<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by registrant /x/
Filed by a party other than registrant / /
Check appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TOY BIZ, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/x/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, par value $.01 per share
(2) Aggregate number of securities to which transaction applies:
8,014,265 shares of Toy Biz, Inc. Class A Common Stock, par value $.01
per share.
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): $22.50
(4) Proposed maximum aggregate value of transaction: $348,413,784
Calculated by adding (a) 8,014,265 shares of Class A Common Stock (which
is the sum of (a)(i) 20,348,794, the number of outstanding shares of
Class A Common Stock plus (ii) 1,321,471, which is the number of shares
of Class A Common Stock issuable upon exercise of stock options, minus
(iii) 13,656,000, which is the number of shares of Class A Common Stock
to be purchased by Andrews Group prior to the Merger), multiplied by the
per share consideration of consideration of $22.50 per share, plus (b)
7,394,000 shares of Class B Common Stock, multiplied by the per share
consideration of $22.50 per share, plus (c) 59,091 shares of Series A
Preferred Stock, multiplied by the per share consideration of $29.24 (the
consideration payable on June 30, 1997, the date on which either party to
the Merger Agreement may terminate the Merger Agreement).
(5) Total fee paid: $69,683
The amount of the filing fee of $69,683 is calculated pursuant to Rule
0-11 (c)(1) of the Exchange Act by multiplying $348,413,784 by 1/50th of
1%.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Indentify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Toy Biz, Inc. (the 'Special Meeting') to be held at the
[ ], on [ ], 1997 at [10:00 a.m.], New
York City time.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
December 27, 1996 (the 'Merger Agreement'), pursuant to which Andrews
Acquisition Corp. ('Acquisition'), a Delaware corporation and a wholly owned
subsidiary of Andrews Group Incorporated ('Andrews Group'), will be merged (the
'Merger') with and into Toy Biz, Inc. (the 'Company'). The Company will be the
surviving corporation in the Merger. Upon consummation of the Merger, each share
of Common Stock (as defined below) (other than shares of Common Stock which are
owned by Andrews Group, Acquisition or any wholly owned subsidiary of Andrews
Group, which are held in the treasury of the Company or which are held by those
stockholders who perfect their appraisal rights pursuant to the General
Corporation Law of the State of Delaware) will be converted into the right to
receive $22.50 in cash, without interest, and each outstanding share of the
Company's Series A preferred stock, par value $.01 per share (the 'Preferred
Stock'), will be converted into the right to receive an amount per share equal
to the then applicable Redemption Price of such stock.
Pursuant to stock purchase agreements (the 'Stock Purchase Agreements')
with Avi Arad ('Arad') and with Isaac Perlmutter ('Perlmutter') and certain of
his affiliates (collectively, the 'Perlmutter Group'), Andrews Group will,
immediately prior to the Merger, purchase all of the Class A common stock, par
value $.01 per share (the 'Class A Common Stock'), of the Company held by Arad
and the Perlmutter Group. Andrews Group currently beneficially owns, through its
approximately 80% indirectly-owned publicly traded subsidiary, Marvel
Entertainment Group, Inc. ('Marvel'), all of the Class B common stock, par value
$.01 per share (the 'Class B Common Stock' and, together with the Class A Common
Stock, the 'Common Stock'), of the Company. As a result of the Merger and the
purchase of stock from Arad and the Perlmutter Group, Andrews Group and
Acquisition will own the entire equity interest of the Company.
The Merger Agreement requires Andrews Group, under certain circumstances
described in the Proxy Statement, (i) to transfer all the outstanding shares of
capital stock of Acquisition to Marvel and (ii) to assign its rights, interests
and obligations under the Merger Agreement to Marvel.
The matters to be acted upon at the Special Meeting are described in the
attached Proxy Statement, which provides you with detailed information regarding
the proposed transactions. I urge you to read it carefully in its entirety.
The Toy Biz Board of Directors, based upon the unanimous recommendation of
a Special Committee of the Board (the 'Special Committee') consisting of James
F. Halpin, Alfred A. Piergallini and Paul R. Verkuil (none of whom are officers
or employees of the Company, Andrews Group or its affiliates), has unanimously
determined that each of the Merger Agreement and the
<PAGE>
Merger are fair and in the best interests of the holders of the Class A Common
Stock, other than Arad and the Perlmutter Group, whose shares are to be
purchased pursuant to the Stock Purchase Agreements. The Toy Biz Board
unanimously recommends that the stockholders of the Company approve and adopt
the Merger Agreement and the Merger.
In arriving at its recommendation, the Special Committee considered a
number of factors described in the accompanying Proxy Statement, including,
among other things, the opinion of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee, dated December 13, 1996, which opinion was
subsequently confirmed on December 24, 1996 to the effect that, as of such dates
and subject to the assumptions and limitations therein, the $22.50 per share
cash consideration to be received by the holders of the Class A Common Stock
(other than Arad and the Perlmutter Group) pursuant to the Merger Agreement, is
fair to such holders from a financial point of view. The full text of such
opinion is attached as Annex B to the Proxy Statement, which sets forth, among
other things, the opinion expressed, procedures followed, matters considered and
limitations of review undertaken in connection with such opinion. Stockholders
are urged to read such opinion in its entirety.
Pursuant to the General Corporation Law of Delaware and the Restated
Certificate of Incorporation of the Company, the affirmative vote of the holders
of a majority of the votes represented by the outstanding shares of Class A
Common Stock and Class B Common Stock, voting together as one class, and the
affirmative unanimous vote of the holders of the outstanding shares of Class B
Common Stock are the only votes of the holders of any class or series of the
Company's capital stock necessary to approve the Merger Agreement and the
Merger. Andrews Group, through Marvel, beneficially owns all 7,394,000 shares of
Class B Common Stock, representing approximately 78.4% of the combined voting
power of the Class A Common Stock and the Class B Common Stock. Andrews Group
has agreed in the Merger Agreement to cause such shares to be voted in favor of
the approval and adoption of the Merger Agreement and the Merger. The Marvel
Board of Directors has approved the Merger in the case where the Merger
Agreement has been assigned to Marvel, but has not yet considered the Merger in
the case where the Merger Agreement is not assigned to Marvel. Arad and
Perlmutter, as the trustees of separate voting trusts, each have the right to
direct the vote of one share of Class B Common Stock. Arad and the Perlmutter
Group have agreed in the Stock Purchase Agreements, among other things, to use
their reasonable best efforts to take all actions necessary to satisfy the
conditions to closing under the Stock Purchase Agreements, including voting
their shares in favor of the Merger. IF THE MERGER AGREEMENT IS ASSIGNED TO
MARVEL, WITH THE VOTE OF MARVEL AND THE TWO TRUSTEES IN FAVOR OF APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT, THE MERGER AGREEMENT WILL BE APPROVED AND
ADOPTED AND THE MERGER WILL BE CONSUMMATED WITHOUT THE AFFIRMATIVE VOTE OF ANY
OTHER STOCKHOLDERS.
The Notice of Special Meeting and Proxy Statement describing these
important matters are attached. Please review these materials carefully. Please
do not send any certificates for your stock at this time. You will receive
instructions regarding the surrender of your stock certificates and receipt of
payment for your shares after the Merger is effective.
Sincerely
Joseph M. Ahearn
President and Chief
Executive Officer
2
<PAGE>
<PAGE>
TOY BIZ, INC.
333 EAST 38TH STREET
NEW YORK, NEW YORK 10016
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1997
To the Stockholders of Toy Biz, Inc.:
A Special Meeting of Stockholders (the 'Special Meeting') of Toy Biz, Inc.,
a Delaware corporation (the 'Company'), will be held on [ ], 1997 at
10:00 a.m., New York City time, at [ ], for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of December 27, 1996 (the 'Merger
Agreement'), by and among the Company, Andrews Group Incorporated, a
Delaware corporation ('Andrews Group'), and Andrews Acquisition Corp., a
Delaware corporation ('Acquisition'), pursuant to which, among other
things, (i) Acquisition will be merged with and into the Company (the
'Merger'), and the Company will be the surviving corporation and will
become a wholly owned subsidiary of Andrews Group, and (ii) (a) each
outstanding share of the Company's Class A common stock, par value $.01 per
share (the 'Class A Common Stock'), and Class B common stock, par value
$.01 per share (the 'Class B Common Stock' and together with the Class A
Common Stock, the 'Common Stock') (other than shares of Common Stock which
are owned by Andrews Group, Acquisition or any wholly owned subsidiary of
Andrews Group, which are held in the treasury of the Company or which are
held by those stockholders who perfect their appraisal rights pursuant to
the General Corporation Law of the State of Delaware (the 'DGCL')), will be
converted into the right to receive $22.50 per share in cash and (b) each
issued and outstanding share of the Company's Series A preferred stock, par
value $.01 per share (the 'Preferred Stock'), (other than shares of
Preferred Stock which are held by stockholders who perfect their appraisal
rights pursuant to the DGCL) will be converted into the right to receive an
amount per share equal to the then applicable Redemption Price (as defined
and as set forth in the Certificate of Designation for the Preferred Stock)
payable to the holder thereof, without interest; and
(2) To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is attached as Annex A to the Proxy
Statement that accompanies this Notice of Special Meeting of Stockholders (this
'Notice') and is incorporated by reference into this Notice.
The Merger Agreement requires Andrews Group, under certain circumstances
described in the Proxy Statement, (i) to transfer all the outstanding shares of
capital stock of Acquisition to its approximately 80% indirectly-owned publicly
traded subsidiary, Marvel Entertainment Group, Inc. ('Marvel'), and (ii) to
assign its rights, interests and obligations under the Merger Agreement to
Marvel.
Pursuant to the DGCL and the Restated Certificate of Incorporation of the
Company, (i) the affirmative vote of the holders of a majority of the votes
represented by the outstanding shares of Class A Common Stock and Class B Common
Stock of the Company, voting together as one class, and (ii) the affirmative
unanimous vote of the holders of the outstanding shares of Class B Common Stock,
are the only votes of the holders of any class or series of the Company's
capital stock necessary to approve the Merger Agreement and the Merger. Andrews
Group, through Marvel, beneficially owns all 7,394,000 shares of Class B Common
Stock, representing approximately 78.4% of the combined voting power of the
Class A Common Stock and the Class B Common Stock, except that two shares of
Class B Common Stock have been deposited into voting trusts as described below.
Andrews Group has agreed in the Merger Agreement to cause such shares to be
voted in favor of the approval and adoption of the Merger Agreement and the
Merger. The Marvel Board of Directors has approved the Merger in the case where
the Merger Agreement
<PAGE>
has been assigned to Marvel, but has not yet considered the Merger in the case
where the Merger Agreement is not assigned to Marvel. Arad and Perlmutter, as
the trustees of separate voting trusts, each have the right to direct the vote
of one share of Class B Common Stock. Arad and the Perlmutter Group have agreed
in respective Stock Purchase Agreements pursuant to which they have agreed to
sell their shares of Class A Common Stock to Andrews Group, among other things,
to use their reasonable best efforts to take all actions necessary to satisfy
the conditions to closing under such Stock Purchase Agreements, including voting
their shares in favor of the Merger. ACCORDINGLY, WITH THE VOTE OF MARVEL AND
THE TWO TRUSTEES IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE
MERGER AGREEMENT WILL BE APPROVED AND ADOPTED AND THE MERGER WILL BE CONSUMMATED
WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDERS.
Only stockholders of record at the close of business on ,
1997 (the 'Record Date') will be entitled to notice of and to vote at the
Special Meeting or any adjournment or postponement thereof.
If the Merger is consummated, any stockholders of the Company who do not
vote in favor of approval and adoption of the Merger Agreement and who comply
with the requirements of Section 262 of the DGCL shall be entitled to an
appraisal of the fair value of their shares. See 'STOCKHOLDERS' RIGHTS OF
APPRAISAL' in the accompanying Proxy Statement for a statement of the appraisal
rights of stockholders and a description of the procedures required to be
followed by them to obtain appraisal of their shares of Common Stock.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE READ THE
ATTACHED PROXY STATEMENT CAREFULLY AND MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY.
------------------------
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME. YOU WILL
RECEIVE INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES AND
RECEIPT OF PAYMENT FOR YOUR SHARES AFTER THE MERGER IS EFFECTIVE.
------------------------
By Order of the Board of Directors
Daniel J. Werther
Secretary
2
<PAGE>
TOY BIZ, INC.
333 EAST 38TH STREET
NEW YORK, NEW YORK 10016
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
------------------------
INTRODUCTION
This Proxy Statement is being furnished to the holders of record as of
[ ], 1997 (the 'Record Date') of shares of Class A common stock, par
value $.01 per share (the 'Class A Common Stock'), of Toy Biz, Inc., a Delaware
corporation (the 'Company'), in connection with the Special Meeting of
Stockholders of the Company (the 'Special Meeting') to be held on
[ ], 1997 at 10:00 a.m., New York City time, at [ ], and
any adjournment or postponement thereof. The purpose of the Special Meeting is
to vote upon the approval and adoption of the Agreement and Plan of Merger dated
as of December 27, 1996 (the 'Merger Agreement'), by and among the Company,
Andrews Group Incorporated, a Delaware corporation ('Andrews Group'), and
Andrews Acquisition Corp., a Delaware corporation ('Acquisition').
Pursuant to the Merger Agreement, (i) Acquisition will be merged (the
'Merger') with and into the Company, and the Company will be the surviving
corporation and will become a wholly owned subsidiary of Andrews Group and (ii)
(a) each outstanding share of the Company's Class A Common Stock and Class B
common stock, par value $.01 per share (the 'Class B Common Stock' and together
with the Class A Common Stock, the 'Common Stock') (other than shares of Common
Stock which are owned by Andrews Group, Acquisition or any wholly owned
subsidiary of Andrews Group, which are held in the treasury of the Company or
which are held by those stockholders who perfect their appraisal rights pursuant
to the General Corporation Law of the State of Delaware (the 'DGCL')), will be
converted into the right to receive $22.50 per share in cash, without interest
(the 'Merger Consideration') and (b) each issued and outstanding share of the
Company's Series A preferred stock, par value $.01 per share (the 'Preferred
Stock') (other than shares of Preferred Stock which are held by stockholders who
perfect their appraisal rights pursuant to the DGCL) will be converted into the
right to receive an amount per share equal to the then applicable Redemption
Price (as defined and as set forth in the Certificate of Designation for the
Preferred Stock), payable to the holder thereof, without interest.
Andrews Group's obligation to consummate the Merger is conditioned upon,
among other things, the confirmation of the Joint Plan of Reorganization (as
defined below) with respect to Marvel Entertainment Group, Inc., a Delaware
corporation ('Marvel'), and certain of its subsidiaries, containing terms set
forth in Exhibit A to the Acquisition Agreement (as defined herein) with such
changes as Andrews Group approves. If the Joint Plan of Reorganization is
confirmed, the Merger Agreement requires Andrews Group (i) to transfer all the
outstanding shares of capital stock of Acquisition to Marvel and (ii) to assign
its rights, interests and obligations under the Merger Agreement to Marvel. See
'THE MERGER AGREEMENT-- Assignment; Plan Condition.' If the Joint Plan of
Reorganization is not confirmed, Andrews Group may elect either to waive the
condition and consummate the Merger or not to waive the condition, in which case
the Merger will not be consummated. Andrews Group has made no determination with
respect to what actions it will take if the Joint Plan of Reorganization is not
approved.
As of the Record Date there were issued and outstanding [20,348,794] shares
of Class A Common Stock, 7,394,000 shares of Class B Common Stock and 59,091
shares of Preferred Stock,
i
<PAGE>
and there were approximately [79] holders of record of Class A Common Stock. All
of the outstanding shares of Preferred Stock were held of record as of the
Record Date by two stockholders. Pursuant to the DGCL and the Restated
Certificate of Incorporation of the Company, (i) the affirmative vote of the
holders of a majority of the votes represented by the outstanding shares of
Class A Common Stock and Class B Common Stock of the Company, voting together as
one class, and (ii) the affirmative unanimous vote of the holders of the
outstanding shares of Class B Common Stock are the only votes of the holders of
any class or series of the Company's capital stock necessary to approve the
Merger Agreement and the Merger. Andrews Group, through its approximately 80%
indirectly-owned publicly traded subsidiary, Marvel, beneficially owns all
7,394,000 shares of Class B Common Stock, representing approximately 78.4% of
the combined voting power of the Class A Common Stock and the Class B Common
Stock (except that two shares of Class B Common Stock have been deposited into
voting trusts). Andrews Group has agreed in the Merger Agreement to cause such
shares to be voted in favor of the approval and adoption of the Merger Agreement
and the Merger. The Marvel Board of Directors has approved the Merger in the
case where the Merger Agreement has been assigned to Marvel, but has not yet
considered the Merger in the case where the Merger Agreement is not assigned to
Marvel. Avi Arad ('Arad') and Isaac Perlmutter ('Perlmutter'), as the trustees
of separate voting trusts, each have the right to direct the vote of one share
of Class B Common Stock. Arad has agreed in the Stock Purchase Agreement dated
as of November 20, 1996 between Andrews Group and Arad (as amended, the 'Arad
Stock Purchase Agreement') and Perlmutter, Isaac Perlmutter T.A., a Florida
trust, and Zib Inc., a Delaware corporation (collectively, the 'Perlmutter
Group') have agreed in the Stock Purchase Agreement dated as of November 20,
1996 between Andrews Group and the Perlmutter Group (as amended, the 'Perlmutter
Stock Purchase Agreement,' and together with the Arad Stock Purchase Agreement,
the 'Stock Purchase Agreements'), among other things, to use their reasonable
best efforts to take all actions necessary to satisfy the conditions to closing
under the Stock Purchase Agreements, including voting their shares in favor of
the Merger. Accordingly, with the vote of Marvel and the two trustees in favor
of approval and adoption of the Merger Agreement, the Merger Agreement will be
approved and adopted and the Merger will be consummated without the affirmative
vote of any other stockholders.
------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN, OR INCORPORATED BY REFERENCE IN,
THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANDREWS GROUP,
ACQUISITION OR ANY OTHER PERSON.
All information contained in this Proxy Statement relating to the Company
and its subsidiary has been supplied by the Company, all information contained
in this Proxy Statement relating to Andrews Group, Acquisition and their
affiliates (other than the Company and its subsidiary) has been supplied by
Andrews Group.
The date of this Proxy Statement is , 1997. This Proxy
Statement is first being mailed to the holders of Common Stock on or about
, 1997.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the 'Commission') by the Company (File No. 1-13638) pursuant to the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), are incorporated by
reference in this Proxy Statement:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (which incorporates by reference certain information from
the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders);
ii
<PAGE>
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996;
(3) The Company's Current Reports on Form 8-K dated July 24, 1996 and
December 27, 1996; and
(4) The description of the Class A Common Stock contained in the
Company's Registration Statement on Form 8-A (Registration No. 1-13638),
filed with the Commission on February 15, 1995.
