleco Industries, Inc. and as a director or officer of various other
businesses that were the subject of bankruptcy proceedings. From 1981 to 1987,
Mr. Ahearn was employed by Touche Ross & Co., attaining the position of senior
manager. From 1976 to 1980, Mr. Ahearn served in both the audit and consulting
departments of Arthur Andersen & Co.

Bobby G. Jenkins has served as Chief Financial Officer and Treasurer of the
Company since November 1994 and as a Director of the Company since March 1995.
Mr. Jenkins has been Executive Vice President and Chief Financial Officer of
Marvel since December 1993. From 1992 until he joined Marvel, Mr. Jenkins was
Assistant Vice President-Finance of Turner Broadcasting System, Inc., and, for
more than five years prior thereto, he was associated with Price Waterhouse,
where he last served as Senior Audit Manager.

46
<PAGE>
James F. Halpin has served as a Director of the Company since March 1995.
Mr. Halpin has been President, Chief Operating Officer and a director of CompUSA
Inc., a retailer of computer hardware, software, accessories and related
products, since May 1993 and Chief Executive Officer of CompUSA, Inc. since
December 1993. From 1990 to November 1992, Mr. Halpin was President of Homebase,
a home center warehouse retailer. From 1988 to 1990, Mr. Halpin was President of
BJ's Wholesale Club, a chain of club retail stores. Mr. Halpin also served as
Executive Vice President of Waban Inc., the parent of Homebase and BJ's
Wholesale Club, from 1988 to May 1993.

Alfred A. Piergallini has served as a Director of the Company since March
1995. Mr. Piergallini has been a director of Gerber since 1989, Chairman of the

Board and Chief Executive Officer of Gerber since January 1990 and President of
Gerber since January 1993. Mr. Piergallini also served as President of Gerber
from January 1990 to May 1992. Mr. Piergallini is also a director of Comerica,
Incorporated, a financial services holding company. From February 1986 to April
1989, Mr. Piergallini was a Senior Vice President of The Carnation Company.

Lynn Schenk has served as a Director of the Company since March 1995. Ms.
Schenk is a senior consultant to the law firm of Baker & McKenzie. Ms. Schenk
served in the United States House of Representatives as Congresswoman
representing the 49th Congressional District in the State of California from
January 1993 to January 1995. During her term in the House of Representatives,
Ms. Schenk served on the Energy and Commerce Committee and the Merchant Marine
and Fisheries Committee. Ms. Schenk served as the State of California's
Secretary of Business, Transportation and Housing prior to 1983. From 1983 until
her election to Congress, Ms. Schenk was in private law practice in California
and served as an independent consultant with the law firm of Lorenz, Alhadeff,
Lundin & Oggel to various public and private businesses with respect to
government relations. From 1985 to 1993, Ms. Schenk served as a director of Long
Beach Bank F.S.B.

Paul R. Verkuil, an attorney-at-law, has been Professor Emeritus of the
College of William and Mary since 1992 where he previously served as President
from 1985 to 1992. Mr. Verkuil has been on the faculty of the Columbia Law
School as an Adjunct Professor since January 1996 and was previously on the
faculty of the University of Pennsylvania as a Visiting Professor from January
1995 to December 1995. Mr. Verkuil served as Dean of Tulane Law School from 1978
to 1985. Mr. Verkuil also served as the President and Chief Executive officer of
the American Automobile Association from January 1992 to December 1994. Mr.
Verkuil is a director of Universal Health Services, Inc. and previously served
as a director of NationsBank of Florida from 1992 to 1995 and of Florida
Progress Corporation from 1993 to 1995.

EXECUTIVE OFFICERS

The following sets forth the positions held with the Company and selected
biographical information for the executive officers of the Company who are not
Directors.

Daniel J. Werther has served as Executive Vice President, Senior Legal
Officer and Secretary of the Company since April 1993. Mr. Werther has also
served as Senior Vice President of Andrews Group since February 1993. From April
1991 to February 1993, Mr. Werther was a senior associate in the law firm of
Klehr, Harrison, Harvey, Branzburg & Ellers in Philadelphia, Pennsylvania. Prior
to that time, Mr. Werther was an associate in the law firm of Obermayer,
Rebmann, Maxwell & Hippel in Philadelphia, Pennsylvania.

Andrew R. Gatto has served as Executive Vice President--Marketing since
July 1995. Prior to joining the Company, Mr. Gatto served as the President of
the Buddy-L Toys Division of SLM Inc. from December 1994 through July 1995,
having been hired as work out specialist while such firm was the subject of
bankruptcy proceedings. From June 1990 through November 1994, he served as a
consultant to and later as President of Play-Tech, Inc., a manufacturer of
learning aid toys. Prior thereto, Mr. Gatto served as Executive Vice President
of Universal Match Box Group, Ltd., a toy manufacturer.

<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information, as of June 15, 1996,
with respect to the shares of Common Stock beneficially owned by (a) each person
known by the Company to be the beneficial owner of 5% or more of the outstanding
Common Stock, (b) the Selling Stockholders, (c) each Director of the Company and
(d) all Directors and executive officers of the Company as a group, and as
adjusted at that date to reflect the sale of the shares of Common Stock offered
hereby:

<TABLE>
<CAPTION>
CLASS A COMMON STOCK
----------------------------------------------------------- CLASS B
COMMON STOCK
----------------------
SHARES SHARES
BENEFICIALLY BENEFICIALLY NUMBER OF
OWNED OWNED SHARES
PRIOR TO OFFERING AFTER OFFERING BENEFICIALLY
FIVE PERCENT STOCKHOLDERS, --------------------- --------------------- OWNED PERCENT OF
SELLING STOCKHOLDERS, PERCENT SHARES PERCENT ---------------------- TOTAL VOTING
DIRECTORS AND EXECUTIVE OF BEING OF BEFORE AFTER POWER AFTER
OFFICERS NUMBER CLASS OFFERED NUMBER CLASS OFFERING OFFERING OFFERING
- --------------------------- ---------- ------- --------- ---------- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald O. Perelman(1) ..... 9,894,000 36.6% 2,500,000 7,394,000 26.7% 9,894,000(2) 7,394,000 78.4%
35 East 62nd Street
New York, New York 10021
Avi Arad(3) ............... 4,150,000 24.2% -- 4,150,000 20.4% 1(4) 1(4) 4.4%
1698 Post Road East
Westport, Connecticut
06880
Isaac Perlmutter(5) ....... 9,506,000 55.5% -- 9,506,000 46.7% 1(6) 1(6) 10.1%
P.O. Box 1028
Lake Worth,
Florida 33460-1028
Joseph M. Ahearn(7) ....... 176,766 1.0% -- 176,766 * -- -- *
333 East 38th Street
New York, New York 10016
Bobby G. Jenkins(8) ....... 33,333 * -- 33,333 * -- -- *
333 East 38th Street
New York, New York 10016
William C. Bevins.......... 10,000 * -- 10,000 * -- -- *
Donald G. Drapkin(9)....... 12,000 * -- 12,000 * -- -- *
Terry C. Stewart........... 1,000 * -- 1,000 * -- -- *
James F. Halpin............ 5,000 * -- 5,000 * -- -- *
Alfred A. Piergallini...... 4,000 * -- 4,000 * -- -- *
Lynn Schenk................ 1,000 * -- 1,000 * -- -- *
Paul R. Verkuil............ 2,000 * -- 2,000 * -- -- *
Andrew R. Gatto(8)......... 20,000 * -- 20,000 * -- -- *

Daniel J. Werther(8) ...... 50,000 * -- 50,000 * -- -- *
333 East 38th Street
New York, New York 10016
All executive officers and
Directors as a group (14
persons)(10)............. 23,865,099 87.4% 2,500,000 21,365,099 76.3% 9,894,000 7,394,000 93.0%
</TABLE>

- ------------------
* Less than 1%.

(1) Represents shares of Class A Common Stock issuable upon the conversion of
Class B Common Stock owned by Marvel Characters, Inc., a wholly owned
subsidiary of Marvel Entertainment Group, Inc. At March 29, 1996, Marvel had
101,790,657 shares of common stock outstanding, of which 81,618,392 shares
(approximately 80%) were indirectly owned through wholly owned subsidiaries
by Mafco Holdings, which is wholly owned by Mr. Perelman. At March 29, 1996,
78,007,725 shares of common stock of Marvel indirectly held by Mafco
Holdings were pledged to secure indebtedness of certain affiliates of
Marvel.

(2) Includes two shares of Class B Common Stock held by the Class B Voting
Trusts. Marvel is the sole beneficiary of each of the Class B Voting Trusts.

(Footnotes continued on next page)

48
<PAGE>
(Footnotes continued from previous page)

(3) Mr. Arad is a Director, Principal Stockholder and Selling Stockholder of the
Company. See 'Management.' If the U.S. Underwriters exercise their
over-allotment option in full, the shares beneficially owned after the
Offering by Mr. Arad would be 4,054,000 or 19.9% of the class after the
Offering.

(4) Includes one share of Class B Common Stock held by the Class B Voting Trust
of which Mr. Arad is the sole trustee.

(5) Represents Class A Common Stock owned by Zib, formerly Toy Biz Inc., a
Delaware corporation incorporated in 1990, which is owned entirely by the
Isaac Perlmutter T.A., a revocable trust established by Mr. Perlmutter. Mr.
Perlmutter is the sole beneficiary of the trust during his lifetime and may
revoke the trust at any time. Mr. Perlmutter and his wife serve as the
trustees of such trust. If the U.S. Underwriters exercise their
over-allotment option in full, the shares beneficially owned after the
Offering by Mr. Perlmutter would be 9,122,000 or 44.9% of the class after
the Offering.

(6) Includes one share of Class B Common Stock held by the Class B Voting Trust

of which Mr. Perlmutter is the sole trustee.

(7) Includes 176,666 shares of Class A Common Stock subject to stock options
granted pursuant to the Stock Option Plan which are immediately exercisable.

(8) Represents shares of Class A Common Stock subject to Stock Options granted
pursuant to the Stock Option Plan which are immediately exercisable.

(9) Represents shares held in trusts for the benefit of Mr. Drapkin's children
for which Mr. Drapkin disclaims beneficial ownership.

(10) Includes 280,099 shares of Class A Common Stock subject to Stock Options
granted pursuant to the Stock Option Plan. If the U.S. Underwriters
exercise their over-allotment option in full, the executive officers and
Directors as a group will own 20,885,099 shares of Class A Common Stock or
74.6% of the class after the Offering.

<PAGE>
CERTAIN TRANSACTIONS

FORMATION AGREEMENT

The Company was formed on April 30, 1993 upon consummation of the Formation
Agreement dated March 19, 1993 among the Company, Marvel, Mr. Perlmutter, Mr.
Perlmutter's personal trust, the Predecessor Company (wholly owned by Mr.
Perlmutter) and Mr. Arad. The Formation Agreement governed the contributions of
cash and assets to the capital of the Company made by certain of the parties
thereto and the initial issuance of shares of the Company's capital stock.
Pursuant to the Formation Agreement, Marvel received 46% of the Company's
capital stock in exchange for a capital contribution of $500,000, a loan in the
original principal amount of $7.5 million, which was evidenced by a promissory
note (the 'Marvel Note') in the original principal amount of $7.5 million on
April 30, 1993 and the grant by Marvel of the Marvel License to the Company.
Pursuant to the terms of the Formation Agreement, the principal amount of the
Marvel Note was subsequently adjusted to $8.5 million. On March 3, 1995, the
Company paid the entire principal amount and accrued interest outstanding on the
Marvel Note, $9.6 million.

Pursuant to the Formation Agreement, the Predecessor Company received 44%
of the Company's capital stock. In exchange therefor, Mr. Perlmutter caused the
Predecessor Company to transfer all of its assets to the Company, subject to the
assumption by the Company of certain specified liabilities totalling $16,662,000
which were owed to Mr. Perlmutter and Tot Funding Corp., an affiliate of Mr.
Perlmutter. All outstanding amounts owed pursuant to the Formation Agreement
have been repaid by the Company to Mr. Perlmutter.

Pursuant to the Formation Agreement, in exchange for the contribution to
the Company of his interests in certain license agreements with the Company and
cash, Mr. Arad received 10% of the Company's capital stock and the Arad Stock
Option. Mr. Arad also agreed to enter into the Arad Consulting Agreement (as
described below) and the Master License Agreement (as described below). Mr. Arad
exercised the Arad Stock Option on June 30, 1994. The Company agreed to loan Mr.
Arad (an 'Option Loan') an amount necessary to allow Mr. Arad to pay any
additional taxes and interest and penalties assessed by taxing authorities as a
result of disputes as to the fair market value of the shares underlying the Arad
Stock Option on the date the option was exercised. Each Option Loan shall extend
for three years and shall bear interest equal to the interest rate on the
Company's primary line of credit. Mr. Arad must also secure each Option Loan
with a pledge of shares of Common Stock having a market value substantially
greater than the amount of the loan.

In connection with the Formation Agreement, the assets of a Hong Kong
corporation which was the Predecessor Company's international sales affiliate
were contributed for no consideration to the Predecessor Company and were in
turn contributed by the Predecessor Company to the Company.

In connection with the formation of the Company, Marvel granted to the
Company the Marvel License, pursuant to which the Company obtained an exclusive,
perpetual and royalty-free license, subject to certain limitations, to produce
certain categories of toys based on the Marvel Characters. Also in connection

with the formation of the Company, Mr. Arad and the Company entered into the
Master License Agreement which amended the licenses then outstanding from Mr.
Arad to the Company and provided for the licensing thereafter of new material by
Mr. Arad to the Company. The Master License Agreement provides that Mr. Arad is
entitled to receive royalty payments of 4% of the Company's net sales (6% of net
sales FOB a manufacturing source in the Orient) for toys based on the Marvel
Characters and royalty payments in a negotiated amount of up to 5% of the
Company's net sales (7.5% of net sales FOB a manufacturing source in the Orient)
for toys which are not based on the Marvel Characters, of which, in each case,
Mr. Arad is the inventor of record. In no event however, may the total royalties
payable to Mr. Arad with respect to any calendar year exceed $7.5 million. See
'Business--Licensing and Related Rights--Marvel License Agreement' and
'--Licensing and Related Rights--Master License Agreement.'

Pursuant to the Formation Agreement, Mr. Perlmutter agreed to indemnify the
Company against any liability, including reasonable fees and disbursements in
defending litigation, arising out of pre-closing liabilities of the Predecessor
Company.

50
<PAGE>
ARAD CONSULTING AGREEMENT

Mr. Arad is a party to a Consulting Agreement with the Company, which
expires April 30, 1998, to provide consulting services as an independent
contractor in connection with the operation of the business of the Company. The
Company expects that, in connection with the formation of Marvel Studios, the
Consulting Agreement will be extended to expire in April 1999. The Consulting
Agreement entitles Mr. Arad to compensation in the amount of $375,000 per year
and reimbursement of reasonable out-of-pocket expenses incurred in performance
of his duties, in addition to certain other benefits. The Consulting Agreement
permits Mr. Arad to perform his duties under the New World Employment Agreement,
to serve as President of Marvel Films, and to devote up to ten hours per month
to work relating to certain toys previously designed by Mr. Arad and licensed to
other toy companies (the 'Prior Commitments'). Under the Consulting Agreement
and the New World Employment Agreement, Mr. Arad, at his discretion, may
allocate his business time between the Company and New World Animation as he
determines to be appropriate. The Consulting Agreement restricts Mr. Arad's
ability to compete with the Company for one year after he ceases to be engaged
by the Company if a termination results from a breach by Mr. Arad of the
Consulting Agreement.

Except as to inventions developed by Mr. Arad under the New World
Employment Agreement, during participation in work permitted under the
Consulting Agreement related to the Prior Commitments, or licensed by Mr. Arad
to the Company under the Master License Agreement, the Consulting Agreement
provides that all creations and inventions developed or conceived by Mr. Arad
during the consulting period, and for the one-year non-compete period, if
applicable, belong to and will be owned exclusively by the Company. In addition,
Mr. Arad is obligated to assign to the Company all of his interest in those
creations or inventions developed either alone or in conjunction with others.
Although the Company has not obtained insurance on Mr. Arad's life, Mr. Arad is
required under the terms of the Consulting Agreement to take all actions
necessary for the Company to obtain insurance on his life for the benefit of the

Company if requested by the Company.

If Mr. Arad terminates the New World Employment Agreement, he will be
required to devote to the Company only the time necessary to perform the
functions required by the Consulting Agreement, but not less than one-half of
his business time. The Company expects that in connection with the formation of
Marvel Studios the Consulting Agreement will be amended in order to permit Mr.
Arad to devote a portion of his business time to Marvel Studios, and that Mr.
Arad will enter into an agreement with Marvel Studios which will reflect his new
duties and compensation with Marvel Studios and will be substantially similar
to, and will replace, the New World Employment Agreement. See '--New World
Employment Agreement.'

NEW WORLD EMPLOYMENT AGREEMENT

Mr. Arad is employed as New World Animation's President and Chief Executive
Officer under the New World Employment Agreement. The New World Employment
Agreement, which expires on April 30, 1998, subject to earlier termination by
Mr. Arad at any time, permits Mr. Arad to perform his obligations under the
Consulting Agreement and to devote up to ten hours per month to the Prior
Commitments. Mr. Arad receives a salary of $375,000 per year from New World
Animation in addition to certain other employee benefits. Mr. Arad is also
entitled to receive a fee ranging from $7,500 to $10,000 per episode for
television projects and from $100,000 to $250,000 for made-for-television movies
based on Marvel Characters. Under the Consulting Agreement and the New World
Employment Agreement, Mr. Arad may allocate his business time as he determines
to be appropriate between the Company and New World Animation. The New World
Employment Agreement also provides that the restrictions on other employment by
Mr. Arad continue for one year after he ceases to be engaged by New World
Animation if a termination results from a breach by Mr. Arad of the New World
Employment Agreement. Except as to inventions developed by Mr. Arad under the
Consulting Agreement, during participation in work permitted under the New World
Employment Agreement related to the Prior Commitments or licensed by Mr. Arad to
the Company, all intellectual property developed by Mr. Arad during the term of
the New World Employment Agreement and during the one-year non-compete period,
if applicable, shall belong to and will be owned exclusively by New World
Animation. Mr. Arad may terminate the New World Employment Agreement at any
time. If Mr. Arad terminates the New World Employment Agreement, he may
thereafter devote the remainder of his time to any activities that he chooses,
subject only to certain restrictions on his ability to compete with the Company.
The Company will have no right to intellectual property developed by Mr. Arad
while engaged in such other activities. Mr. Arad also serves as the President of

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Marvel Films, a unit of Marvel which works in conjunction with New World
Animation. Mr. Arad receives no additional compensation for serving as President
of Marvel Films. The Company expects that in connection with the formation of
Marvel Studios, Mr. Arad will enter into an agreement with Marvel Studios which
will reflect his new duties and compensation with Marvel Studios and will be
substantially similar to, and will replace, the New World Employment Agreement.
The Company expects that prior to the NWCG Sale, Mr. Arad will have entered into
an employment agreement with Marvel Studios and that such employment agreement

will replace the New World Employment Agreement.

MARVEL SERVICES ARRANGEMENT

Since the formation of the Company, from time to time, Marvel has furnished
to the Company, upon request, (i) certain management, consulting and
administrative services ('Marvel Employee Services') and (ii) certain services
purchased from third party providers, including legal and accounting services
('Third Party Services'). The Company has reimbursed Marvel for the costs of
Marvel Employee Services according to the portion of the salary earned by
Marvel's employees for time devoted to the Company's affairs. The Company has
reimbursed Marvel for costs of Third Party Services according to the portion of
the obligations to third party service providers which is allocable to services
purchased for and provided to the Company based on the actual costs to Marvel of
providing such services and the out-of-pocket expenses incurred in providing
such services. In connection with the IPO, the Company and Marvel entered into a
services agreement (the 'Services Agreement') governing the provision by Marvel
of services to the Company. Under the Services Agreement, upon request by the
Company and acceptance by Marvel, Marvel provides Marvel Employee Services and
Third Party Services to the Company. Under the Services Agreement, the Company
is obligated to reimburse Marvel for the costs of Marvel Employee Services
according to the portion of the salary earned by Marvel's employees for time
devoted to the Company's affairs and the Company is obligated to reimburse
Marvel for costs of Third Party Services according to the portion of the
obligations to third party service providers which is allocable for services
purchased for and provided to the Company based on the actual costs to Marvel of
providing such services and the out-of-pocket expenses incurred in providing
such services. The Services Agreement has a term of one year and will be
automatically renewed for successive one year terms unless terminated upon 120
days' notice. Marvel is under no obligation to provide services under the
Services Agreement. The Company believes, however, that if Marvel declined to
provide any such services or if the Services Agreement were terminated, the
Company could obtain comparable services from other sources although the cost to
the Company might exceed the cost to the Company under the Services Agreement.
The Company accrued or reimbursed to Marvel approximately $875,000, $498,000 and
$306,000 for 1993, 1994 and 1995, respectively, for Marvel Employee Services and
Third Party Services.

STOCKHOLDERS' AGREEMENT AND CLASS B VOTING TRUSTS

In connection with the closing of the IPO, Marvel, Mr. Perlmutter, Zib, the
Perlmutter Trust (Mr. Perlmutter, Zib and Perlmutter Trust collectively, the
'Perlmutter Parties'), Mr. Arad and the Company entered into a stockholders'
agreement (the 'Stockholders' Agreement'), which provides, among other things,
that Marvel and its permitted transferees (generally entities which are
affiliates of Marvel) ('Permitted Transferees'), if any, Mr. Perlmutter and Mr.
Arad will vote their respective shares of Common Stock to elect as directors of
the Company (i) eight persons designated by Marvel, (ii) two persons designated
by Mr. Perlmutter and (iii) one person designated by Mr. Arad. The Stockholders'
Agreement also permits certain pledges of Class B Common Stock owned by Marvel
and its Permitted Transferees.

The Stockholders' Agreement provides that, upon a change of control of

Marvel, Marvel is obligated to convert its shares of Class B Common Stock into
Class A Common Stock, unless Mr. Perlmutter and Mr. Arad consent to such shares
remaining Class B Common Stock. The Stockholders' Agreement terminates upon the
mutual agreement of the parties thereto or upon the sale of all or substantially
all of the assets of the Company, and also will terminate as to any share of
Class B Common Stock when such share is converted into a share of Class A Common
Stock or when there are no shares of Class B Common Stock outstanding, including
as a result of conversion of all of the Class B Common Stock into Class A Common
Stock.

Each of Messrs. Perlmutter and Arad is the sole trustee of a Class B Voting
Trust in which Marvel had deposited one share of Class B Common Stock. Marvel is
the sole beneficiary of each of the Class B Voting

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Trusts. Each of Messrs. Perlmutter and Arad has the right to vote the share of
Deposited Stock held by his respective Class B Voting Trust in his absolute
discretion until the termination of such trust. As discussed below, Marvel
subsequently transferred its ownership interest in the Deposited Stock to a
Permitted Transferee.

The rights and obligations of Messrs. Perlmutter and Arad under the
Stockholders' Agreement cease, and the Class B Voting Trusts of which they are
the trustees will terminate and the shares of Deposited Stock held by such
trusts will be distributed to Marvel, upon the occurrence of certain events,
including a reduction in their holdings of Common Stock below specified amounts
of Common Stock. In addition, each Class B Voting Trust terminates if either Mr.
Perlmutter or Mr. Arad attempts to transfer or dispose of his respective right
to vote the Deposited Stock subject to the Class B Voting Trust of which he is
trustee or any interest therein.

REGISTRATION RIGHTS AGREEMENT

The Company is a party to the Registration Rights Agreement with the
Principal Stockholders, pursuant to which each of the Principal Stockholders and
certain transferees of Common Stock held by the Principal Stockholders (the
'Holders') have the right, subject to certain conditions, to require the Company
to register under the Securities Act, all or any portion of the shares of Class
A Common Stock held by them, or, in the case of Marvel, issuable upon conversion
of its Class B Common Stock (each, a 'Demand Registration'), on two occasions.
In addition, the Holders have certain rights to participate in the Demand
Registrations and other registrations by the Company of its Class A Common Stock
(each, a 'Piggyback Registration'). The Selling Stockholders are participating
in the Offering as a Piggyback Registration. The Company is obligated to pay any
expenses incurred in connection with a Demand Registration or a Piggyback
Registration, except for underwriting discounts and commissions attributable to
the shares of Class A Common Stock sold by such Holders.