All documents and reports filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement and to be a part hereof from the respective
dates of the filing of such documents or reports. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement of which it is a part 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 earlier statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
CLASS A COMMON STOCK, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR
ORAL REQUEST TO THE COMPANY AT 333 EAST 38TH STREET, NEW YORK, NEW YORK 10016,
ATTENTION: SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE NO LATER THAN FIVE DAYS PRIOR TO THE DATE OF THE SPECIAL
MEETING.
AVAILABLE INFORMATION
The Company and Andrews Group have filed with the Commission a Rule 13e-3
Transaction Statement on Schedule 13E-3 (together with any amendment thereto,
the 'Schedule 13E-3') under the Exchange Act in connection with the Merger. This
Proxy Statement does not contain all the information set forth in the Schedule
13E-3 and the exhibits thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Copies of the Schedule
13E-3 are available from the Commission, upon payment of prescribed rates.
Statements contained in the Proxy Statement or in any document incorporated by
reference in this Proxy Statement as to the contents of any contract or other
document referred to herein or therein 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 Schedule 13E-3 or such other document, each such statement
being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy and information statements
and other information with the Commission. The reports, proxy and information
statements and other information filed by the Company with the Commission can be
inspected without charge and copied at the public reference facilities
maintained by the Commission at its principal offices at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials also can be obtained at prescribed rates from
the Public Reference Section of the Commission at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may also be inspected at the offices of the New York Stock Exchange, Inc. (the
'NYSE'), 20 Broad Street, New
iii
<PAGE>
York, New York 10005. Such material may also be accessed electronically by means
of the Commission's home page on the Internet at http://www.sec.gov.
The shares of Class A Common Stock are currently registered under the
Exchange Act. Following the Merger, the Company will become a wholly owned
subsidiary of Andrews Group or Marvel, and there will be no public trading of
shares of Class A Common Stock. Accordingly, registration of the shares under
the Exchange Act will be terminated upon application by the Company to the
Commission when the Merger is consummated and the Company will no longer be
subject to the reporting requirements of the Exchange Act.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions 'SUMMARY', 'SPECIAL FACTORS--Opinion
of Financial Advisor' and 'SPECIAL FACTORS--Certain Projections' and elsewhere
in this Proxy Statement constitute 'forward-looking statements' within the
meaning of the Private Securities Litigation Reform Act of 1995 ('Reform Act').
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance and
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following factors, as well as those factors discussed elsewhere in the Company's
filings with the Commission: a decrease in the level of media exposure or
popularity of Marvel characters resulting in declining revenues of toys based on
such characters; the lack of continued commercial success of properties owned by
major licensors which have granted the Company toy licenses; consumer acceptance
of new toy product introductions; the imposition of quotas or tariffs on toys
manufactured in China as a result of a deterioration in trade relations between
the U.S. and China; the Company's dependence upon key personnel; the effects on
the Company of Marvel's bankruptcy filing; the Company's concentrated customer
base; competition in the Company's industry and other factors referenced in this
Proxy Statement.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.................................. i
Incorporation of Certain Documents by
Reference................................ ii
Available Information......................... iii
Special Note Regarding Forward-
Looking Statements....................... iv
Summary....................................... 1
Transaction Parties...................... 1
The Special Meeting...................... 2
The Merger Agreement..................... 3
Selected Financial Information................ 8
The Special Meeting........................... 10
Introduction............................. 10
Matters to be Considered at the Special
Meeting................................ 10
Voting Rights and Vote Required.......... 10
Stockholders' Rights of Appraisal........ 11
Special Factors............................... 11
Background of the Merger................. 11
Recommendations of the Special Committee
and the Board of Directors of the
Company; Fairness of the Merger........ 16
Opinion of Financial Advisor............. 21
Certain Projections...................... 25
Position of Andrews Group................ 27
Certain Effects of the Merger............ 27
Interests of Certain Persons in the
Transaction............................ 28
Sources and Uses of Funds................ 29
Accounting Treatment
of the Merger.......................... 30
Conduct of the Business following the
Merger................................. 30
Certain Federal Income Tax
Consequences........................... 30
Litigation............................... 30
The Merger Agreement.......................... 31
General.................................. 31
Effective Time........................... 31
Merger Consideration..................... 31
Procedure for Payment.................... 31
Elimination of Options................... 32
Representations and Warranties........... 32
Conduct of Business Pending the
Closing................................ 32
Directors and Officers................... 33
No Solicitation of Proposals............. 33
Directors' and Officers' Indemnification
and Insurance . ....................... 33
Assignment; Plan Condition............... 34
Amendment of Agreements.................. 34
Conditions to Consummation of the
Merger................................. 34
Termination; Amendment................... 35
Fees and Expenses........................ 36
The Acquisition Agreement..................... 36
General.................................. 36
<CAPTION>
PAGE
----
<S> <C>
Covenants................................ 36
Conditions Precedent to Obligations of
Each Party............................. 37
Conditions Precedent to the Obligations
of Andrews Group....................... 37
Conditions Precedent to the Obligations
of Marvel.............................. 38
Termination.............................. 38
Certain Other Agreements...................... 39
The Stock Purchase Agreements............ 39
Consulting and Bonus Agreements with Arad
and Perlmutter......................... 40
Marvel License Agreements................ 41
License with Avi Arad.................... 42
Marvel Services Arrangement.............. 42
Stockholders' Agreement and Class B
Voting Trusts.......................... 42
Company Registration Rights Agreement.... 43
Tangible Media Advertising Services...... 43
Employee, Office Space and Overhead Cost
Sharing Arrangements................... 43
Showroom Sharing Arrangement............. 44
Marvel Studios........................... 44
Other Agreements with Affiliates......... 44
Credit Facilities........................ 44
Stockholders' Rights of Appraisal............. 45
Market Prices of the Common Stock and Dividend
Policy................................... 48
Market Prices............................ 48
Security Ownership of Certain Beneficial
Owners and Management.................... 49
Directors and Executive Officers of Marvel,
Andrews Group, Acquisition and the
Company.................................. 51
Directors and Executive Officers of
Marvel................................. 51
Directors and Executive Officers of
Andrews Group.......................... 55
Directors and Executive Officers of
Acquisition............................ 56
Directors and Executive Officers of the
Company................................ 57
Independent Public Accountants................ 60
Other Matters to Come Before the Meeting...... 60
Annex A. Agreement and Plan of Merger
Annex B. Opinion of Wasserstein Perella &
Co., Inc.
Annex C. Excerpts from the General
Corporation Law of the State of Delaware
Relating to the Rights of Dissenting
Stockholders
</TABLE>
v
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement and the Annexes hereto, to which reference is made for a
complete statement of the matters discussed below. Capitalized terms used and
not defined in the following summary have the meanings set forth under
'INTRODUCTION' above. References in this Proxy Statement to 'Marvel' mean Marvel
Entertainment Group, Inc. and its consolidated subsidiaries, other than the
Company, unless the context otherwise requires. Stockholders are urged to read
this Proxy Statement and the Annexes hereto in their entirety.
<TABLE>
<S> <C>
TRANSACTION PARTIES
Toy Biz, Inc.............................. The Company designs, markets and distributes a variety of toys in the
United States and internationally under various licenses. The
Company also designs, markets and distributes its own line of
proprietary toys. The Company completed an initial public offering
of its Class A Common Stock on March 2, 1995. Andrews Group is the
beneficial owner of approximately 75.9% of the Class A Common Stock
(including shares subject to the Stock Purchase Agreements) and
beneficially owns, through its approximately 80% indirectly-owned
publicly traded subsidiary, Marvel, all of the Class B Common
Stock. See 'SPECIAL FACTORS--Background of the Merger.'
Andrews Group Incorporated................ Andrews Group is a Delaware corporation and an indirect wholly owned
subsidiary of Mafco Holdings Inc. ('Mafco Holdings'), a Delaware
corporation, which is a diversified holding company. All of the
capital stock of Mafco Holdings is owned by Ronald O. Perelman. The
business address of Mafco Holdings is 35 East 62nd Street, New
York, New York 10021 and the principal executive offices of Andrews
Group are at 3200 Windy Hill Road, Atlanta, Georgia 30339. See
'SPECIAL FACTORS--Background of the Merger.'
Andrews Acquisition Corp.................. Acquisition is currently a wholly owned subsidiary of Andrews Group
and prior to the effective time of the Merger may become a wholly
owned subsidiary of Marvel. If the Joint Plan of Reorganization is
confirmed, the Merger Agreement requires Andrews Group to transfer
all the outstanding shares of capital stock of Acquisition to
Marvel. Acquisition is a recently organized corporation that has
not conducted any business except in connection with the
transactions contemplated by the Merger Agreement. The business
address of Acquisition is 3200 Windy Hill Road, Atlanta, Georgia
30339.
Marvel.................................... Marvel is a Delaware corporation and is an approximately 80%
indirectly-owned publicly-traded subsidiary of Andrews Group.
Marvel is a leading creator, publisher and distributor of youth
entertainment products. Operations include publishing of comic
books, trading cards and activity stickers; marketing and
distribution of toys (through the Company); and licensing of its
characters for consumer products, media and advertising
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
promotions. On December 27, 1996, Marvel and its subsidiaries,
other than Panini S.p.A. ('Panini'), Marvel Restaurant Venture
Corp., a general partner in Marvel's Marvel Mania restaurant joint
venture, and inactive subsidiaries, filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware (the
'Petitions'). Under Marvel's proposed Joint Plan of Reorganization
(as defined herein), Andrews Group or an affiliate will acquire
from Marvel a number of shares of common stock of Marvel
representing 80.8% of the outstanding shares of Marvel common
stock, after giving effect to such acquisition, in consideration
for $365 million, and such capital will be used, among other
things, to acquire all the outstanding shares of capital stock of
the Company pursuant to the Merger Agreement and the Stock Purchase
Agreements (see 'SPECIAL FACTORS--Background of the Merger').
Andrews Group's obligation to consummate the Merger is conditioned
upon, among other things, the confirmation of the Joint Plan of
Reorganization. See 'THE MERGER AGREEMENT--Assignment; Plan
Condition.'
If the Joint Plan of Reorganization is confirmed, the Merger
Agreement requires Andrews Group (i) to transfer all the
outstanding shares of capital stock of Acquisition to Marvel and
(ii) to assign its rights, interests and obligations under the
Merger Agreement to Marvel. See 'THE MERGER AGREEMENT--Assignment;
Plan Condition.' If the Joint Plan of Reorganization is not
confirmed, Andrews Group may elect either to waive the condition
and consummate the Merger or not to waive the condition, in which
case the Merger will not be consummated. Andrews Group has made no
determination what actions it will take if the Joint Plan of
Reorganization is not approved.
THE SPECIAL MEETING
Date, Time and Place of Special Meeting... [ ], 1997 at 10:00 a.m., local time, at
[ ].
Purpose................................... To consider and act upon a proposal to approve and adopt the Merger
Agreement and the Merger. See 'THE SPECIAL MEETING--Matters to be
Considered at the Special Meeting.'
Record Date............................... [ ], 1997.
Vote Required............................. Pursuant to the DGCL and the Restated Certificate of Incorporation of
the Company, (i) the affirmative vote of the holders of a majority
of the votes represented by the outstanding shares of Class A
Common Stock and Class B Common Stock, voting together as one
class, and (ii) the affirmative unanimous vote of the holders of
the outstanding shares of Class B Common Stock, are the only votes
of the holders of any class or series of the
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Company's capital stock necessary to approve the Merger Agreement
and the Merger. There is no requirement that the transactions be
approved by a majority of the holders of shares of Common Stock
held by persons not affiliated with Andrews Group or Marvel.
Andrews Group, through Marvel, beneficially owns all 7,394,000
shares of Class B Common Stock, representing approximately 78.4% of
the combined voting power of the Class A Common Stock and the Class
B Common Stock. Andrews Group has agreed in the Merger Agreement to
cause such shares to be voted in favor of the approval and adoption
of the Merger Agreement and the Merger. The Marvel Board of
Directors has approved the Merger in the case where the Merger
Agreement has been assigned to Marvel, but has not yet considered
the Merger in the case where the Merger Agreement is not assigned
to Marvel. Arad owns 4,150,000 shares of Class A Common Stock,
representing approximately 4.4% of the combined voting power of the
Class A Common Stock and Class B Common Stock. The Perlmutter Group
owns 9,506,000 shares of Class A Common Stock, representing
approximately 10.1% of the combined voting power of the Class A
Common Stock and Class B Common Stock. Arad and Perlmutter, as the
trustees of separate voting trusts, each have the right to direct
the vote of one share of Class B Common Stock. Arad and the
Perlmutter Group have agreed in the Stock Purchase Agreements,
among other things, to use their reasonable best efforts to take
all actions necessary to satisfy the conditions to closing under
the Stock Purchase Agreements, including voting their shares in
favor of the of the Merger. Accordingly, with the vote of Marvel
and the two trustees in favor of approval and adoption of the
Merger Agreement, the Merger Agreement will be approved and adopted
and the Merger will be consummated without the affirmative vote of
any other stockholders. See 'THE SPECIAL MEETING--Voting Rights and
Vote Required.'
THE MERGER AGREEMENT
Background of the Merger.................. For a description of the background of the Merger, see 'SPECIAL
FACTORS--Background of the Merger.'
Recommendations of the Special Committee
and the Board of Directors of the
Company; Fairness of the Merger......... In reaching its recommendation, the Special Committee considered the
following factors: (i) the Company's business, condition and
prospects; (ii) the opinion of Wasserstein Perella & Co., Inc.
('Wasserstein Perella'), financial advisor to the Special
Committee; (iii) the consideration to be received by Arad and
Perlmutter; (iv) historical and recent market prices; (v) the
available alternatives to the Merger; (vi) the fact that the terms
of the Merger were determined through arm's-length negotiations;
and (vii) the terms of the Merger
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Agreement. In view of the wide variety of factors considered in
connection with their evaluation of the Merger, the Special
Committee did not consider it practicable to, and did not attempt
to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its determination. See
'SPECIAL FACTORS--Recommendations of the Special Committee and the
Board of Directors of the Company; Fairness of the Merger.'
THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED, BASED UPON THE
UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, THAT THE MERGER
AGREEMENT IS IN THE BEST INTERESTS OF THE HOLDERS OF THE CLASS A
COMMON STOCK (OTHER THAN ARAD AND THE PERLMUTTER GROUP, WHOSE
SHARES ARE TO BE PURCHASED PURSUANT TO THE STOCK PURCHASE
AGREEMENTS). THE BOARD HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER. See 'SPECIAL FACTORS--Recom-
mendations of the Special Committee and the Board of Directors of
the Company; Fairness of the Merger.'
Interests of Certain Persons in the
Merger.................................. In considering the recommendation of the Board with respect to the
Merger Agreement, stockholders should be aware that certain members
of the Board and of the Company's management may have certain
interests in the Merger that are in addition to or different from
the interests of the stockholders of the Company generally. In
particular, (i) a majority of the directors of the Company are
employees and/or directors of Marvel and various of its affiliates
and (ii) it is a condition to the obligations of each party to the
Stock Purchase Agreements that Arad and Perlmutter enter into
consulting agreements with the Company and that Arad and Perlmutter
enter into bonus agreements with the Company. See 'SPECIAL
FACTORS--Interests of Certain Persons in the Transaction' and
'CERTAIN OTHER AGREEMENTS.' The Board and the Special Committee
were aware of these interests and considered them, among other
matters, in approving the Merger Agreement. See 'SPECIAL
FACTORS--Recommendations of the Special Committee and the Board of
Directors of the Company; Fairness of the Merger.'
Exchange of Class A Common Stock.......... Pursuant to the Merger, each share of Common Stock will be converted
into and represent the right to receive the Merger Consideration. A
letter of transmittal for use in surrendering stock certificates
and obtaining payment for surrendered shares will be mailed to such
holders promptly following the Effective Time (as defined below).
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
See 'THE MERGER AGREEMENT--Procedure for Payment.' CERTIFICATES
SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS ARE OBTAINED AND THEN SHOULD BE SURRENDERED ONLY IN
ACCORDANCE WITH SUCH INSTRUCTIONS.
Opinion of the Special Committee's
Financial Advisor....................... Wasserstein Perella, financial advisor to the Special Committee, has
delivered to the Special Committee its opinion, dated December 13,
1996, which opinion was subsequently confirmed on December 24,
1996, to the effect that, as of such dates and subject to the
assumptions and limitations therein, the $22.50 per share cash
consideration to be received by holders of Class A Common Stock
(other than Arad and the Perlmutter Group) pursuant to the Merger
Agreement is fair to such holders from a financial point of view. A
copy of the full text of the opinion of Wasserstein Perella, dated
December 24, 1996, which sets forth, among other things, the
opinion expressed, assumptions made, procedures followed, matters
considered and limitations of review undertaken in connection with
such opinion, is attached hereto as Annex B and should be read in
its entirety. See 'SPECIAL FACTORS--Opinion of Financial Advisor.'
Conditions to the Merger.................. Consummation of the Merger is subject to certain conditions,
including without limitation, approval by requisite vote of the
stockholders, obtaining necessary consents, the absence of any
order or injunction prohibiting or enjoining the Merger, accuracy
of representations and warranties, performance of the parties'
obligations and confirmation of the Joint Plan of Reorganization.
See 'THE MERGER AGREEMENT-- Conditions to Consummation of the
Merger.'
Effective Time of the Merger.............. The Merger will become effective upon the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware or at
such time as is agreed upon by the parties to the Merger Agreement
(the 'Effective Time'). See 'THE MERGER AGREEMENT--Effective Time.'
Effects of the Merger..................... Pursuant to the Merger, shares of Common Stock (other than shares of
Common Stock which are owned by Andrews Group, Acquisition or any
wholly owned subsidiary of Andrews Group, which are held in the
treasury of the Company or which are held by those stockholders who
perfect their appraisal rights under the DGCL) will be converted
into the right to receive the Merger Consideration for each share
of Common Stock owned by them and shares of the Preferred Stock
(other than shares of Preferred Stock which are held by
stockholders who perfect their appraisal rights pursuant to the
DGCL), will be converted into the right to receive an amount per
share equal to the then applicable Redemption Price. After
consummation of the Merger,
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
the Company will become a wholly owned subsidiary of Andrews Group
or, if the Merger Agreement is assigned to Marvel, Marvel, and the
former holders of the Common Stock (other than Andrews Group or
Marvel) will no longer possess any equity interest in the Company.