ALL AMERICAN AGREEMENT

The Company, All American Television, Inc. ('All American'), Creativite et
Developpement ('C&D') and Avi Arad & Associates, a business of which Mr. Arad is
the sole owner (Avi Arad & Associates, together with C&D, the 'Producers') were

parties to an agreement (the 'Production Agreement') with respect to the
financing, co-production and distribution of an animated television series
entitled 'The Bots Master(Registered)' (the 'Series'). The Company guaranteed to
the Producers the receipt of a minimum amount from All American's exploitation
of the Series. On December 27, 1995, by agreement between the parties, the
Company's liability under the Production Agreement was terminated in exchange
for a $350,000 payment to C&D.

MARVEL STUDIOS

In connection with the formation of Marvel Studios, each of Marvel and the
Company will subscribe to invest from time to time up to $50 million in the
aggregate to fund the operations of Marvel Studios. Such investments will be
made in equal amounts by each of Marvel and the Company. Marvel will acquire,
for its investment, 100% of the Common Equity Interests of Marvel Studios and
the Company will acquire Preferred Equity Interests. The Preferred Equity
Interests will participate in any distribution of income in proportion to its
equity interest and will participate in any distribution in connection with a
dissolution or liquidation and will have a preference on dissolution or
liquidation equal to the amount of the Company's investment. The Preferred
Equity Interests will be non-voting except as described below.

It is expected that, for seven years from the date of formation of Marvel
Studios, Marvel will give Marvel Studios the first opportunity to license Marvel
Characters on a royalty-free basis for use in its film and television projects.
If Marvel Studios determines not to take advantage of any such opportunities,
Marvel may seek to develop such film and television projects on its own. Film
studios and television networks often receive merchandise participations in
conjunction with the production of movie and television projects. The Company
will be obligated to reimburse Marvel Studios for all merchandise participations
for the Company's products paid by Marvel Studios to a film studio or television
programmer without the ability to approve these participations. Certain
television projects in which Marvel is currently engaged, including the program
featuring The Incredible Hulk(Trademark) and the programming to be developed by
FCN, are expected to be assigned to Marvel Studios.

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The governing body of Marvel Studios will be comprised of three Marvel
designees and two designees of the Company. Action of the governing body of
Marvel Studios will require the affirmative vote of three designees, except that
the vote of at least one designee of the Company will be required whenever the
sum of the net worth of Marvel Studios plus the amount of the unfunded capital
commitments of the Company and Marvel falls below $50 million. Accordingly,
Marvel Studios may generally take actions not approved by the Company's
designees to the governing body of Marvel Studios. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources,' 'Business--Marvel Studios' and '-- Growth Strategy.'

TANGIBLE MEDIA ADVERTISING CONSULTANT

Tangible Media, a corporation which is wholly owned by Mr. Perlmutter, acts
as the Company's media consultant in placing the Company's advertising and, in
connection therewith, receives certain fees and commissions based on the cost of

the placement of such advertising. Tangible Media received payments of fees and
commissions totalling approximately $618,000, $859,000 and $970,000 in 1993,
1994 and 1995, respectively. Tangible Media is compensated solely as a
consultant on an event-by-event basis with no written arrangements in place. It
is expected that Tangible Media, upon request, will continue to arrange for the
placement for the Company's advertising. The Company retains the services of a
non-affiliated media consulting agency for advice on matters of advertising
creativity.

EMPLOYEE, OFFICE SPACE AND OVERHEAD COST SHARING ARRANGEMENTS

Under expense sharing arrangements with Tangible Media, Classic Heroes, REC
Sound, Marvel Software and Job Lot, affiliated companies controlled by Mr.
Perlmutter in the case of Tangible Media, Classic Heroes, REC Sound and Job Lot,
or owned equally by Marvel and the Company in the case of Marvel Software
(collectively, the 'Affiliates'), the Company and the Affiliates have shared
certain space at the Company's principal executive offices (the 'Executive
Offices') and related office overhead expenses. See 'Business-- Properties.'
Prior to the assumption of the sublease for the Executive Offices by the Company
in 1994, rental costs for the office space were paid at cost to Job Lot of West
45th St., Inc., an affiliate under common control with Job Lot which was the
prior sublessor of the property. Prior to 1995, costs associated with such
employee salaries were allocated based on the number of hours worked; rental
costs for the shared office space have been allocated in proportion to the
percentage of space occupied; and the costs of overhead expenses (such as
maintenance costs and telephone charges) were allocated according to the same
percentages, except that the entire cost of expenses which have inured solely to
the benefit of a single party have been allocated to such party. Since 1995,
Tangible Media and the Company have been, and until the end of 1995 Classic
Heroes and REC Sound were, parties to an employee, office space and overhead
cost sharing agreement governing the Company's sharing of employees, office
space and overhead expenses (the 'Cost Sharing Agreement'). Under the Cost
Sharing Agreement, any party thereto (the 'Providing Party') may through its
employees provide services to another party (the 'Receiving Party') upon
request, whereupon the Receiving Party shall be obligated to reimburse the
Providing Party for the cost of such employees' salaries and benefits accrued
for the time devoted by such employees to providing services to the Receiving
Party. Under this agreement, Tangible Media is currently obligated to reimburse
the Company for 15% of the rent paid under the sublease for the space, which
obligations reflect the approximate percentage of floor space occupied by
Tangible Media. The agreement also requires Tangible Media to reimburse the
Company for any related overhead expenses comprised of commercial rent tax,
repair and maintenance costs and telephone and facsimile services, in proportion
to its percentage occupancy. The Cost Sharing Agreement is coterminous with the
term of the Company's lease for the Executive Offices. The Company received net
reimbursements from the Affiliates of approximately $40,000, $154,000 and
$355,000 for 1993, 1994 and 1995, respectively. See 'Business--Licensing and
Related Rights--Marvel License Agreement.'

The Company anticipates that in the future the Company may share space,
related overhead and employees with other affiliates of Mr. Perlmutter or
Marvel, although there are no present understandings or arrangements with regard
to the foregoing.

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SHOWROOM SHARING ARRANGEMENT

Under an expense sharing arrangement with Marvel, Classic Heroes and REC
Sound (the 'Showroom Affiliates'), the Company and the Showroom Affiliates have
shared showroom space and related overhead expenses. See 'Business--Properties.'
Until 1995, rental costs for the shared space were allocated based upon the
percentage of space occupied and the related overhead expenses were allocated
according to the same percentages, except that the entire cost of expenses which
have inured solely to the benefit of a single party have been allocated to such
party. Since 1995, Marvel and the Company have been, and until the end of 1995
Classic Heroes and REC Sound were, parties to a showroom space sharing agreement
(the 'Showroom Sharing Agreement'). Under the Showroom Sharing Agreement, Marvel
is currently obligated to reimburse the Company for 30% of the rent paid under
the lease for the showroom space, which obligations reflect the percentage of
floor space occupied by Marvel. The agreement also requires Marvel to reimburse
the Company for any related overhead expenses comprised of commercial rent tax,
repair and maintenance costs and telephone and facsimile service, in proportion
to their percentage occupancy, except that overhead expenses which inure to the
benefit of a single party shall be reimbursed entirely by such party. The
agreement has a term which is coterminous with the term of the Company's lease
for the showroom space. The Company was reimbursed approximately $53,000 under
the Showroom Sharing Agreement in 1995.

COLEMAN LICENSE AGREEMENT

The Company is a party to a license agreement entered into in September
1994 with Coleman, an affiliate of the Company, pursuant to which the Company
licenses certain Coleman(Registered) trademarks. See 'Business--Licensing and
Related Rights--Other License Agreements.'

REVLON LICENSE AGREEMENT

The Company is a party to a license agreement entered into in July 1995
with Revlon Consumer Products Corporation, an affiliate of the Company, pursuant
to which the Company licenses certain Revlon Consumer Products trademarks. See
'Business--Licensing and Related Rights--Other License Agreements.'

HELMET LICENSE FROM MARVEL

The Company and Marvel have entered into a license pursuant to which the
Company may use the Marvel Characters in the production of bicycle safety
helmets. See 'Business--Licensing and Related Rights--Other License Arrangements
with Marvel.'

CD-ROM PROJECT

The Company and Marvel have entered into an arrangement pursuant to which
the Company may develop CD-ROM based adaptations of Marvel comic books. The
arrangement provides that the Company and Marvel will share the costs and
proceeds associated with the production and sale of such CD-ROMs.

DISTRIBUTION THROUGH MARVEL SUBSIDIARY

The Company distributes certain products through a wholly owned subsidiary
of Marvel engaged in the distribution of products to certain comic book
retailers. During the year ended December 31, 1995, the Company's sales to that
subsidiary totalled $1,616,000.

TRADEMARK LICENSE TO MARVEL

The Company and Marvel have entered into an exclusive license agreement
pursuant to which Marvel may use the Toy Biz(Trademark) trademark on online
services and electronic networks, including the Internet. The license is limited
to Marvel related products of the Company. Marvel has agreed to pay the Company
$500,000 for such license. Such payments are to be made over time as Marvel
receives payments from a licensee.

------------------------

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The Company believes that the terms of each of the foregoing transactions
between the Company, on the one hand, and the Principal Stockholders and their
respective affiliates, on the other hand, are no less favorable than could be
obtained by the Company from unrelated parties on an arm's-length basis.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, 20,000,000 shares of Class B Common Stock and
25,000,000 shares of preferred stock, par value $.01 per share ('Preferred
Stock'). As of June 15, 1996, there were 17,137,862 shares of Class A Common
Stock issued and outstanding, 9,894,000 shares of Class B Common Stock issued
and outstanding and 59,091 shares of Series A Preferred Stock issued and
outstanding. The following summary description of the capital stock of the
Company is qualified in its entirety by reference to the Certificate and By-laws
(the 'By-laws'), a copy of each of which is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus forms a part.

COMMON STOCK

Dividends. Holders of record of shares of Common Stock on the record date
fixed by the Company's Board are entitled to receive such dividends as may be
declared by the Board out of funds legally available for such purpose, subject
to the rights of the holders of any series of Preferred Stock. No dividends may
be declared or paid in cash or property on any share of any class of Common
Stock, however, unless simultaneously the same dividend is declared or paid on
each share of the other classes of Common Stock except that if dividends are
declared that are payable in Common Stock or options or warrants to purchase
Common Stock or securities convertible into or exchangeable for Common Stock, a
like dividend or other distribution will also be paid on Class B Common Stock or
Class A Common Stock, as the case may be, in an equal amount per share, provided

that, for this purpose, if shares of Class A Common Stock, or options or
warrants to purchase Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock, are paid on Class A Common Stock and
shares of Class B Common Stock or options or warrants to purchase Class B Common
Stock or securities convertible into or exchangeable for Class B Common Stock,
are paid on Class B Common Stock, in an equal amount per share of Class A Common
Stock and Class B Common Stock, such dividend or other distribution will be
deemed to be a like dividend or other distribution. See 'Dividend Policy.'

Voting Rights. Holders of shares of Common Stock vote as a single class on
all matters submitted to a vote of the stockholders, with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes, except as otherwise provided by law. The Certificate
provides that the following transactions require the unanimous consent of the
Class B Stockholders voting as a class: (i) the sale of the Company as an
entirety, or the sale of all or substantially all of the assets of the Company;
(ii) the issuance by the Company of shares of the capital stock or any other
equity securities or equity equivalents of the Company, except for offerings in
connection with an acquisition by the Company and offerings in connection with
an employee benefit plan of the Company; (iii) paying any dividend or other
distribution, or redeeming, repurchasing or otherwise acquiring any of the
securities of the Company; (iv) amendments to the Certificate or Bylaws; or (v)
transactions between the Company and any of the Principal Stockholders or their
affiliates. The Certificate also provides that the Company's chief executive
officer may not be removed without the unanimous consent of the Class B
Stockholders, voting as a class.

Pursuant to the Stockholders' Agreement, the Principal Stockholders have
agreed to vote their shares of Common Stock for the election as Directors of the
Company the Marvel Directors, the Perlmutter Directors and the Arad Director.
Holders of Common Stock are not entitled to cumulate votes in the election of
Directors. See 'Certain Transactions--Stockholders' Agreement and Class B Voting
Trusts.'

PREFERRED STOCK

General

The 24,940,909 authorized and unissued shares of Preferred Stock may be
issued with such designations, preferences, limitations and relative rights as
the Company's Board may authorize, including, but not limited to: (i) the
distinctive designation of each series and the number of shares that will
constitute such series; (ii) the voting rights, if any, of shares of such
series; (iii) the dividend payable on the shares of such series, any
restriction, limitation or condition upon the payment of such dividends, whether
dividends shall be cumulative,

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and the dates on which dividends are payable; (iv) the prices at which, and the
terms and conditions on which, the shares of such series may be redeemed, if
such shares are redeemable; (v) the purchase or sinking fund provisions, if any,
for the purchase or redemption of shares of such series; (vi) any preferential
amount payable upon shares of such series in the event of the liquidation,

dissolution or winding-up of the Company or the distribution of its assets; and
(vii) the prices or rates of conversion at which, and the terms and conditions
on which, the shares of such series may be converted into other securities, if
such shares are convertible. Although the Company has no present intention to
issue Preferred Stock, other than 18,182 shares of Series A Preferred Stock to
be used to purchase Spectra Star's manufacturing facility, the issuance of
Preferred Stock, or the issuance of rights to purchase such shares, could
discourage an unsolicited acquisition proposal.

Series A Preferred Stock

In connection with the Spectra Star acquisition, the Company issued to
Spectra Star 112,121 shares of Series A Preferred Stock, of which 59,091 shares
were outstanding as of June 15, 1996. The Series A Preferred Stock has no voting
rights, except with respect to any amendment to the Certificate of Designation
(the 'Certificate of Designation'), under which the Series A Preferred Stock was
issued, or as expressly required by applicable law in connection with an
amendment of any of the provisions of the Certificate of Designation which would
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely, including any amendment to the
Certificate to increase the number of shares of Series A Preferred Stock
issuable by the Company. Any matter requiring the consent of the holders of
Series A Preferred Stock (the 'Series A Holders'), in addition to requiring the
consent of the Series A Holders with such number of shares of Series A Preferred
Stock as may be required by applicable law, also requires the consent of the
holders of a majority of the shares of Series A Preferred Stock held by each of
the two shareholders of Spectra Star at the time of the Spectra Star acquisition
and their transferees (collectively the 'Series A Shareholder Groups').

The Series A Shareholder Groups have the right to require the Company,
prior to consummating any of the following corporate actions, to place into
escrow an amount equal to the redemption price as of August 31, 1999 of the
Series A Preferred Stock then outstanding and held by members of such requesting
Shareholder Group:

(a) the creation and issuance of classes or other series of preferred stock
senior to the Series A Preferred Stock with respect to the distribution
of assets upon liquidation, dissolution or winding up and having an
aggregate liquidation preference in excess of $25 million for any one
outstanding class or series or $50 million in the aggregate for all
outstanding classes or series; or

(b) any merger or consolidation of the Company with another corporation, or
sale, lease or conveyance (other than by mortgage or pledge) of all or
substantially all of the Company's properties or business in exchange
for securities of a corporation other than the Company, if the shares
of Series A Preferred Stock are to be exchanged for securities of such
other corporation, unless the terms of the merger, consolidation, sale,
lease or conveyance require that the Holders receive securities of such
other corporation having at least the same material terms as the Series
A Preferred Stock.

Each Series A Shareholder Group also has the right to require the Company
to redeem all (but not a part) of the issued and outstanding shares of Series A

Preferred Stock held by members of that Series A Shareholder Group. If any
Series A Shareholder Group has elected the escrow right referenced above, but
has not exercised the redemption right, all of the issued and outstanding shares
of Series A Preferred Stock held by members of that Shareholder Group shall be
redeemed by the Company on August 31, 1999, and those shares shall not be deemed
to be outstanding after such date. The redemption price of the Series A
Preferred Stock equalled $27.66 per share as of June 30, 1996 and increases
monthly at a rate equal to approximately 5.3% per year, to a maximum redemption
price of $33.00 per share at August 31, 1999. All shares of Series A Preferred
Stock redeemed or purchased by the Company shall be retired and cancelled and
shall be restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series.

In the event of a liquidation of the Company, Series A Holders are entitled
to a liquidation preference equal to the redemption price as of the liquidation
date. Each share of Series A Preferred Stock is convertible at the option of the
holder thereof into one share of Class A Common Stock of the Company, subject to
customary anti-dilution adjustments.

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BOARD OF DIRECTORS

The Certificate provides that the Board consists of twelve Directors. All
Directors will be elected by the holders of the Class A and Class B Common
Stock, voting as a class, and the Stockholders Agreement provides that eight
Directors will be the Marvel Directors, two Directors will be the Perlmutter
Directors and one Director will be the Arad Director.

SECTIONS 203 AND 228 OF THE DELAWARE GENERAL CORPORATION LAW

Generally, Section 203 of the Delaware General Corporation Law (the 'DGCL')
prohibits a publicly-held Delaware corporation from engaging in a broad range of
'business combinations' with an 'interested stockholder' (defined generally as a
person owning 15% or more of a corporation's outstanding voting stock) for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) before the person becomes an
interested stockholder, the transaction resulting in such person becoming an
interested stockholder or the business combination is approved by the board of
the corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock of the corporation (excluding
shares owned by directors who are also officers of the corporation or shares
held by employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender offer or exchange offer), or (iii) on or after such date on
which such person became an interested stockholder the business combination is
approved by the board and authorized at an annual or special meeting, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock excluding shares owned by the interested stockholder. The
restrictions of Section 203 do not apply, among other reasons, if a corporation,
by action of its stockholders, adopts an amendment to its certificate of
incorporation or By-laws expressly electing not to be governed by Section 203,
provided that, in addition to any other vote required by law, such amendment to

the certificate of incorporation or By-laws must be approved by the affirmative
vote of a majority of the shares entitled to vote. Moreover, an amendment so
adopted is not effective until twelve months after its adoption and does not
apply to any business combination between the corporation and any person who
became an interested stockholder of such corporation on or prior to such
adoption. The Certificate and By-laws do not currently contain any provisions
electing not to be governed by Section 203 of the DGCL.

Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of the Common Stock. This could have
the effect of inhibiting changes in management and may also prevent temporary
fluctuations in the Common Stock that often result from takeover attempts.

Section 228 of the DGCL allows any action which is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to be
taken without a meeting with the written consent of holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, provided that the certificate of incorporation
does not contain a provision to the contrary. The Certificate contains no such
provision, and therefore Principal Stockholders holding a majority of the voting
power of the Common Stock are able to approve a broad range of corporate actions
requiring stockholder approval without the necessity of holding a meeting of
stockholders.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The By-laws provide that the Company shall indemnify and hold harmless any
Director, officer or incorporator of the Company and any person serving at the
request of the Company as a director, officer, incorporator, employee, partner,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including an employee benefit plan) from and against any and
all expenses (including counsel fees and disbursements), judgments, fines
(including excise taxes assessed on a person with respect to an employee benefit
plan), and amounts paid in settlement that may be imposed upon or incurred by
him or her in connection with, or as a result of, any proceeding, whether civil,
criminal, administrative or investigative (whether or not by or in the right of
the Company), in which he or she may become involved, as a party or otherwise,
by reason of the fact that he or she is or was such a Director, officer or
incorporator of the Company or is or was serving at the request of the Company
as a director, officer, incorporator, employee, partner, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including an employee benefit plan), whether or

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not he or she continues to be such at the time such expenses and judgments,
fines and amounts paid in settlement shall have been imposed or incurred, to the
fullest extent permitted by the laws of the State of Delaware, as they may be
amended from time to time. Such right of indemnification shall inure whether or
not the claim asserted is based on matters which antedate the adoption of the
By-laws. Such right of indemnification shall continue as to a person who has
ceased to be a Director, officer or incorporator and shall inure to the benefit
of the heirs and personal representatives of such a person. The indemnification

provided by the By-laws shall not be deemed exclusive of any other rights which
may be provided now or in the future under any provision currently in effect or
hereafter adopted of the Certificate, by any agreement, by vote of stockholders,
by resolution of Directors, by provision of law or otherwise. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to Directors of the Company pursuant to the foregoing provision, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

Section 145 of the DGCL permits the Company to, and the By-laws provide
that the Company shall, indemnify any Director or officer of the Company against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any action, suit
or proceeding brought by reason of the fact that such person is or was a
Director or officer of the Company, if such person acted in good faith and in a
manner that he or she reasonably believed to be in or not opposed to the best
interest of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. In a
derivative action, i.e., one by or in the right of the Company, indemnification
may be made for expenses actually and reasonably incurred by any Director or
officer in connection with the defense or settlement of an action or suit, only
if such person has acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the Company, except
that no indemnification shall be made if such person shall have been adjudged to
be liable to the Company, unless and only to the extent that the Delaware Court
of Chancery or the court in which the action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, the defendant is fairly and reasonably entitled
to indemnity for such expenses which the Delaware Court of Chancery or such
other court shall deem proper. Section 145 of the DGCL permits the Company to,
and the By-laws provide that the Company shall, pay expenses (including
attorneys' fees) incurred in defending any civil, criminal, administrative or
investigative action, suit or proceeding in advance of its final disposition
upon receipt by the Company of an undertaking, by or on behalf of the Director
or officer, to repay all amounts so advanced if it is ultimately determined that
such Director or officer is not entitled to indemnification.

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS

The Certificate limits personal liability for Directors to the fullest
extent permitted under the DGCL. Section 102(b)(7) of the DGCL permits a
corporation to eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL relating to unlawful dividends, stock
purchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. The Company currently maintains director
and officer liability insurance.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
20,337,862 shares of Class A Common Stock and 7,394,000 shares of Class B Common
Stock (based on the number of shares outstanding as of June 15, 1996), assuming
no exercise of outstanding options. Of these shares, the 3,200,000 shares of
Class A Common Stock sold in the Offering will be freely tradable without
restriction under the Securities Act, unless purchased by 'affiliates' of the
Company as that term is defined in Rule 144 promulgated under the Securities
Act. In addition, the 13,656,000 outstanding shares of Class A Common Stock held
by Messrs. Perlmutter and Arad after the Offering, assuming no exercise of the
U.S. Underwriters' over-allotment option, and the 7,394,000

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<PAGE>
shares of Class A Common Stock issuable upon conversion of shares of the Class B
Common Stock held by Marvel and the Class B Voting Trusts, respectively, are
eligible for resale in the public market, subject to certain volume and other
restrictions under Rule 144 and the 'lock-up' discussed below, immediately after
the Offering.

In general, under Rule 144 as currently in effect, a person, including an
'affiliate' of the Company, (or persons whose shares are required to be
aggregated) who has beneficially owned his or its restricted securities for a
period of two years from the later of the date such securities were acquired
from the Company or (if applicable) the date they were acquired from an
'affiliate' is entitled to sell, within any three month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Class A Common Stock (approximately 203,379 shares immediately after completion
of this Offering assuming no exercise of the U.S. Underwriters' over-allotment
option) or the average weekly reported trading volume of the Class A Common
Stock during the four calendar weeks preceding the date on which notice of such
sales is given, provided certain manner of sale and notice requirements and
requirements as to the availability of current public information concerning the
Company are satisfied. Affiliates of the Company must comply with the
restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of Common Stock that are not
'restricted securities' (such as shares acquired by affiliates in this
Offering). Under Rule 144(k), a person who is not deemed an 'affiliate' of the
Company at any time during the three months preceding a sale by him, and who has
beneficially owned shares of Common Stock that were not acquired from the
Company or an 'affiliate' of the Company within the previous three years, would
be entitled to sell such shares without regard to volume limitations, manner of
sale provisions, notification requirements or the availability of current public
information concerning the Company. As defined in Rule 144, an 'affiliate' of an
issuer is a person that directly or indirectly through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,

such issuer.