Upon consummation of the Merger, the Company will terminate the
registration of the Class A Common Stock under Section 12 of the
Exchange Act and the Class A Common Stock will no longer be listed
on the NYSE. See 'SPECIAL FACTORS--Certain Effects of the Merger.'
Tax Consequences to
Stockholders............................ The receipt of cash by a Company stockholder pursuant to the Merger
will be a taxable transaction for federal income tax purposes and
may also be taxable under applicable state, local, and foreign tax
laws. See 'SPECIAL FACTORS--Certain Federal Income Tax
Consequences.' ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS.
Accounting Treatment...................... The Merger will be accounted for as a purchase of a minority interest
under the 'purchase' method of accounting. See 'SPECIAL
FACTORS--Accounting Treatment of the Merger.'
Termination of the Agreement.............. The Merger Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time in certain circumstances,
including but not limited to: by mutual agreement of the parties
thereto; if the Merger is not consummated by June 30, 1997; if the
stockholders fail to approve and adopt the Merger Agreement; if a
final government order prohibits or enjoins the Merger; if the
Board has withdrawn its approval of the Merger Agreement or the
Merger in order to execute a definitive agreement relating to a
superior proposal to the Merger reasonably capable of being
consummated, if the failure to take such an action would result in
the Board violating its fiduciary duties under applicable law; and
by Andrews Group, if Andrews Group has purchased Class A Common
Stock pursuant to a Qualifying Offer (generally, an all cash offer
to purchase all outstanding shares of Class A Common Stock for an
amount per share not less than the Merger Consideration). Any
termination by the Company requires the approval of the Special
Committee. See 'THE MERGER AGREEMENT--Assignment; Plan Condition.'
Upon termination of the Merger Agreement, each party is required to
bear its own costs and expenses in connection with the Merger. See
'THE MERGER AGREEMENT--Termination; Amendment.'
Indemnification........................... The Merger Agreement provides that the surviving corporation will
indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its
subsidiary against all losses, claims, damages, liabilities, fees
and expenses arising out of actions or omissions prior to the
Effective Time to the full extent permitted under Delaware law,
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
subject to the Company's Restated Certificate of Incorporation and
its by-laws. The Merger Agreement also provides that the surviving
corporation will provide officers' and directors' liability
insurance for not less than five years after the Effective Time.
See 'THE MERGER AGREEMENT--Directors' and Officers' Indemnification
and Insurance.'
Appraisal Rights.......................... If the Merger is consummated, holders of shares of Class A Common
Stock who comply with the requirements of Section 262 of the DGCL
will be entitled to statutory appraisal rights. See 'STOCKHOLDERS'
RIGHTS OF APPRAISAL' and Annex C.
Financing................................. The total amount of funds required by Acquisition and Andrews Group
and/or Marvel to consummate the transactions contemplated by the
Merger Agreement and the Stock Purchase Agreements and to pay
related fees and expenses is estimated to be (i) approximately $337
million (representing approximately $152 million to acquire the
publicly held Class A Common Stock and the Preferred Stock in the
Merger, approximately $171 million to acquire the Class A Common
Stock owned by Arad and the Perlmutter Group pursuant to the Stock
Purchase Agreements, approximately $4 million in respect of
employee stock options, and approximately $10 million in fees and
expenses related to the Merger) if the Merger Agreement is assigned
to Marvel, and (ii) approximately $504 million (representing
approximately $319 million to acquire the publicly held Class A
Common Stock, the Class B Common Stock owned by Marvel and the
Preferred Stock in the Merger, approximately $171 million to
acquire the Class A Common Stock owned by Arad and the Perlmutter
Group pursuant to the Stock Purchase Agreements, approximately $4
million in respect of employee stock options, and approximately $10
million in fees and expenses related to the Merger) if the Merger
Agreement is not assigned to Marvel. These amounts do not include a
$20 million note which will be paid to Arad and the Perlmutter
Group as partial consideration for their shares of Class A Common
Stock pursuant to the Stock Purchase Agreements, and do not include
up to $20 million in contingent payments to Arad and the Perlmutter
Group, also pursuant to the Stock Purchase Agreements. Acquisition
expects to obtain such funds from equity contributions and/or loans
to Acquisition from Andrews Group. Andrews Group expects to obtain
the funds to make such equity contributions and/or loans from
general corporate funds. In the event the Merger Agreement is
assigned to Marvel, Marvel expects to obtain the funds required to
consummate the Merger from the $365 million equity investment in
Marvel by Andrews Group pursuant to the Acquisition Agreement. See
'SPECIAL FACTORS-- Sources and Uses of Funds.' The obtaining of
financing is not a condition of the Merger.
</TABLE>
7
<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
nine month periods ended September 30, 1995 and 1996, which were derived from
the unaudited financial statements of the Company which reflect, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial data for such period. Results for
certain periods are not presumably indicative of results for the full year. The
information in these tables should be read in conjunction with, and is qualified
in its entirety by, the consolidated financial statements of the Company and the
Predecessor Company and notes thereto included in the documents described under
'INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.'
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR COMPANY --------------------------------------------------------------
----------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED NINE MONTHS ENDED
DECEMBER 31 APR. 30, DEC. 31, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------- -------- -------- ----------------------------- -------------------
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 $117,010 $167,620
Cost of sales............ 22,867 29,710 5,308 36,682 41,990 73,490 88,397 51,873 83,121
------- ------- -------- -------- ------- -------- -------- -------- --------
Gross profit............. 22,201 28,224 4,867 42,887 47,754 83,035 107,998 65,137 84,499
Selling, general and
administrative
expenses(3)(4)(5)...... 19,254 23,099 5,840 22,253 28,093 38,263 48,234 30,623 44,390
Depreciation and
amortization........... 2,770 2,471 638 3,459 4,097 8,609 12,750 6,666 8,630
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 27,848 31,479
Interest expense......... (655) (1,294) (476) (721) (1,197) (1,862) (490) (463) (73)
Other income, net........ 39 120 237 322 559 65 1,050 855 567
------- ------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before
income taxes........... (439) 1,480 (1,850) 5,867 4,017 30,275 47,574 28,240 31,973
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) (11,578) (12,790)
------- ------- -------- -------- ------- -------- -------- -------- --------
Net income (loss)........ $ (263) $ 888 $ (1,110) $ 3,488 $ 2,378 $ 18,014 $ 28,402 $ 16,662 $ 19,183
------- ------- -------- -------- ------- -------- -------- -------- --------
------- ------- -------- -------- ------- -------- -------- -------- --------
Net income per share(7).. $ -- $ -- $ -- $ .13 $ .09 $ .67 $ 1.05 $ 0.62 $ 0.70
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 27,082 27,233
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
----------------- ---------------------------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
----------------- ----------------------------- -------------------
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 $ 73,096 $103,393
Total assets........................... 26,525 28,852 56,877 104,723 152,218 $141,346 $196,214
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 3,456 1,657
Stockholders' equity................... 1,908 2,384 16,283 38,416 111,332 99,631 139,975
</TABLE>
- ------------------
(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 Perlmutter (the 'Predecessor
Company'), 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 nine-month
periods ended September 30, 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 I of notes to
audited financial statements incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
(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. 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 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 112,121 shares of Preferred Stock outstanding as of September 30,
1995 and December 31, 1995, and 59,091 shares of Preferred Stock outstanding
as of September 30, 1996, of which 27,273 shares were held in escrow as of
such dates to secure indemnification obligations to the Company by the
seller of the business of Spectra Star, Inc.
9
<PAGE>
THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of the Company
as of the Record Date in connection with the Special Meeting to be held on
[ ], 1997 at 10:00 a.m., local time, at [ ], and any
adjournment or postponement thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of shares of Class A Common Stock and of
Class B Common Stock will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement, pursuant to which Acquisition will be
merged with and into the Company, with the Company as the surviving corporation
after the Effective Time (the 'Surviving Corporation'), and the Company will
become a wholly owned subsidiary of Andrews Group or Marvel. The Company's
stockholders also will consider and vote upon such other matters as may properly
come before the Special Meeting.
Pursuant to the Merger Agreement, each share of Common Stock (other than
shares of Common Stock which are owned by Andrews Group, Acquisition or any
wholly owned subsidiary of Andrews Group, which are held in the treasury of the
Company or which are held by those stockholders who perfect their appraisal
rights pursuant to the DGCL) will be converted into the right to receive the
Merger Consideration. See 'THE MERGER AGREEMENT--Procedure for Payment.'
VOTING RIGHTS AND VOTE REQUIRED
Only holders of record of shares of Class A Common Stock and Class B Common
Stock issued and outstanding as of the close of business on the Record Date will
be entitled to vote at the Special Meeting, or any adjournment or postponement
thereof. As of the Record Date, the [20,348,794] shares of Class A Common Stock
issued and outstanding were held by approximately [79] holders of record, and
all of the 7,394,000 shares of Class B Common Stock issued and outstanding were
beneficially owned by Andrews Group through Marvel, except for two shares of
Class B Common Stock deposited in voting trusts. Arad and Perlmutter, as the
trustees of separate voting trusts, each have the right to direct the vote of
one share of Class B Common Stock.
Holders of record of shares of Class A Common Stock at the close of
business on the Record Date are entitled to one vote per share upon each matter
submitted to a vote of the stockholders of the Company at the Special Meeting or
any adjournment or postponement thereof, and holders of record of Class B Common
Stock are entitled to ten votes per share. The Class A Common Stock and Class B
Common Stock will vote together as a single class with respect to the Merger. In
addition, approval of the Merger requires the affirmative vote of all of the
outstanding Class B Common Stock. The presence in person or by proxy of the
holders of a majority in voting power of the issued and outstanding shares of
Common Stock entitled to vote on the Merger is necessary to constitute a quorum
to transact business at the Special Meeting. If a quorum is not present at the
Special Meeting, a majority in voting power of the issued and outstanding shares
of Common Stock present in person or by proxy and entitled to vote at the
Special Meeting may, by majority vote, adjourn the Special Meeting from time to
time without notice or other announcement until a quorum is present. Abstentions
of shares that are present at the Special Meeting will have the same effect as
votes against adoption of the Merger Agreement. BECAUSE THE SHARES OF COMMON
STOCK OWNED BY ANDREWS GROUP THROUGH MARVEL WILL BE REPRESENTED AT THE SPECIAL
MEETING A QUORUM WILL BE PRESENT, EVEN IF NO OTHER SHARES ARE REPRESENTED.
Pursuant to the DGCL and the Restated Certificate of Incorporation of the
Company, (i) the affirmative vote of the holders of a majority of the votes
represented by the outstanding shares of Class A Common Stock and Class B Common
Stock of the Company, voting together as one class, and (ii) the affirmative
unanimous vote of the holders of the outstanding shares of Class B Common Stock,
are the only votes of the holders of any class or series of the Company's
capital stock necessary to approve the Merger Agreement and the Merger. Andrews
Group beneficially
10
<PAGE>
owns through Marvel all 7,394,000 shares of Class B Common Stock, representing
approximately 78.4% of the combined voting power of the Class A Common Stock and
the Class B Common Stock. Andrews Group has agreed in the Merger Agreement to
cause such shares to be voted in favor of the approval and adoption of the
Merger Agreement and the Merger. The Marvel Board of Directors has approved the
Merger in the case where the Merger Agreement has been assigned to Marvel, but
has not yet considered the Merger in the case where the Merger Agreement is not
assigned to Marvel. Arad and Perlmutter, as the trustees of separate voting
trusts, each have the right to direct the vote of one share of Class B Common
Stock. Arad and the Perlmutter Group have agreed in the Stock Purchase
Agreements, among other things, to take all actions necessary to satisfy the
conditions to closing under the Stock Purchase Agreements, including voting
their shares in favor of the of the Merger. ACCORDINGLY, WITH THE VOTE OF MARVEL
AND THE TWO TRUSTEES IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT,
THE MERGER AGREEMENT WILL BE APPROVED AND ADOPTED AND THE MERGER WILL BE
CONSUMMATED WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDERS.
STOCKHOLDERS' RIGHTS OF APPRAISAL
Holders of the Class A Common Stock have the right to demand appraisal of,
and obtain a cash payment for, the 'fair value' of their shares of Class A
Common Stock pursuant to Section 262 of the DGCL. In order to execute such
rights, such holders of Common Stock must comply with the procedural
requirements of Section 262 of the DGCL. See 'STOCKHOLDERS' RIGHTS OF
APPRAISAL.' The full text of Section 262 of the DGCL is attached to this Proxy
Statement as Annex C and any stockholder of the Company desiring to exercise
rights of appraisal in connection with the Merger should consult with legal
counsel prior to taking any action to ensure that the stockholder complies with
the applicable statutory provision. Failure to take any of the steps required
under Section 262 of the DGCL on a timely basis may result in the loss of
appraisal rights. See Annex C.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company was incorporated in Delaware on March 18, 1993 by Marvel,
Perlmutter and Arad, 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. The
Company is a toy entertainment company that designs, markets and distributes
boys, girls, infant/pre-school and activity toys in the United States and
internationally, based on popular entertainment properties, consumer brand names
and proprietary designs. The Company's principal executive offices are located
at 333 East 38th Street, New York, New York 10016.
On March 2, 1995, the Company completed an initial public offering (the
'IPO') of 2,750,000 shares of Class A Common Stock, at a price per share of
$18.00 and proceeds to the Company, after deducting underwriting discounts and
commissions, of $38,594,000. Arad also sold 700,000 shares of Class A Common
Stock in the IPO, for proceeds of $11,746,000, after deducting underwriting
discounts and commissions. In connection with the recapitalization of the
Company prior to and in anticipation of the IPO, the Company issued to Marvel
9,894,000 shares of Class B Common Stock in exchange for Marvel's stock in the
Predecessor Company. Marvel's ownership of the Class B Common Stock gives Marvel
the ability to control the vote on all matters submitted to a vote of the
holders of the Common Stock and elect the Company's Board of Directors. Two
shares of the Class B Common Stock were deposited into voting trusts of which
Arad and Perlmutter, founders and stockholders of the Company, are the voting
trustees and of which Marvel is the sole beneficiary in each case. Each of Arad
and Perlmutter have the right to vote the share of Class B Common Stock held by
his voting trust in his absolute discretion until the termination of such trust.
Arad and the Perlmutter Group have agreed in the Stock Purchase Agreements,
among other things, to take all actions necessary to satisfy the conditions to
closing under the Stock Purchase Agreements, including voting their shares in
favor of the Merger.
11
<PAGE>
In August 1996, the Company completed an offering of 700,000 shares of
Class A Common Stock, at an offering price per share of $15.00 and net proceeds
to the Company of approximately $9.1 million, after deducting underwriting
discounts and commissions and expenses. In the same offering, Marvel converted
2,500,000 shares of its Class B Common Stock into Class A Common Stock and sold
such Class A Common Stock for net proceeds of approximately $35.7 million, after
deducting underwriting discounts and commissions and expenses.
In the fall of 1996, because of the deteriorating operating performance of
Marvel, Andrews Group and Marvel considered various alternatives for
restructuring Marvel. Among these were the purchase by Marvel, or another
affiliate of Andrews Group, of the Company and in the case of the latter, the
contribution of the Company to Marvel. The objective of the proposed purchase
was to provide Marvel with funds to service its indebtedness by giving it access
to the cash flow of the Company. The acquisition of Toy Biz was to be
accomplished in two steps: first, Andrews Group would purchase all of the Class
A Common Stock owned by each of Arad and the Perlmutter Group, who together own
approximately 67% of the Class A Common Stock; and second, Andrews Group or one
of its affiliates would enter into a merger agreement pursuant to which all of
the remaining Class A Common Stock would be purchased from the public
stockholders of the Company. On October 17, 1996, Andrews Group publicly
announced that it anticipated making a proposal to purchase new equity capital
of Marvel, that it had reached agreement to purchase the shares of Class A
Common Stock owned by Arad and the Perlmutter Group and that Marvel would
propose to acquire the remaining shares of Class A Common Stock at a price
approximating current market value. On October 17, 1996, the closing price for
the Class A Common Stock, as reported on the NYSE Composite Tape, was $19 1/8.
Senior management of the Company recognized that if a proposal were to be
made to the Company, it would be appropriate for the Company to form a special
committee of independent directors to evaluate and negotiate the terms of any
such proposal. The directors of the Company were advised of this and asked to
consider forming such a committee, which committee would retain its own
financial and legal advisors. Representatives of the Company contacted Messrs.
Verkuil, Halpin and Piergallini, none of whom is an officer or employee of the
Company or Andrews Group, to ask if they would agree to serve as the Special
Committee to evaluate and negotiate the terms of any proposal received from
Andrews Group. Messrs. Verkuil, Halpin and Piergallini agreed to so act. On
October 17, 1996, at a meeting of the Company's Board of Directors, Messrs.
Verkuil, Halpin and Piergallini were formally appointed as the Special Committee
(with Mr. Verkuil to serve as Chairman) to review, evaluate and negotiate the
terms of any proposal received from Andrews Group and were formally authorized
to retain legal counsel and financial advisors, at the Company's expense, in
connection therewith. Following the Board meeting, the Special Committee held
its initial organizational meeeting. On October 24, 1996, the Special Committee
met and retained Cravath, Swaine & Moore and Richards, Layton & Finger as legal
counsel to advise the Special Committee.
Following two days of interviews with several investment banking firms, on
October 29, 1996, the Special Committee selected Wasserstein Perella to be its
financial advisor. For a description of the terms of Wasserstein Perella's
engagement and certain additional information concerning Wasserstein Perella,
see '--Opinion of Financial Advisor'.
On November 8, 1996, representatives of Andrews Group met with Wasserstein
Perella and Cravath, Swaine & Moore, as well as with representatives of Marvel
and the special committee of Marvel's board of directors, to discuss the broad
outlines of a possible transaction to acquire the publicly held minority
interest in the Company. At the meeting, representatives of Andrews Group
described the background of the proposed transaction, the proposed stock
purchase agreements and other consulting and bonus arrangements that had been
negotiated with Arad and Perlmutter and the probable financial consequences to
Marvel, the Company and Andrews Group of either proceeding or not proceeding
with a transaction. In addition, beginning in early November, representatives of
Wasserstein Perella met with senior management of the Company and with Andrews
Group, Marvel and their financial and legal advisors on several occasions to
conduct a due diligence review of the businesses, financial results, capital
resources, liquidity, intercompany
12
<PAGE>
transactions and prospects of the Company. On November 11, 1996, the Special
Committee met to review the due diligence work that had been performed to date
by Wasserstein Perella, to receive a report with respect to the meetings with
Andrews Group that had occurred to date and to review certain communications
received from stockholders indicating such stockholders' views as to the fair
value of the shares of Class A Common Stock.