Notwithstanding the foregoing, the Company and its directors, executive
officers and Principal Stockholders have agreed that, subject to certain
limitations, without the prior written consent of Morgan Stanley on behalf of
the Underwriters, they will not, during the period commencing on the date hereof
and ending 90 days after the date of this Prospectus, (1) offer, pledge, sell,
contract-to-sell, sell any option or contract-to-purchase, purchase any option
or contract-to-sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Class A
Common Stock or any securities convertible, exercisable or exchangeable for
Class A Common Stock (whether such shares or any such securities are now owned
or are hereafter acquired), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Class A Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Class A Common Stock or
such other securities in cash or otherwise. The foregoing restrictions shall not
apply to the sale of any shares of Class A Common Stock pursuant to this
Offering or pursuant to the Stock Option Plan or stock options outstanding as of
the date of this Prospectus. In addition, the Company's directors, executive
officers and Principal Stockholders have agreed that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, they will not during
the period commencing on the date hereof and ending 90 days after the date of
this Prospectus, make any demand for or exercise any right with respect to the
registration of any shares of Class A Common Stock or any security convertible
into or exercisable or exchangeable for Class A Common Stock. See
'Underwriters.' As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rule 144, shares
subject to lock-up agreements may not be sold by the Principal Stockholders
until the agreements expire, without the prior written consent of Morgan
Stanley. Subject in the case of affiliates to the volume limitations described
above and the 'lock-up,' all of the shares of Class A Common Stock beneficially
owned by Messrs. Perlmutter and Arad and all of the shares of Class A Common
Stock issuable upon conversion of Class B Common Stock owned by Marvel are
eligible for sale in the public market. See 'Underwriters.'

Pursuant to the Registration Rights Agreement, the Principal Stockholders
have certain rights to require the Company to register some or all of the shares
of Class A Common Stock held by them, including shares of Class A Common Stock
issuable upon the conversion of Class B Common Stock. Holders of shares of
Series A Preferred Stock have certain rights to require the Company to register
some or all of the shares of Class A Common Stock issuable upon the conversion
of Series A Preferred Stock held by them. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources' and 'Certain Transactions--Registration Rights Agreement.'

<PAGE>
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person (a 'Non-U.S. Holder'). For
this purpose, the term 'United States person' is defined as any person who is a
citizen or resident of the United States, a corporation or a partnership or
other entity created or organized in the United States or under the laws of the
United States or of any state, or an estate or trust whose income is includible
in gross income for United States federal income tax purposes regardless of
source. This discussion does not address all aspects of United States federal
income and estate taxes and does not deal with international, state and local
consequences that may be relevant to such Non-U.S. Holders in light of their
personal circumstances, or to certain types of Non-U.S. Holders which may be
subject to special treatment under United States federal income tax laws (for
example, insurance companies, tax-exempt organizations, financial institutions
or broker-dealers). Furthermore, this discussion is based on provisions of the
Code, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly with retroactive effect. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock as well as any tax consequences that may arise
under the laws of any U.S. state, municipality or other taxing jurisdiction.

An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during the three-year period ending in the
current calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year). Resident aliens
are subject to U.S. federal tax as if they were U.S. citizens.

DIVIDENDS

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. It is the current policy of the Board to retain any earnings to finance
the operation and expansion of the Company's business. The payment of any cash
dividends in the future will depend upon the Company's earnings, financial
condition and capital needs and on other factors deemed relevant by the Board.
In addition, the Company's Credit Facility restricts the ability of the Company
to pay cash dividends. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,' 'Price
Range of Class A Common Stock' and 'Dividend Policy.' In the event, however,
that dividends are paid on shares of Common Stock, dividends paid to a Non-U.S.
Holder of Common Stock will be subject to withholding of United States federal
income tax at a 30% rate or such lower rate as may be specified by an applicable

income tax treaty, unless the dividends are effectively connected with the
conduct of a trade or business of the Non-U.S. Holder within the United States
and the Non-U.S. Holder provides the payor with proper documentation or, if a
tax treaty applies, the dividends are attributable to a U.S. permanent
establishment of the Non-U.S. Holder. In order to claim the benefit of an
applicable tax treaty rate, a Non-U.S. Holder may be required to file with the
Company or its dividend paying agent a reduced treaty rate certificate.
Dividends that are effectively connected with the conduct of a trade or business
within the United States or, if a tax treaty applies, are attributable to such a
United States permanent establishment, are subject to United States federal
income tax on a net income basis (that is, after allowance for applicable
deductions) at applicable graduated individual or corporate rates. Any such
effectively connected dividends received by an international corporation may,
under certain circumstances, be subject to an additional 'branch profits tax' at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary) and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under proposed United States Treasury

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<PAGE>
regulations not currently in effect, however, a Non-U.S. Holder of Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required
to satisfy applicable certification and other requirements.

A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the 'IRS').

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i)(a) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States or (b) if a treaty applies,
the gain is attributable to a United States permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are met, (iii) the Company is or has been a 'U.S.
real property holding corporation' for United States federal income tax purposes
within the preceding five years, or (iv) the Non-U.S. Holder is subject to tax
pursuant to certain provisions of the Code applicable to expatriates. The
Company believes that it has not been and is not currently, and does not
anticipate becoming, a 'U.S. real property holding corporation' for United
States federal income tax purposes.

If an individual Non-U.S. Holder falls under clause (i) above, such

individual generally will be taxed on the net gain derived from a sale under
regular graduated United States federal income tax rates. If an individual Non-
U.S. Holder falls under clause (ii) above, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by certain United States capital losses (notwithstanding the fact that such
individual is not considered a resident of the United States). Thus, Non-U.S.
Holders who have spent (or expect to spend) 183 days or more in the United
States in the taxable year in which they contemplate a sale of Common Stock are
urged to consult their tax advisors as to the tax consequences of such sale.

If a Non-U.S. Holder that is an international corporation falls under
clause (i) above, it generally will be taxed on its net gain under regular
graduated United States federal income tax rates and, in addition, will be
subject to the branch profits tax equal to 30% of its 'effectively connected
earnings and profits' within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.

FEDERAL ESTATE TAX

Common Stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends. These information reporting requirements apply even if
withholding was not required because the dividends were effectively connected
with a trade or business in the United States of the Non-U.S. Holder or
withholding was reduced or eliminated by an applicable income tax treaty. Copies
of the information returns reporting such dividends and withholding may be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides or is established under the provisions of an applicable income tax
treaty or agreement.

United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to dividends paid to Non-U.S. Holders outside the
United States that are either subject to the 30% withholding discussed above or
that are not so subject because a tax treaty applies that reduces or eliminates
such 30% withholding. In that regard, under temporary United States Treasury
regulations, backup withholding will not apply to dividends paid on Common Stock
to a Non-U.S. Holder at an address

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<PAGE>
outside the United States unless the payor has knowledge that the payee is a
United States person. Backup withholding and information reporting generally
will apply to dividends paid to addresses inside the United States on shares of
Common Stock to beneficial owners that are not 'exempt recipients' and that fail
to provide in the manner required certain identifying information.

In general, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of Common Stock by or through a
international office of a broker. If, however, such broker is, for United States
federal income tax purposes, a U.S. person, a controlled international
corporation, or a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, such payments will not be subject to backup withholding but will be
subject to information reporting, unless (i) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met, or (ii) the beneficial owner otherwise
establishes an exemption. Temporary Treasury regulations provide that the
Treasury is considering whether backup withholding should be required in such
circumstances. Under proposed Treasury regulations not currently in effect,
backup withholding will not apply to such payments absent actual knowledge that
the payee is a United States person.

Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption. Any amounts withheld
under the backup withholding rules will be allowed as a refund or a credit
against such holder's U.S. federal income tax liability provided the required
information is furnished to the IRS.

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the 'Underwriting Agreement'), the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, CS First Boston
Corporation, Smith Barney Inc. and Jefferies & Company, Inc. are serving as U.S.
Representatives, have severally agreed to purchase, and the Company and Selling
Stockholders have agreed to sell to them, and the International Underwriters
named below, for whom Morgan Stanley & Co. International Limited, CS First
Boston Limited, Smith Barney Inc. and Jefferies International Limited are
serving as International Representatives, have severally agreed to purchase, and
the Company and Selling Stockholders have agreed to sell to them, the respective
number of shares of the Class A Common Stock set forth opposite the names of
such Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..........
CS First Boston Corporation................
Smith Barney Inc...........................
Jefferies & Company, Inc...................

---------

Subtotal................................... 2,560,000
---------
</TABLE>

63
<PAGE>

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------- ---------
International Underwriters:
<S> <C>
Morgan Stanley & Co. International
Limited.................................
CS First Boston Limited....................
Smith Barney Inc...........................
Jefferies International Limited............

---------
Subtotal................................... 640,000
---------
Total........................................ 3,200,000
---------
---------
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the 'Underwriters,' and the U.S. Representatives and
International Representatives are collectively referred to as the
'Representatives.' The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Class A
Common Stock offered hereby are subject to the approval of certain legal matters
by their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International

Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S. and
International Underwriters. As used herein, 'United States or Canadian Person'
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the law of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Class A Common Stock to be purchased by the U.S. Underwriters and the
International Underwriters under the Underwriting Agreement are referred to
herein as the U.S. Shares and the International Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Class A Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the price to public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.

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<PAGE>
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Class A Common Stock, directly or
indirectly, in any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer or sale of Class A
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in which
such offer or sale is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any shares of Class A Common Stock a notice
stating in substance that, by purchasing such Class A Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such Class A Common Stock in any province
or territory of Canada or to, or for the benefit of, any resident of any
province or territory of Canada in contravention of the securities laws thereof
and that any offer or sale of Class A Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such Class
A Common Stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not offer or sell any shares of Class A Common Stock in
the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purpose of their business or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995 (the
'Regulations'); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect

to anything done by it in relation to the shares of Class A Common Stock in,
from or otherwise involving the United Kingdom and (iii) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issue of the shares of Class A
Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.

The Underwriters initially propose to offer part of the Class A Common
Stock directly to the public at the price to public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers.
After the initial offering of the Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, Mr. Perlmutter and Mr. Arad have
granted to the U.S. Underwriters an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to 480,000 additional shares of Class A
Common Stock, consisting of up to 384,000 shares as to Mr. Perlmutter and 96,000
shares as to Mr. Arad, at the price to public set forth on the cover page
hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option to purchase solely for the purpose of covering
over-allotments, if any, made in connection with the Offering. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Class A Common Stock
offered by the U.S. Underwriters hereby.

Notwithstanding the foregoing, the Company and its directors, executive
officers, and Principal Stockholders have agreed that, subject to certain
limitations, without the prior written consent of Morgan Stanley on behalf of
the Underwriters, they will not, during the period commencing on the date hereof
and ending 90 days after the date of this Prospectus, (1) offer, pledge, sell,
contract-to-sell, sell any option or contract-to-purchase, purchase any option
or contract-to-sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly any shares of Class A
Common Stock or any securities convertible or exchangeable for Class A Common
Stock (whether such shares or any such securities are now owned by the Company's
directors, executive officers or Principal Stockholders, or are hereafter
acquired), or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Class A Common Stock, whether any such transaction described in clause (1)
or (2) above is to be settled by delivery of Class A Common Stock or such other
securities in cash or otherwise. The foregoing

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<PAGE>
sentence shall not apply to the sale of any shares of Class A Common Stock

pursuant to the Offering or pursuant to the Stock Option Plan or stock options
outstanding as of the date of this Prospectus. In addition, the Company's
directors, executive officers and Principal Stockholders have agreed that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, they will not during the period commencing on the date hereof and
ending 90 days after the date of this Prospectus, make any demand for or
exercise any right with respect to the registration of any shares of Class A
Common Stock or any security convertible into or exercisable or exchangeable for
Class A Common Stock.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

LEGAL MATTERS

The legality of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Battle Fowler LLP. Certain legal
matters for the Underwriters will be passed on by Kramer, Levin, Naftalis &
Frankel.

EXPERTS

The combined financial statements and schedule of the Predecessor Company
for the four months ended April 30, 1993, and the consolidated financial
statements and schedule of the Company for the eight months ended December 31,
1993 and as of and for the years ended December 31, 1994 and 1995, appearing
elsewhere in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement and are included in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company can be inspected without charge at the office of the Commission at the
Public Reference Section located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies thereof may be obtained from the
Commission upon payment of the prescribed fees. The Commission also maintains a
site on the World Wide Web, the address of which is http://www.sec.gov, that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission. Such reports, proxy statements and other information concerning the
Company can also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, N.Y. 10005, on which the Company's Class A Common Stock
is traded.

The Company has filed with the Commission in Washington, D.C., a

Registration Statement on Form S-3 (of which this Prospectus is a part) under
the Securities Act with respect to the Class A Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules thereto. For further information with respect to
the Company and the Class A Common Stock offered hereby, reference is made to
the Registration Statement and such exhibits and schedules. The Registration
Statement and the Exhibits thereto may be inspected without charge at the office
of the Commission at the Public Reference Section located at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies
thereof may be obtained from the Commission upon payment of the prescribed fees.
The Commission also maintains a site on the World Wide Web, the address of which
is http://www.sec.gov, that

66
<PAGE>
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed with the Commission are incorporated in this
Prospectus by reference:

(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;

(ii) the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996; and

(iii) the Company's Current Report on Form 8-K dated July 24, 1996.

All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
Offering, shall be deemed incorporated by reference in this Prospectus and to be
a part of this Prospectus from the date of the filing of such reports. The
Company hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, on the written or oral request of
any such person, a copy of any or all of the information that has been
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are

specifically incorporated by reference into the information that this Prospectus
incorporates). Requests for such copies should be directed to Toy Biz, Inc., 333
East 38th Street, New York, New York 10016, Attention: Daniel J. Werther.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

<PAGE>
TOY BIZ, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995.......... F-3
Statements of Operations for the Four Months Ended April 30, 1993,
the Eight Months Ended December 31, 1993 and the Years Ended
December 31, 1994 and 1995.......................................... F-4
Statements of Stockholders' Equity for the Four Months Ended
April 30, 1993, the Eight Months Ended December 31, 1993
and the Years Ended December 31, 1994 and 1995...................... F-5
Statements of Cash Flows for the Four Months Ended April 30, 1993,
the Eight Months Ended December 31, 1993 and the Years Ended
December 31, 1994 and 1995.......................................... F-6
Notes to Financial Statements......................................... F-7
Condensed Consolidated Balance Sheets as of December 31, 1995 and
March 31, 1996 (unaudited).......................................... F-18
Condensed Consolidated Statements of Income for the three months
ended March 31, 1995 and 1996 (unaudited)........................... F-19
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1995 and 1996 (unaudited)........................... F-20
Notes to Condensed Consolidated Financial Statements (unaudited)...... F-21
</TABLE>

All other schedules prescribed by the accounting regulations of the
Commission are not required or are inapplicable and therefore have been omitted.

F-1

<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Stockholders of Toy Biz, Inc.

We have audited the accompanying consolidated balance sheets of Toy Biz, Inc.
and subsidiary as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity and cash flows for the eight
months ended December 31, 1993 and the years ended December 31, 1994 and 1995.
We have also audited the combined statements of operations, stockholders' equity
and cash flows of the predecessor company for the four months ended April 30,
1993. Our audits also included the financial statement schedule. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toy Biz, Inc., and
subsidiary at December 31, 1994 and 1995 and the consolidated results of their
operations and their cash flows for the eight months ended December 31, 1993 and
the years ended December 31, 1994 and 1995 and the combined results of
operations and cash flows of the predecessor company for the four months ended
April 30, 1993 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

ERNST & YOUNG LLP

February 5, 1996, except for Note 5,
as to which the date is March 19, 1996
New York, New York

F-2

<PAGE>
TOY BIZ, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 4,142 $ 22,484
Accounts receivable, net (Note 3).................... 62,785 74,748
Inventories (Note 3)................................. 15,552 17,195
Deferred income taxes (Notes 1 and 6)................ 4,837 4,141
Prepaid expenses and other........................... 1,985 4,476
---------- ----------
Total current assets.............................. 89,301 123,044
Molds, tools and equipment, net (Note 3)............. 8,867 12,102
Product and package design costs, net (Note 3)....... 6,238 6,971
Goodwill and other intangibles, net (Note 3)......... 317 10,101
---------- ----------
Total assets...................................... $104,723 $152,218
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 5,174 $ 8,830
Accrued expenses and other (Note 3).................. 22,788 29,040
Borrowings under credit facility..................... 21,500 --
---------- ----------
Total current liabilities......................... 49,462 37,870
Notes payable--stockholders (Notes 1 and 4)............ 16,845 --
---------- ----------
Total liabilities................................. 66,307 37,870
---------- ----------
Redeemable convertible Series A preferred stock........ -- 3,016
---------- ----------
Stockholders' equity (Note 8):
Preferred Stock, $.01 par value (after the conversion
25,000,000 shares authorized; 112,121 shares
issued as redeemable convertible Series A
preferred stock, $.01 par value at 12/31/95)...... -- --
Class A common stock, $.01 par value, 100,000,000
shares authorized, 14,356,000 issued and
outstanding at 12/31/94 and 17,126,130 issued and
outstanding at 12/31/95........................... -- 171
Class B common stock, $.01 par value, 20,000,000
shares authorized, 9,894,000 issued and

outstanding at 12/31/94 and at 12/31/95........... -- 99
Additional paid-in capital........................... 16,914 61,158
Retained earnings.................................... 21,502 49,904
---------- ----------
Total stockholders' equity........................ 38,416 111,332
---------- ----------
Total liabilities and stockholders' equity........ $104,723 $152,218
---------- ----------
---------- ----------
</TABLE>

See Notes to Financial Statements.
F-3

<PAGE>
TOY BIZ, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY EIGHT MONTHS
FOUR MONTHS ENDED YEAR ENDED YEAR ENDED
ENDED APRIL 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
--------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................... $10,175 $ 79,569 $156,525 $196,395
Cost of sales................. 5,308 36,682 73,490 88,397
--------------- ------------ ------------ ------------
Gross profit................ 4,867 42,887 83,035 107,998
--------------- ------------ ------------ ------------

Operating expenses:
Selling, general and
administrative........... 5,840 22,253 38,263 48,234
Depreciation and
amortization............. 638 3,459 8,609 12,750
Compensatory stock option... -- 10,909 4,091 --
--------------- ------------ ------------ ------------
Total operating
expenses............... 6,478 36,621 50,963 60,984
--------------- ------------ ------------ ------------
Operating income (loss)....... (1,611) 6,266 32,072 47,014
Interest expense.............. (476) (721) (1,862) (490)
Other income, net............. 237 322 65 1,050
--------------- ------------ ------------ ------------
Income (loss) before
income taxes........... (1,850) 5,867 30,275 47,574
Income taxes (Note 6)......... 10 2,379 12,261 19,172
--------------- ------------ ------------ ------------
Net income (loss)........ ($1,860) $ 3,488 $ 18,014 $ 28,402
--------------- ------------ ------------ ------------
--------------- ------------ ------------ ------------
Net income (loss) per share... ($ .07) $ .13 $ .67 $ 1.05
Weighted average number of
common and common equivalent
shares outstanding (in
thousands) (assumes 27,000
shares outstanding for
periods prior to 1995)...... 27,000 27,000 27,000 27,115
</TABLE>

See Notes to Financial Statements.
F-4

<PAGE>
TOY BIZ, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Capital contributions................... -- $ 1,886 -- $ 1,886
Compensatory stock option............... -- 10,909 -- 10,909
Net income May 1 to December 31, 1993... -- -- $ 3,488 3,488
------ ---------- -------- --------
Balance at December 31, 1993............ -- 12,795 3,488 16,283
Compensatory stock option............... -- 4,091 -- 4,091
Exercise of stock option (Note 9)....... -- 28 -- 28
Net Income.............................. -- -- 18,014 18,014
------ ---------- -------- --------
Balance at December 31, 1994............ -- 16,914 21,502 38,416
Proceeds from initial public offering... $270 43,875 -- 44,145
Exercise of stock option................ -- 411 -- 411
Accretion of redeemable preferred
stock................................. -- (42) -- (42)
Net income.............................. -- -- 28,402 28,402
------ ---------- -------- --------
Balance at December 31, 1995............ $270 $ 61,158 $ 49,904 $111,332
------ ---------- -------- --------
------ ---------- -------- --------
</TABLE>

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- ------
PREDECESSOR COMPANY
- ----------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1992............ $ 10 -- $2,374 $2,384
Net loss January 1 to April 30, 1993.... -- -- (1,860) (1,860)
------ ---------- -------- ------
Balance at April 30, 1993 before
contribution.......................... 10 -- 514 524
Contribution of intercompany amount to
equal transfer of net assets
to new company........................ -- $862 -- 862
------ ---------- -------- ------
Balance at April 30, 1993 after
contribution.......................... $ 10 $862 $ 514 $1,386

------ ---------- -------- ------
------ ---------- -------- ------
</TABLE>

See Notes to Financial Statements.
F-5

<PAGE>
TOY BIZ, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
APRIL 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)..................... ($1,860) $ 3,488 $ 18,014 $ 28,402
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 638 3,459 8,609 12,750
Provision for deferred income
taxes............................ -- (7,648) 2,811 696
Compensatory stock option.......... -- 10,909 4,091 --
Changes in operating assets and
liabilities:
Accounts receivable.............. 6,040 (20,930) (34,571) (11,260)
Inventories...................... 1,101 132 (9,913) 1,130
Prepaid expenses and other....... 902 (1,215) 1,431 (2,378)
Other assets..................... (41) (649) 449 (17)
Accounts payable................. (3,499) 2,372 2,399 3,656
Accrued expenses and other....... (6,836) 12,689 5,215 2,049
Due to affiliates................ (757) (417) -- 517
----------- ------------ ------------ ------------
Net cash (used in) provided by operating
activities............................ (4,312) 2,190 (1,465) 35,545
----------- ------------ ------------ ------------
Cash flow from investing activities:
Purchases of molds, tools and
equipment.......................... (930) (2,416) (10,862) (9,591)
Expenditures for product and package
design costs....................... (1,731) (2,349) (6,369) (6,545)
Acquisition of Spectra Star and
Quest.............................. -- -- -- (9,004)
----------- ------------ ------------ ------------
Net cash used in investing activities... (2,661) (4,765) (17,231) (25,140)
----------- ------------ ------------ ------------
Cash flow from financing activities:
Capital contributions................. -- 500 -- --
Issuance of notes to stockholder...... -- 8,252 -- --
Payment of notes to stockholder....... -- (8,752) -- (15,119)
Exercise of stock option.............. -- -- 28 411
Net borrowings under credit

agreement.......................... -- 4,500 17,000 (21,500)
Borrowings from stockholder and
affiliates......................... 15,817 -- 1,099 --
Repayments to stockholder and
affiliates......................... (8,386) -- -- --
Proceeds from initial public
offering........................... -- -- -- 44,145
----------- ------------ ------------ ------------
Net cash provided by financing
activities............................ 7,431 4,500 18,127 7,937
----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents........................... 458 1,925 (569) 18,342
Cash and cash equivalents at beginning
of period............................. 2,328 2,786 4,711 4,142
----------- ------------ ------------ ------------
Cash and cash equivalents at end of
period................................ $ 2,786 $ 4,711 $ 4,142 $ 22,484
----------- ------------ ------------ ------------
Supplemental disclosure of cash flow
information:
Interest paid during the period....... $ 2 $ 537 $ 624 $ 2,335
Income taxes paid during the period... -- 8,689 5,878 16,410
Other non-cash transactions:
Exchange of assets for common stock
(Note 1)........................... -- 1,386 -- --
Issuance of preferred stock for
Spectra Star, including accretion
of preferred dividend of $42 (See
Note 11)........................... -- -- -- 3,016
</TABLE>

See Notes to Financial Statements.
F-6

<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Toy Biz, Inc. ('Toy Biz' or the 'Company') was formed on April 30, 1993
pursuant to a Formation and Contribution Agreement ('Formation Agreement'),
entered into by the Predecessor Company, Mr. Isaac Perlmutter (the sole
stockholder of the Predecessor Company), Marvel Entertainment Group, Inc.
('Marvel') and Avi Arad ('Mr. Arad'). The Predecessor Company had been Marvel's
largest toy licensee. Toy Biz designs, markets and distributes, principally in
the United States (See Note 2), boys', girls', infant/preschool and activity
toys based on popular entertainment properties and consumer brand names. The
Company also designs, markets and distributes its own line of proprietary toys.
The Predecessor Company was incorporated in 1990, pursuant to an asset purchase
agreement with Charan Industries, Inc.