On November 12, 1996, Andrews Group delivered a letter to Marvel in which
Andrews Group proposed to Marvel an investment by Andrews Group pursuant to
which Andrews Group would acquire from Marvel a number of shares of Marvel
common stock representing 80.1% of the outstanding shares of Marvel Common Stock
after giving effect to the acquisition. The purchase price for the shares of
Marvel Common Stock to be acquired would be $350 million in cash or, at the
option of Andrews Group, an equal value of Class A Common Stock, or a
combination of the foregoing. In its proposal letter, Andrews Group noted that
in anticipation of its investment in Marvel and of the Company becoming a wholly
owned subsidiary of Marvel, Andrews Group had agreed to purchase all of the
Class A Common Stock owned by Arad and the Perlmutter Group.
On November 12, 1996, Marvel announced a net loss of $0.12 per share for
the third quarter and a net loss of $0.27 per share for the nine months ended
September 30, 1996 compared with net income of $0.19 and $0.10 for the
corresponding periods of the prior year. Marvel also announced that, excluding
special charges, it expected to report a loss for its fourth quarter ending
December 31, 1996 of $0.25 to $0.30 per share and a loss for the full year
ending December 31, 1996 of $0.52 to $0.57 per share. In connection with this
announcement, Marvel also indicated that given the unfavorable market conditions
in certain of its businesses, Marvel was evaluating whether there had been an
impairment to goodwill and other intangible assets and was considering
restructuring and other actions, all of which could result in substantial 1996
year end charges.
On November 20, 1996, Andrews Group entered into the original Stock
Purchase Agreements with each of Arad and the Perlmutter Group to purchase all
of their respective shares of Class A Common Stock, 13,656,000 shares in the
aggregate, at a price of approximately $16.93 per share, consisting of $14 in
cash per share plus $40 million (or approximately $2.93 per share) of debt of
Andrews Group represented by promissory notes to Arad and the Perlmutter Group.
The Stock Purchase Agreements were amended as of January 29, 1997. The closing
of such purchases by each of the parties to the Stock Purchase Agreements is
conditioned upon the Company entering into certain consulting and bonus
agreements with Arad and Perlmutter. See 'CERTAIN OTHER AGREEMENTS--The Stock
Purchase Agreements' and '--Consulting and Bonus Agreements with Arad and
Perlmutter.' In addition, the closings of the purchases from Arad and the
Perlmutter Group are subject, among other things, to the execution of an
agreement between Marvel, an affiliate of Marvel, or an affiliate of Andrews
Group and the Company pursuant to which the Company would be acquired by Marvel,
its affiliate or the affiliate of Andrews Group and the satisfaction of the
conditions to closing thereunder.
Also on November 20, 1996, Andrews Group announced a proposal to acquire
all outstanding shares of Class A Common Stock (other than shares held by Arad
and the Perlmutter Group) at a price of $19 per share, subject to the execution
of a definitive agreement. The proposed transaction contemplated that the
Company would become a wholly owned subsidiary of Marvel. The consummation of
the proposed purchase of the Company's stock would be conditioned upon
consummation of the investment by Andrews Group in the common stock of Marvel.
On November 26, 1996, the Special Committee met with its legal counsel and
Wasserstein Perella to discuss the proposal received from Andrews Group on
November 20, 1996, and to review the due diligence and valuation work that
Wasserstein Perella had completed to date. Wasserstein Perella described to the
Special Committee its analysis of the valuation of the consideration to be paid
to Arad and Perlmutter under the Stock Purchase Agreements (as then in effect)
and pursuant to the consulting and bonus agreements. The Special Committee
discussed the Company's internal 1996 budget, which it had recently received,
which budget showed significantly lower 1996 earnings than the last budget that
the members of the Special Committee had seen as
13
<PAGE>
directors, and the probable reasons for the difference. Wasserstein Perella
then presented its preliminary valuation analyses with respect to the Company.
Following this meeting, Wasserstein Perella, at the request of the Special
Committee, reported to representatives of Andrews Group that the Special
Committee would not be able to respond to the Andrews Group proposal until the
terms of the consulting and bonus agreements with Arad and Perlmutter had been
finalized and the Special Committee had a full understanding of the reasons
for the decrease in the expected earnings per share of the Company for 1996.
Wasserstein Perella also conveyed to representatives of Andrews Group the
Special Committee's interest in structuring a transaction that would not be
conditioned on the consummation of the restructuring of Marvel.
On December 5, 1996, members of the Special Committee met with Joseph
Ahearn, the President and Chief Executive Officer of the Company, to enable the
Special Committee to understand why the Company's internal 1996 budget recently
received by the Special Committee showed lower earnings per share for 1996 than
the last budget that members of the Special Committee had seen. Also during the
first week of December, representatives of Andrews Group met with Wasserstein
Perella at various times and, in response to Wasserstein Perella's suggestion
that the Special Committee was expecting Andrews Group to increase its proposal
to more than $25.00 per share, indicated that Andrews Group might be prepared to
increase its proposal to approximately $22.00 per share. On December 8, 1996,
the Special Committee met to receive Wasserstein Perella's report on the due
diligence and analytical work that it had completed to date. In addition, the
Special Committee discussed the reasons for, and the effects of, the Company's
projected earnings per share for 1996 (as reflected in the Company's internal
1996 budget recently received by the Special Committee) being lower than the
earnings per share for 1996 reflected in the last budget that members of the
Special Committee had seen. Finally, the Special Committee discussed the
possible risks to the Company and its stockholders if the consummation of the
proposed transaction were conditioned upon the successful consummation of the
restructuring of Marvel. The Special Committee directed Wasserstein Perella to
try to obtain an offer from Andrews Group that was not conditioned on the
completion of the restructuring of Marvel, while considering possible
alternatives such as requiring that the proposed transaction be completed in a
relatively short period of time and/or requiring that the Company's stockholders
be paid interest beyond a certain target date if the transaction were not then
completed.
On December 9, 1996, representatives of Andrews Group met with Wasserstein
Perella to discuss the terms of the Andrews Group proposal, particularly the
condition relating to the restructuring of Marvel. The representatives of
Andrews Group indicated that Andrews Group would not agree to a transaction that
was not conditioned on the consummation of the restructuring of Marvel (for the
reasons described below under '--Recommendations of the Special Committee and
Board of Directors of the Company; Fairness of the Merger--Terms of the Merger
Agreement'). Following this meeting, the Special Committee met and was briefed
on the discussions with Andrews Group.
On December 12, 1996, the Special Committee met to discuss the current
state of the negotiations. Wasserstein Perella reported that Andrews Group still
would not offer more than $22 per share, but that Andrews Group might consider
incorporating an interest factor in the consideration to be received. The
Special Committee discussed the options available to it. After discussion, the
Special Committee directed Wasserstein Perella to go back to Andrews Group and
to try to negotiate for $23 per share. Recognizing that Andrews Group would
probably be unwilling to pay $23 per share, the Special Committee also
authorized Paul Verkuil, the Chairman of the Special Committee, to meet with a
representative of Andrews Group (if Andrews Group did not accept the $23
proposal to be made by Wasserstein Perella) to obtain from Andrews Group its
best offer above $22 per share. In either case, the transaction would be
conditioned on no change being made to the arrangements with Perlmutter and Arad
which could result in them receiving more than under the arrangements previously
described to the Special Committee (which were the arrangements in effect prior
to the January 29, 1997 amendments), and on either party's ability to terminate
the agreement with Andrews Group if the transaction had not then been
consummated by June 30, 1997.
14
<PAGE>
Pursuant to the Special Committee's instructions, Wasserstein Perella
proposed to a representative of Andrews Group that Andrews Group acquire the
shares of Class A Common Stock held by the public stockholders for $23 per
share. The representative of Andrews Group responded that Andrews Group would be
unwilling to pay $23 per share, but might be willing to pay $22 per share with
an interest factor or $22.25 per share without an interest factor. Thereafter,
Paul Verkuil met with a representative of Andrews Group and reiterated the
Special Committee's view that $23 would be an appropriate price. In the context
of this discussion, the parties telephoned Perlmutter to get a briefing on the
latest outlook for the Company's projected earnings for 1996. Perlmutter stated
his view that the Company might only earn $.90 per share for 1996. Verkuil then
suggested that Andrews Group propose to acquire the shares of Class A Common
Stock held by the public stockholders for $22.50 per share ('Proposal A'), or
$22.25 per share with interest beginning to accrue in April 1997 ('Proposal B').
The representative of Andrews Group said that Andrews Group would do so (such
that the Special Committee could accept either Proposal A or Proposal B).
On December 13, 1996, the Special Committee met to consider, among other
things, the relative merits of Proposal A versus Proposal B (including an
analysis of what the 'break point' would be after which stockholders would
receive more value under Proposal B than under Proposal A). After discussion,
the Special Committee concluded that Proposal A would be preferable to Proposal
B. Wasserstein Perella then delivered its opinion dated December 13, 1996, to
the effect that, as of such date and subject to the assumptions and limitations
therein, the $22.50 per share cash consideration to be received by the holders
of the Class A Common Stock (other than Arad and the Perlmutter Group) pursuant
to the Merger Agreement is fair to such holders from a financial point of view.
Thereafter, the Special Committee unanimously recommended that the Company's
Board of Directors accept the offer for $22.50 per share of Class A Common Stock
made by Andrews Group, subject to the negotiation of definitive documentation.
Following this proposal, representatives of Andrews Group and the Special
Committee, as well as the parties' legal and financial advisors, met to discuss
the final terms of the proposal and related matters and to negotiate the terms
of the definitive documents. On December 23, 1996, the Special Committee met to
review the present drafts of the Merger Agreement and the consulting and bonus
agreements between Andrews Group and Arad and Perlmutter.
On December 24, 1996, the Special Committee met to discuss the final terms
and conditions of the proposed Merger Agreement and the advisability of such
transaction. Wasserstein Perella then delivered to the Special Committee its
opinion dated December 24, 1996, confirming its earlier opinion and to the
effect that, as of such date and subject to the assumptions and limitations
therein, the $22.50 per share cash consideration to be received by holders of
Class A Common Stock (other than Arad and the Perlmutter Group) pursuant to the
Merger Agreement is fair to such holders from a financial point of view. See
'--Opinion of Financial Advisor'. The Special Committee then unanimously
determined that, and recommended that the Board of Directors determine that, the
Merger Agreement and the Merger are fair and in the best interests of the
holders of Class A Common Stock (other than Arad and the Perlmutter Group, whose
shares are to be purchased pursuant to the Stock Purchase Agreements). Following
the Special Committee meeting, the Board of Directors of the Company met at a
special meeting to discuss the terms of the proposed transaction and related
issues. The Special Committee's legal counsel reviewed with the Board the terms
of the negotiated proposal. Following this review, the Board of Directors
unanimously determined that the Merger Agreement and the Merger are in the best
interests of the holders of the Class A Common Stock (other than Arad and the
Perlmutter Group, whose shares are to be purchased pursuant to the Stock
Purchase Agreements), approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and unanimously resolved to
recommend that the stockholders of the Company adopt the Merger Agreement and
the Merger. See '--Recommendations of the Special Committee and the Board of
Directors of the Company; Fairness of the Merger.'
On the evening of December 26, the Board of Directors of Marvel met and
unanimously approved the filing of the Petitions and the Joint Plan of
Reorganization.
15
<PAGE>
On December 27, 1997, the Board of Directors of Andrews Group unanimously
approved the Merger Agreement and the Merger and approved the Acquisition
Agreement. On such date the Board of Directors of Acquisition unanimously
approved the Merger Agreement and the Merger.
On December 27, 1996, Andrews Group entered into the Acquisition Agreement
with Marvel pursuant to which Andrews Group or an affiliate thereof will acquire
from Marvel a number of shares of common stock of Marvel representing 80.8% of
the outstanding shares of Marvel common stock after giving effect to the
acquisition in consideration for $365 million in cash or, at the option of
Andrews Group, shares of Class A Common Stock or a combination of the foregoing.
See 'THE ACQUISITION AGREEMENT.'
On December 27, 1996, Andrews Group and Acquisition entered into the Merger
Agreement with the Company. See 'THE MERGER AGREEMENT.'
On December 27, 1996, Marvel and certain of its subsidiaries filed a
voluntary petition for reorganization under Chapter 11 ('Chapter 11') of the
U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. Marvel Holdings Inc. ('Marvel Holdings'), Marvel (Parent) Holdings
Inc. ('Marvel (Parent)') and Marvel III Holdings Inc. ('Marvel III') also filed
voluntary petitions for reorganization under Chapter 11. On December 27, 1996,
Marvel filed a Joint Plan of Reorganization under Chapter 11 of the United
States Bankruptcy Code (the 'Joint Plan of Reorganization') which contemplated
the investment by Andrews Group of $365 million for additional common stock of
Marvel and the acquisition by Marvel, Andrews Group or an affiliate of Andrews
Group of the Company, resulting in the Company becoming a wholly owned
subsidiary of Marvel.
In mid-January, as a result of discussions with the Company's management,
Andrews Group became aware that the Company's management believed that the
Company's 1996 fiscal year financial results might not meet the Company's and
Andrews Group's expectations. As a result, Andrews Group representatives entered
into discussions with Arad and Perlmutter regarding a modification of the
original Stock Purchase Agreements. Those agreements were amended as of January
29, 1997, (i) to reduce the aggregate cash purchase price to be paid to
Perlmutter and Arad in the Stock Purchase Agreements by $20 million, to
$171,184,000 (or from $14 per share to approximately $12.54 per share), and to
reduce the aggregate principal amount of the promissory notes by $20 million, to
$20 million (or from $2.93 per share to approximately $1.46 per share), and (ii)
to provide that Perlmutter and Arad could receive up to an additional aggregate
of $20 million (or approximately $1.46 per share) if the Company achieves
certain levels of 'Operating Cash Flow' (as defined in such agreements) in the
1997, 1998 and 1999 fiscal years, or if the Company is sold within three years
of the acquisition of the shares pursuant to the Stock Purchase Agreements
(which amounts are in addition to the amounts that Arad and Perlmutter would
otherwise be entitled to receive under the consulting and bonus agreements
described under 'CERTAIN OTHER AGREEMENTS--Consulting and Bonus Agreements with
Arad and Perlmutter'). See 'CERTAIN OTHER AGREEMENTS--The Stock Purchase
Agreements' and '--Consulting and Bonus Agreements with Arad and Perlmutter.'
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF THE
COMPANY; FAIRNESS OF THE MERGER
The Special Committee met on eleven different occasions from October 17,
1996 to December 24, 1996 to review the proposals made by Andrews Group and
related matters, and to receive and consider the presentations made by its
financial and legal advisors. On December 24, 1996, the Special Committee
unanimously determined that the Merger Agreement and the Merger were fair and in
the best interests of the holders of the Class A Common Stock (other than Arad
and the Perlmutter Group, whose shares are to be purchased pursuant to the Stock
Purchase Agreements) and recommended that the full Board of Directors make the
same determination. At a meeting held thereafter on December 24, 1996, the Board
of Directors of the Company, on the basis of the recommendation of the Special
Committee, concluded that the Merger Agreement and the Merger were fair and in
the best interests of the holders of the shares of Class A Common Stock (other
than Arad and the Perlmutter Group, whose shares are to be purchased pursuant to
the
16
<PAGE>
Stock Purchase Agreements), unanimously approved the Merger Agreement and
recommended that the stockholders of the Company adopt the Merger Agreement.
Reasons for the Special Committee's Recommendation. In reaching its
recommendation, the Special Committee considered the factors listed below. In
view of the wide variety of factors considered in connection with its evaluation
of the Merger, the Special Committee did not consider it practicable to, and did
not attempt to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its determination.
(i) The Company's business, condition and prospects. In evaluating the
terms of the Merger, the Special Committee considered the business, results
of operations, financial condition, assets, liabilities, business strategy
and prospects for the Company. The members of the Special Committee were
generally familiar with and knowledgeable about the Company's affairs and
further reviewed these matters in the course of their deliberations. The
Special Committee considered, among other things, the historical operations
and financial performance of the Company, the current condition of the
business and the toy industry, the budgets and projections described
elsewhere in this Proxy Statement (see '--Certain Projections') and
projected long-term trends for the Company and the toy industry. Such
analysis also included consideration of the potential future revenues the
Company could receive from the development of toys related to the
anticipated release of movies based on the Marvel characters, including The
Fantastic Four, The Incredible Hulk and The X-Men.
In evaluating the Company's results of operations, the Special
Committee focused particularly on the Company's anticipated earnings per
share for 1996 (based in part on discussions with the Company's
management), which at the time of such deliberations were expected to be
significantly lower than the earnings per share previously targeted in the
Company's internal 1996 budget. The Company's management attributed the
Company's anticipated failure to achieve the expected earnings to various
factors including (i) unusual competitive conditions in the marketplace
caused by products associated with the Space Jam movie and Nintendo 64 (and
the absence of any comparable 'smash hit' product in the Company's product
line), (ii) marketplace uncertainty and confusion as to the financial
status of Marvel and the Company (which had caused retailers to delay their
orders) and (iii) the moderate overall demand for toys in the 1996
Christmas season, particularly at non-mall retailers. In evaluating the
Company's prospects, the Special Committee considered the possible adverse
consequences to the Company of the deteriorating operating performance of
Marvel and its probable bankruptcy filing, including retailer uncertainty
and the possibility that promotional expenditures for the Marvel characters
would be reduced.
Taking into account the matters described above, the Special Committee
considered the Company's business, financial condition, results of
operations and prospects and the general condition of the toy industry to
support its recommendation.
(ii) Opinion of Wasserstein Perella. The Special Committee considered
the opinion delivered by its financial advisor, Wasserstein Perella, on
December 13, 1996, which opinion was subsequently confirmed on December 24,
1996, to the effect that, as of such dates and subject to the assumptions
and limitations therein, the $22.50 per share cash consideration to be
received by the holders of Class A Common Stock (other than Arad and the
Perlmutter Group) pursuant to the Merger Agreement was fair to such holders
from a financial point of view, and the presentations made by Wasserstein
Perella. See '--Opinion of Financial Advisor'. A copy of Wasserstein
Perella's opinion to the Special Committee dated December 24, 1996 is
attached as Annex B to this Proxy Statement and is incorporated herein by
reference. Such opinion should be read in its entirety for a description of
the opinion expressed, procedures followed, matters considered and
limitations of review undertaken in connection with such opinion.
The Special Committee considered such opinion and such presentations
to support its recommendation. In light of its familiarity with the Company
and Wasserstein Perella's responses to questions during such presentations
(including questions with respect to the
17
<PAGE>
valuation methods used by Wasserstein Perella and the assumptions
considered and used by Wasserstein Perella in its valuation analyses), the
Special Committee found reasonable and relied upon Wasserstein Perella's
analyses and opinion. In particular, the Special Committee accepted as
reasonable the comparable company analysis, discounted cash flow analysis
and comparable acquisition analysis presented by Wasserstein Perella. The
Special Committee noted that the Merger Consideration was within the range
of values produced by each of Wasserstein Perella's analyses.
(iii) Consideration to be received by Arad and Perlmutter. In
evaluating the terms of the Merger, the Special Committee considered the
terms of the Stock Purchase Agreements (which have since been amended, see
'CERTAIN OTHER AGREEMENTS--Stock Purchase Agreements', and which, as
amended have not been reviewed by the Special Committee) between Andrews
Group and each of Arad (a director of and consultant to the Company and the
owner of 4,150,000 shares of Class A Common Stock) and the Perlmutter
Group, (controlled by Perlmutter, who is a director of the Company who is
involved in the management of the Company and which is the owner of
9,506,000 shares of Class A Common Stock), pursuant to which Andrews Group
will purchase their shares of Class A Common Stock for cash and Andrews
Group debt securities with an aggregate value of approximately $16.93 per
share (if the Andrews Group debt securities were valued at face value).
Because the Andrews Group debt will bear interest equal to the five-year
treasury bill rate at the time of issuance (a rate that Wasserstein Perella
believed was lower than the rate at which Andrews Group would be able to
borrow in the open market given Wasserstein Perella's assumption about what
Andrews Group's credit rating would be if it had publicly rated debt
securities), the Special Committee believed that it would be appropriate to
discount by approximately $.20 per share the value of the Andrews Group
debt. Accordingly, the Special Committee assumed for purposes of its
deliberations that the value of the consideration to be received by Arad
and the Perlmutter Group for their shares of Class A Common Stock would be
approximately $16.75 per share.
In addition, the Special Committee considered the consulting and bonus
agreements to be entered into between Andrews Group and each of Arad and
Perlmutter (which have since been revised, see 'CERTAIN OTHER
AGREEMENTS--Consulting and Bonus Agreements with Arad and Perlmutter, and
which, as revised, have not been reviewed by the Special Committee),
pursuant to which Arad and Perlmutter will receive (i) the right to receive
additional consideration (in an aggregate amount equal to the difference
between the Merger Consideration and the amount paid per share pursuant to
the Stock Purchase Agreements, multiplied by the number of shares purchased
pursuant to the Stock Purchase Agreements) if the Company is resold within
three years after the consummation of the Merger and (ii) together with
Joseph Ahearn, the President and Chief Executive Officer of the Company,
and certain other employees of the Company, a performance bonus arrangement
entitling them in the aggregate to 20% of any increase in the enterprise
value of the Company (based on a multiple of operating profit) during the
three year period following the Merger; provided that (a) no performance
bonus would be payable if the Company were resold within the first year
after the consummation of the Merger and (b) if the Company were resold in
the second or third year following the consummation of the Merger, they
would receive the higher of the contingent payment referred to in (i) above
or the performance bonus referred to in (ii) above. The Special Committee,
as part of its evaluation of the Merger, directed Wasserstein Perella to
analyze the value of the additional consideration payable to Arad and
Perlmutter under the consulting and bonus agreements in order to determine
whether, when such additional consideration is added to the amount payable
to them under the Stock Purchase Agreements, the aggregate amount they
would receive per share would exceed $22.50. Wasserstein Perella valued the
additional consideration to be received pursuant to the consulting and
bonus agreements at approximately $55 million to $82 million in the
aggregate, or $4 to $6 per share (based on the total number of shares held
by Arad and the Perlmutter Group). However, since only two-thirds of the
value of the additional consideration would be received by Arad and
18
<PAGE>
Perlmutter (with the other third being allocated to Joseph Ahearn and other
employees of the Company), Wasserstein Perella valued the additional
consideration that Arad and Perlmutter would receive at between $3 to $4
per share. When added to the $16.75 per share that Arad and Perlmutter
would receive pursuant to the Stock Purchase Agreements, the total value of
the consideration they would receive would be $19.75 to $20.75 per share.
The Special Committee noted that if the additional consideration allocated
to each of Arad and Perlmutter was based on share holdings, Arad would
receive additional consideration valued at approximately $4.40 to $6.60 per
share (and total consideration of approximately $21.15 to $23.35 per share)
and Perlmutter would receive additional consideration valued at
approximately $1.95 to $2.90 per share (and total consideration of
approximately $18.70 to $19.65 per share).
The Special Committee noted that the Merger Consideration to be
received by the public stockholders would (i) exceed even the high end of
the range of total values of the consideration to be paid to Perlmutter and
(ii) exceed the midpoint ($22.25) of the range of total values of the
consideration to be paid to Arad. The Special Committee noted that the
consideration to be paid to Arad would exceed the Merger Consideration to
be received by the public stockholders only if (i) the additional
consideration to be received by Arad were to be valued at the high end of
the valuation range and (ii) less than $.85 of the value of that additional
consideration were to be properly attributable to bona fide compensation
for services rendered. The Special Committee noted that given Arad's
significant development role in many of the Company's products and the
expectation that he will continue to play an important role in the future
affairs of the Company, it would be reasonable to attribute some portion of
the additional consideration payable to Arad to bona fide compensation for
services rendered. The Special Committee also noted that one of the
elements of the arrangements between Arad and Andrews Group is the
reduction from $7.5 million to $2.5 million of the maximum royalty payment
payable to Arad under the license agreement pursuant to which he receives a
royalty based on sales of Marvel character-based toys and non-Marvel based
toys of which he is the inventor of record and that, accordingly, a portion
of the additional consideration payable to Arad may also be attributable to
this reduction. The Special Committee also considered the facts that (i)
one-third of the additional consideration was being paid to Joseph Ahearn
and other employees of the Company (who are not parties to the Stock
Purchase Agreements) and (ii) the additional consideration being paid to
Arad and Perlmutter is not pro rata to their share ownership, as providing
further support for the attribution of a portion of the additional
consideration to bona fide compensation as opposed to payment for their
shares of Class A Common Stock.
Taking into account the matters described above, the Special Committee
considered its analyses of the value of the consideration to be received by
Arad and Perlmutter in connection with the transaction (together with the
fact that the Merger Agreement contains a covenant that prohibits Andrews
Group, without the Company's consent, from altering or amending the Stock
Purchase Agreements or the consulting and bonus agreements so as to make
such arrangements economically more favorable to Arad or Perlmutter or from
entering into any similar agreements) to support its recommendation.
(iv) Historical and Recent Market Prices. The Special Committee
considered the historical market price and recent trading activity of the
Class A Common Stock as supporting its recommendation. The Special
Committee considered as favorable that the Merger Consideration represented
a premium of 17.6% over the closing sale price of $19 1/8 for the Class A
Common Stock on October 17, 1996, the date of the first public announcement
of the proposed transaction. The Special Committee also considered an
analysis prepared by Wasserstein Perella showing the distribution of
trading volume in the Class A Common Stock held by the public stockholders
at various price ranges from the date of the initial public offering of
Class A Common Stock (February 23, 1995) through December 11, 1996. That
analysis indicated that the number of shares traded in the $20.00 to $22.00
range would equal over 91% of the outstanding shares of Class A Common
Stock held by the public stockholders.
19
<PAGE>
Finally, the Special Committee noted that 3,200,000 shares of Class A
Common Stock had been sold in an underwritten public offering in August
1996 at $15.00 per share, and that the Merger Consideration represents a
50% premium to the price to the public in that transaction.
(v) Alternatives. The Special Committee considered alternatives to the
Merger. The Special Committee considered as supporting its recommendation
its belief, based in part on the views of its advisors, that it was
unlikely that another entity would seek to acquire the 7.1% voting interest
in the Company not controlled by Andrews Group. The Special Committee was
of the view, based in part on Andrews Group's majority control of the
Company, that it was highly unlikely that a solicitation of other bidders
at this time would result in an offer to acquire the minority stockholders'
interest at a higher price.
(vi) Independent Negotiations. The Special Committee considered as
supporting its recommendation the fact that the Merger Consideration was
determined through arm's-length discussions and negotiations between
members of the Special Committee and the Special Committee's advisors, on
the one hand, and representatives of Andrews Group and their advisors, on
the other hand, and the fact that such negotiations resulted in an increase
in the value to be received by the Company's stockholders (other than Arad
and the Perlmutter Group, whose shares are to be purchased pursuant to the
Stock Purchase Agreements) of $3.50, or 18.4%, as compared to the $19.00
per share offered pursuant to the original proposal. The Special Committee
was of the view that, based on the history and nature of such discussions
and negotiations (including the fact that Andrews Group had considered and
rejected the Special Committee's request that the Class A Common Stock be
acquired for more than $22.50 per share), the Merger Consideration
reflected the highest price Andrews Group was prepared to pay and that any
further negotiations would not result in a higher price and might
jeopardize the possibility of reaching an agreement with Andrews Group. The
Special Committee also considered the risk that prolonging the negotiation
process further could significantly disrupt the Company's businesses.
(vii) Terms of the Merger Agreement. The Special Committee considered
as supporting its recommendation the terms and conditions of the Merger
Agreement, including the fact that, other than the Marvel Restructuring
Condition (as defined below), the conditions to Andrews Group's obligation
to consummate the Merger are reasonably limited and do not include the
obtaining of financing or the absence of a material adverse change in the
business or financial condition of the Company.
The Special Committee viewed as favorable the provision of the Merger
Agreement that permits the Board of Directors of the Company to terminate
the Merger Agreement in order to enter into an agreement with a third party
that represents a superior acquisition proposal (if such action is required
in order to avoid the Board of Directors' violating its fiduciary duties
under applicable law).
The Special Committee, in the course of its negotiations with
representatives of Andrews Group, had sought to eliminate the condition to
Andrews Group's obligation to acquire the shares of Class A Common Stock
that the restructuring of Marvel contemplated by the Joint Plan of
Reorganization has been consummated (the 'Marvel Restructuring Condition').
Andrews Group was unwilling to agree to acquire the shares of Class A
Common Stock without the Marvel Restructuring Condition because Marvel (and
not Andrews Group, the indirect parent company of Marvel) is the majority
stockholder of the Company. If the Marvel Restructuring Condition was not
satisfied, and Marvel was to go through a conventional bankruptcy
proceeding (as opposed to the partial prepackaged bankruptcy reflected by
by the Joint Plan of Reorganization), the shares of capital stock of the
Company owned by Marvel could be sold to a third party. Under those
circumstances, it would be onerous for Andrews Group to be required to
purchase the shares of Class A Common Stock held by the public stockholders
(because Andrews Group would be left with a minority stock ownership
position for which it had paid a premium). While the Special Committee
would have preferred to eliminate the Marvel Restructuring Condition and
recognized that the existence of the
20
<PAGE>
condition increased the risk that the transaction would not be consummated,
the Special Committee did not believe that Andrews Group's position was
without merit and concluded that the inclusion of the Marvel Restructuring
Condition in the Merger Agreement was reasonable under the circumstances
(including the provision of the Merger Agreement that permits the Company
to terminate the Merger Agreement if the Merger is not consummated by June
30, 1997). For a detailed description of the terms of the Merger Agreement,
see 'THE MERGER AGREEMENT.'
Reasons for the Board of Directors' Determination. In reaching its decision
to approve the Merger Agreement and to recommend that the Company's stockholders
adopt the Merger Agreement, the Board of Directors relied on the Special
Committee's recommendation and the factors relied on by the Special Committee as
described above. Because of the appointment of the Special Committee and its
engagement of Cravath, Swaine & Moore, Richards, Layton & Finger and Wasserstein
Perella, neither the Special Committee nor the Board of Directors considered it
necessary to retain additional advisors to act on behalf of the Company's
stockholders (other than Arad and the Perlmutter Group, whose shares are to be
purchased pursuant to the Stock Purchase Agreements) for purposes of negotiating
the terms of the Merger and the Merger Agreement. In view of the wide variety of
factors considered in connection with its evaluation of the Merger and the
Merger Agreement, the Board of Directors did not find it practicable to, and did
not attempt to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its determinations.
OPINION OF FINANCIAL ADVISOR
The Special Committee retained Wasserstein Perella to act as its financial
advisor in connection with the Merger. On December 13, 1996, Wasserstein Perella
delivered its opinion, which opinion was subsequently confirmed on December 24,
1996, to the Special Committee to the effect that, as of such dates and subject
to the assumptions and limitations therein, the $22.50 per share cash
consideration to be received by holders of Class A Common Stock (other than Arad
and the Perlmutter Group) pursuant to the Merger Agreement was fair to such
holders from a financial point of view. A copy of the full text of the written
opinion of Wasserstein Perella dated December 24, 1996, which sets forth among
other things the opinions expressed, the assumptions made, procedures followed,
matters considered and limitations of the review undertaken in connection with
the opinion, is attached to this Proxy Statement as Annex B and should be read
in its entirety. Wasserstein Perella's opinion does not constitute a
recommendation to any holder of Class A Common Stock as to how such holder
should vote or otherwise act in respect of the Merger Agreement and the Merger
and should not be relied upon by any holder in respect of such matters. The
summary of the opinion of Wasserstein Perella set forth herein is qualified in
its entirety by reference to the full text of the opinion attached as Annex B.
In connection with rendering its opinion, Wasserstein Perella, among other
things, (i) reviewed and analyzed the Stock Purchase Agreements (as then in
effect), the Merger Agreement and the agreements described in 'CERTAIN OTHER
AGREEMENTS--Consulting and Bonus Agreements with Arad and Perlmutter' (as then
in effect); (ii) reviewed and analyzed certain publicly available business and
financial information relating to the Company for recent years and interim
periods to date as well as certain internal financial and operating information,
including financial forecasts and projections prepared by or on behalf of the
Company and provided to Wasserstein Perella for purposes of its analyses (see
'--Certain Projections'); (iii) met with representatives of the Company,
Marvel and Andrews Group and with Arad and Perlmutter to review and discuss
such information and, among other matters, the Company's business, financial
condition, results of operations and prospects; (iv) reviewed and considered
certain financial and stock market data relating to the Company and compared
that data with similar data for certain other companies, the securities of
which are publicly traded and that Wasserstein Perella believed might be
relevant or comparable in certain respects to the Company or one or more of
its businesses or assets; (v) reviewed and considered the financial terms of
certain recent acquisitions and business combination transactions in the toy
industry specifically, and in other
21
<PAGE>
industries generally, which Wasserstein Perella believed to be reasonably
comparable to the Merger or otherwise relevant to its inquiry; and (vi)
performed such other studies, analyses and investigations and reviewed such
other information as Wasserstein Perella considered appropriate.
In its review and analysis and in formulating its opinion, Wasserstein
Perella assumed and relied on the accuracy and completeness of the financial and
other information provided to or discussed with it or made publicly available
without assuming any responsibility for independent verification of any of such
information. With respect to the financial forecasts and projections,
Wasserstein Perella assumed that they were reasonably prepared in good faith on
bases reflecting the best estimates and judgments of the management of the
Company available as of December 24, 1996 and relied upon the reasonableness and
accuracy thereof. Wasserstein Perella did not review any of the books and
records of the Company or assume any responsibility for conducting a physical
inspection of the properties or facilities of the Company or for making or
obtaining an independent valuation or appraisal of the assets or liabilities of
the Company. Wasserstein Perella's opinion was based on economic and market
conditions and other circumstances as they existed and could be evaluated by it
on December 24, 1996. In the context of its engagement, Wasserstein Perella was
not authorized to solicit and did not solicit alternative offers for the Company
or its assets or investigate any other alternative transactions which may be
available to the Company. Wasserstein Perella assumed that, when executed, the
consulting and performance bonus agreements between the Company and each of Arad
and Perlmutter referred to in the Stock Purchase Agreements would be as
previously described to Wasserstein Perella and that there are, and as of the
Effective Time of the Merger there will be, no agreements, arrangements or
understandings among either or both of Arad or Perlmutter, on the one hand, and
the Company, Marvel, the Andrews Group or any affiliate of any of the foregoing,
on the other hand, other than the Stock Purchase Agreements and such consulting
and bonus agreements. See 'THE MERGER AGREEMENT--Stock Purchase Agreements'.
The following is a summary of the report presented by Wasserstein Perella
to the Special Committee in connection with its opinion.
Stock Price Analysis. Wasserstein Perella reviewed the stock market trading
history of the Company since its initial public offering on February 23, 1995
through December 11, 1996 (including a comparison of the relative stock price
performance of the Company as compared to market and other toy company indices).
In addition, Wasserstein Perella reviewed the distribution of trading volume in
the Class A Common Stock at various price ranges over the same period.
Comparable Company Analysis. As part of its analysis, Wasserstein Perella
compared certain financial information of the Company with that of a group of
four major toy companies: Mattel Inc., Hasbro Inc., Tyco Toys Inc. and Galoob
Toys Inc. (collectively, the 'Major Companies'), and with that of an additional
group of toy companies: Ero Inc., Empire of Carolina, Play by Play Toys &
Novelties and Ohio Art Company (collectively, the 'Other Companies' and,
together with the Major Companies, the 'Comparable Companies'). Such financial
information was used to calculate both latest 12 months ('LTM') and next fiscal
year ('NFY') multiples, including the market equity value as of December 11,
1996 ('Market Value') as a multiple of each of net income and book value and
adjusted market value as of December 11, 1996 (defined generally as the Market
Value plus net debt (short- and long-term debt less cash)) ('Adjusted Market
Value') as a multiple of net sales, earnings before interest, taxes,
depreciation and amortization ('EBITDA') and earnings before interest and taxes
('EBIT'). Such analyses, excluding certain multiples which Wasserstein Perella
determined were not meaningful, indicated that, as of December 11, 1996, based
on an LTM analysis, (i) the Company traded at a Market Value multiple of 16.0
times net income, as compared to a range of 18.6 to 21.6 times for the Major
Companies (the mean and median for which was 20.1 times) and a range of 14.7 to
32.5 times for the Other Companies (the mean and median for which was 23.6
times); (ii) the Company traded at a Market Value multiple of 3.5 times book
value, as compared to a range of 0.7 to 6.3 times for the Major Companies (the
mean and median for which was 3.5 times) and a range of 1.1 to 2.4 times for the
Other Companies (the mean for which was 1.5 times and the median for which was
1.3 times); (iii) the Company traded at an Adjusted Market Value multiple of 2.0
times net sales, as compared to a range of 0.7 to 2.5 times for the Major
22
<PAGE>
Companies (the mean and median for which was 1.5 times) and a range of 0.6 to
1.9 times for the Other Companies (the mean for which was 1.1 times and the
median for which was 1.0 times); (iv) the Company traded at an Adjusted Market
Value multiple of 7.5 times EBITDA, as compared to a range of 9.1 to 11.4 times
for the Major Companies (the mean for which was 10.2 times and the median for
which was 10.0 times) and a range of 8.3 to 13.8 times for the Other Companies
(the mean for which was 11.4 times and the median for which was 12.0 times); and
(v) the Company traded at an Adjusted Market Value multiple of 9.7 times EBIT,
as compared to a range of 13.1 to 14.1 times for the Major Companies (the mean
and median for which was 13.6 times) and 11.0 for the Other Companies (the mean
and median for which was 11.0 times). Such analyses, excluding certain multiples
which Wasserstein Perella determined were not meaningful, indicated that as of
December 11, 1996, based on a NFY analysis, (a) the Company traded at a Market
Value multiple of 14.3 times net income, as compared to a range of 13.7 to 23.5
times for the Major Companies (the mean for which was 18.0 times and the median
for which was 17.4 times) and a range of 7.4 to 8.4 times for the Other
Companies which included only two of the Other Companies in the NFY analysis due
to the lack of available NFY information (the mean for which was 7.9 times); (b)
the Company traded at a Market Value multiple of 2.6 times book value, as
compared to a range of 0.7 to 4.7 times for the Major Companies (the mean for
which was 2.9 times and the median for which was 3.1 times) and 1.0 and 1.9
times for the Other Companies (the mean for which was 1.4 times); (c) the
Company traded at an Adjusted Market Value multiple of 1.5 times net sales, as
compared to a range of 0.6 to 2.1 times for the Major Companies (the mean for
which was 1.3 times and the median for which was 1.2 times) and 0.5 and 1.0
times for the Other Companies (the mean for which was 0.8 times); (d) the
Company traded at an Adjusted Market Value multiple of 6.6 times EBITDA, as
compared to a range of 5.8 to 9.8 times for the Major Companies (the mean for
which was 7.8 times and the median for which was 7.7 times) and 4.1 and 5.8
times, for the Other Companies (the mean for which was 4.9 times); and (e) the
Company traded at an Adjusted Market Value multiple of 8.7 times EBIT, as
compared to a range of 7.8 to 11.9 times for the Major Companies (the mean for
which was 10.1 times and the median for which was 10.3 times) and 7.0 and 7.2
times for the Other Companies (the mean for which was 7.1 times).