In accordance with the Formation Agreement, the Predecessor Company
contributed all of its and an affiliate's assets ($23,335,000) and certain
specified liabilities ($21,949,000) to the Company for 44% of Toy Biz's capital
stock. Such specified liabilities included approximately $15,363,000 due to Mr.
Perlmutter and other affiliated companies of the Predecessor Company. A portion
of the assumed liabilities due to Mr. Perlmutter was paid in cash ($8,752,000)
and the remainder of the assumed liabilities due to Mr. Perlmutter was converted
into a promissory note ($6,611,000). Marvel made a capital contribution of
$500,000 for 46% of the Company's capital stock and a loan, in the form of a
note, of $8,507,000. In addition, Marvel granted the Company an exclusive,
perpetual and royalty-free license to design and distribute toys based on Marvel
characters. Pursuant to the Formation Agreement, in exchange for the
contribution to the Company of his interests in certain license agreements with
the Company and cash, Mr. Arad received 10% of the Company's capital stock. In
addition, the Company granted Mr. Arad the Arad Stock Option (the 'Option') to
acquire an additional 10% of the Company's capital stock (see Note 9 regarding
the Option and its subsequent exercise). Mr. Arad also agreed to enter into the
Arad Consulting Agreement and the Master License Agreement.

Financial statements for periods prior to April 30, 1993 are those of the
Predecessor Company and its historical cost basis has been retained. Since
Marvel and Mr. Arad are considered to be promoters of Toy Biz and its public
offering, their licenses have been valued at their cost.

Basis of Presentation

The combined financial statements for the four month period ended April 30,
1993 represent the combined results of the Predecessor Company and Toy Biz
International Ltd., a Hong Kong company indirectly controlled by the Predecessor
Company. The consolidated financial statements as of and for the eight months
ended December 31, 1993 and as of and for the years ended December 31, 1994 and
1995 include the accounts of the Company and its subsidiary in Hong Kong. Upon

consolidation or combination, all significant intercompany accounts and
transactions are eliminated.

The four month period ended April 30, 1993 includes five months of results
of Toy Biz International Ltd. as a result of changing Toy Biz International
Ltd.'s year end from November 30 to December 31.

Certain amounts included in prior year financial statements have been
reclassified to conform with 1995 presentation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The principal areas of judgment relate to provisions for

F-7
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
returns and other sales allowances, and doubtful accounts, and the realizability
of inventories, molds, tools and equipment, and product and package design
costs. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or
market.

Molds, Tools, and Equipment

Molds, tools and equipment are stated at cost less accumulated depreciation
and amortization. The Company owns the molds and tools used in production of the
Company's products by third-party manufacturers. At December 31, 1995, certain
of these costs related to products that were not yet in production or were not
yet being sold by the Company. For financial reporting purposes, depreciation
and amortization is computed by the straight-line method over a three year
period (the estimated life) for molds and tooling costs and over the useful life
for furniture and fixtures and office equipment. On an ongoing basis the Company
reviews the lives and carrying value of molds and tools based on the sales and
operating results of the related products. If the facts and circumstances
suggest a change in useful lives or an impairment in the carrying value, the
useful lives are adjusted and unamortized costs are written off accordingly.

Write-offs, in excess of normal amortization, which are included in depreciation
and amortization on the accompanying Statements of Operations for the four month
period ended April 30, 1993, the eight month period ended December 31, 1993 and
the years ended December 31, 1994 and 1995 were approximately $0, $339,000,
$461,000, and $636,000, respectively.

Product and Package Design Costs

The Company capitalizes costs related to product and package design when
such products are determined to be commercially acceptable. Product development
costs include costs relating to the preparation of precise detailed mechanical
drawings and the production of sculptings and other handcrafted models from
which molds and dies are made. Package design costs include costs relating to
art work, modeling and printing separations used in the production of packaging.
At December 31, 1995, certain of these costs related to products that were not
yet in production or were not yet being sold by the Company. For financial
reporting purposes, depreciation and amortization of product and package design
is computed by the straight-line method over a three year period (the estimated
life). On an ongoing basis the Company reviews the useful lives and carrying
value of product and package design costs based on the sales and operating
results of the related products. If the facts and circumstances suggest a change
in useful lives or an impairment in the carrying value, the useful lives are
adjusted and unamortized costs are written off accordingly. Write-offs, in
excess of normal amortization, which are included in depreciation and
amortization on the accompanying Statements of Operations, for the four month
period ended April 30, 1993, the eight month period ended December 31, 1993 and
the years ended December 31, 1994 and 1995 were approximately $0, $415,000,
$807,000, and $1,276,000, respectively.

F-8
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Goodwill and Other Intangibles

Goodwill is amortized over 40 years and other intangibles are amortized
over 17 years.

Research and Development

Research and development ('R&D') costs are charged to operations as
incurred. For the four month period ended April 30, 1993, the eight month period
ended December 31, 1993 and the years ended December 31, 1994 and 1995, R&D
expenses were $250,000, $1,169,000, $2,829,000, and $4,980,000 respectively.

Revenue Recognition

Sales are recorded upon shipment of merchandise and a provision for future
returns and other sales allowances is established based upon historical
experience and management estimates. Income from licensing of the Company's
products and trade names is recorded in sales at the time they are available to

the licensee and collection is reasonably assured. For the four month period
ended April 30, 1993, the eight month period ended December 31, 1993 and the
years ended December 31, 1994 and 1995, licensing revenues were $0, $0, $782,000
and $3,268,000, respectively.

Advertising Costs

Advertising production costs are expensed when the advertisement is first
run. Media advertising costs are expensed on the projected unit of sales method
during interim periods. For the four month period ended April 30, 1993, the
eight month period ended December 31, 1993 and the years ended December 31, 1994
and 1995, advertising expenses were $161,000, $9,834,000, $15,667,000 and
$18,864,000, respectively. At December 31, 1994 and 1995, the Company had
incurred $10,000 and $474,000, respectively, of prepaid advertising costs,
principally related to production of advertisements that will arise in fiscal
1995 and 1996, respectively.

Royalties

Minimum guaranteed royalties, as well as royalties in excess of minimum
guarantees, are expensed based on sales of related products. The realizability
of minimum guarantees paid is evaluated by the Company based on the projected
sales of the related products.

Income Taxes

Through April 30, 1993, the Predecessor Company was subject to taxation
under Subchapter S of the Internal Revenue Code of 1986, as amended.
Consequently, the Predecessor Company was not subject to Federal and certain
state income taxes as the stockholder included the results of the Predecessor
Company's operations in his income for tax purposes.

Effective May 1, 1993, the Company adopted the liability method of
accounting for income taxes as required by Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes'. Under this method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and the tax bases of assets and liabilities and are measured using tax
rates and laws that are scheduled to be in effect when the differences are
scheduled to reverse.

Income tax expense includes U.S. and foreign income taxes, including U.S.
Federal taxes on undistributed earnings of foreign subsidiaries to the extent
that such earnings are planned to be remitted. Deferred taxes are provided to
the extent that income for financial and tax purposes is not the same.

F-9
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Currency Translation

The financial position and results of operations of the Company's Hong Kong
subsidiary are measured using the U.S. dollar as the functional currency. Assets
and liabilities are translated at the exchange rate in effect at year-end.
Income statement accounts and cash flows are translated at the average rate of
exchange prevailing during the period. Translation adjustments, which were not
material, arising from the use of differing exchange rates are included in the
results of operations.

Income Per Share

Net income per common share is computed by dividing net income, less the
amount applicable to preferred dividends, by the weighted average common and
common equivalent shares outstanding during the year. When diluted, common stock
equivalents are included as stock equivalents using the treasury method.

Impact of Recently Issued Accounting Standards

In March 1995, the Financial Accounting Standards Board ('FASB') issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement No. 121 in the first quarter of 1996 and,
based on current circumstances, does not believe that there will be any effect
on amounts reported.

In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which provides an alternative to APB Opinion No. 125,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. The Statement allows for a fair value based
method of accounting for employee stock options and similar equity instruments.
However, for companies that continue to account for stock-based compensation
arrangements under Opinion No. 25, Statement No. 123 requires disclosure of the
pro forma effect on net income and earnings per share of its fair value based
accounting for those arrangements. These disclosure requirements are effective
for fiscal years beginning after December 15, 1995, or upon initial adoption of
the statement, if earlier. The Company continues to evaluate the provisions of
Statement No. 123 and has not determined whether it will adopt the recognition
and measurement provisions of that Statement, which the Company expects would
result in increased compensation expense in future periods.

2. SALES TO MAJOR CUSTOMERS AND CREDIT RISK

The Company primarily sells its merchandise to major retailers, principally
throughout the United States. Credit is extended based on an evaluation of the
customer's financial condition, and, generally, collateral is not required.
Credit losses are provided for in the financial statements and consistently have
been within management's expectation.

During the four month period ended April 30, 1993, three customers
accounted for approximately 32%, 16% and 13% of total net sales. During the
eight month period ended December 31, 1993, three customers accounted for

approximately 31%, 16% and 16% of total net sales. During the year ended
December 31, 1994, three customers accounted for approximately 31%, 18% and 13%
of total net sales. During the year ended December 31, 1995, three customers
accounted for approximately 29%, 18% and 12% of total net sales.

The Company's Hong Kong subsidiary supervises the manufacturing of the
Company's products in China and also sells such products internationally, as did
the Predecessor Company's Hong Kong affiliate. All sales are made F.O.B. Hong
Kong against letters of credit. During the four month period ended April 30,
1993, the eight

F-10
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

2. SALES TO MAJOR CUSTOMERS AND CREDIT RISK--(CONTINUED)

month period ended December 31, 1993 and the years ended December 31, 1994 and
1995, international sales were approximately 8%, 10%, 9%, and 11%, respectively,
of total net sales. During those periods, the Hong Kong operations reported
operating income (loss) of approximately $(168,000), $1,185,000, $3,009,000 and
$6,642,000 respectively. At December 31, 1994 and 1995 the Company had assets in
Hong Kong of approximately $5,840,000, and $13,915,000, respectively, and the
Hong Kong subsidiary represents $3,644,000 and $9,277,000, respectively, of the
Company's consolidated retained earnings.

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

Accounts receivable, net, consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Accounts Receivable..................... $73,054,000 $86,019,000
Less allowances for:
Doubtful accounts..................... (516,000) (516,000)
Advertising, markdowns, returns,
volume discounts and other......... (9,753,000) (10,755,000)
----------- -----------
Total................................... $62,785,000 $74,748,000
----------- -----------
----------- -----------
</TABLE>

Inventories consist of the following:

DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Finished goods, net..................... $14,830,000 $13,504,000
Component parts, raw materials and
work-in-process....................... 722,000 3,691,000
----------- -----------
Total................................... $15,552,000 $17,195,000
----------- -----------
----------- -----------
</TABLE>

Molds, tools and equipment, net, consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Molds, tools and equipment.............. $14,182,000 $20,921,000
Office equipment and other.............. 1,160,000 1,628,000
Less accumulated depreciation and
amortization.......................... (6,475,000) (10,447,000)
----------- -----------
Total................................... $ 8,867,000 $12,102,000
----------- -----------
----------- -----------
</TABLE>

Product and package design costs, net, consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Product design costs.................... $ 8,285,000 $ 9,854,000
Package design costs.................... 3,002,000 3,675,000
Less accumulated amortization........... (5,049,000) (6,558,000)
----------- -----------
Total................................... $ 6,238,000 $ 6,971,000
----------- -----------
----------- -----------
</TABLE>

F-11
<PAGE>
TOY BIZ, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS--(CONTINUED)
Goodwill and other intangibles, net, consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Goodwill................................ $ -- $ 9,815,000
Patents and other intangibles........... 350,000 409,000
Less accumulated amortization........... (33,000) (123,000)
----------- -----------
Total................................... $ 317,000 $10,101,000
----------- -----------
----------- -----------
</TABLE>

Accrued expenses and other consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Accrued advertising costs............... $ 7,429,000 $ 9,459,000
Accrued royalties....................... 3,224,000 3,956,000
Income taxes payable.................... 5,223,000 7,374,000
Deferred income......................... 720,000 179,000
Other accrued expenses.................. 6,192,000 8,072,000
----------- -----------
Total................................... $22,788,000 $29,040,000
----------- -----------
----------- -----------
</TABLE>

4. RELATED PARTY TRANSACTIONS

The notes payable-stockholders were paid with proceeds from the Initial
Public Offering (the 'Offering'). Interest accrued at the prime rate, as
defined, and was payable at maturity. Interest expense on the notes amounted to
approximately $626,000 for the eight month period ended December 31, 1993 and
$1,099,000 and $235,000 for the years ended December 31, 1994 and 1995,
respectively and was added to the notes.

During the four month period ended April 30, 1993, the Company accrued
$970,000 of royalties to Marvel for a license relating to Marvel Characters. No
such royalties were incurred after April 30, 1993.

Marvel provides certain support to the Company relating to licensing
agreements, promotion, legal and financial matters. The cost for these support
services has been included in selling, general and administrative expenses, and
amounted to $875,000 for the eight months ended December 31, 1993, and $498,000
and $306,000 for the years ended December 31, 1994 and 1995 respectively.

An affiliate of the Company, which is wholly-owned by Mr. Perlmutter, acts
as the Company's media consultant in placing the Company's advertising and, in
connection therewith, receives certain fees and commissions based on the cost of
the placement of such advertising. During the four month period ended April 30,
1993, the eight month period ended December 31, 1993 and the years ended
December 31, 1994 and 1995 the Company paid fees and commissions to the
affiliate totalling approximately $36,000, $582,000, $859,000, and $970,000
respectively, relating to such advertisements.

During the four month period ended April 30, 1993, the Company sold
merchandise to an entity controlled by Mr. Perlmutter aggregating $618,000.
Related receivables were $328,000 as of December 31, 1993. This amount was
subsequently collected.

The Company sold merchandise to a subsidiary of Marvel totalling $429,000
and $1,616,000 for the years ended December 31, 1994 and 1995, respectively.
Related receivables were $121,000 and $945,000 as of December 31, 1994 and 1995,
respectively. These amounts were subsequently collected.

F-12
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

4. RELATED PARTY TRANSACTIONS--(CONTINUED)

Included in interest expense for the four month period ended April 30,
1993, is approximately $380,000, accrued to Mr. Perlmutter or entities wholly
owned by Mr. Perlmutter.

During the four month period ended April 30, 1993, Mr. Perlmutter received
approximately $259,000 as compensation for his assistance in establishing
relationships with significant customers of the Company. These amounts were paid
to another entity wholly owned by Mr. Perlmutter and are included in selling,
general and administration expenses. No such fees were incurred after April 30,
1993.

During the four month period ended April 30, 1993, the eight month period
ended December 31, 1993 and the years ended December 31, 1994 and 1995, the
Company accrued royalties to Mr. Arad for toys he invented or designed of
$257,000, $4,063,000, $6,541,000, and $5,734,000 respectively.

Advances to fund the initial operations of an affiliated entity amounted to
approximately $394,000 at December 31, 1993. During 1994, additional advances of
approximately $591,000 were made and the Company was subsequently reimbursed for
all advances.

The Company shares office space and certain general and administrative
costs with affiliated entities. The Company paid rent to the affiliated entity;
however, this was not subject to a formal sublease agreement. In 1994, the lease
was amended and the Company became the lessee. Rent paid to the affiliated
entity amounted to approximately $164,000 and $128,000 for the years ended
December 31, 1993, and 1994, respectively. Rent received from affiliates was
$155,000 and $172,000 for the years ended December 31, 1994 and 1995,
respectively. While certain costs are not allocated among the entities, the
Company believes that it bears its proportionate share of these costs.

The results for the four month period ended April 30, 1993 are net of
approximately $2,000,000 of bonuses paid by the Predecessor Company to employees
in connection with the formation of the Company.

5. COMMITMENTS AND CONTINGENCIES

Leases: The Company is a party to various noncancelable operating leases
involving office and warehouse space expiring on various dates through April 30,
2004. The leases are subject to escalations based on cost of living adjustments
and tax allocations. Minimum future obligations on these leases are as follows:

<TABLE>
<S> <C>
1996.................................... $ 718,000
1997.................................... 281,000
1998.................................... 135,000
1999.................................... 151,000
2000.................................... 151,000
Thereafter.............................. 502,000
----------
$1,938,000
----------
----------
</TABLE>

Rent expense amounted to approximately $59,000 and $163,000 for the four
month and eight month periods ended April 30, 1993 and December 31, 1993,
respectively, and $406,000, and $522,000 for the years ended December 31, 1994
and 1995, respectively.

Legal Matters: On December 28, 1995 G.D.L. Management Incorporated ('GDL')
commenced an action against the Company, Mr. Perlmutter and the Predecessor
Company in the Supreme Court of the State of New York, County of New York. The
amended complaint in that action, which was served on March 19, 1996, alleges
that GDL is entitled to receive ten percent of the capital stock of the
Predecessor Company pursuant to an alleged 1990 agreement between GDL and Mr.
Perlmutter and seeks money damages based on the value of ten percent of the
Company's Class A Common Stock beneficially owned by Mr. Perlmutter, as well as
other consideration

F-13
<PAGE>
TOY BIZ, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

received by him, and a variety of equitable remedies. Mr. Perlmutter has denied
all of the material allegations made in support of GDL's claims, and pursuant to
the Formation Agreement, agreed to indemnify the Company in respect to any
liability arising from GDL's claims. The Company intends to move to dismiss
GDL's amended complaint for failure to state a cause of action. The Company does
not believe that any of the claims made against it will have a material adverse
effect on its financial position because it believes that all of the claims
against it are without merit and because of the indemnity provided to it in the
Formation Agreement.

The Company is also involved in various legal proceedings arising in the
normal course of business. Management believes that the final outcome of these
proceedings will not have a material adverse effect on the Company's financial
position.

6. INCOME TAXES

The provision (benefit) for income taxes for the eight month period ended
December 31, 1993 and the years ended December 31, 1994 and 1995 is summarized
as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal..................... $ 7,538,000 $ 7,222,000 $15,429,000
State....................... 2,183,000 2,225,000 1,923,000
Foreign..................... 306,000 3,000 1,124,000
----------- ----------- -----------
10,027,000 9,450,000 18,476,000
----------- ----------- -----------
Deferred:
Federal..................... (5,963,000) 2,192,000 543,000
State....................... (1,685,000) 619,000 153,000
----------- ----------- -----------
(7,648,000) 2,811,000 696,000
----------- ----------- -----------
Provision for income taxes.... $ 2,379,000 $12,261,000 $19,172,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The differences between the statutory federal income tax rate and the
effective tax rate for the eight months ended December 31, 1993 and the years
ended December 31, 1994 and 1995 are attributable to the following:

<TABLE>

<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax provision computed at
the statutory rate.................... 35.0% 35.0% 35.0%
State taxes, net of Federal income tax
effect................................ 5.5 5.5 5.3
---- ---- ----
Effective rate.......................... 40.5% 40.5% 40.3%
---- ---- ----
---- ---- ----
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets at December 31, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Allowance for future returns, other
sales allowances and doubtful accounts
and other allowances.................. $2,398,000 $1,377,000
Inventory valuation..................... 1,633,000 1,842,000
Depreciation............................ 806,000 983,000
Amortization............................ -- (61,000)
---------- ----------
$4,837,000 $4,141,000
---------- ----------
---------- ----------
</TABLE>

F-14
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

7. CREDIT FACILITY

The Company has a $30,000,000 revolving credit facility (the 'Facility')
with a syndicate of banks with Chemical Bank as administrative agent. The
Facility matures on February 21, 1998; however, the Company may voluntarily
reduce the commitment from time to time with appropriate notice to the
administrative agent for the syndicate of banks. Borrowings under the Facility
are collateralized by substantially all Company assets. Borrowings under the
Facility bear interest at either Chemical Bank's alternate base rate or at the
Eurodollar rate plus the applicable margin (as defined).

The Facility contains various financial covenants, as well as restrictions,

on new indebtedness, prepaying or amending subordinated debt, acquisitions and
similar investments, the sale or transfer of assets, capital expenditures,
limitations on restricted payments, dividends, issuing guarantees and creating
liens. The credit facility also requires an annual reduction, commencing January
1, 1996, of outstanding borrowings to zero for a period of 45 consecutive days,
commencing during the first six months of each calendar year. In addition, the
credit facility also requires that (a) Marvel continue to control, as defined,
the Company and (b) the toy license agreement between the Company and Marvel
remain in effect. The credit facility is not guaranteed by Marvel.

The interest rate for borrowing as of December 31, 1994 and 1995 was 8.5%
and the weighted average interest rate for 1994 and 1995 was 8.4% and 8.8%,
respectively. The maximum amounts outstanding during 1994 and 1995 were
$23,500,000 and $21,500,000, respectively. The amount available under the
Facility at December 31, 1995 was $30,000,000. The Facility requires the Company
to pay a commitment fee of 3/8 of 1% per annum on the average daily unused
portion.

8. CAPITAL STOCK STRUCTURE AND STOCK OPTION PLAN

In addition to Class A and Class B common stock shown on the accompanying
balance sheet, the Company has authorized 2,500 shares of preferred stock, par
value $.01.

In December, 1994, the Company's Board of Directors approved the
authorization of Class A Common Stock and Class B Common Stock and the
conversion of each share of the Company's former Class A common stock into 9,700
shares of its newly created Class B Common Stock and of each share of its former
Class B and C common stock into 9,700 shares of its newly created Class A Common
Stock, to be effected simultaneously with the closing of the Offering of the
Company's Class A Common Stock.

Two shares of the outstanding Class B Common Stock are owned of record by
voting trusts of which Messrs. Perlmutter and Arad are trustees and Marvel is
the sole beneficiary. Each of Messrs. Perlmutter and Arad will have the right to
vote the share of Class B Common Stock held by voting trust in his absolute
discretion until the termination of such trust. Certain fundamental transactions
will require the unanimous consent of the holders of Class B Common Stock voting
as a class.

The Class B Common Stock has ten votes for each share outstanding for most
matters brought to a vote of the stockholders; whereas, the Class A Common Stock
has only have one vote per share on such matters.

On March 2, 1995, the Company completed an initial public offering (the
'Offering') by issuing 2,750,000 new shares of its Class A Common Stock at
$18.00 per share. The net proceeds of the Offering to the Company ($44,145,000)
were used to repay notes payable to the principal shareholders and to increase
working capital. As part of the Offering, Mr. Arad sold 700,000 shares of Class
A Common Stock owned by him to pay taxes due in connection with the exercise of
a stock option. See Note 9.

The Company's 1995 Stock Option Plan (the 'Plan') provides for the issuance
of Stock Options ('Options') and Stock Appreciation Rights ('SAR's') for up to

1,350,000 shares of the Company's Class A Common Stock at fair market value at
the time of grant. One-third of the Options become exercisable at the date of
the grant (the 'Grant Date'), and the balance of the Options become exercisable
in equal increments on the first and second anniversaries of the Grant Date.
During 1995, the Company granted Options for 1,049,000

F-15
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995

8. CAPITAL STOCK STRUCTURE AND STOCK OPTION PLAN--(CONTINUED)

shares of its Class A Common Stock at prices ranging from $18.00 to $22.625, of
which Options for 20,130 shares were exercised and Options for 33,268 shares
were cancelled. At December 31, 1995, Options for 995,602 and 329,187 shares
were outstanding and exercisable, respectively. No SAR's have been granted and
Options with respect to 334,268 shares are available for future grants.

9. STOCK OPTION AGREEMENT

Pursuant to the Formation Agreement executed by the Company, Mr. Arad
received the Option to acquire an additional pre-conversion 278 shares of the
Company's Class C common stock at $100 per share. The Option, which expires
April 30, 1998, was exercisable contingent upon the Company achieving certain
operating results, as defined. At the end of 1993, it became evident that the
operating results necessary for the Option to become exercisable would, in all
likelihood, be achieved sometime in 1994. Therefore, the Company amended the
Option so that it became exercisable March 31, 1994. Based on an independent
appraisal of the value of the Option, the Company charged operations for the
last quarter of 1993 $10,909,000 for this compensatory stock option and
operations for the three month period ended March 31, 1994 with the remainder of
the value of the Option ($4,091,000). The appraisal of the value of the Option,
performed in April, 1994, determined the value of the shares issuable on
exercise of the Option to be $6.19 per share. The appraisal applied market
multiples of 1994 earnings estimates of publicly traded companies considered to
be comparable to the Company to the Company's 1994 projected earnings and
considered the Company's dependence on Mr. Arad and the illiquid nature of the
shares subject to the Option.