Discounted Cash Flow Analysis. Wasserstein Perella also performed a base
case and an incremental case discounted cash flow analysis of the Company based
on certain financial projections for the fiscal years ended 1997 through 2001
(the 'Five Year DCF') and 1997 through 2006 (the 'Ten Year DCF'). See '--Certain
Projections.' In performing the base case analysis, Wasserstein Perella, using
budgets for 1996 and 1997 prepared by the management of the Company, and using
forecasts for 1998 through 2006 which were mathematical extrapolations from the
earlier budgets (which mathematical extrapolations were reviewed with, and
revised as a result of comments from, the Company), discounted the unlevered
free cash flows of the Company (unlevered net income, plus depreciation and
amortization, less changes in working capital, less capital expenditures) over
the forecast period using a range of risk adjusted discount rates between 11%
and 13% (representing a range of weighted average cost of capital for the
Comparable Companies). The sum of the present values of such free cash flows for
the Company was then added to the present value of the Company's terminal value
computed using a forward multiple range of EBIT of 10.0 to 12.0 times,
representing the estimated range of enterprise value to EBIT for the Company.
Based on this analysis, for the Five Year DCF, Wasserstein Perella calculated
the implied price per share to be (i) $22.86 to $26.98 using a discount rate of
11.0%; (ii) $21.88 to $25.82 using a discount rate of 12%; and (iii) $20.95 to
$24.72 using a discount rate of 13.0%. For the Ten Year DCF, Wasserstein Perella
calculated the implied price per share to be (a) $21.41 to $24.35 using a
discount rate of 11.0%; (b) $19.77 to $22.46 using a discount rate of 12.0%; and
(c) $18.28 to $20.74 using a discount rate of 13.0%.
In performing the incremental case analysis, Wasserstein Perella maintained
the financial projections used in the base case analysis, but also assumed that,
in addition to all base growth rate assumptions, the Company will receive the
benefits of six Marvel character related movies over the course of the next ten
years. Based on this analysis, for the Five Year DCF, Wasserstein Perella
calculated the implied price per share to be (i) $23.97 to $28.29 using a
discount rate of 11.0%; (ii) $22.93 to $27.06 using a discount rate of $12%; and
(iii) $21.95 to $25.90 using a
23
<PAGE>
discount rate of 13.0%. For the Ten Year DCF, Wasserstein Perella calculated the
implied price per share to be (a) $23.44 to $26.71 using a discount rate of
11.0%; (b) $21.63 to $24.62 using a discount rate of 12.0%; and (c) $19.98 to
$22.71 using a discount rate of 13.0%.
Comparable Acquisitions. Wasserstein Perella reviewed 13 proposed or
completed comparable acquisitions announced since January 1991: Tyco Toys Inc.
by Mattel, Inc.; Graco Children's Products by Rubbermaid; Spalding & Evenflo by
KKR; Hasbro Inc. by Mattel, Inc.; Amav Industries by ERO Inc.; Marchon Inc. by
Empire of Carolina Inc.; Revell-Monogram Inc. by Hallmark Cards Inc.; Gerber
Products Company by Sandoz Ltd.; Kransco by Mattel, Inc.; Fisher-Price Inc. by
Mattel, Inc.; Flexible Flyer by Roadmaster Industries Inc.; Universal Matchbox
Group by Tyco Toys Inc. and Tonka Corporation by Hasbro Inc. These transactions
showed the following ranges of multiples: (i) adjusted purchase price to sales:
0.7 to 3.2 times, compared to 2.5 times for the Merger; (ii) adjusted purchase
price to EBITDA: 6.9 to 15.5 times, compared to 9.5 times for the Merger; (iii)
adjusted purchase price to EBIT: 7.8 to 43.9 times, compared to 12.3 times for
the Merger; (iv) purchase price to net income: 11.1 to 29.5 times, compared to
20.3 times for the Merger, and (v) purchase price to book value: 0.7 to 16.6
times, compared to 4.5 times for the Merger.
Valuation of Additional Consideration. Wasserstein Perella also performed
a valuation of the additional consideration to be paid to Arad and Perlmutter
pursuant to the consulting and bonus agreements (as then in effect). See
'--Recommendations of the Special Committee and the Board of Directors of the
Company; Fairness of the Merger--Consideration to be Received by Arad and
Perlmutter.'
No transaction used in the comparable acquisitions analysis is identical to
the Merger and no company used in the comparable companies analysis is identical
to the Company. The discounted cash flow analysis and the valuation of the
additional consideration to be paid to Arad and Perlmutter pursuant to the
consulting and bonus agreements are based and heavily dependent upon the
Company's budgets, among other factors, and are therefore subject to the
limitations described in '--Certain Projections.' Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition value or the public trading value of the companies to which they
are being compared and the Company.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description.
Wasserstein Perella believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering the analyses taken
as a whole, would create an incomplete view of the process underlying the
analyses set forth in its opinions. In addition, Wasserstein Perella considered
the results of all such analyses and did not assign relative weights to any of
the analyses, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Wasserstein Perella's view of
the actual value of the Company.
In performing its analyses, Wasserstein Perella made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by Wasserstein Perella are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of Wasserstein
Perella's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold.
The Special Committee retained Wasserstein Perella based upon its
experience and expertise. Wasserstein Perella is an internationally recognized
investment banking and advisory firm. Wasserstein Perella, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the course of its market making and other trading
activities, Wasserstein Perella and its affiliates may, from time to time, have
a long or short position in, and may buy and sell, securities of the Company,
Marvel, the Andrews Group or affiliated entities. In 1988, Wasserstein Perella
received a retainer from an entity affiliated with Andrews Group against the
future performance of services.
24
<PAGE>
Pursuant to the Engagement Letter dated as of October 30, 1996, the Company
agreed to pay the following fees to Wasserstein Perella in connection with its
engagement: (i) a financial advisory fee of $250,000, payable upon execution of
the Engagement Letter, (ii) an additional fee of $750,000, payable on the date
on which Wasserstein Perella rendered its initial opinion and (iii) an
additional fee equal to 3.25% of the Additional Consideration (as defined
below), payable upon the consummation of the Merger; provided, however, that the
aggregate fee payable to Wasserstein Perella under the Engagement Letter may not
exceed $1.5 million. As used in the Engagement Letter, 'Additional
Consideration' means the total amount of cash or other property payable to the
public stockholders of the Company in respect of their Class A Common Stock in
connection with the Merger in excess of $19.125 per share (which was the closing
price of the Class A Common Stock on October 17, 1996, the date on which Andrews
Group announced that Marvel would propose to acquire the remaining shares of
Class A Common Stock at a price approximating current market value) multiplied
by the number of shares of Class A Common Stock that are the subject of such
transaction. The foregoing provisions will result in an aggregate fee of $1.5
million having been paid to Wasserstein Perella if the Merger is consummated. In
addition, the Company has agreed to reimburse Wasserstein Perella for its
reasonable out-of-pocket expenses incurred in connection with the services
provided by Wasserstein Perella and to indemnify and hold harmless Wasserstein
Perella and certain related parties to the full extent lawful from and against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, incurred in connection with its engagement.
CERTAIN PROJECTIONS
The Company does not as a matter of course prepare or make public any
forecasts as to future performance or earnings. However, management of the
Company prepared certain budgets with respect to the 1996 and 1997 fiscal years
which were received by the Special Committee, Andrews Group and Marvel in
connection with the consideration of the Merger. In addition, Marvel prepared
projections in connection with the negotiation of the Company's New Credit
Facility (as defined herein) for the period 1997-2001 by extrapolating from the
Company's budgets for 1996 and 1997. Such budgets and projections are
hereinafter referred to as 'projections.' THE PROJECTIONS WERE NOT PREPARED WITH
A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE
COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS REGARDING PROJECTIONS. NO INDEPENDENT PUBLIC ACCOUNTANT HAS
AUDITED, EXAMINED, REVIEWED OR COMPILED SUCH PROJECTIONS AND ACCORDINGLY, NO
SUCH FIRM HAS EXPRESSED ANY OPINION OR OTHER FORM OF ASSURANCE THEREON OR
ASSUMES ANY RESPONSIBILITY FOR THEM. NO OTHER INDEPENDENT EXPERT, INCLUDING
WITHOUT LIMITATION WASSERSTEIN PERELLA, HAS INDEPENDENTLY REVIEWED OR VERIFIED
THESE PROJECTIONS OR THE ASSUMPTIONS RELATED THERETO. NONE OF ANDREWS GROUP,
ACQUISITION, THE COMPANY, MARVEL, THEIR RESPECTIVE DIRECTORS AND OFFICERS OR ANY
PARTY TO WHOM ANY OF THESE PROJECTIONS WERE PROVIDED, INCLUDING WITHOUT
LIMITATION THE SPECIAL COMMITTEE AND WASSERSTEIN PERELLA, ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OF SUCH PROJECTIONS.
These projections were based on a number of estimates and assumptions that,
while presented with numerical specificity and considered reasonable by the
Company or Marvel, as the case may be, at the time the projections were
prepared, are inherently subject to significant business, economic and
competitive uncertainties and contingencies, including but not limited to those
factors set forth under 'Special Note Regarding Forward Looking Statements,'
many of which are beyond the control of the Company, and upon assumptions with
respect to future business decisions that are subject to change. These
projections were prepared in November of 1996 and reflect the Company's or
Marvel's estimates at that time. If the Company or Marvel were to prepare
forecasts at this time, such forecasts may be based on different assumptions and
estimates, and may be different from those set forth below. Accordingly, there
can be no assurance that the forecast results will be realized. These
projections do not give effect to the Merger.
THE PROJECTIONS AND ACTUAL RESULTS WILL VARY BECAUSE EVENTS AND
CIRCUMSTANCES FREQUENTLY DO NOT OCCUR AS EXPECTED, AND SUCH VARIATIONS MAY BE
MATERIAL. THE INCLUSION
25
<PAGE>
OF THE SUMMARY PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY
THE COMPANY OR MARVEL, AS THE CASE MAY BE, OR ANY OTHER PERSON THAT THE
PROJECTIONS WILL BE ACHIEVED. NEITHER THE COMPANY NOR MARVEL INTENDS TO UPDATE
THE SUMMARY PROJECTIONS.
The summary projections and assumptions stated below should be reviewed
carefully in conjunction with each other, with the consolidated financial
statements of the Company and the notes thereto incorporated by reference in
this Proxy Statement. See 'SELECTED FINANCIAL INFORMATION' for the Company's
1996 financial data.
The budgets prepared by management of the Company and received by the
Special Committee and Andrews Group and Marvel included the following with
respect to the 1996 and 1997 fiscal years:
(i) net sales of $257 million and $330 million, respectively;
(ii) gross profit of $131 million and $164 million, respectively;
(iii) operating profit of $47 million and $56.3 million, respectively;
(iv) after tax profit of $29 million and $34.67 million, respectively;
and
(v) earnings per share of $1.05 and $1.25, respectively.
The projections prepared by Marvel included the following:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenues................................. $330,000 $398,600 $414,690 $424,007 $433,557
Gross Profit................................... 164,000 194,790 201,598 206,065 210,643
Operating Income............................... 56,300 70,596 74,404 75,880 77,393
</TABLE>
Set forth below are certain significant estimates and assumptions reflected
in the summary projections set forth above.
Net Revenues
For 1997, net revenues are projected to increase by $73 million or 28%.
Approximately one-third, or $25 million, of this change relates to Marvel action
figure net revenues increasing to approximately $100 million domestically due to
new media exposure created by Marvel's agreement with Fox Kids Worldwide, as
'Silver Surfer' is anticipated to begin in the fall of 1997. Also assumed are
general increases in other product categories including an increase in activity
toys resulting from the introduction of 'ride-on' products.
For 1998, net revenues are assumed to increase by approximately $69
million, primarily reflecting an assumed release of a feature film based on a
Marvel character which is assumed to generate $35 million in incremental
revenues. The projections also assume an additional new animation series based
on a Marvel character beginning in the fall of 1998. Also contributing to 1998
net revenue growth is the assumed continued expansion by the Company into new
product categories.
Beyond 1998, the projections assume that there will be continued animation
on the Fox Childrens Network (which will enable the Marvel action figure line,
excluding movies, to generate approximately $100 million in net domestic
revenues annually), one feature film release based on a Marvel character per
year, and general continued expansion in other product categories. However, for
other product categories, the projections assume lower growth than in years
prior to 1998, because the Company's revenue base for these categories has
significantly increased compared to 1994 and 1995. Overall, net revenue growth
beyond 1998 is assumed to be approximately 3%.
Gross Margin
Gross margins are assumed to be consistent with historical rates for each
category. However, the projections assume a slight decrease overall compared to
1996 estimates due to the assumed expansion of the Company's non-action figure
revenue which carries somewhat lower margins.
26
<PAGE>
SG&A
With the exception of overhead, SG&A expense is generally assumed to
increase with net revenue growth, on the basis of historical relationships
between SG&A and net revenues for all product categories. Overhead is assumed to
increase by approximately $3 million in 1997 to support the Company's expanded
product lines. Thereafter, assumed annual overhead increases are lower per year,
generally consistent with revenue growth in this time period.
Depreciation and Amortization
Depreciation and amortization expense is assumed to remain at approximately
the same percentage of net revenues as in the recent past. This expense of
approximately $23 million to $24 million annually in this time period is
relatively consistent with the assumption that the Company's annual capital
expenditures (for molds, tooling, product and package design) will remain at
approximately $25 million.
Working Capital and Seasonal Revolver Assumptions
The Company's business cycle is such that working capital is required in
the second and third quarter as inventory builds for seasonal sales.
Consequently, liquidity needs peak in late third quarter and early fourth
quarter. Due to sales in the third and fourth quarter, accounts receivable peak
at the end of the fourth quarter. Seasonal liquidity needs begin to decrease in
the fourth quarter and first quarter as accounts receivable are collected. By
the end of the fourth quarter, inventory level falls to its annual low point.
The projections reflect this historical cycle.
POSITION OF ANDREWS GROUP
Andrews Group entered into the Merger Agreement in order to acquire
beneficial ownership of the entire equity interest in the Company, or, in the
event the Plan Condition (as defined herein) is satisfied, assigning its rights
under the Merger Agreement to Marvel.
Andrews Group had no involvement in the Special Committee's evaluation of
the fairness of the Merger Consideration to the Class A Stockholders and has not
undertaken any formal evaluation of its own as to the fairness of the Merger
Consideration. Although three officers of Andrews Group serve as directors of
the Company, none serves on the Special Committee. However, Andrews Group has
considered the factors set forth above under 'SPECIAL FACTORS-- Recommendations
of the Special Committee and the Board of Directors of the Company; Fairness of
the Merger,' and based on such factors, Andrews Group considers the Merger
Consideration to be fair and in the best interests of the holders of the Class A
Common Stock (other than Arad and the Perlmutter Group, whose shares are to be
purchased pursuant to the Stock Purchase Agreements). In light of the number and
variety of factors that Andrews Group considered in connection with its
evaluation of the Merger Consideration, Andrews Group did not attach specific
relative weights to the factors considered in reaching its opinion as to
fairness.
CERTAIN EFFECTS OF THE MERGER
At the Effective Time, all of the properties, rights, privileges, powers
and franchises of the Company and Acquisition will vest in the Surviving
Corporation, and all debts, liabilities, restrictions, disabilities and duties
of the Company and Acquisition will become the debts, liabilities, restrictions,
disabilities and duties of the Surviving Corporation. The Certificate of
Incorporation of Acquisition in effect immediately prior to the Effective Time
will be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law; provided that the name of the
Surviving Corporation as set forth in its Certificate of Incorporation will be
changed to 'Toy Biz, Inc.' The By-laws of Acquisition in effect at the Effective
Time will be the By-laws of the Surviving Corporation until amended in
accordance with applicable law.
As a result of the Merger, the Class A Common Stock will no longer be
publicly traded and Andrews Group (or Marvel, if the Merger Agreement is
assigned) will become the sole stockholder of the Surviving Corporation.
Following the Merger, the stockholders will no longer have an equity interest in
the Company and therefore will not share in its future earnings and potential
growth.
27
<PAGE>
Trading in the shares of Class A Common Stock on the NYSE will cease at the
close of trading on the date on which the Effective Time occurs. Following the
Effective Time, the shares of Class A Common Stock will be delisted from the
NYSE. Registration of the shares of Class A Common Stock under the Exchange Act
also will be terminated as will the ongoing disclosure requirements thereunder.