On June 30, 1994, Mr. Arad exercised the stock option described above. In
connection with that exercise, the Company agreed to loan Mr. Arad (the 'Option
Loan') an amount necessary to allow Mr. Arad to pay the incremental Federal,
state and local income tax liability that he incurred as a result of the vesting
and exercise of the Option. The Company advanced Mr. Arad $10,000 in 1994 under
the Option Loan. Mr. Arad repaid the $10,000 advance under the Option Loan upon
the consummation of the Offering and the pledge was released at that time. See
Note 8.

F-16
<PAGE>
TOY BIZ, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995

10. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial information for the years ended December 31,
1994 and 1995 is as follows (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
1994 1995
-------------------------------------------- --------------------------------------------
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ------------------------- -------- ------- ------------ ----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................ $18,136 $28,099 $ 41,308 $68,982 $27,888 $30,435 $ 58,687 $79,385
Gross Profit............. 10,836 14,912 21,226 36,061 14,490 18,420 32,227 42,861
Operating income......... 481 6,065 11,377 14,149 5,078 6,981 15,789 19,166
Net income............... 106 3,288 6,346 8,274 2,859 4,323 9,480 11,740
Net income per share..... $ -- $ .12 $ .24 $ .31 $ .11 $ .16 $ .35 $ .43
Weighted average number
of common and common
equivalent shares
outstanding (in
thousands)(2).......... 27,000 27,000 27,000 27,000 27,000 27,000 27,193 27,199
</TABLE>

- ------------------
(1) The first quarter of 1994 includes a charge of $4,091,000 with respect to a
stock option. (See Note 9)

(2) Assumes 27,000,000 common and common equivalent shares outstanding for
periods prior to 1995.

(3) Certain amounts included in 1994 Financial Statements have been reclassified
to conform with 1995 presentation.

11. ACQUISITION

On September 11, 1995, pursuant to an Asset Purchase Agreement dated as of
August 17, 1995, as amended, between the Company and Spectra Star, Inc.
('Spectra Star'), the Company acquired certain assets and assumed certain
liabilities of Spectra Star (the 'Acquisition'). Spectra Star is the leading
U.S. manufacturer and marketer of children's and performance kites. Spectra Star
also manufactures other toy and recreation products, many of which feature
popular children's entertainment characters. The purchase price, including
estimated fees related to the Acquisition, totaled approximately $13.6 million,
consisting of approximately $10.6 million of cash and assumed liabilities and a
maximum of 130,303 shares of Series A Preferred Stock (the 'Preferred Stock')
with a maximum redemption value of $4.3 million. The Preferred Stock is
convertible at any time after March 10, 1996 at the option of the holders into
130,303 shares of Class A Common Stock or cash at the then present value of the
Preferred Stock. The present value of the Preferred Stock issued was
approximately $3.0 million as of December 31, 1995. The Company utilized
available cash to finance the Acquisition.

The Acquisition was accounted for using the purchase method of accounting.
Based on a preliminary allocation of purchase price, the fair value of the
assets acquired is summarized below.

<TABLE>
<S> <C>
Current assets.......................... $ 3,470
Noncurrent assets....................... 521
Intangibles............................. 9,566
-------
$13,557
-------
-------
</TABLE>

The following unaudited pro forma consolidated financial information gives
effect to the Acquisition as if it occurred at the beginning of the periods
presented. These pro forma results include certain adjustments, such as
increased amortization, decreased interest expense and the elimination of a
discontinued product line, and are not necessarily indicative of what results
would have been had the Acquisition occurred at the beginning of the respective
periods.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
----------------
1994
----------------------------
<S> <C>
Net sales............................... $173,548
Net income.............................. $ 16,500
Net income per share.................... $ .60
</TABLE>

F-17

<PAGE>
TOY BIZ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

DECEMBER 31, MARCH 31,
1995* 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 22,484 $ 8,551
Accounts receivable, net........................ 74,748 66,382
Inventories..................................... 17,195 14,698
Deferred income taxes........................... 4,141 4,141
Prepaid expenses and other...................... 4,476 7,750
------------ -----------
Total current assets......................... 123,044 101,522
Mold, tools and equipment, net.................... 12,102 13,333
Product and package design costs, net............. 6,971 8,778
Goodwill and other intangibles, net............... 10,101 10,130
------------ -----------
Total assets................................. $152,218 $ 133,763
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 8,830 $ 4,309
Accrued expenses and other...................... 29,040 13,206
------------ -----------
Total current liabilities.................... 37,870 17,515
------------ -----------
Total liabilities............................ 37,870 17,515
------------ -----------
Redeemable preferred stock........................ 3,016 1,611
------------ -----------
Stockholders' equity:
Common stock.................................... 270 270
Additional paid-in capital...................... 61,158 61,290
Retained earnings............................... 49,904 53,077
------------ -----------
Total stockholders' equity................... 111,332 114,637
------------ -----------
Total liabilities and stockholders' equity... $152,218 $ 133,763
------------ -----------
------------ -----------
</TABLE>

- ------------------

* Derived from the audited Financial Statements for the year ended December 31,
1995.

The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-18

<PAGE>
TOY BIZ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1995 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Net sales......................................... $27,888 $38,369
Cost of sales..................................... 13,398 19,733
------- -------
Gross profit.................................... 14,490 18,636
------- -------
Operating expenses:
Selling, general and administrative............. 7,717 11,369
Depreciation and amortization................... 1,695 2,144
------- -------
Total operating expenses..................... 9,412 13,513
------- -------
Operating income.................................. 5,078 5,123
Interest (income) expense, net.................... 233 (166)
------- -------
Income before provision for income taxes........ 4,845 5,289
Provision for income taxes........................ 1,986 2,116
------- -------
Net income...................................... $ 2,859 $ 3,173
------- -------
------- -------
Net income per share.............................. $ 0.11 $ 0.12
------- -------
------- -------
Weighted average number of common and common
equivalent shares outstanding................... 27,000 27,201
------- -------
------- -------
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-19

<PAGE>
TOY BIZ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1995 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities:
Net income...................................... $ 2,859 $ 3,173
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 1,695 2,144
Changes in assets and liabilities:
Decrease in accounts receivable, net......... 27,303 8,366
Decrease in inventories...................... 2,666 2,497
Increase in prepaid expenses and other....... (2,453) (3,274)
Decrease in accounts payable................. (3,511) (4,521)
Decrease in accrued expenses and other....... (14,215) (15,834)
------- -------
Net cash provided by (used in) operating
activities...................................... 14,344 (7,449)
------- -------
Cash flow from investing activities:
Purchases of molds, tools and equipment......... (1,867) (2,588)
Expenditures for product and package design
costs........................................ (1,613) (2,525)
Other investments............................... (29) (98)
------- -------
Net cash used in investing activities............. (3,509) (5,211)
------- -------
Cash flow from financing activities:
Redemption of preferred stock................... -- (1,440)
Exercise of stock options....................... -- 167
Proceeds from initial public offering........... 45,527 --
Net repayments under credit agreement........... (21,500) --
Notes payable--stockholders..................... (15,119) --
------- -------
Net cash provided by (used in) financing
activities...................................... 8,908 (1,273)
------- -------
Net increase (decrease) in cash and cash
equivalents..................................... 19,743 (13,933)
Cash and cash equivalents at beginning of
period.......................................... 4,142 22,484
------- -------

Cash and cash equivalents at end of period........ $23,885 $ 8,551
------- -------
------- -------
Supplemental disclosures of cash flow information:
Interest paid during the period................. $ 2,278 $ 28
Income taxes paid during the period............. $ 5,885 $ 6,979
Other non-cash transactions:
Accretion of preferred dividend................. -- $ 35
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
F-20

<PAGE>
TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Toy Biz, Inc. and its subsidiary (collectively, the 'Company') have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, as filed with the
Securities and Exchange Commission.

2. INITIAL PUBLIC OFFERING AND CAPITAL STOCK

On March 2, 1995, the Company completed an initial public offering ('IPO')
by issuing 2,750,000 new shares of its Class A Common Stock ('Common Stock') at
$18 per share. The net proceeds to the Company of $44,145, after deducting fees
and expenses, were used to pay outstanding amounts due under subordinated notes
which totalled $15,119 in principal and $1,961 in interest, with the balance
used for working capital and general corporate purposes.

3. ACQUISITION

On September 11, 1995, pursuant to an Asset Purchase Agreement dated as of
August 17, 1995, as amended, between the Company and Spectra Star, Inc.
('Spectra Star'), the Company acquired certain assets and assumed certain
liabilities of Spectra Star (the 'Acquisition'). The purchase price, including
fees related to the Acquisition, totalled approximately $13.6 million,
consisting of approximately $10.6 million of cash and assumed liabilities and
the issuance of a maximum of 130,303 shares of Series A Preferred Stock (the
'Preferred Stock') with a maximum redemption value of $4.3 million. The
Preferred Stock is convertible at any time after March 10, 1996 at the option of
the holders into 130,303 shares of Class A Common Stock or cash at the then
present value of the Preferred Stock. On March 18, 1996, 53,030 share of the
Preferred Stock were redeemed for cash at an aggregate present value of
approximately $1.4 million. The present value of the remaining Preferred Stock
was approximately $1.6 million as of March 31, 1996. The Company utilized
available cash to finance the Acquisition and the redemption of the Preferred
Stock.

The Acquisition was accounted for using the purchase method of accounting.
Based on a preliminary allocation of purchase price, the fair value of the
assets acquired is summarized below.

<TABLE>
<S> <C>
Current assets................ $ 3,470
Noncurrent assets............. 521
Intangibles................... 9,566
-------
$13,557
-------
-------
</TABLE>

The following unaudited pro forma consolidated financial information gives
effect to the Acquisition as if it occurred at the beginning of the period
presented. These pro forma results include certain adjustments, such as
increased amortization, decreased interest expense and the elimination of a
discontinued product line, and are not

F-21
<PAGE>
TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

3. ACQUISITION--(CONTINUED)

necessarily indicative of what results would have been had the Acquisition
occurred at the beginning of the period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
------------------
<S> <C>
Net sales............................... $ 38,718
Net income.............................. $ 4,424
Net income per share.................... $ .16
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable............................. $ 86,019 $71,823
Less allowances................................. (11,271) (5,441)
------------ ---------
Total........................................ $ 74,748 $66,382
------------ ---------

------------ ---------
Inventories:
Finished goods, net............................. $ 13,504 $11,651
Component parts, raw materials and
work-in-process.............................. 3,691 3,047
------------ ---------
Total........................................ $ 17,195 $14,698
------------ ---------
------------ ---------
Goodwill and other intangibles, net:
Goodwill........................................ $ 9,815 $ 9,815
Patents and other intangibles................... 409 507
Less accumulated amortization................... (123) (192)
------------ ---------
Total........................................ $ 10,101 $10,130
------------ ---------
------------ ---------
Accrued expenses and other:
Accrued advertising costs....................... $ 9,459 $ 1,723
Accrued royalties............................... 3,956 2,158
Income taxes payable............................ 7,374 2,495
Accrued inventory purchases..................... 4,694 3,658
Other accrued expenses.......................... 3,557 3,172
------------ ---------
Total........................................ $ 29,040 $13,206
------------ ---------
------------ ---------
</TABLE>

5. EARNINGS PER SHARE

Earnings per share have been computed based on the weighted average number
of common and common equivalent shares assuming 27 million shares were
outstanding during the period prior to the IPO in March, 1995.

F-22

<PAGE>
SCHEDULE II

TOY BIZ INC.
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE CHARGED TO SALES CHARGED TO BALANCE
AT BEGINNING OR COSTS AND OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
Year Ended December 31, 1993,
Allowances included in Accounts
Receivable, Net:
Doubtful accounts................ $ 971,000 $ 73,000(1) -- $ 53,000 $ 991,000
Advertising, markdowns, returns,
volume discounts and other.... 4,246,000 12,829,000(2) -- 8,545,000 8,530,000

Year Ended December 31, 1994,
Allowances included in Accounts
Receivable, Net:
Doubtful accounts................ 991,000 30,000(1) -- 505,000 516,000
Advertising, markdowns, returns,
volume discounts and other.... 8,530,000 15,493,000(2) -- 14,270,000 9,753,000

Year Ended December 31, 1995,
Allowances included in Accounts
Receivable, Net:
Doubtful accounts................ 516,000 443,000(1) -- 443,000 516,000
Advertising, markdowns, returns,
volume discounts and other.... 9,753,000 21,682,000(2) -- 20,680,000 10,755,000
</TABLE>

- ------------------
(1) Charged to costs and expenses.

(2) Charged to sales.

F-23

<PAGE>

[PHOTOGRAPHS]

<PAGE>

[LOGO]

<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION) [ALTERNATE]

ISSUED AUGUST 7, 1996

3,200,000 SHARES

[Logo]

TOY BIZ, INC.
CLASS A COMMON STOCK
------------------------

OF THE 3,200,000 SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE, OF
TOY BIZ, INC. BEING OFFERED HEREBY, 640,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND
2,560,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS. SEE 'UNDERWRITERS.' OF THE 3,200,000
SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, 700,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 2,500,000 SHARES ARE BEING SOLD BY
MARVEL (AS DEFINED HEREIN), A SELLING STOCKHOLDER. SEE 'PRINCIPAL
AND SELLING STOCKHOLDERS.' THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE SHARES BEING SOLD BY MARVEL.

THE CLASS A COMMON STOCK ENTITLES ITS HOLDERS TO ONE VOTE PER SHARE, AND THE
CLASS B COMMON STOCK GENERALLY HAS TEN VOTES PER SHARE. IMMEDIATELY AFTER THIS
OFFERING, THE CLASS B COMMON STOCK AND THE CLASS A COMMON STOCK BENEFICIALLY
OWNED BY THE PRINCIPAL STOCKHOLDERS WILL REPRESENT APPROXIMATELY 93% OF
THE COMBINED VOTING POWER (ASSUMING THE U.S. UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED) WITH RESPECT TO
SUBSTANTIALLY ALL MATTERS SUBMITTED FOR THE VOTE OF ALL STOCKHOLDERS.

------------------------

SEE 'RISK FACTORS' BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND

EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

------------------------

PRICE $ A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
Total(3)................. $ $ $ $
</TABLE>

------------------------

MORGAN STANLEY & CO.

INTERNATIONAL
CS FIRST BOSTON
SMITH BARNEY INC.
JEFFERIES INTERNATIONAL LIMITED

August , 1996

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table shows all expenses of the issuance and distribution of
the securities offered hereby, other than underwriting discounts and
commissions:

<TABLE>
<S> <C>
Securities and Exchange Commission ('SEC') filing
fee............................................. $ 60,227
National Association of Securities Dealers,
Inc. ('NASD')................................... 17,966
NYSE listing fee.................................. 3,500
Transfer agent's and registrar's fee.............. 3,500
Printing and engraving expenses................... 150,000
Legal fees and expenses........................... 150,000
Accounting fees and expenses...................... 90,000
Blue Sky filing fees and expenses (including
counsel fees)................................... 20,000
Miscellaneous expenses............................ 4,807
--------
Total........................................ $500,000
--------
--------
</TABLE>

All amounts listed above, except for the SEC filing fee, NASD filing fee
and NYSE listing fee, are estimates. All expenses will be paid by the Company.

15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article 6 of the Company's By-Laws provides for the indemnification of
directors, officers or incorporators of the Company to the maximum extent
permitted by the Delaware General Corporation Law ('DGCL'). Section 145 of the
DGCL empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer or agent of
the corporation or another enterprise if serving at the request of the
corporation. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation

unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstance of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.

The Underwriting Agreement, included in Exhibit 1.1 hereto, provides that
each of the Underwriters will indemnify the Directors and officers of the
Company against certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the 'Securities Act').

16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The pages contained in the manually signed Registration Statement filed
with exhibits thereto have been numbered sequentially in the lower right hand
corner of each page. The exhibits described below may be found in such
Registration Statement at the relevant page described under the column
'Sequential Page Number' on the Exhibit Index attached hereto.

II-1
<PAGE>
(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*

2.1 -- Amended and Restated Asset Purchase Agreement, dated August
17, 1995, between the Company and Spectra Star, Inc., as
amended by the First, Second, Third, Fourth and Fifth
Amendments thereto. (Incorporated by reference to Exhibits
2.1, 2.2, 2.3, 2.4 and 2.5 to the Company's Current Report
on Form 8-K, filed with the Commission on September 26,
1995.)

3.1 -- Certificate of Amendment to Restated Certificate of
Incorporation.+
4.1 -- Specimen Copy of Stock Certificate for shares of Class A
Common Stock. (Incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1,
File No. 33-87268.)
5.1 -- Opinion of Battle Fowler LLP regarding the legality of
securities being registered.*
10.1 -- Stockholders Agreement, dated as of March 2, 1995, by and

among the Company, Isaac Perlmutter T.A., Marvel
Entertainment Group, Inc., Avi Arad and Zib Inc.
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.)
10.2 -- Registration Rights Agreement, dated as of March 2, 1995, by
and among the Company, Marvel Entertainment Group, Inc., and
Isaac Perlmutter and Avi Arad. (Incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.)
10.3 -- Assignment and Assumption of Sublease by and between Job Lot
of West 45th St., Inc. and the Company, as amended by First
Amendment of Sublease, dated May 26, 1994, by and between
Kallir, Philips, Ross, Inc. and the Company; Agreement of
Sublease, dated May 6, 1991, by and between Kallir, Philips,
Ross, Inc. and Job Lot of West 45th St., Inc.; Agreement of
Sublease, dated January 1989, by and between 673 First
Realty Company and Kallir, Philips, Ross, Inc. (Incorporated
by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
10.4 -- Lease, dated December 3, 1993, by and between 200 Fifth
Avenue Associates and the Company. (Incorporated by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
10.5 -- Letter Agreement, effective March 1, 1994, by and between
Regal West Warehouse Trucking and the Company. (Incorporated
by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
10.6 -- Credit Agreement, dated as of February 22, 1995 among the
Company, the Banks (as defined therein) and Chemical Bank as
administrative agent for the Banks, as amended by First
Amendment and Consent Number 1, dated as of August 29, 1995.
(Incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995 and Exhibit 10.7 to the Company's Current Report on
Form 8-K filed on September 26, 1995.)
10.7 -- License Agreement, dated April 30, 1993, by and between the
Company and Marvel Entertainment Group, Inc., as amended by
Amendments thereto, dated December 1, 1994, and February 22,
1995. (Incorporated by reference to Exhibits 10.9 and
10.9(b) to the Company's Registration Statement on Form S-1,
File No. 33-87268 and to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended March
31, 1995.)
10.8 -- License Agreement, dated July 1, 1994, between Marvel
Entertainment Group, Inc. and the Company. (Incorporated by
reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
</TABLE>

II-2
<PAGE>
<TABLE>

<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------
<S> <C> <C>
10.9 -- License Agreement, dated March 1, 1993, by and between the
Company and Gerber Products Company as amended by Amendment
thereto, dated April 5, 1995. (Incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on
Form S-1, File No. 33-87268 and Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995.), (Confidential treatment has been
requested for a portion of this exhibit).
10.10 -- Distribution Agreement, dated July 29, 1993, by and between
the Company and Tyco Industries, Inc. (Incorporated by
reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
10.11 -- Services Agreement, dated as of March 2, 1995, by and
between the Company and Marvel Entertainment Group, Inc.
(Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, File No. 33-87268.)
10.12 -- Showroom Sharing Agreement, dated as of March 2, 1995, by
and among the Company, Marvel Entertainment Group, Inc.,
Classic Heroes, Inc. and REC Sound Incorporated.
(Incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1, File No. 33-87268.)
10.13 -- Master License Agreement, dated as of April 30, 1993,
between Avi Arad & Associates and the Company. (Incorporated
by reference to Exhibit 10.21 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
10.14 -- Amended and Restated Consulting Agreement by and between the
Company and Avi Arad. (Incorporated by reference to Exhibit
10.22 to the Company's Registration Statement on Form S-1,
File No. 33-87268.)**
10.15 -- Amended and Restated Employment Agreement between New World
Animation, Ltd. and Avi Arad. (Incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on
Form S-1, File No. 33-87268.)
10.16 -- Stock Option Agreement, dated as of April 30, 1993, between
the Company and Avi Arad as amended. (Incorporated by
reference to Exhibits 10.25, 10.26 and 10.26(b) to the
Company's Registration Statement on Form S-1, File No.
33-87268.)
10.17 -- Employment Agreement, by and between Joseph M. Ahearn and
the Company. (Incorporated by reference to Exhibit 10.27 to
the Company's Registration Statement on Form S-1, File No.
33-87268.)**
10.18 -- Employment Agreement, by and between Andrew R. Gatto and the
Company. (Incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K, filed on April 1,
1995.)**
10.19 -- Sales Representative Agreement by and between Bole
Enterprises and the Company. (Incorporated by reference to
Exhibit 10.29 to the Company's Registration Statement on

Form S-1, File No. 33-87268.)
10.20 -- 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.30 to the Company's Registration Statement on
Form S-1, File No. 33-87268.)**
10.21 -- Registration Rights Agreement, dated September 11, 1995, by
and between the Company and Spectra Star, Inc. (Incorporated
by reference to Exhibit 10.8 to the Company's Current Report
on Form 8-K, filed on September 26, 1995.)
10.22 -- Option Agreement, dated September 11, 1995, by and between
the Company and Spectra Star, Inc. (Incorporated by
reference to Exhibit 10.9 to the Company's Current Report on
Form 8-K, filed on September 26, 1995.)
10.23 -- Purchase and Option Agreement, dated September 11, 1995, by
and between the Company, Frank Alonso, Jr. and Estrella
Maquiladoras, S.A. DE C.V. (Incorporated by reference to
Exhibit 10.10 to the Company's Current Report on Form 8-K,
filed on September 26, 1995.)
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------
<S> <C> <C>
10.24 -- Maquila and Technical Assistance Agreement, dated September
11, 1995, by and between the Company and Estrella
Maquiladoras, S.A. DE C.V. (Incorporated by reference to
Exhibit 10.11 to the Company's Current Report on Form 8-K,
filed on September 26, 1995.)
10.25 -- Second Amendment and Consent No. 1, dated as of October 18,
1995, to the Credit Agreement, dated as of February 22,
1995, among the Company, the Banks (as defined therein) and
Chemical Bank as administrative agent for the Banks.*
10.26 -- Third Amendment and Consent No. 3, dated as of July 24,
1996, to the Credit Agreement, dated as of February 22,
1995, among the Company, the Banks (as defined therein) and
Chemical Bank as administrative agent for the Banks.*
21.1 -- Subsidiaries of the Company. (Incorporated by reference to
Exhibit 21.1 to the Company's Annual Report on Form 10-K,
filed on April 1, 1996.)
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Battle Fowler LLP. (Included in its opinion filed
as Exhibit 5.1 hereto.)*
24.1 -- Powers of Attorney. (Included on the signature pages
hereto.)+
</TABLE>

* Filed herewith.
** Management contract or compensatory plan or arrangement.

+ Filed previously.

(b) Financial Statement Schedules. The following financial statement
schedule is filed as part of this Registration Statement:

<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
II Valuation and Qualifying Accounts.
</TABLE>

17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(3) For purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such

securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-4

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on August 7, 1996.

TOY BIZ, INC.
(Registrant)

By: /s/ DANIEL J. WERTHER
---------------------------------
Daniel J. Werther
Executive Vice President,
Senior Legal Officer and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ----------------------------------- -------------------
<S> <C> <C>
* Chairman of the Board of Directors August , 1996
- ------------------------- and Director
Ronald O. Perelman

* President, Chief Executive Officer August , 1996
- ------------------------- and Director (principal executive
Joseph M. Ahearn officer)

* Chief Financial Officer, Treasurer August , 1996
- ------------------------- and Director (principal financial
Bobby G. Jenkins and accounting officer)

* Director August , 1996
- -------------------------
Avi Arad

* Director August , 1996
- -------------------------
William C. Bevins

* Director August , 1996
- -------------------------
Donald G. Drapkin

* Director August , 1996
- -------------------------
James F. Halpin

* Director August , 1996
- -------------------------
Isaac Perlmutter

* Director August , 1996
- -------------------------
Alfred A. Piergallini
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
- ------------------------- ----------------------------------- -------------------
* Director August , 1996
- -------------------------
Lynn Schenk

* Director August , 1996
- -------------------------
Terry C. Stewart

* Director August , 1996
- -------------------------
Paul R. Verkuil

*By: /s/ DANIEL J. August 7, 1996
WERTHER
- -------------------------
Daniel J. Werther
Attorney-in-fact
</TABLE>

II-6

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------- -----
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Amended and Restated Asset Purchase Agreement,
dated August 17, 1995, between the Company and
Spectra Star, Inc., as amended by the First,
Second, Third, Fourth and Fifth Amendments
thereto. (Incorporated by reference to Exhibits
2.1, 2.2, 2.3, 2.4 and 2.5 to the Company's
Current Report on Form 8-K, filed with the
Commission on September 26, 1995.)
3.1 -- Certificate of Amendment to Restated Certificate
of Incorporation.+
4.1 -- Specimen Copy of Stock Certificate for shares of
Class A Common Stock. (Incorporated by reference
to Exhibit 4.1 to the Company's Registration
Statement on Form S-1,
File No. 33-87268.)
5.1 -- Opinion of Battle Fowler LLP regarding the
legality of securities being registered.*
10.1 -- Stockholders Agreement, dated as of March 2, 1995,
by and among the Company, Isaac Perlmutter T.A.,
Marvel Entertainment Group, Inc., Avi Arad and Zib
Inc. (Incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.)
10.2 -- Registration Rights Agreement, dated as of March
2, 1995, by and among the Company, Marvel
Entertainment Group, Inc., and Isaac Perlmutter
and Avi Arad. (Incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995.)
10.3 -- Assignment and Assumption of Sublease by and
between Job Lot of West 45th St., Inc. and the
Company, as amended by First Amendment of
Sublease, dated May 26, 1994, by and between
Kallir, Philips, Ross, Inc. and the Company;
Agreement of Sublease, dated May 6, 1991, by and
between Kallir, Philips, Ross, Inc. and Job Lot of
West 45th St., Inc.; Agreement of Sublease, dated
January 1989, by and between 673 First Realty
Company and Kallir, Philips, Ross, Inc.
(Incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1, File
No. 33-87268.)

10.4 -- Lease, dated December 3, 1993, by and between 200
Fifth Avenue Associates and the Company.
(Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1, File
No. 33-87268.)
10.5 -- Letter Agreement, effective March 1, 1994, by and
between Regal West Warehouse Trucking and the
Company. (Incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on
Form S-1, File No. 33-87268.)
10.6 -- Credit Agreement, dated as of February 22, 1995
among the Company, the Banks (as defined therein)
and Chemical Bank as administrative agent for the
Banks, as amended by First Amendment and Consent
Number 1, dated as of August 29, 1995.
(Incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 and Exhibit 10.7 to
the Company's Current Report on Form 8-K filed on
September 26, 1995.)
10.7 -- License Agreement, dated April 30, 1993, by and
between the Company and Marvel Entertainment
Group, Inc., as amended by Amendments thereto,
dated December 1, 1994, and February 22, 1995.
(Incorporated by reference to Exhibits 10.9 and
10.9(b) to the Company's Registration Statement on
Form S-1, File No. 33-87268 and to Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1995.)
10.8 -- License Agreement, dated July 1, 1994, between
Marvel Entertainment Group, Inc. and the Company.
(Incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1, File
No. 33-87268.)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------- -----
<S> <C> <C> <C>
10.9 -- License Agreement, dated March 1, 1993, by and
between the Company and Gerber Products Company as
amended by Amendment thereto, dated April 5, 1995.
(Incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1, File
No. 33-87268 and Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995.), (Confidential treatment has
been requested for a portion of this exhibit).
10.10 -- Distribution Agreement, dated July 29, 1993, by
and between the Company and Tyco Industries, Inc.

(Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1, File
No. 33-87268.)
10.11 -- Services Agreement, dated as of March 2, 1995, by
and between the Company and Marvel Entertainment
Group, Inc. (Incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on
Form S-1, File No. 33-87268.)
10.12 -- Showroom Sharing Agreement, dated as of March 2,
1995, by and among the Company, Marvel
Entertainment Group, Inc., Classic Heroes, Inc.
and REC Sound Incorporated. (Incorporated by
reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1, File No.
33-87268.)
10.13 -- Master License Agreement, dated as of April 30,
1993, between Avi Arad & Associates and the
Company. (Incorporated by reference to Exhibit
10.21 to the Company's Registration Statement on
Form S-1, File No. 33-87268.)
10.14 -- Amended and Restated Consulting Agreement by and
between the Company and Avi Arad. (Incorporated by
reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-1, File No.
33-87268.)**
10.15 -- Amended and Restated Employment Agreement between
New World Animation, Ltd. and Avi Arad.
(Incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement on Form S-1, File
No. 33-87268.)
10.16 -- Stock Option Agreement, dated as of April 30,
1993, between the Company and Avi Arad as amended.
(Incorporated by reference to Exhibits 10.25,
10.26 and 10.26(b) to the Company's Registration
Statement on Form S-1, File No. 33-87268.)
10.17 -- Employment Agreement, by and between Joseph M.
Ahearn and the Company. (Incorporated by reference
to Exhibit 10.27 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)**
10.18 -- Employment Agreement, by and between Andrew R.
Gatto and the Company. (Incorporated by reference
to Exhibit 10.18 to the Company's Annual Report on
Form 10-K, filed on April 1, 1995.)**
10.19 -- Sales Representative Agreement by and between Bole
Enterprises and the Company. (Incorporated by
reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1, File No.
33-87268.)
10.20 -- 1995 Stock Option Plan. (Incorporated by reference
to Exhibit 10.30 to the Company's Registration
Statement on Form S-1, File No. 33-87268.)**
10.21 -- Registration Rights Agreement, dated September 11,
1995, by and between the Company and Spectra Star,
Inc. (Incorporated by reference to Exhibit 10.8 to

the Company's Current Report on Form 8-K, filed on
September 26, 1995.)
10.22 -- Option Agreement, dated September 11, 1995, by and
between the Company and Spectra Star, Inc.
(Incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K, filed on
September 26, 1995.)
10.23 -- Purchase and Option Agreement, dated September 11,
1995, by and between the Company, Frank Alonso,
Jr. and Estrella Maquiladoras, S.A. DE C.V.
(Incorporated by reference to Exhibit 10.10 to the
Company's Current Report on Form 8-K, filed on
September 26, 1995.)
10.24 -- Maquila and Technical Assistance Agreement, dated
September 11, 1995, by and between the Company and
Estrella Maquiladoras, S.A. DE C.V. (Incorporated
by reference to Exhibit 10.11 to the Company's
Current Report on Form 8-K, filed on September 26,
1995.)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------- -----
<S> <C> <C> <C>
10.25 -- Second Amendment and Consent No. 1, dated as of
October 18, 1995, to the Credit Agreement, dated
as of February 22, 1995, among the Company, the
Banks (as defined therein) and Chemical Bank as
administrative agent for the Banks.*
10.26 -- Third Amendment and Consent No. 3, dated as of
July 24, 1996, to the Credit Agreement, dated as
of February 22, 1995, among the Company, the Banks
(as defined therein) and Chemical Bank as
administrative agent for the Banks.*
21.1 -- Subsidiaries of the Company. (Incorporated by
reference to Exhibit 21.1 to the Company's Annual
Report on Form 10-K, filed on April 1, 1996.)
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Battle Fowler LLP. (Included in its
opinion filed as Exhibit 5.1 hereto.)*
24.1 -- Powers of Attorney. (Included on the signature
pages hereto.)+
</TABLE>

* Filed herewith.

** Management contract or compensatory plan or arrangement.

+ Filed previously.

Draft Dated as of August 6, 1996

3,200,000 Shares

TOY BIZ, INC.

CLASS A COMMON STOCK, $.01 PAR VALUE

UNDERWRITING AGREEMENT

____________ __, 1996

<PAGE>

_____________ __, 1996

Morgan Stanley & Co. Incorporated
CS First Boston Corporation
Smith Barney Inc.
Jefferies & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Morgan Stanley & Co. International Limited
CS First Boston Limited
Smith Barney Inc.
Jefferies International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA, ENGLAND

Dear Sirs and Mesdames:

Toy Biz, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in
Schedules II and III hereto (the "Underwriters"), and Marvel
Characters, Inc. ("Marvel") proposes to sell to the several
Underwriters, an aggregate of 3,200,000 shares of the Class A Common
Stock, par value $.01 per share, of the Company (the "Firm Shares"),
of which 700,000 shares are to be issued and sold by the Company and
2,500,000 shares are to be sold by Marvel.

It is understood that, subject to the conditions
hereinafter stated, 2,560,000 Firm Shares (the "U.S. Firm
Shares") will be sold to the several U.S. Underwriters named in
Schedule II hereto (the "U.S. Underwriters") in connection with
the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such
terms are defined in the Agreement Between U.S. and International
Underwriters of even date herewith), and 640,000 Firm Shares (the
"International Shares") will be sold to the several International
Underwriters named in Schedule III hereto (the "International
Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to
persons other than United States or Canadian Persons. Morgan
Stanley & Co. Incorporated, CS First Boston Corporation, Smith
Barney Inc. and Jefferies & Company, Inc. shall act as
representatives (the "U.S. Representatives") of the several U.S.
Underwriters, and Morgan Stanley & Co. International Limited, CS
First

<PAGE>

Boston Limited, Smith Barney Inc. and Jefferies International Limited
shall act as representatives of the several International Underwriters
(the "International Representatives"). The U.S. Underwriters and the
International Underwriters are sometimes hereinafter collectively
referred to as the Underwriters, and the U.S Representatives and the
International Representatives are sometimes hereinafter collectively
referred to as the Representatives.

In addition, certain shareholders of the Company listed on
Schedule I hereto (together with Marvel, the "Selling Shareholders")
also propose to sell to the several U.S. Underwriters not more than an
additional 480,000 shares of the Class A Common Stock, par value $0.01
per share, of the Company (the "Additional Shares") in the amounts
listed in Schedule I if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of the
U.S. Underwriters, the right to purchase such shares of common stock
granted to the U.S. Underwriters in Section III hereof. The Firm
Shares and the Additional Shares are hereinafter collectively referred
to as the "Shares." The shares of Class A Common Stock, par value
$0.01 per share, of the Company to be outstanding after giving effect
to the sales contemplated hereby are hereinafter referred to as the
"Common Stock." The Company and the Selling Shareholders are
hereinafter sometimes collectively referred to as the "Sellers."

The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement relating to the
Shares. The registration statement contains two prospectuses to be
used in connection with the offering and sale of the Shares: The U.S.
prospectus, to be used in connection with the offering and sale of
Shares in the United States and Canada to United States and Canadian
Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and
Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except
for the outside front cover page.

I. Representations and Warranties of the Company and
the Selling Shareholders. A. The Company represents and
warrants to, and agrees with, the several Underwriters that:

1. A registration statement (No. 333-07455) relating to
the Shares has been filed with the Commission and either (A)
has been declared effective under the Securities Act of 1933
(the "Act") and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective
amendment. If the Company does not propose to amend such
registration statement and if any post-effective amendment
to such registration statement has been filed with the
Commission prior to the execution and delivery of this

Agreement, the most recent such amendment has been declared
effective by the Commission. For purposes of this Agreement,
"Effective Time" means

-2-

<PAGE>

(A) if the Company has advised the Representatives that it
does not propose to amend such registration statement, the
date and time as of which such registration statement, or
the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement,
was declared effective by the Commission, or (B) if the
Company has advised the Representatives that it proposes to
file an amendment or post-effective amendment to such
registration statement, the date and time as of which such
registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared
effective by the Commission. "Effective Date" means the date
of the Effective Time. Such registration statement, as
amended at the Effective Time, including all materials
incorporated by reference therein and all information (if
any) deemed to be a part of such registration statement as
of the Effective Time pursuant to Rule 430A(b) under the
Act, is hereinafter referred to as the "Registration
Statement", and the form of U.S. prospectus and
international prospectus relating to the Shares, as first
filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such
filing is required) as included in the Registration
Statement, including all material deemed incorporated by
reference in such prospectuses, are hereinafter collectively
referred to as the "Prospectus."

2. If the Effective Time is prior to the execution and
delivery of this Agreement: (A) at the Effective Time, the
Registration Statement and the Prospectus conformed in all
material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder ("Rules
and Regulations") and did not include any untrue statement
of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading, in the case of the
Prospectus, in light of the circumstances under which they
were made, and (B) on the date of this Agreement, the
Registration Statement conforms, and at the time of filing
of the Prospectus pursuant to Rule 424(b), at the Closing
Date and the Option Closing Date (each as defined below),
when any post-effective amendment to the Registration
Statement becomes effective and when any supplement to the
Prospectus is filed with the Commission, the Registration
Statement (as so amended) and the Prospectus (as so
supplemented) will conform, in all material respects to the

requirements of the Act and the Rules and Regulations, and
neither of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit,
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in
the case of the Prospectus, in light of the circumstances
under which they were made. If the Effective Time is
subsequent to the execution and delivery of this Agreement:
at the Effective Time, at the Closing Date and the Option
Closing Date, when any post-effective amendment to the
Registration Statement

-3-
<PAGE>

becomes effective and when any supplement to the Prospectus
is filed with the Commission, the Registration Statement (as
so amended) and the Prospectus (as so supplemented) will
conform in all material respects to the requirements of the
Act and the Rules and Regulations, and neither of such
documents will include any untrue statement of a material
fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein
not misleading, in the case of the Prospectus, in light of
the circumstances under which they were made. The two
preceding sentences do not apply to statements in or
omissions from the Registration Statement or Prospectus
based upon information relating to any Underwriter furnished
to the Company in writing by any Underwriter through the
Representatives expressly for use therein. Each preliminary
prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the Act and the Rules
and Regulations.

3. The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification.

4. Toy Biz International Limited is the only
subsidiary of the Company as defined under the Rules
and Regulations. The subsidiary of the Company has
been duly incorporated and is an existing corporation
in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the subsidiary of the Company is duly
qualified to do business as a foreign corporation in good

standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires
such qualification except to the extent that the failure to
be in good standing or to be so qualified would not
individually or in the aggregate have a material adverse
effect on the condition (financial or otherwise), business,
business prospects, properties or results of operation of
the Company and its subsidiary taken as a whole (a "Material
Adverse Effect"); all of the issued and outstanding capital
stock of the subsidiary of the Company has been duly
authorized and validly issued and is fully paid and
nonassessable; and all of the capital stock of the
subsidiary is owned by the Company free from liens,
encumbrances and defects, except for liens described in the
Prospectus and except to the extent that such lien,
encumbrance or defect would not have a Material Adverse
Effect.

-4-

<PAGE>

5. All of the outstanding shares of capital stock of
the Company have been duly authorized validly issued and are
fully paid and nonassessable and conform to the description
thereof contained in the Prospectus. The stockholders of the
Company have no preemptive rights with respect to the
Shares. The capitalization of the Company conforms in all
material respects to the description of the capitalization
of the Company in the Prospectus under the heading
"Description of Capital Stock." The Shares are duly
authorized and conform or will conform as the case may be to
the description thereof contained in the Registration
Statement and the Prospectus. The Shares to be issued and
sold by the Company and to be sold by Marvel hereunder,
subject to the delivery of and payment for such Shares in
accordance with this Agreement, and in the case of the
Shares to be sold by Marvel to conversion prior to such
delivery of Class B Common Stock owned by Marvel sufficient
to allow the sale by Marvel of Shares hereunder, will be on
the Closing Date and the Option Closing Date validly issued,
fully paid and nonassessable. The Company agrees to take all
action necessary or desirable on its part for the timely
conversion of shares of Class B Common Stock owned by Marvel
to the extent necessary for the sale of Shares by Marvel
hereunder. The Additional Shares are validly issued, fully
paid and nonassessable.

6. Except as otherwise described in the Registration
Statement and the Prospectus, there are no outstanding (A)
securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase
from the Company any such capital stock or any such

convertible or exchangeable securities or obligations, or
(C) obligations for the Company to issue such shares, any
such convertible or exchangeable securities or obligations,
or any such warrants, rights or obligations.

7. Except as may be otherwise described in the
Registration Statement and the Prospectus, there are no
contracts, agreements or understandings between the Company
and any person that would give rise to a valid claim against
the Company or any Underwriter for a brokerage commission,
finder's fee or other like payment relating to the offering
of the Shares.

8. Except as may be otherwise described in the
Registration Statement and the Prospectus, there are no
contracts, agreements or understandings between the Company
and any person granting such person the right to require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be
owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration Statement (which contracts, agreements

-5-

<PAGE>

or understandings have been duly complied with or waived) or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.

9. The Shares have been approved for listing on the New
York Stock Exchange (the "Stock Exchange") subject to notice
of issuance.

10. No consent, approval, authorization, or order of,
or filing with, any governmental agency or body or any court
is required to be obtained or made by the Company for the
consummation of the transactions contemplated by this
Agreement or in connection with the issuance and sale of the
Shares by the Company, except such as have been obtained and
made under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and such as may be required
under state securities laws and as may be required in such
jurisdictions outside the U.S. where the Underwriters
choose to market the Shares.

11. Except as may be otherwise described in the
Registration Statement and the Prospectus, the execution,
delivery and performance of this Agreement, the issuance and
sale of the Shares and the consummation of the transactions
contemplated by this Agreement will not result in a breach
or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule,

regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the
Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument that is material
to the condition (financial or otherwise), business,
business prospects, properties or results of operations of
the Company and its subsidiary taken as a whole and to which
the Company or its subsidiary is a party or by which the
Company or its subsidiary is bound or to which any of the
properties of the Company or its subsidiary are subject, or
the charter or by-laws of the Company or its subsidiary, and
the Company has the corporate power and authority to
authorize, issue and sell its Shares as contemplated by this
Agreement.

12. This Agreement has been duly authorized,
executed and delivered by the Company.

13. Except as may be otherwise described in the
Registration Statement and the Prospectus, the Company and
its subsidiary have good title to all properties and assets
owned by them, which individually or in the aggregate are
material to the business of the Company and its subsidiary,
taken as a whole, in each case free from liens, encumbrances
and defects that would materially affect the value thereof
or materially interfere with the use made or

-6-

<PAGE>

to be made thereof by them; and except as may be otherwise
described in the Registration Statement and the Prospectus,
the Company and its subsidiary hold any leased real or
personal property which individually or in the aggregate is
material to the business of the Company and its subsidiary,
taken as a whole, under valid and enforceable leases with no
exceptions that would materially interfere with the use made
or to be made thereof by them. Neither the Company nor its
subsidiary owns any real property.

14. The Company and its subsidiary possess all
necessary certificates, authorizations or permits issued by
appropriate governmental agencies or bodies necessary to
conduct the business now operated by them, except where the
failure to obtain such certificates, authorizations or
permits would not individually or in the aggregate have a
Material Adverse Effect and have not received any notice of
proceedings relating to the revocation or modification of
any such certificate, authority or permit that, if
determined adversely to the Company or its subsidiary, would
individually or in the aggregate have a Material Adverse
Effect.

15. Except as may be otherwise described in the
Registration Statement and the Prospectus, the Company and
its subsidiary have (A) complied with all statutes, rules,
regulations and orders of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the
Company or its subsidiary or any of their properties
applicable to it or its business and (B) performed all its
obligations required to be performed by it, and is not in
default, under any agreement or instrument to which the
Company or its subsidiary is a party or by which the Company
or its subsidiary is bound or to which any of the properties
of the Company or its subsidiary is subject, except with
respect to (A) and (B) above, where failure to do so would
not individually or in the aggregate have a Material Adverse
Effect. To the knowledge of the Company and its subsidiary,
no other party under any such agreement or instrument is in
default in any material respect thereunder. Neither the
Company nor its subsidiary is in violation of any provision
of its charter or by-laws.

16. All transactions between any of the Company and its
subsidiary, on the one hand, and any of the officers and
directors of the Company and its subsidiary, Marvel and its
officers and directors and any of their respective
affiliates (other than the Company and its subsidiary), on
the other hand, required to be disclosed in the Prospectus
and the Registration Statement have been so disclosed to the
extent required.

17. The Company maintains a system of internal
accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in

-7-

<PAGE>

accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity
with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability
for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to
any differences.

18. Each of the Company and its subsidiary maintains
insurance of the types and in the amounts customary and
adequate for its business, including, but not limited to,
insurance covering personal property owned or leased and
real property leased by the Company and its subsidiary
against theft, damage, destruction and acts of vandalism,

all of which insurance is in full force and effect.

19. No labor dispute with the employees of the Company
or its subsidiary exists or, to the knowledge of the Company
or its subsidiary, is imminent that would individually or in
the aggregate have a Material Adverse Effect.

20. The Company and its subsidiary own, possess or have
the right to use adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property
(collectively, "Intellectual Property Rights") necessary to
conduct their business as now operated by them, or presently
employed by them and have not received any notice of
infringement of or conflict with asserted rights of others
with respect to any Intellectual Property Rights that, if
determined adversely to the Company or its subsidiary, would
individually or in the aggregate have a Material Adverse
Effect.

21. Except as may be otherwise described in the
Registration Statement and the Prospectus, neither the
Company nor its subsidiary is in violation of any statute,
any rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or
operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any
off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate
have a Material Adverse Effect; and the

-8-

<PAGE>

Company is not aware of any pending investigation which
might lead to such a claim.

22. Except as may be otherwise described in the
Registration Statement and the Prospectus, there are no
pending actions, suits or proceedings against or affecting
the Company, its subsidiary or any of their respective
properties that, if determined adversely to the Company or
its subsidiary, would individually or in the aggregate have
a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise required to be

disclosed in the Registration Statement or Prospectus; and
to the Company's knowledge no such actions, suits or
proceedings are threatened.

23. The financial statements included in the
Registration Statement and Prospectus present fairly the
financial position of the Company and its consolidated
subsidiary and the combined results of its predecessor as of
the dates shown and their results of operations and cash
flows for the periods shown, and such financial statements
have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a
consistent basis and the schedules included in the
Registration Statement present fairly the information
required to be stated therein.

24. Except as may be otherwise described in the
Registration Statement and the Prospectus, since the date of
the latest audited financial statements included in the
Prospectus there has been no material adverse change, nor
any development or event reasonably likely to result in a
prospective material adverse change, in the condition
(financial or other), business, business prospects, of the
Company and its subsidiary taken as a whole, and, except as
disclosed in or contemplated by the Registration Statement
and the Prospectus, there has been no dividend or
distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

25. The Company is not and, after giving effect
to the offering and sale of the Shares and the
application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as
amended.

26. Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section
517.075, Florida Statutes and the Company agrees to comply
with such Section if prior to the completion of the
distribution of the Shares it commences doing such business.
Neither the Company nor its subsidiary, nor any director,
officer, agent, employee or other person acting

-9-

<PAGE>

on behalf of the Company or its subsidiary, has used any
corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or

employee from corporate funds; violated or is in violation
of any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any bribe or unlawful rebate,
payoff, influence payment, kickback or other payment.

B. Each of the Selling Shareholders, severally and
not jointly, represents and warrants to, and agrees with, the
several Underwriters that:

1. Marvel has valid and unencumbered title to the
shares of Class B Common Stock to be converted into the
Shares to be delivered by Marvel on the Closing Date, and
Marvel shall convert such shares of Class B Common Stock
into Shares to which Marvel will have valid and unencumbered
title immediately prior to delivery on the Closing Date.
Each of Avi Arad ("Arad") and Zib Inc. ("Zib") has and on
the Option Closing Date will have valid and unencumbered
title to the Additional Shares to be delivered by such
Selling Shareholder on the Option Closing Date. Each Selling
Shareholder has the corporate or individual power and
authority, as the case may be, to enter into this Agreement
and to sell, assign, transfer and deliver the Shares to be
delivered by such Selling Shareholder on the Option Closing
Date hereunder; and upon the delivery of and payment for the
Shares on the Option Closing Date hereunder the several
Underwriters will acquire valid and unencumbered title to
the Shares to be delivered by such Selling Shareholder on
such date.

2. No consent, approval, authorization, or order
of, or filing with, any governmental agency or body or
any court is required to be obtained or made by such
Selling Shareholder for the sale of the Shares by such
Selling Shareholder, except such as have been obtained and
made under the Act, the Exchange Act and such as may be
required under state securities laws and as may be required
in such jurisdictions outside the U.S. where the
Underwriters choose to market the Shares.