Stockholders who properly perfect their statutory appraisal rights under
and in accordance with Section 262 of the DGCL will have the right to seek
appraisal of their Class A Common Stock. See 'STOCKHOLDERS' RIGHTS OF APPRAISAL'
for a statement of the appraisal rights of stockholders and a description of the
procedures to be followed to obtain appraisal of the Class A Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
General. In considering the recommendation of the Board and the actions of
certain stockholders and officers of the Company with respect to the Merger
Agreement and the transactions contemplated thereby, the stockholders of the
Company should be aware that certain members of the management and the Board
have certain interests in the Merger that may present them with actual or
potential conflicts of interest with respect to the Merger.
The following Board members also are directors and/or officers of Andrews
Group or its affiliates: Ronald O. Perelman, William C. Bevins, Donald G.
Drapkin, Terry C. Stewart and Bobby G. Jenkins. In addition, Ronald O. Perelman
is the beneficial owner of Andrews Group. The Special Committee is composed of
James F. Halpin, Alfred A. Piergallini and Paul R. Verkuil, none of whom is an
officer or employee of the Company or Andrews Group.
Employment Agreements. The following executive officers are parties to
employment agreements with the Company: Joseph Ahearn, Alan Fine and Andrew
Gatto. Joseph Ahearn's employment agreement will be amended to provide, among
other things, for his eligibility to receive a performance bonus.
Agreements with Arad and Perlmutter. Arad is a party to a consulting
agreement with the Company that has been amended and restated, and Perlmutter
has entered into a consulting agreement with the Company, in both cases pursuant
to the Stock Purchase Agreements and subject to the Purchase of Shares pursuant
to the Stock Purchase Agreements. Arad's consulting agreement provides for Arad
to be engaged exclusively in the business of the Company, except for certain
pre-existing commitments, work performed under an employment contract with New
World Animation Ltd. (which has been assigned to Marvel Studios) and work
performed under a letter agreement with Marvel for the Marvel Films divisions of
Marvel. Perlmutter's consulting agreement provides for Perlmutter to provide
consulting services for the Company at the request of the current Chief
Executive Officer of the Company. Both Perlmutter's and Arad's consulting
agreements have non-compete provisions. Arad, Perlmutter, and Joseph Ahearn, the
President and Chief Executive Officer of the Company, will each become eligible
to receive, at the end of a three-year performance period, 6.66% of the
difference between the original value of the Company (defined for purposes of
these agreements as $490,400,000) and the value of the Company at the end of the
period, (based on 'Operating Cash Flow' (as defined in such agreements) for the
last four quarters of such period, multiplied by 8, adjusted for sales and
purchases of businesses and assets). In the case of Joseph Ahearn, his
eligibility to receive such bonus shall be subject to the approval by
shareholders of Marvel of his performance bonus arrangement. Each of Arad,
Perlmutter and Ahearn will have the right to designate any employees or
consultants of the Company to receive a portion of the performance bonuses. See
'CERTAIN OTHER AGREEMENTS--Consulting and Bonus Agreements with Arad and
Perlmutter.'
Directors' and Officers' Indemnification and Insurance. Pursuant to the
Merger Agreement, Andrews Group has agreed to cause the surviving corporation or
any successor thereto to indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
subsidiary against all losses, claims, damages, liabilities, fees and expenses
arising out of actions or omissions occurring at or prior to the Effective Time
to the full
28
<PAGE>
extent permitted under Delaware law, subject to the terms of the Company's
Restated Certificate of Incorporation and by-laws as in effect on the date of
the Merger Agreement.
The Merger Agreement provides that, for a period of at least five years
after the Effective Time, Andrews Group or the surviving corporation will
maintain the Company's existing officers' and directors' liability insurance
('D&O Insurance') (provided that Andrews Group may substitute therefor policies
of substantially similar coverage and amounts containing terms no less favorable
to such former directors or officers). In no event, however, will Andrews Group
or the surviving corporation be required to pay annual premiums for insurance in
excess of 150% of the premiums paid by the Company in 1996 and, if the annual
premiums for such insurance coverage exceed such amount Andrews Group or the
surviving corporation shall be obligated to maintain a policy with the greatest
coverage available for a cost not exceeding such amount. See 'THE MERGER
AGREEMENT--Directors' and Officers' Indemnification and Insurance.'
Stock Options. The Merger Agreement provides that, as of the Effective
Time, with respect to each outstanding employee stock option to purchase shares
of Common Stock (an 'Employee Option') granted under the Company's 1995 Stock
Option Plan (the 'Stock Option Plan') the Company shall, effective as of
immediately prior to the Effective Time, and subject to the consent, if required
of the holder of such Employee Option, (i) cause each Employee Option to become
fully exercisable and vested, (ii) cause each Employee Option to be cancelled by
the Company, and (iii) pay to each holder of a cancelled Employee Option in
consideration of such cancellation an amount in respect thereof equal to the
product of (A) the excess, if any, of the Merger Consideration over the exercise
price of such Employee Option and (B) the number of shares represented by such
Employee Option immediately prior to its cancellation (net of withholding
taxes). Joseph Ahearn will receive $1,125,000, Daniel Werther, Executive Vice
President, Senior Legal Officer and Secretary of the Company will receive
$337,500, and Andrew R. Gatto, Executive Vice President-Marketing of the Company
will receive $120,000, Alan Fine, Chief Operating Officer of the Company will
receive $225,000, David J. Fremed, Chief Financial Officer and Treasurer of the
Company will receive $135,000, and the directors and executive officers of the
Company as a group will receive $2,167,500 in the aggregate, in respect of their
Employee Options.
SOURCES AND USES OF FUNDS
The total amount of funds required by Acquisition and Andrews Group and/or
Marvel to consummate the transactions contemplated by the Merger Agreement and
the Stock Purchase Agreements and to pay related fees and expenses is estimated
to be (i) approximately $337 million (representing approximately $152 million to
acquire the publicly held Class A Common Stock and the Preferred Stock in the
Merger, approximately $171 million to acquire the Class A Common Stock owned by
Arad and the Perlmutter Group pursuant to the Stock Purchase Agreements,
approximately $4 million in respect of employee stock options, and approximately
$10 million in fees and expenses related to the Merger) if the Merger Agreement
is assigned to Marvel, and (ii) approximately $504 million (representing
approximately $319 million to acquire the publicly held Class A Common Stock,
the Class B Common Stock owned by Marvel and the Preferred Stock in the Merger,
approximately $171 million to acquire the Class A Common Stock owned by Arad and
the Perlmutter Group pursuant to the Stock Purchase Agreements, approximately $4
million in respect of employee stock options, and approximately $10 million in
fees and expenses related to the Merger) if the Merger Agreement is not assigned
to Marvel. These amounts do not include a $20 million note which will be paid to
Arad and the Perlmutter Group as partial consideration for their shares of Class
A Common Stock pursuant to the Stock Purchase Agreements, and do not include up
to $20 million in contingent payments to Arad and the Perlmutter Group, also
pursuant to the Stock Purchase Agreements. This amount includes an estimated
aggregate of [$ ] in costs and expenses relating to printing, mailing and
filing this Proxy Statement. The Company estimates that it will incur an
additional [$ ] in legal fees, accounting fees and other expenses in
connection with the Merger. Andrews and Acquisition estimate that they will
incur an additional [$ ] in legal fees, accounting fees and other expenses
in connection with the Merger.
29
<PAGE>
Acquisition expects to obtain such funds from equity contributions and/or
loans to Acquisition from Andrews Group. Andrews Group expects to obtain the
funds to make such equity contributions and/or loans from general corporate
funds. In the event the Merger Agreement is assigned to Marvel, Marvel expects
to obtain the funds required to consummate the Merger from the $365 million
equity investment in Marvel by Andrews Group pursuant to the Acquisition
Agreement. The obtaining of financing is not a condition of the Merger.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a purchase of a minority interest under
the 'purchase' method of accounting.
CONDUCT OF THE BUSINESS FOLLOWING THE MERGER
Except as described herein, the business of the Company following the
Merger is expected to be conducted in the manner it is presently conducted.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This discussion of federal income tax consequences described herein is for
general information only and is based on existing law as of the date of this
proxy statement. It does not address all aspects of federal income taxation that
may be relevant to a stockholder and may not apply to (i) Class A Common Stock
acquired upon exercise of incentive stock options, non-qualified stock options
or otherwise as compensation; (ii) certain tax-exempt stockholders; (iii)
stockholders that are subject to special tax provisions, such as banks and
insurance companies; (iv) certain nonresident aliens and foreign corporations;
and (v) stockholders who do not hold their stock as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
'Code'). Each stockholder is urged to consult his tax advisor to determine the
particular tax consequences to him of the Merger (including the applicability
and effect of state, local, foreign and other tax laws).
The receipt of cash by a stockholder pursuant to the Merger or pursuant to
the exercise of stockholders' rights of appraisal will be a taxable transaction
for federal income tax purposes and may also be a taxable transaction under
applicable local, state and foreign tax laws. Generally, a stockholder will
recognize gain or loss equal to the difference between the amount of cash
received and the tax basis in the stock surrendered in exchange therefor. Such
gain or loss will be capital gain or loss (if such stock is held as a capital
asset), and will be a long-term capital gain or loss if the stockholder's
holding period for such stock is more than one year at the Effective Time.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of all amounts paid to the stockholder, unless such
stockholder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements under
the Code.
LITIGATION
On November 15, 1996, Jorn A. Holl, an alleged stockholder of the Company,
filed a purported class action complaint captioned Holl v. Toy Biz, Inc., Civil
Action No. 15359 against the Company, Marvel, Andrews Group, Ronald O. Perelman,
Joseph Ahearn, Arad and Perlmutter in the Court of Chancery of the State of
Delaware in and for New Castle County. The Holl complaint alleges, inter alia,
that in pursuing a transaction pursuant to which the shares held by the
Company's public stockholders will be purchased, the defendants have breached
their fiduciary duties or aided and abetted such breaches by allegedly engaging
in unfair dealing, acting in their own interests and failing to obtain the
highest possible price for the Company's stockholders. The complaint seeks,
inter alia,(i) to have the consummation of the transaction enjoined and a
committee of class members appointed to provide input into the procedures to be
followed in connection with any such transaction and (ii) certain other
declaratory relief and damages. Although plaintiff filed a motion to expedite
discovery, he has made no further attempt to have the proceedings expedited.
Defendants intend to defend vigorously against plaintiff's allegations.
30
<PAGE>
THE MERGER AGREEMENT
GENERAL
The following is a summary of certain provisions of the Merger Agreement
and is qualified in its entirety by reference to the Merger Agreement, a copy of
which is attached hereto as Annex A and is incorporated herein by reference.
The Merger Agreement provides that as soon as practicable following the
adoption of the Merger Agreement by the Company's stockholders and the
satisfaction or waiver of certain other conditions set forth in the Merger
Agreement, Acquisition will be merged with and into the Company. Following the
Merger, the Company will continue as the surviving corporation and the separate
existence of Acquisition will cease.
EFFECTIVE TIME
The Merger Agreement provides that as soon as practicable after the
satisfaction or waiver of the conditions set forth in the Merger Agreement, the
parties thereto will file a Certificate of Merger with the Secretary of State of
the State of Delaware and will make all other filings or recordings required by
the DGCL in connection with the Merger. The Merger will become effective at the
Effective Time, which will be the time the Certificate of Merger is filed with
the Secretary of State of Delaware or such time as is agreed upon by the parties
to the Merger Agreement.
MERGER CONSIDERATION
In the Merger, each of the outstanding shares of Class A Common Stock and
each of the outstanding shares of Class B Common Stock (other than shares owned
by Andrews Group, Acquisition or any wholly owned subsidiary of Andrews Group,
which are held in the treasury of the Company or which are held by those
stockholders who perfect their appraisal rights pursuant to the DGCL) will be
converted into the right to receive the Merger Consideration, payable to the
holder thereof upon surrender of the certificate formerly representing such
Share.
Each of the outstanding shares of Preferred Stock of the Company (other
than any shares which are held by the stockholders who perfect their appraisal
rights pursuant to the DGCL) will be converted into the right to receive an
amount per share equal to the then applicable Redemption Price, payable to the
holder thereof, without interest (the 'Preferred Merger Consideration'), upon
surrender of the certificate formerly representing such share.
PROCEDURE FOR PAYMENT
Prior to the Effective Time, Andrews Group will designate an agent (the
'Paying Agent') to effect the payment of the Merger Consideration and the
Preferred Merger Consideration. Promptly after the Effective Time, the Paying
Agent shall mail to each record holder, as of the Effective Time (other than
holders whose shares were cancelled pursuant to the Merger Agreement), of an
outstanding certificate (a 'Common Certificate') that immediately prior to the
Effective Time represented shares of Common Stock or an outstanding certificate
that immediately prior to the Effective Time represented shares of Preferred
Stock (a 'Preferred Certificate' and together with the Common Certificates, the
'Certificates') a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificate shall pass, only upon
proper delivery of the Certificate to the Paying Agent) and instructions for use
in effecting the surrender for payment therefor. Upon surrender to the Paying
Agent of a Certificate, together with such letter of transmittal duly executed,
and any other required documents, the holder of such Certificate will be
entitled to receive in exchange therefor cash in an amount equal to (i) the
product of the Merger Consideration multiplied by the number of shares of Common
Stock represented by such Common Certificate, or (ii) the product of the
Preferred Merger Consideration multiplied by the number of shares of Preferred
Stock represented by such Preferred Certificate, as the case may be. All
Certificates so surrendered will be cancelled. STOCKHOLDERS ARE ASKED NOT TO
SURRENDER THEIR CERTIFICATES UNTIL THEY RECEIVE SUCH LETTER OF TRANSMITTAL AND
INSTRUCTIONS.
31
<PAGE>
Until surrendered and exchanged in accordance with the provisions of the
Merger Agreement, each Certificate (other than Certificates representing Shares
owned by Andrews Group, Acquisition or any wholly owned subsidiary of Andrews
Group, which are held in the treasury of the Company or which are held by those
stockholders who perfect their appraisal rights pursuant to the DGCL) will,
after the Effective Time, represent for all purposes only the right to receive
the Merger Consideration or Preferred Merger Consideration for each Share or
Preferred Share represented by such Certificate, and until such surrender and
exchange no Merger Consideration or Preferred Merger Consideration will be
delivered to the holder of such outstanding Certificate in respect thereof.
ELIMINATION OF OPTIONS
The Merger Agreement provides that, as of the Effective Time, with respect
to each outstanding Employee Option to purchase shares of Common Stock granted
under the Company's 1995 Stock Option Plan, the Company shall, effective as of
immediately prior to the Effective Time, and subject to the consent, if required
of the holder of such Employee Option, (i) cause each Employee Option to become
fully exercisable and vested, (ii) cause each Employee Option to be cancelled by
the Company, and (iii) pay to each holder of a cancelled Employee Option in
consideration of such cancellation an amount in respect thereof equal to the
product of (A) the excess, if any, of the Merger Consideration over the exercise
price of such Employee Option and (B) the number of shares represented by such
Employee Option immediately prior to its cancellation (net of withholding
taxes).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties from
each of the parties thereto. The Company has made representations regarding,
among other things (i) the Company's organization, qualification to do business
and capitalization, (ii) the Company's authority to enter into and perform its
obligations under the Merger Agreement, (iii) compliance of the transactions
contemplated by the Merger Agreement with the Company's Restated Certificate of
Incorporation, certain agreements and applicable laws, (iv) financial statements
of the Company, (v) required filings with the Commission, (vi) information in
this Proxy Statement, (vii) and the stockholders' vote required to approve the
Merger Agreement and the transactions contemplated thereby.
The Company also has represented that its Board of Directors, upon the
recommendation of its Special Committee, has (i) determined that the Merger
Agreement and the Merger are fair and in the best interests of the holders of
the Class A Common Stock, other than Arad and the Perlmutter Group, whose shares
of Class A Common Stock are to be purchased pursuant to the Stock Purchase
Agreements, (ii) approved the Merger Agreement and the transactions contemplated
thereby, including the Merger, (iii) resolved to recommend that the stockholders
of the Company approve and adopt the Merger Agreement and the Merger.
Andrews Group and Acquisition have made representations regarding, among
other things, (i) their organization, qualification to do business and
capitalization, (ii) their authority to enter into and perform their obligations
under the Merger Agreement, (iii) compliance of the transactions contemplated by
the Merger Agreement with their respective Certificates of Incorporation,
certain agreements and applicable laws, and (iv) information in this Proxy
Statement.
None of the representations and warranties in the Merger Agreement will
survive the Effective Time.
CONDUCT OF BUSINESS PENDING THE CLOSING
The Merger Agreement provides that, except as otherwise expressly provided
therein, during the period from December 27, 1996 to the Effective Time, each of
the Company and its subsidiary will conduct its business in the ordinary and
usual course. In particular, the Company: (i) will not sell, transfer or pledge
or agree to sell, transfer or pledge any of the shares of Class A Common Stock,
Class B Common Stock, Preferred Stock or capital stock of its subsidiary
beneficially owned
32
<PAGE>
by it (other than shares reserved for issuance on the date of the Merger
Agreement pursuant to the exercise of Options outstanding on the date of the
Merger Agreement); (ii) amend its certificate of incorporation or by-laws; (iii)
split, combine or reclassify the outstanding shares of Common Stock or Preferred
Stock; (iv) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock; (v) or redeem
(except pursuant to the Certificate of Designation relating to the Preferred
Stock), purchase or otherwise acquire directly (or indirectly any of its capital
stock.
DIRECTORS AND OFFICERS
The Merger Agreement provides that the directors of Acquisition and the
officers of the Company at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the surviving
corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's certificate of incorporation and by-laws.
NO SOLICITATION OF PROPOSALS
The Merger Agreement provides that neither the Company nor its subsidiary
or affiliates shall directly or indirectly encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Andrews
Group, any of its affiliates or representatives) concerning any merger, tender
offer, exchange offer, sale of assets, sale of shares of capital stock or debt
securities or similar transactions involving the Company, its subsidiary or any
division or operating or principal business unit of the Company (an 'Acquisition
Proposal'). Notwithstanding the foregoing, the Company may (i) furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to appropriate
confidentiality agreements, and may negotiate and participate in discussions and
negotiations with such entity or group concerning an Acquisition Proposal, if
the Board of Directors of the Company concludes in good faith after consultation
with independent legal counsel that the failure to take such action would
present a reasonable possibility of violating the fiduciary obligations of such
Board under applicable law and (ii) take and disclose a position with respect to
a tender offer pursuant to Rules 14d-9 and 14e-2 of the Exchange Act or, with
respect to any Acquisition Proposal, from making any other disclosure required
by applicable law. The Company will immediately communicate to Andrews Group the
terms of any Acquisition Proposal or request for information or to negotiate
(and will disclose any written materials received by the Company in connection
therewith) and the identity of the party making such Acquisition Proposal or
request which it may receive in respect of any such transaction.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
Andrews Group has agreed to cause the surviving corporation or any
successor thereto to indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its Subsidiary
against all losses, claims, damages, liabilities, fees and expenses arising out
of actions or omissions occurring at or prior to the Effective Time to the full
extent permitted under Delaware law, subject to the terms of the Company's
Restated Certificate of Incorporation and By-laws as in effect on the date of
the Merger Agreement.