3. The execution, delivery and performance of this
Agreement, the sale of the Shares and the consummation of
the transactions contemplated by this Agreement by such
Selling Shareholder will not result in a breach or violation
of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of
any governmental agency or body or any court, domestic or
foreign, having jurisdiction over such Selling Shareholder,
or the certificate of incorporation or by-laws of such
Selling Shareholder (if such Selling Shareholder is a
corporation), or any material

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<PAGE>

agreement or instrument to which such Selling Shareholder is
a party or by which such Selling Shareholder is bound or to
which any of the material properties of such Selling
Shareholder are subject, other than, as to each Selling
Stockholder, any violations that would not individually or
in the aggregate affect the validity or enforceability of,
or that would adversely affect each Selling Shareholder's
ability to consummate, the transactions contemplated by or
perform its obligations under this Agreement.

4. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling
Shareholder.

5. If the Effective Time is prior to the execution and
delivery of this Agreement: (A) at the Effective Time, the
Registration Statement and the Prospectus conformed in all
material respects to the requirements of the Act and the
Rules and Regulations and did not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, in the case of the
Prospectus, in light of the circumstances under which they
were made, and (B) on the date of this Agreement, the
Registration Statement conforms, and at the time of filing
of the Prospectus pursuant to Rule 424(b), at the Closing
Date, the Option Closing Date, when any post-effective
amendment to the Registration Statement becomes effective
and when any supplement to the Prospectus is filed with the
Commission, the Registration Statement (as so amended) and
the Prospectus (as so supplemented) will conform, in all
material respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, in the case of the
Prospectus, in light of the circumstances under which they
were made. If the Effective Time is subsequent to the
execution and delivery of this Agreement: at the Effective
Time, at the Closing Date, the Option Closing Date, when any
post-effective amendment to the Registration Statement
becomes effective and when any supplement to the Prospectus
is filed with the Commission, the Registration Statement (as
so amended) and the Prospectus (as so supplemented) will
conform in all material respects to the requirements of the
Act and the Rules and Regulations, and neither of such
documents will include any untrue statement of a material
fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein
not misleading, in the case of the Prospectus, in light of
the circumstances under which they were made. The two
preceding sentences, (1) as to Arad and Zib, apply only to

statements or omissions made in reliance upon and in
conformity with information furnished in writing to the
Company by or on behalf of such Selling Shareholder
expressly for use in the

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<PAGE>

Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus;
for this purpose, (X) as to Arad, the information set forth
in the biographical sections of the Prospectus under the
caption "Management" and specifically relating to Arad; and
under the caption "Principal and Selling Stockholders" in
the Prospectus and specifically relating to Arad (except for
the columns containing the word "Percent" and information
incorporated under such caption by cross-reference); and the
letter from Arad to Morgan Stanley & Co. Incorporated and
Morgan Stanley & Co. International Limited as
Representatives dated July 23, 1996; (Y) as to Zib, the
information set forth in the biographical sections of the
Prospectus under the caption "Management" and specifically
relating to Isaac Perlmutter ("Perlmutter"), under the
caption "Principal and Selling Stockholders" in the
Prospectus and specifically relating to Zib and Perlmutter
(except for the columns containing the word "Percent" and
information incorporated under such caption by cross-
reference) and the first two paragraphs under the caption
"Business--Legal Proceedings," constitute the only
information furnished in writing by or on behalf of such
Selling Shareholder for inclusion in the Registration
Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, (2) as to
Marvel, apply only to statements or omissions relating to
Marvel (as defined in the Registration Statement) or Marvel
Studios and (3) as to each Selling Shareholder, do not apply
to statements in or omissions from the Registration
Statement or Prospectus based upon information relating to
any Underwriter furnished to the Company by any Underwriter
through the Representatives expressly for use therein.

II. Agreements to Sell and Purchase. Each of the Company and
Marvel, severally and not jointly, hereby agrees to sell to the
several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Company and Marvel at U.S. $_________ a share (the
"Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the number of Firm Shares to be sold by
such Seller as the number of Firm Shares set forth in Schedules II and
III hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.

On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, Zib and
Arad agree, severally and not jointly, to sell to the U.S.
Underwriters the Additional Shares, and the U.S. Underwriters shall
have the right from time to time to purchase, severally and not
jointly, up to 480,000 Additional Shares at the Purchase Price. If the
U.S. Representatives, on behalf of the U.S. Underwriters, elect to
exercise such option, the U.S. Representatives shall so notify the
Company and Zib in writing not later than 30 days after the date of
this Agreement, which

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<PAGE>

notice shall specify the number of Additional Shares to be purchased
by the U.S. Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date but not
earlier than the Closing Date nor later than ten business days after
the date of such notice. Additional Shares may be purchased as
provided in Section IV hereof solely for the purpose of covering
over-allotments made in connection with the offering of the U.S. Firm
Shares. If any Additional Shares are to be purchased, each U.S.
Underwriter agrees, severally and not jointly, to purchase the number
of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion
to the total number of Additional Shares to be purchased as the number
of U.S. Firm Shares set forth in Schedule II hereto opposite the name
of such U.S. Underwriter bears to the total number of Firm Shares. In
the event that any such notice specifies a number of Additional Shares
less than the total listed on Schedule I hereto, Zib and Arad shall
each sell a number of Additional Shares (subject to adjustments to
eliminate fractional shares as you may determine) that bears the same
proportion to the total number of Additional Shares specified in such
notice as the number of Additional Shares set forth in Schedule I
opposite the name of such Selling Shareholder bears to the maximum
number of Additional Shares subject to this Agreement.

Each Seller hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 90 days after the
date of the Prospectus, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such
securities are now owned by the undersigned or are hereafter acquired)
or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described
in clause (i) or (ii) above is to be settled by delivery of Common

Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B)
the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been
advised in writing, (C) in the case of Marvel, for (i) transfers to an
affiliate which agrees to be bound by the terms of such letter, (ii)
pledges to secure obligations of Marvel Entertainment Group, Inc. or
its subsidiaries ("Marvel Entertainment") or (iii) transfers as part
of a sale of all or substantially all of the assets of Marvel
Entertainment, provided that any acquiror in such a sale agrees to be
bound by the terms of such letter. In addition, each Selling
Shareholder, agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus,
make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.

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<PAGE>

III. Terms of Public Offering. The Sellers are advised by
you that the Underwriters propose to make a public offering of their
respective portions of the Shares as soon after the Registration
Statement and this Agreement have become effective as in your judgment
is advisable. The Sellers are further advised by you that the Shares
are to be offered to the public initially at U.S. $_______ a share
(the "Public Offering Price") and to certain dealers selected by you
at a price that represents a concession not in excess of U.S.
$________ a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not
in excess of U.S. $_______ a share, to any Underwriter or to certain
other dealers.

Each U.S. Underwriter hereby makes to and with the Sellers
the representations and agreements of such U.S. Underwriter contained
in the fifth and sixth paragraphs of Article III of the Agreement
Between U.S. and International Underwriters of even date herewith as
set forth therein as of the date hereof. Each International
Underwriter hereby makes to and with the Sellers the representations
and agreements of such International Underwriter contained in the
seventh, eighth, ninth and tenth paragraphs of Article III of such
Agreement as so set forth.

IV. Payment and Delivery. Payment for the Shares to be sold
by the Company and Marvel shall be made to such Seller in Federal or
other funds immediately available in New York City against proof of
delivery of such Shares for the respective accounts of the several
Underwriters at the office of Kramer, Levin, Naftalis & Frankel, 919
Third Avenue, New York, New York 10022 at 10:00 A.M., local time, on
_____________, 1996,1 or at such other time on the same or such other
date, not later than _________, 1996,2 as shall be designated in

writing by the Representatives. The time and date of such payment are
hereinafter referred to as the "Closing Date."

Payment to Zib and Arad for any Additional Shares shall be
made in Federal or other funds immediately available in New York City
against proof of delivery of such Additional Shares at the office of
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New
York 10022 at 10:00 A.M., local time, on the date specified in the
notice described in Section II or on such other date, in any event not
later than ___________, 19__,3 as shall be designated in writing by
the Representatives. The time and date of such payment are hereinafter
referred to as the "Option Closing Date."

- ------------------
1 Insert date 3 business days or, in the event the offering is priced
after 4:30 p.m. Eastern Time (and T+4 settlement is deemed to apply to
secondary sales), 4 business days after the date of the Underwriting
Agreement.

2 Insert date 10 business days after the date of the Underwriting
Agreement.

3 Insert date 10 business days after the expiration of the green
shoe option.

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<PAGE>

Certificates for the Shares shall be registered in such name
or names and in such authorized denominations as Morgan Stanley & Co.
Incorporated shall request in writing at least two full business days
prior to the Closing Date or the Option Closing Date, as the case may
be, provided that, if so specified by Morgan Stanley & Co.
Incorporated, the Shares may be represented by a global certificate
registered in the name of Cede & Co., as nominee of the Depositary
Trust Company. The Representatives shall be permitted to examine and
package such certificates for delivery at least one full business day
prior to the Closing Date or the Option Closing Date, as the case may
be, unless the Shares are to be represented by a global certificate.

V. Conditions to the Underwriters' Obligations. The
obligations of the Sellers to sell the Shares to the Underwriters and
the several obligations of the Underwriters to purchase and pay for
the Shares on the Closing Date are subject to the condition that the
Registration Statement shall have become effective not later than 4:30
p.m. (New York time) on the date hereof.

The several obligations of the Underwriters are subject to
the following further conditions:

A. Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, there shall not have occurred
any change, or any development that may reasonably be expected to

result in a change, in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its
subsidiary, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to market
the Shares on the terms and in the manner contemplated in the
Prospectus.

B. The Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive
officer of the Company on behalf of the Company, to the effect that
the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on
or before the Closing Date. The officer signing and delivering such
certificate may rely upon the best of his or her knowledge as to
proceedings threatened.

C. The Underwriters shall have received on the Closing Date
an opinion of Battle Fowler LLP, outside counsel for the Company,
dated the Closing Date, to the effect that:

1. The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Delaware, with

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<PAGE>

corporate power and authority to own its properties and
conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of
its business requires such qualification. Toy Biz
International Limited has been duly incorporated and is an
existing corporation in good standing under the laws of Hong
Kong, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of
its business requires such qualification. To the knowledge
of such counsel, there are no other subsidiaries of the
Company;

2. The Shares delivered on the Closing Date and all
other outstanding shares of the Common Stock of the Company
have been duly authorized and validly issued, are fully paid
and nonassessable and conform as to legal matters to the
description thereof contained in the Prospectus; and the

stockholders of the Company have no preemptive rights with
respect to the Securities. The certificates representing the
Shares are in due and proper form. All other authorized
capital stock of the Company conforms as to legal matters to
the description thereof contained in the Prospectus. All
proceedings in connection with the issuance of shares of
Common Stock to Marvel for sale pursuant to this Agreement
upon conversion of shares of Class B Common Stock
surrendered by Marvel have been taken and such shares of
Common Stock have been duly authorized and validly issued to
Marvel;

3. Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings known to
such counsel between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such
person or (which contracts, agreements or understandings
have been duly complied with or waived) to require the
Company to include such securities in the securities
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under the Act;

4. No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any New York
or Federal court is required to be obtained or made by the
Company for the consummation of the transactions
contemplated by this Agreement or in connection with the
issuance or sale of the Shares, except such as have been
obtained and made under the Act and such as may be required
under state securities laws;

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<PAGE>

5. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated
by this Agreement and the issuance and sale of the Shares
will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any New
York State, Delaware or Federal statute, any rule or
regulation or, to the knowledge of such counsel, any order
of any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the
Company or any of their properties, or any agreement or
instrument filed as an exhibit to the Registration Statement
to which the Company or any such subsidiary is a party or by
which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such
subsidiary is subject, or the certificate of incorporation
or by-laws of the Company or any such subsidiary, and the

Company has full power and authority to authorize, issue and
sell the Shares to be sold by it as contemplated by this
Agreement;

6. The Registration Statement was declared effective
under the Act as of the date and time specified in such
opinion, the Prospectus either was filed with the Commission
pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included
in the Registration Statement (as the case may be), and, to
the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement
or any part thereof has been issued and no proceedings for
that purpose have been instituted or are pending or
contemplated under the Act, and the Registration Statement
and the Prospectus, and each amendment or supplement thereto
(other than the financial statements or other financial data
contained in the Registration Statement or Prospectus or any
such amendment or supplement thereto as to which such
counsel need express no opinion), as of their respective
effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the
Rules and Regulations; the descriptions in the Registration
Statement and Prospectus of statutes, legal and governmental
proceedings and contracts and other documents are accurate
in all material respects and fairly present the information
required to be shown; and such counsel do not know of any
statutes, legal or governmental proceedings required to be
described in the Registration Statement or Prospectus which
are not described as required or of any contracts or
documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not
described and filed as required; it being understood that
such counsel need express no opinion as to the financial
statements or other financial data contained in the
Registration Statement or the Prospectus;

7. This Agreement has been duly authorized,
executed and delivered by the Company;

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<PAGE>

8. Such counsel has reviewed all material contracts,
instruments or other documents referred to in the
Registration Statement and the Prospectus and such
contracts, instruments or other documents are fairly
summarized or disclosed therein, and filed as exhibits
thereto as required, and such counsel does not know of any
contracts, instruments or other documents required to be so
summarized or disclosed or filed which have not been so
summarized or disclosed or filed. For this purpose, such

counsel may rely on a certificate of the Company (which
certificate shall state that it may be relied on by the
Underwriters) as to the terms of any oral contract. All
descriptions in the Registration Statement and the
Prospectus of laws, statutes, licenses, rules, regulations
and legal and governmental proceedings are accurate in all
material respects and fairly present the information
required to be shown and there is no law, statute, license,
rule or regulation required to be described in the
Registration Statement and the Prospectus which is not
completely and accurately described in all material
respects; and

9. The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended.

In rendering the foregoing opinion, such counsel may rely (A) as to
matters involving Toy Biz International Limited, to the extent such
counsel deems proper and to the extent specified in such opinion, upon
the opinion (in form and substance satisfactory to counsel to the
Underwriters) of Baker & McKenzie, Hong Kong and (B) as to matters of
fact, to the extent such counsel deems proper, on certificates of the
Selling Shareholders and of proper officers of the Company and public
officials. Such counsel shall also state that although such counsel
has not undertaken to determine independently the accuracy and
completeness of the statements contained in the Registration Statement
or in the Prospectus, such counsel has obtained information as a
result of discussions and meetings with officers and other
representatives of the Company and discussions with representatives of
the independent public accountants for the Company in connection with
the preparation of the Registration Statement and the Prospectus,
responses to various questions raised by such counsel regarding the
business of the Company and the examination of other information and
documents requested by such counsel and that nothing has come to the
attention of such counsel during the course of the above described
procedures that has caused such counsel to believe that (i) the
Registration Statement, at the time it became effective or at such
Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
(ii) the Prospectus, as of its date or at such Closing Date, contained
an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that in making the foregoing comments, such counsel need
not address any financial, numerical, statistical or accounting data,
including the financial statements and

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<PAGE>

notes thereto and related schedules, contained in or omitted from the
Registration Statement or the Prospectus).

D. The Underwriters shall have received on the Closing Date
an opinion of Battle Fowler LLP, counsel for Arad and Zib, each a
Selling Shareholder, dated the Closing Date, to the effect that:

1. Arad has full right, power and authority to
sell, assign, transfer and deliver the Shares to be
delivered by Arad on the Option Closing Date hereunder. Zib
has the corporate power and authority to sell, assign,
transfer and deliver the Shares to be delivered by Zib on
the Option Closing Date hereunder. Assuming the several
Underwriters acquire their interest in such Shares in good
faith and without notice of any adverse claim, the several
Underwriters will acquire all of Zib and Arad's rights in
such Shares and shall acquire their interest in such Shares
free of any adverse claim (all within the meaning of Section
8-302 of the New York Uniform Commercial Code).

2. No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any New York
or Federal court is required to be obtained or made by Arad
or Zib for the consummation of the transactions contemplated
by this Agreement through the date of such opinion or in
connection with the sale of the Shares sold by such Selling
Shareholder, except such as have been obtained and made
under the Act and such as may be required under state
securities laws and as may be required in such jurisdictions
outside the U.S. where the Underwriters choose to market the
Shares.

3. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated by this Agreement by Arad through the date of
such opinion will not result in a breach or violation of any
of the terms and provisions of, or constitute a default
under, any New York State or Federal statute, any rule or
regulation or, to the knowledge of such counsel, any order
of any governmental agency or body or any court having
jurisdiction over such Selling Shareholder or any of his
properties or any agreement or instrument specified in such
opinion to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of
the properties of such Selling Shareholder is subject.

4. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated by this Agreement by Zib will not result in a
breach or violation of any of the terms and provisions of,
or constitute a default under, any New York State or Federal
statute, any rule or regulation or, to the knowledge of such
counsel, any order of any

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<PAGE>

governmental agency or body or any court having jurisdiction
over such Selling Shareholder or any of its properties, or
the certificate of incorporation or by-laws of such Selling
Shareholder or any material agreement or instrument to which
such Selling Shareholder is a party or by which such Selling
Shareholder is bound or to which any of the properties of
such Selling Shareholder is subject. Such counsel may state
that the material agreements or instruments to which such
opinion relates are those specified in a certificate of the
Selling Shareholder attached (which certificate shall state
that it may be relied on by the Underwriters); provided that
such counsel further states that it does not know of any
other such material agreements or instruments.

5. This Agreement has been duly authorized,
executed and delivered by each of Arad and Zib.

E. The Underwriters shall have received on the
Closing Date an opinion of Skadden, Arps, Slate, Meagher & Flom,
counsel for Marvel, a Selling Shareholder,dated the Closing Date,
to the effect that:

1. Marvel has the corporate power and authority to
sell, assign, transfer and deliver the Shares delivered by
such Selling Shareholder on such Closing Date hereunder.
Assuming the several Underwriters acquired their interest in
such Shares in good faith and without notice of any adverse
claim, the several Underwriters will acquire all of Marvel's
rights in such Shares and shall acquire their interest in
such Shares free of any adverse claim (all within the
meaning of Section 8-302 of the New York Uniform Commercial
Code).

2. No consent, approval, authorization or order of, or
filing with, any Governmental Authority pursuant to
Applicable Laws is required to be obtained or made by Marvel
through the date of such opinion for the consummation of the
transactions contemplated by this Agreement or in connection
with the sale of the Shares sold by such Selling
Shareholder.

3. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated by this Agreement by Marvel through the date of
such opinion will not contravene any provision of any any
Applicable Law, or to the knowledge of such counsel, any
order of any governmental agency or body or any court having
jurisdiction over such Selling Shareholder or any of its
properties, or the certificate of incorporation or by-laws

of the such Selling Shareholder or any its subsidiaries, or
any material agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder
is bound or to which any of the properties of such Selling
Shareholder is subject. Such counsel may state that the
material agreements or instruments to which such opinion
relates are those

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<PAGE>

specified in a Certificate of the Selling Shareholder
attached (which certificate shall state that it may be
relied on by the Underwriters); provided that such counsel
further states that it does not know (based solely on the
foregoing certificate and discussions with the officer
delivering such certificate) of any other such material
agreements or instruments.

4. This Agreement has been duly authorized,
executed and delivered by Marvel.

As used in such opinion, (a) the term "Applicable Laws" means only
those laws of the State of New York, the General Corporation Law of
the State of Delaware and of the United States of America (except for
federal and state securities laws other than the Exchange Act and the
rules and regulations thereunder and the rules and regulations of the
National Association of Securities Dealers, Inc.); (b) the term
"Governmental Authorities" means any New York, Delaware or federal
executive, legislative, judicial, administrative or regulatory body.

F. The Underwriters shall have received on the Closing Date
an opinion of Kramer, Levin, Naftalis & Frankel, counsel for the
Underwriters, dated the Closing Date, covering the incorporation of
the Company, the validity of the Shares delivered on such Closing
Date, the Registration Statement, the Prospectus and other related
matters as the Underwriters may require, and the Company shall have
furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.

G. The Underwriters shall have received a certificate, dated
such Closing Date, of each Selling Shareholder in which such Selling
Shareholder shall state that the representations and warranties of
such Selling Shareholder in this Agreement are true and correct as of
such Closing Date and that such Selling Shareholder has complied with
all agreements and satisfied all conditions on his or its part to be
performed or satisfied hereunder at or prior to such Closing Date.

H. The Underwriters shall have received, on each of the date
hereof, the Closing Date, and the Option Closing Date, a letter dated
the date hereof, the Closing Date, and the Option Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young, independent public accountants, containing

statements and information of the type ordinarily found in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date or the Option Closing Date, as the case
may be, shall use a "cut-off" date" not earlier than the date hereof.

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<PAGE>

I. The Underwriters shall have received a "lock-up" letter,
dated the date hereof, from each executive officer and director of the
Company, in substantially the form of Exhibit A hereto.

The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the
Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters
related to the issuance of the Additional Shares.

VI. Covenants of the Company. In further
consideration of the agreements of the Underwriters herein
contained, the Company covenants with each Underwriter as
follows:

A. If the Effective Time is prior to the execution and
delivery of this Agreement, the Company will file the Prospectus with
the Commission pursuant to and in accordance with subparagraph (1)
(or, if applicable and if consented to by the Representatives,
subparagraph (4) of Rule 424(b)) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifth business day after the Effective Date. The
Company will advise the Representatives promptly of any such filing
pursuant to Rule 424(b).

B. To furnish to you, without charge, five signed copies of
the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and to furnish to
you in New York City, without charge, prior to 10:00 A.M. local time
on the business day next succeeding the date of this Agreement and
during the period mentioned in paragraph (D) below, as many copies of
the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.

C. Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each
such proposed amendment or supplement and not to file any such
proposed amendment or supplement to which you reasonably object,
and to file with the Commission within the applicable period specified
in Rule 424(b) under the Act any prospectus required to be filed
pursuant to such Rule.

D. If, during the period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement

-22-

<PAGE>

the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if, in the opinion of counsel for the Underwriters
reasonably acceptable to the Company and Marvel, it is necessary to
amend or supplement the Prospectus to comply with applicable law,
forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have
been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.

E. To use reasonable efforts to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions
as you shall reasonably request.

F. To make generally available to the Company's security
holders and to you as soon as practicable an earning statement
covering the twelve-month period ending September 30, 1997 that
satisfies the provisions of Section 11(a) of the Act and the rules and
regulations of the Commission thereunder.

G. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of the
Company's obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the registration and delivery of the
Shares under the Act and all other fees or expenses in connection with
the Company's preparation and filing of the Registration Statement,
any preliminary prospectus, the Prospectus and amendments and
supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing
any Blue Sky or Legal Investment memorandum in connection with the
offer and sale of the Shares under state securities laws and all

expenses in connection with the qualification of the Shares for offer
and sale under state securities laws as provided in Section VI(d)
hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification
of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all costs and expenses incident to
listing the Shares on the Stock Exchange, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of
any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the
offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees
and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel

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<PAGE>

and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft
chartered in connection with the road show, and (ix) all other costs
and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section VIII entitled "Indemnity and Contribution," and the
last paragraph of Section X below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their
counsel, stock transfer taxes payable on resale of any of the Shares
by them and any advertising' expenses connected with any offers they
may make.

VII. Expenses of Selling Shareholders. The Underwriters
shall not be required to pay or cause to be paid (i) any applicable
taxes on the transfer and sale of the Shares being sold by such
Selling Shareholder or (ii) any costs and expenses incident to the
performance of the obligations of the Selling Shareholders and the
Company under this Agreement, including, but not limited to, the
expenses enumerated in Section VI(f) above and the fees, disbursements
and expenses of counsel for the Selling Shareholders.

VIII. Indemnity and Contribution. A. The Company
agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any

amendment thereof, any preliminary prospectus or the Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating
to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however,
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom
the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered and if the Company has
furnished copies thereof to such Underwriter as required by Section
VI.B hereof, at or prior to the written confirmation of the sale of
the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities.

-24-

<PAGE>

B. Each Selling Shareholder agrees, severally and not
jointly, to indemnify and hold harmless each Underwriter, the Company,
its directors, its officers who sign the Registration Statement and
each person, if any, who controls each Underwriter or the Company
within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto),
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but as to Zib and Arad only with
respect to information relating to such Selling Shareholder made in
reliance upon and in conformity with written information furnished to
the Company by such Selling Shareholders specifically for use therein
and with respect to Marvel, only with respect to untrue statements
or alleged untrue statements or omissions or alleged omissions
relating to Marvel (as defined in the Registration Statement) or
Marvel Studios; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person

asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given
by or on behalf of such Underwriter to such person, if required by law
so to have been delivered and if the Company has furnished copies
thereof to such Underwriter as required by Section VI.B hereof, at or
prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such losses, claims, damages or
liabilities. With respect to Arad and Perlmutter, it is understood and
agreed that the only written information furnished to the Company by
such Selling Shareholders specifically for use in such documents is
that set forth in Section I(B)(5).

C. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only with reference to information relating to such
Underwriter furnished to

-25-

<PAGE>

the Company in writing by such Underwriter through the Representatives
expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.

D. In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to paragraph (A), (B) or (C) of
this Section VIII, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and

expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in
respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for (i) all Underwriters and all
persons, if any, who control any Underwriter within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, (ii)
the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section and (iii) all Selling Shareholders and
all persons, if any, who control any Selling Shareholder within the
meaning of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred and billed to the
indemnifying party. In the case of any such separate firm for the
Underwriters and such control persons of the Underwriters, such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated
and reasonably acceptable to the indemnifying party. In the case of
any such separate firm for the Company, and such directors, officers
and control persons of the Company, such firm shall be designated in
writing by the Company and reasonably acceptable to the indemnifying
party. In the case of any such separate firm for the Selling
Shareholders and such controlling persons of the Selling Shareholders,
such firm shall be designated in writing by the Selling Shareholders
and reasonably acceptable to Morgan Stanley & Co. Incorporated. The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is
or have been threatened to be made a party and indemnity could have

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<PAGE>

been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
proceeding.

E. To the extent the indemnification provided for in
paragraph (A), (B) or (C) of this Section VIII is unavailable to an
indemnified party or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying

party under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from
the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Sellers on the one hand and the
Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the
net proceeds from the offering of the Shares (before deducting
expenses) received by each Seller and the total underwriting discounts
and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of
the Sellers on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters'
respective obligations to contribute pursuant to this Section VIII are
several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.

F. The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section VIII
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (E) of this Section VIII. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
VIII, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the

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<PAGE>

public were offered to the public exceeds the amount of any damages

that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section VIII are
not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The Company's and each Selling Shareholders' obligation is several and
not joint. The aggregate obligations of Marvel pursuant to this
Section VIII shall not exceed the product of (A) the number of Shares
to be sold by Marvel hereunder times (B) the public offering price per
share for the Shares less the applicable underwriting discounts and
commissions.

G. The indemnity and contribution provisions contained in
this Section VIII and the representations, warranties and other
statements of the Company and the Selling Shareholders contained in
this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person
controlling any Selling Shareholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance
of and payment for any of the Shares.

IX. Termination. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after
the execution and delivery of this Agreement and prior to the
Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the Stock
Exchange, the American Stock Exchange or the National Association
of Securities Dealers, Inc., (ii) trading of any securities of
the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial
banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change
in U.S. financial markets or any calamity or crisis that, in your
judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event,
singly or together with any other such event, makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.

X. Effectiveness; Defaulting Underwriters. This
Agreement shall become effective upon the execution and delivery
hereof by the parties hereto.

If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse
to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to

purchase is not more than one-tenth of the aggregate number of the
Shares to be purchased on such date, the

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<PAGE>

other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective
names in Schedule II and Schedule III bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date; provided that
in no event shall the number of Shares that any Underwriter has agreed
to purchase pursuant to this Agreement be increased pursuant to this
Section X by an amount in excess of one-ninth of such number of Shares
without the written consent of such Underwriter. If, on the Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory
to you, the Company and the Selling Shareholders for the purchase of
such Firm Shares are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders.
In any such case either you or the relevant Sellers shall have the
right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents
or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the
aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.

If this Agreement shall be terminated by the Underwriters,
or any of them, because of any failure or refusal on the part of any
Seller to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason any Seller shall be unable to
perform its obligations under this Agreement (other than pursuant to
the foregoing paragraph of this Section X), the Company will reimburse
the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket
expenses (including the reasonable fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with
this Agreement or the offering contemplated hereunder. It is

understood that the foregoing sentence does not apply to a termination
of the Agreement pursuant to the second paragraph of this Section X.

XI. Counterparts. This Agreement may be signed in two
or more counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon
the same instrument.

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<PAGE>

XII. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York.

XIII. Headings. The headings of the sections of
this Agreement have been inserted for convenience of reference
only and shall not be deemed a part of this Agreement.

Very truly yours,

Toy Biz, Inc.

By:_________________________________
Name:
Title:

Marvel Characters, Inc.

By:_________________________________
Name:
Title:

__________________________________
Avi Arad

Zib Inc.

By:_________________________________
Name:
Title:

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<PAGE>
Accepted as of the date hereof:

Morgan Stanley & Co. Incorporated
CS First Boston Corporation
Smith Barney Inc.
Jefferies & Company, Inc.

Acting severally on behalf of themselves and the several U.S.
Underwriters named in Schedule II hereto.

By: Morgan Stanley & Co.
Incorporated

By:______________________________
Name: Charles J. Ditkoff
Title: Vice President

Morgan Stanley & Co. International Limited
CS First Boston Limited
Smith Barney Inc.
Jefferies International Limited

Acting severally on behalf of themselves and the several International
Underwriters named in Schedule III hereto.

By: Morgan Stanley & Co.
International Limited

By:______________________________
Name: Charles J. Ditkoff
Title:

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<PAGE>

SCHEDULE I

Maximum
Number of
Additional
Shares
Selling Shareholder To Be Sold
------------------- ----------

Zib Inc. 384,000

Avi Arad 96,000
-------

Total . . . . . . . . . . . . . . . . . . . . . 480,000
=======

<PAGE>

SCHEDULE II

Number of
U. S. Firm Shares
U.S. Underwriter To Be Purchased
---------------- ---------------

Morgan Stanley & Co. Incorporated
CS First Boston Corporation
Smith Barney Inc.
Jefferies & Company, Inc.
[NAMES OF OTHER U.S. UNDERWRITERS]

Total . . . . . . . . .

<PAGE>

SCHEDULE III

Number of
International Shares
International Underwriter To Be Purchased
------------------------- ---------------

Morgan Stanley & Co. International Limited
CS First Boston Limited
Smith Barney Inc.
Jefferies International Limited
[NAMES OF OTHER INTERNATIONAL UNDERWRITERS]

Total . . . . . . . . .

EXHIBIT 5.1

August 7, 1996

Toy Biz, Inc.
333 East 38th Street
New York, New York 10016

Re: Toy Biz, Inc.
Public Offering of Class A Common Stock
---------------------------------------

Ladies and Gentlemen:

We have acted as counsel for Toy Biz, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and
filing of a registration statement on Form S-3 (File No. 333-07455) (the
"Registration Statement") and the prospectus forming a part thereof (the
"Prospectus"), pursuant to which the Company proposes to offer and sell
up to 700,000 shares (the "Primary Shares") of its Class A Common Stock,
par value $0.01 per share (the "Class A Common Stock") and to register
for sale by certain of its stockholders an additional 2,980,000 shares
of Class A Common Stock (including 480,000 shares reserved for issuance
pursuant to the U.S. Underwriters' over-allotment Option) (such shares
of Class A Common Stock are referred to herein as the "Secondary Shares"
and, together with the Primary Shares, as the "Shares"). Capitalized
terms used but not defined herein shall have the respective meanings
given or ascribed thereto in the Registration Statement. You have
requested that we furnish our opinion as to the matters hereinafter set
forth.

In this connection we have examined originals or copies
of the Registration Statement, as filed with the Securities and
Exchange Commission (the "Commission") on July 2, 1996;
Amendment No. 1 to the Registration Statement filed on July 11,
1996; Amendment No. 2 to the Registration Statement filed
today with the Commission; the Restated Certificate of Incorporation
of the Company, as amended; the By-Laws of the Company; the minute
books of the Company and records of corporate proceedings of the

<PAGE>

Toy Biz, Inc.
August 7, 1996

Company contained therein; the form of stock certificate representing
shares of Class A Common Stock; the proposed form of the Underwriting
Agreement, as filed as an exhibit to the Registration Statement
(the "Underwriting Agreement"); and such other instruments and
documents as we have deemed necessary as a basis for rendering
the opinion herein expressed.

In rendering the opinion herein expressed we have assumed
the genuineness of all signatures, the authenticity of all documents,
instruments and certificates submitted to us as originals, the
conformity with the original documents, instruments and certificates of
all documents, instruments and certificates submitted to us as copies
and the legal capacity to sign of all individuals executing documents.
We have assumed the completeness of the corporate records provided to us
by the Company. We have relied upon representations of the Company as to
certain factual matters relevant hereto.

We are not admitted to the practice of law in any
jurisdiction but the State of New York, and we do not express any opinion
as to the laws of other states or jurisdictions other than the laws of
the State of New York, the federal law of the United States and the
General Corporation Law of the State of Delaware. No opinion is
expressed as to the effect that the law of any other jurisdiction may
have upon the subject matter of the opinion expressed herein under
conflicts of law principles, rules and regulations or otherwise.

Based upon and subject to the foregoing, we are of the
opinion that (i) all of the Shares have been duly authorized and, (ii)
the Secondary Shares have been validly issued, and are fully paid and
non-assessable, and (iii) the Primary Shares will be validly issued,
fully paid and non-assessable, when the Registration Statement shall
have become effective, the Primary Shares shall have been issued in the
proposed form, the Underwriting Agreement shall have been duly executed
and delivered by all parties thereto in its proposed form and the
Primary Shares shall have been issued and delivered against payment
therefor as contemplated by the Underwriting Agreement.

We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to this firm
under the caption "Legal Matters" in the Prospectus.

Very truly yours,

/s/ BATTLE FOWLER LLP

SECOND AMENDMENT AND CONSENT NO. 1

SECOND AMENDMENT AND CONSENT NO. 1, dated as of October 18,
1995 (this "Amendment"), to the Credit Agreement, dated as of February 22,
1995 (as amended, supplemented or otherwise modified, the "Credit
Agreement"), among Toy Biz, Inc. ("Toy Biz"), the financial institutions
parties thereto (the "Banks") and Chemical Bank, as administrative agent
(in such capacity, the "Administrative Agent") for the Banks.

W I T N E S S E T H :

WHEREAS, Toy Biz, the Banks and the Administrative Agent are
parties to the Credit Agreement;

WHEREAS, Toy Biz has requested that the Banks amend certain
provisions of the Credit Agreement in the manner provided for herein; and

WHEREAS, the Banks are willing to amend such provisions of the
Credit Agreement upon the terms and subject to the conditions set forth
herein;

NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, Toy Biz, the Banks and the
Administrative Agent hereby agree as follows:

1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement shall have such meanings when used herein.

2. Amendment to the Credit Agreement. (a) Subsection 7.5 of
the Credit Agreement is hereby amended by (i) deleting the word "and"
at the end of paragraph (c) thereof, (ii) deleting the period at the end of
paragraph (d) thereof and inserting in lieu thereof the word "; and" and
(iii) adding the following new paragraph (e):

"(e) notwithstanding the parenthetical contained
in the fourth and fifth lines of the precatory language
of this subsection 7.5, receivables due and payable to
Toy Biz from its customers, when (i) such receivables
are sold or otherwise conveyed to a factor or other
third party purchaser without any recourse to Toy Biz
or its Subsidiaries (other than as a result of a
misrepresentation on any matter other than the
creditworthiness of the obligor of any receivable) and
(ii) in the reasonable business judgment of the Chief
Financial Officer of Toy Biz, such transaction or
series of transactions would be in the economic
interest of Toy Biz under the facts and circumstances
then appertaining; provided that such transaction or
series of transactions do not, in any calendar year,
result in an aggregate

<PAGE>
2

discount in excess of $1,000,000 from the net invoice
amount or amounts relative to such transaction or
transactions."

3. Consent of Toy Biz, Banks and Administrative Agent. Toy
Biz, the Banks and the Administrative Agent hereby consent to the amendment
to the Toy Biz Security Agreement substantially upon the terms and subject
to the conditions set forth in the form of First Amendment to the Toy Biz
Security Agreement attached as Exhibit A hereto and the Banks hereby
instruct the Administrative Agent to execute and deliver such First
Amendment.

4. Representations and Warranties. Toy Biz hereby confirms,
reaffirms and restates the representations and warranties made by it in
Section 4 of the Credit Agreement, provided that each reference to the
Credit Agreement therein shall be deemed to be a reference to the Credit
Agreement after giving effect to this Amendment. Toy Biz represents and
warrants that, after giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing.

5. Continuing Effect of Credit Agreement. This Amendment shall
not constitute a waiver, amendment or modification of any other provision
of the Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the
part of Toy Biz that would require a waiver or consent of the Banks or the
Administrative Agent. Except as expressly modified hereby, the provisions
of the Credit Agreement are and shall remain in full force and effect.

6. Counterparts. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts and all such
counterparts shall be deemed to be one and the same instrument. Each party
hereto confirms that any facsimile copy of such party's executed
counterpart of this Amendment (or its signature page thereof) shall be
deemed to be an executed original thereof.

7. Effectiveness. This Amendment shall be effective upon
receipt by the Administrative Agent of counterparts hereof, duly executed
and delivered by Toy Biz and the Majority Banks.

<PAGE>

8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By: /s/ Bobby Jenkins
--------------------------------
Title: Chief Financial Officer

CHEMICAL BANK, as Administrative Agent
and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

CHEMICAL BANK, as Administrative Agent
and as a Bank

By: /s/ John J. Huber
--------------------------------
Title: Managing Director

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

8. GOVERNING LAW THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

CHEMICAL BANK, as Administrative Agent
and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By: /s/
--------------------------------
Title: Senior Vice President

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

8. GOVERNING LAW THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

CHEMICAL BANK, as Administrative Agent
and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By: /s/ Peter C. Hall
--------------------------------
Title: Vice President

<PAGE>

EXHIBIT A

FIRST AMENDMENT
TO TOY BIZ SECURITY AGREEMENT

FIRST AMENDMENT, dated as of October 18, 1995 (this
"Amendment"), to the Toy Biz Security Agreement (as amended, supplemented
or otherwise modified, the "Security Agreement"), made by Toy Biz, Inc.
(the "Grantor") in favor of Chemical Bank, as administrative agent (in such
capacity, the "Administrative Agent") for the financial institutions (the
"Banks") from time to time parties to the Credit Agreement (as defined
below).

W I T N E S S E T H :

WHEREAS the Grantor, the Banks and the Administrative Agent
are parties to the Credit Agreement, dated as of February 22, 1995 (as
amended, supplemented or otherwise modified, the "Credit Agreement");

WHEREAS, the Grantor has requested that the Banks amend
certain provisions of the Credit Agreement thereby requiring an amendment
to the Security Agreement in the manner provided for herein; and

WHEREAS, the Banks are willing to amend such provisions of the
Security Agreement upon the terms and subject to the conditions set forth
herein;

NOW, THEREFORE, in consideration of the premises, the Grantor
hereby agrees with the Administrative Agent, for the ratable benefit of the
Banks, as follows:

1. Defined Terms. Unless otherwise defined herein, terms
defined in the Security Agreement or Credit Agreement shall have such
meanings when used herein.

2. Amendment to the Security Agreement. Section 5 of the
Security Agreement is hereby amended by adding the phrase "or as otherwise
permitted in the Credit Agreement" immediately following the phrase "period
of time" contained in paragraph (k) thereof.

3. Representations and Warranties. The Grantor hereby
confirms, reaffirms and restates the representations and warranties made by
it in the Security Agreement, provided that each reference to the Security
Agreement therein shall be deemed to be a reference to the Security
Agreement after giving effect to this Amendment.

the Grantor that would require a waiver or

<PAGE>

consent of the Banks or the Administrative Agent. Except as expressly modified
hereby, the provisions of the Security Agreement are and shall remain in full
force and effect.

5. Effectiveness. This Amendment shall be effective upon the
execution and delivery of this Amendment by the Grantor and the Administrative
Agent.

6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

CHEMICAL BANK, as Administrative Agent

By:
--------------------------------
Title:

<PAGE>

FIRST AMENDMENT
TO TOY BIZ SECURITY AGREEMENT

WITNESSETH:

WHEREAS, the Grantor, the Banks and the Administrative Agent
are parties to the Credit Agreement, dated as of February 22, 1995 (as
amended, supplemented or otherwise modified, the "Credit Agreement");

WHEREAS, the Grantor has requested that the Banks amend
certain provisions of the Credit Agreement thereby requiring an amendment
to the Security Agreement in the manner provided for herein; and

WHEREAS, the Banks are willing to amend such provisions of the
Security Agreement upon the terms and subject to the conditions set forth
herein;

NOW, THEREFORE, in consideration of the premises, the Grantor
hereby agrees with the Administrative Agent, for the ratable benefit of the
Banks, as follows:

1. Defined Terms. Unless otherwise defined herein, terms
defined in the Security Agreement or Credit Agreement shall have such
meanings when used herein.

3. Representations and Warranties. The Grantor hereby
confirms, reaffirms and restates the representations and warranties made
by it in the Security Agreement, provided that each reference to the
Security Agreement therein shall be deemed to be a reference to the
Security Agreement after giving effect to this Amendment.

<PAGE>
2

consent of the Banks or the Administrative Agent. Except as expressly modified
hereby, the provisions of the Security Agreement are and shall remain in full
force and effect.

5. Effectiveness. This Amendment shall be effective upon the
execution and delivery of this Amendment by the Grantor and the
Administrative Agent.

6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By: /s/ Bobby Jenkins
----------------------------
Title: Chief Financial Officer

CHEMICAL BANK, as Administrative Agent

By:
----------------------------
Title:

<PAGE>
2

4. Continuing Effect of Credit Agreement. This Amendment shall not
constitute a waiver, amendment or modification of any other provision of the
Security Agreement not expressly referred to herein and shall not be construed
as a waiver or consent to any further or future action on the part of the
Grantor that would require a waiver or consent of the Banks or the
Administrative Agent. Except as expressly modified hereby, the provisions of the
Security Agreement are and shall remain in full force and effect.

5. Effectiveness. This Amendment shall be effective upon the
execution and delivery of this Amendment by the Grantor and the
Administrative Agent.

6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.

TOY BIZ, INC.

By:
----------------------------
Title:

CHEMICAL BANK, as Administrative Agent

By: John J. Huber
----------------------------
Title: Managing Director

THIRD AMENDMENT AND CONSENT NUMBER 3

THIRD AMENDMENT AND CONSENT NUMBER 3, dated as of July 24, 1996
(this "Amendment"), to the Credit Agreement, dated as of February 22, 1995
(as amended, supplemented or otherwise modified, the "Credit Agreement"),
among Toy Biz, Inc. ("Toy Biz"), the financial institutions parties thereto
(the "Banks") and The Chase Manhattan Bank (formerly named Chemical Bank),
as administrative agent (in such capacity, the "Administrative Agent") for
the Banks.

WITNESSETH:

WHEREAS, Toy Biz, the Banks and the Administrative Agent are
parties to the Credit Agreement;

WHEREAS, Toy Biz has requested that the Banks modify certain
provisions of the Credit Agreement in the manner provided for herein; and

WHEREAS, the Banks are willing to modify such provisions of
the Credit Agreement upon the terms and subject to the conditions set forth
herein;

1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement shall have such meanings when used herein.

2. Amendments to the Credit Agreement.

(a) Subsection 1.1 of the Credit Agreement hereby is amended
by inserting, in proper alphabetical order, the following new
definition:

"Marvel Studios" shall mean an entity to be formed
by the Marvel Entertainment Group, Inc. and/or any of
its Subsidiaries and Toy Biz to facilitate the
development of feature films, television programming
and other media".

(b) Subsection 7.2 of the Credit Agreement is hereby amended
by (i) deleting the word "and" contained at the end of paragraph
(g) of such subsection, (ii) deleting the period contained at the
end of paragraph (h) of such subsection and inserting in lieu
thereof the word "; and", and (iii) adding the following new
paragraph to the end of such subsection:

<PAGE>
2

"(i) restrictions on transfer of shares of capital stock or
other equity interests of Marvel Studios, pursuant to an

agreement between Marvel Entertainment Group, Inc. (or any
Subsidiary thereof which is the direct holder of equity interests
in Marvel Studios) and Toy Biz."

(b) Subsection 7.4(c) of the Credit Agreement is hereby
amended by inserting immediately before the period contained at
the end of such subsection the clause "or 7.9(h)".

(c) Subsection 7.9 of the Credit Agreement is hereby amended
by (i) deleting the word "and" contained at the end of paragraph
(f) of such subsection, (ii) deleting the period contained at the
end of paragraph (g) of such subsection and inserting in lieu
thereof the word "; and" and (iii) adding the following new
paragraph to the end of such subsection:

"(h) investments by Toy Biz in Marvel Studios, provided that
such investments do not exceed the Net Cash Proceeds of the
issuance by Toy Biz of 1,000,000 shares of its Class A Common
Stock contemplated by the Registration Statement No. 333-07455
filed with the Securities and Exchange Commission on July 2,
1996."

3. Consents. (a) Notwithstanding any provisions contained in
subsection 3.3(c) of the Credit Agreement to the contrary, the Banks hereby
consent that the Commitments shall not be reduced by an amount equal to the
Net Cash Proceeds of the issuance by Toy Biz of 1,000,000 of its shares of
Class A Common Stock contemplated by the Registration Statement No.
333-07455 filed with the Securities and Exchange Commission on July 2,
1996.

(b) Notwithstanding any provisions contained in subsection
7.11 or 7.14 to the contrary, the Banks hereby consent that Toy Biz may
make the investment in Marvel Studios contemplated by Section 2(c) hereof
(i.e., new subsection 7.9(h) of the Credit Agreement).

6. Counterparts. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts and all such
counterparts shall be

<PAGE>

deemed to be one and the same instrument. Each party hereto confirms that
any facsimile copy of such party's executed counterpart of this Amendment
(or its signature page thereof) shall be deemed to be an executed original
thereof.

7. Effectiveness. This Amendment shall be effective upon
receipt by the Administrative Agent of counterparts hereof, duly executed
and delivered by Toy Biz and the Majority Banks.

8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

THE CHASE MANHATTAN BANK (formerly named
Chemical Bank and as successor by merger
to The Chase Manhattan Bank, N.A.), as
Administrative Agent and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

TOY BIZ, INC.

By: /s/ Bobby G. Jenkins
--------------------------------
Title: Chief Financial Officer

THE CHASE MANHATTAN BANK (formerly named
Chemical Bank and as successor by merger
to The Chase Manhattan Bank, N.A.), as
Administrative Agent and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

THE CHASE MANHATTAN BANK (formerly named
Chemical Bank and as successor by merger
to The Chase Manhattan Bank, N.A.), as
Administrative Agent and as a Bank

By: /s/ John J. Huber
--------------------------------
Title: Managing Director

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

THE CHASE MANHATTAN BANK (formerly named
Chemical Bank and as successor by merger
to The Chase Manhattan Bank, N.A.), as
Administrative Agent and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By: /s/ Catherine G. Goff
--------------------------------
Title: Assistant Vice President

FLEET BANK

By:
--------------------------------
Title:

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

TOY BIZ, INC.

By:
--------------------------------
Title:

THE CHASE MANHATTAN BANK (formerly named
Chemical Bank and as successor by merger
to The Chase Manhattan Bank, N.A.), as
Administrative Agent and as a Bank

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK

By:
--------------------------------
Title:

THE BANK OF NEW YORK

By:
--------------------------------
Title:

FLEET BANK N.A., (Successor to Fleet Bank)

By: /s/
--------------------------------
Title: Vice President

<PAGE>
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP

We consent to the reference to our firm under the caption 'Experts' and to
the use of our report dated February 5, 1996, except for Note 5, as to which the
date is March 19, 1996, in the Registration Statement (Form S-3 No. 333-07455)
and related Prospectus of Toy Biz, Inc. dated August 7, 1996.

ERNST & YOUNG LLP

New York, N.Y.
August 7, 1996