The Merger Agreement provides that, for a period of at least five years
after the Effective Time, Andrews Group or the surviving corporation shall
maintain the Company's existing officers' and directors' liability insurance
('D&O Insurance') (provided that Andrews Group may substitute therefor policies
of substantially similar coverage and amounts containing terms no less favorable
to such former directors or officers). In no event however, shall Andrews Group
or the surviving corporation be required to pay annual premiums for insurance in
excess of 150% of the premiums paid by the Company in 1996 and, if the annual
premiums for such insurance coverage exceed such amount Andrews Group or the
surviving corporation shall be obligated to maintain a policy with the greatest
coverage available for a cost not exceeding such amount.
33
<PAGE>
ASSIGNMENT; PLAN CONDITION
The Merger Agreement provides that it is a condition to Andrews Group's
obligation to consummate the Merger that the Joint Plan of Reorganization of
Marvel (with such changes as Andrews Group shall approve) shall have been
confirmed (the 'Plan Condition') and that all conditions to closing under the
Acquisition Agreement (excluding the condition that all conditions to the
closing of the Merger Agreement be satisfied) shall have been satisfied or
waived. If the Joint Plan of Reorganization is confirmed, the Merger Agreement
requires Andrews Group (i) to transfer all the outstanding shares of capital
stock of Acquisition to Marvel and (ii) to assign its rights, interests and
obligations under the Merger Agreement to Marvel. If the Joint Plan of
Reorganization is not confirmed, Andrews Group may elect either to waive the
condition and consummate the Merger or not to waive the condition, in which case
the Merger will not be consummated. Andrews Group has made no determination what
actions it will take if the Joint Plan of Reorganization is not approved.
In the event that the Plan Condition is not satisfied but is waived,
Andrews Group, Acquisition or any of their affiliates (other than Marvel) shall
have the right to offer to purchase all of the Class A Common Stock directly
from the stockholders of the Company, provided that (i) such offer shall be for
any and all outstanding Class A Common Stock, (ii) such offer shall be for cash
in an amount per share not less than the Merger Consideration, and (iii) such
offer shall not contain any conditions not customary for an offer of this type
(a 'Qualifying Offer').
Neither the Merger Agreement nor any of the rights, interests or
obligations thereunder may be assigned by any of the parties thereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except (i) for the assignment to Marvel, as provided in the Merger
Agreement and (ii) that Andrews Group may assign, in its sole discretion, any or
all of its rights, interests and obligations thereunder to any direct or
indirect subsidiary of Andrews Group. Upon any such assignment (whether to
Marvel or otherwise), Andrews Group's assignee is required to deliver to the
Company a writing evidencing its agreement to perform Andrews Group's covenants
under the Merger Agreement and in which it makes representations to the Company
substantially in the form made by Andrews Group in the Merger Agreement. No such
assignment (whether to Marvel or otherwise), however, shall relieve Andrews
Group of its obligations under the Merger Agreement.
The parties to the Merger Agreement have agreed to take all reasonable
actions as are necessary, proper or advisable to give effect to the provisions
with respect to the assignment to Marvel, including, without limitation, the
execution of an amendment to the Merger Agreement.
AMENDMENT OF AGREEMENTS
Andrews Group has agreed not to alter or amend (i) the Stock Purchase
Agreements or (ii) the performance bonus agreement between the Company and Arad
(the 'Arad Bonus Agreement'), the performance bonus agreement between the
Company and Perlmutter (the 'Perlmutter Bonus Agreement'), the amended and
restated consulting agreement between the Company and Arad or the consulting
agreement between the Company and Perlmutter (in the case of the documents
referred to in clause (ii), from the form previously provided to the Company) so
as to make such arrangements economically more favorable to Arad or Perlmutter,
or enter into any similar agreements, without the consent of the Company, which
consent shall not unreasonably be withheld.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger Agreement provides that the consummation of the Merger is
subject to the satisfaction or waiver of the following conditions: (i) the
Merger Agreement shall have been approved and adopted by the requisite vote of
the holders of the Shares, if required by applicable law or the Company's
Restated Certificate of Incorporation; (ii) no statute, rule, order, decree or
regulation shall have been enacted or promulgated by any governmental entity
which prohibits the consummation of the Merger and all governmental consents,
orders and approvals required for the consummation of the Merger and the
transactions contemplated hereby shall have been obtained
34
<PAGE>
and shall be in effect at the Effective Time; and (iii) there shall be no order
or injunction of a governmental entity of competent jurisdiction in effect
precluding, restraining, enjoining or prohibiting consummation of the Merger.
In addition, the obligations of Andrews Group and Acquisition to consummate
the Merger are subject to the fulfillment of the following conditions, which may
be waived in whole or in part by Andrews Group and Acquisition: (i) the
representations and warranties of the Company contained in the Merger Agreement
shall be true and correct in all material respects both when made and (except
for those representations and warranties that address matters only as of a
particular date which need only be true and correct in all material respects as
of such date) as of the Effective Time after giving effect to the Merger as if
made at and as of such time, (ii) the Company shall have performed in all
material respects each of its obligations under this Agreement required to be
performed by it at or prior to the Effective Time and (iii) the Joint Plan of
Reorganization (with such changes as Andrews Group shall approve) attached as an
exhibit to the Acquisition Agreement shall have been confirmed and all
conditions to closing under such agreement (excluding the condition that all
conditions to the closing of the Merger Agreement be satisfied) shall have been
satisfied or waived.
The obligations of the Company to consummate the Merger are further subject
to the fulfillment of the following conditions, which may be waived in whole or
in part by the Company: (i) the representations and warranties of Andrews Group
and Acquisition contained in the Merger Agreement shall be true and correct in
all material respects both when made and (except for those representations and
warranties that address matters only as of a particular date which need only be
true and correct in all material respects as of such date) as of the Effective
Time after giving effect to the Merger as if made at and as of such time and
(ii) each of Andrews Group and Acquisition shall have performed in all material
respects each of its obligations under the Merger Agreement required to be
performed by it at or prior to the Effective Time.
TERMINATION; AMENDMENT
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, notwithstanding approval
thereof by the stockholders of the Company: (a) by mutual agreement of Andrews
Group, Acquisition and the Company and (b) by Andrews Group or the Company (i)
if the Merger shall not have been consummated by June 30, 1997; provided,
however, that such right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Merger to
occur on or prior to such date; (ii) if the stockholders of the Company fail to
approve and adopt the Merger Agreement at the Special Meeting; provided,
however, that such right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the stockholders
of the Company to approve and adopt the Merger Agreement at the Special Meeting;
(iii) if any governmental entity shall have issued an order, decree or ruling or
taken any other action (which order, decree, ruling or other action the parties
hereto shall use their reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, ruling or other action shall have
become final and non-appealable; or (iv) if, prior to the consummation of the
Merger, (x) the Board of Directors of the Company shall (A) have withdrawn, or
modified or changed in a manner adverse to Andrews Group or Acquisition its
approval of the Merger Agreement or the Merger in order to execute a definitive
agreement relating to an Acquisition Proposal which is a superior proposal to
the Merger, reasonably capable of being consummated, and (B) have concluded in
good faith after consultation with independent legal counsel that the failure to
take such action as set forth in the preceding clause (A) would result in the
Board of Directors violating its fiduciary obligations under applicable law.
In addition, the Merger Agreement may be terminated by Andrews Group, if it
shall have purchased Shares pursuant to a Qualifying Offer.
35
<PAGE>
Upon termination, the Merger Agreement will become null and void, without
liability on the part of any party thereto, except for fraud or for material
breach of the Merger Agreement, the obligation to provide notice to the other
party or parties specifying the provision of the Merger Agreement pursuant to
which the termination is made, and the obligations of the parties to pay their
respective fees and expenses.
Amendment. Subject to applicable law, the Merger Agreement may be amended,
whether before or after any vote of the stockholders of the Company thereby, by
written agreement of the parties thereto, at any time prior to the closing date
of the Merger. However, after the approval of the Merger Agreement by the
stockholders of the Company, no such amendment may be made that decreases the
amount or changes the form of the Merger Consideration. No action by the Company
with respect to the Closing, the Effective Time, the conditions to the
consummation of the Merger, the termination of the Merger Agreement, expenses,
amendment, nonsurvival of representations and warranties, and certain other
provisions of the Merger Agreement, and no consent with respect to the
assignment of the Merger Agreement to parties other than Marvel shall be
effective without the approval of the Special Committee.
FEES AND EXPENSES
Except as otherwise contemplated by the Merger Agreement, all costs and
expenses incurred in connection with the Merger Agreement and the consummation
of the transactions contemplated thereby shall be paid by the party incurring
such expenses.
THE ACQUISITION AGREEMENT
GENERAL
The following is a summary of certain provisions of the Acquisition
Agreement and is qualified in its entirety by reference to the Acquisition
Agreement a copy of which has been filed as an exhibit to the Schedule 13E-3 and
is incorporated herein by reference.
The Acquisition Agreement provides that following the satisfaction or
waiver of all of the conditions to consummation of the Acquisition Agreement,
Andrews Group shall purchase, and Marvel, as a reorganized corporation
('Reorganized Marvel'), shall sell, that number of newly issued shares (the
'Marvel Shares') of common stock, par value $.01 per share (the 'New Common
Stock') of Reorganized Marvel such that upon issuance and after giving effect to
the terms of the Joint Plan of Reorganization and the distributions thereunder,
the Marvel Shares will constitute 80.8% of the outstanding New Common Stock. The
purchase price pursuant to the Acquisition Agreement for the Marvel Shares is
$365 million, which is payable at the option of Andrews Group in cash or shares
of Class A Common Stock or a combination of the foregoing. If Andrews Group uses
Class A Common Stock as consideration, such shares will be valued at the cash
price actually paid to acquire them. With respect to shares of Class A Common
Stock acquired pursuant to the Stock Purchase Agreements, such shares shall be
valued at the cash price paid therefor and Reorganized Marvel shall issue to
Andrews Group, in addition to the Marvel Shares, a note in the aggregate
principal amount equal to, and in all other respects identical to, any notes
issued by Andrews Group pursuant to the Stock Purchase Agreements except that
such note shall be subordinated to the Company's obligations under the New
Credit Facility (as defined herein). If Andrews Group pays any portion of the
purchase price in Class A Common Stock, Andrews Group must deliver to
Reorganized Marvel all of the shares of Class A Common Stock beneficially owned
by it.
COVENANTS
Each of the parties to the Acquisition Agreement has agreed to use
commercially reasonable efforts to take or cause to be taken all actions
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by the Acquisition Agreement.
Additionally, each party has agreed to consult with the other and provide the
necessary information that is not subject to legal privilege with respect to all
filings made by such party or any other information supplied by such party to
any nation or government, any state or other
36
<PAGE>
political subdivision thereof and any entity (including, without limitation, a
court) exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government in connection with the Acquisition
Agreement.
Except as otherwise provided for in the Acquisition Agreement, Marvel and
Reorganized Marvel have agreed not to (i) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with respect to its
capital stock or (ii) issue, sell, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of Marvel or Reorganized Marvel.
Marvel has agreed that the authorized, issued and outstanding capital stock
of Reorganized Marvel shall consist of such number of shares of Marvel common
stock as the parties to the Acquisition Agreement may agree, provided that the
Marvel Shares, after giving effect to the Acquisition Agreement and the
distributions provided for in the Joint Plan of Reorganization, shall constitute
80.8% of the outstanding common stock of Reorganized Marvel.
Marvel has agreed that Marvel and Reorganized Marvel will not modify the
Joint Plan of Reorganization without the consent of Andrews Group,
notwithstanding any provision of applicable law or the Joint Plan of
Reorganization that purports to grant to Marvel or Reorganized Marvel the right
or ability to modify the Joint Plan of Reorganization, or to consent to the
alteration or severance of any term or provision of the Joint Plan of
Reorganization.
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The respective obligations of Andrews Group and Marvel to consummate the
transactions contemplated by the Acquisition Agreement are subject to the
following conditions: (i) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the transaction contemplated by the Acquisition Agreement will be in effect
nor will any proceeding by any Governmental Authority seeking any of the
foregoing be pending; (ii) no statute, rule, regulation or order of any court,
governmental or regulatory body will be in effect which prohibits or makes
illegal the transactions contemplated by the Acquisition Agreement; and (iii)
the Joint Plan of Reorganization shall have been confirmed by the Bankruptcy
Court and the confirmation order (the 'Confirmation Order') relating to the
Joint Plan of Reorganization shall have been entered.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ANDREWS GROUP
The obligations of Andrews Group to consummate the transactions
contemplated by the Acquisition Agreement are subject to the satisfaction (or
waiver by Andrews Group) at or prior to the closing date of each of the
following conditions: (i) the representations and warranties of Marvel shall be
true and correct in all material respects as of the date of the closing under
the Acquisition Agreement (the 'Acquisition Closing Date') except to the extent
that they expressly refer to an earlier time, in which case they shall be true
and correct as of such time; (ii) Marvel and Reorganized Marvel shall have duly
performed and complied in all material respects with each covenant, agreement
and condition required by the Acquisition Agreement to be performed or complied
with by it prior to or on the Acquisition Closing Date; (iii) Marvel and
Reorganized Marvel, an affiliate thereof, or an affiliate of Andrews Group shall
have entered into the Merger Agreement with the Company pursuant to which it
would acquire all the outstanding shares of Class A Common Stock and all
conditions to the closing thereof (excluding the condition that all conditions
to the closing of the Acquisition Agreement be satisfied) shall have been
satisfied, (iv) all conditions to closing under the Stock Purchase Agreements
shall have been satisfied or waived and Andrews Group shall have acquired shares
of Class A Common Stock pursuant to the Stock Purchase Agreements (which shares
may be used as consideration in the Acquisition Agreement) or Andrews Group
shall have assigned to Marvel or Reorganized Marvel and Marvel or Reorganized
Marvel shall have assumed Andrews Group's rights and obligations under the Stock
Purchase Agreements, it being understood that in such case Reorganized Marvel
may issue to
37
<PAGE>
Andrews Group its $20 million note which note shall be subordinate to certain of
Marvel's obligations for borrowed money and which will otherwise have terms
identical to the notes issuable by Andrews Group under the Stock Purchase
Agreements; (v) the Confirmation Order shall have become a final order; (vi) the
Joint Plan of Reorganization and the Confirmation Order shall be acceptable to
Andrews Group in all respects; (vii) there shall not be pending or threatened
against Andrews Group, Marvel, Reorganized Marvel or any affiliate of any of
them any litigation arising out of or relating to the Joint Plan of
Reorganization or any of the transactions contemplated by the Acquisition
Agreement; (viii) there shall have been no material adverse change in Marvel's
financial condition, business, operations or prospects taken as a whole from the
date of the Acquisition Agreement; (ix) upon consummation of the Joint Plan of
Reorganization, the credit facilities provided by The Chase Manhattan Bank, as
administrative agent for a syndicate of banks, (A) in the aggregate amount of
$160 million for the Company and (B) for Reorganized Marvel in amounts and
subject to the terms and conditions described in the disclosure statement
pertaining to the Joint Plan of Reorganization (the 'Disclosure Statement') and
Joint Plan of Reorganization shall be available to Reorganized Marvel and the
Company in the aggregate amounts and subject to the terms and conditions
described in the Disclosure Statement and the Joint Plan of Reorganization; and
(x) Marvel shall have executed a registration rights agreement between Andrews
Group and Marvel.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MARVEL
The obligations of Marvel to consummate the transactions contemplated by
the Acquisition Agreement are subject to the satisfaction (or waiver by Marvel)
at or prior to the Acquisition Closing Date of each of the following conditions:
(i) the representations and warranties of Andrews Group contained in the
Acquisition Agreement shall be true and correct in all material respects as of
the Acquisition Closing Date, except to the extent they expressly refer to an
earlier time, in which case they shall be true and correct as of such time, (ii)
Andrews Group shall have duly performed and complied in all material respects
with each covenant, agreement and condition required by the Acquisition
Agreement to be performed or complied with by it prior to or on the Acquisition
Closing Date; and (iii) either Andrews Group shall have assigned its rights to
Marvel or Reorganized Marvel under the Stock Purchase Agreements and the Merger
Agreement or Andrews Group shall have delivered shares of Class A Common Stock
in the manner required by the Acquisition Agreement.
TERMINATION
The Acquisition Agreement may be terminated at any time prior to the
closing under the Acquisition Agreement (i) by mutual agreement of Marvel and
Andrews Group; (ii) by Andrews Group if the Disclosure Statement has not been
approved by January 31, 1997; (iii) by Andrews Group if the Joint Plan of
Reorganization has not been confirmed by the Bankruptcy Court by April 18, 1997
or (iv) by Andrews Group if the closing has not taken place on or before April
30, 1997; provided that the failure of the Closing to occur on or before such
date is not the result of the breach of the covenants, agreements,
representations or warranties hereunder of Andrews Group; (v) by Andrews Group,
or Marvel upon notice given to the other if any Governmental Authority of
competent jurisdiction will have issued a final permanent order enjoining or
otherwise prohibiting the transactions contemplated by the Acquisition
Agreement; or (vi) by Andrews Group or Marvel if prior to purchase of the Marvel
Shares, Marvel's Board of Directors materially alters its approval of the
purchase of the Marvel Shares in order to permit Marvel to accept a superior
proposal and determines, after receipt of advice from independent legal counsel,
that failure to take such action could reasonably be interpreted to breach the
Board of Directors fiduciary duties to Marvel, its stockholders or creditors;
(vii) by Andrews Group or Marvel if the other party breached or fails to perform
under the Acquisition Agreement and such breach has not been cured within 20
days; and (viii) by Andrews Group if Marvel fails to take certain actions
relating to the Joint Plan of Reorganization as required by the Acquisition
Agreement on a timely basis.
38
<PAGE>
CERTAIN OTHER AGREEMENTS
In connection with the Merger Agreement, the Acquisition Agreement, and the
transactions contemplated thereby, the parties or their affiliates have entered
into certain other agreements. In addition, in anticipation of the Merger
Agreement, the Acquisition Agreement and the transactions contemplated thereby,
Andrews Group has entered into agreements to purchase all of the Class A Common
Stock held by each of Arad and Perlmutter pursuant to the Stock Purchase
Agreements. The following is a summary of the terms of these agreements and, in
the case of the Stock Purchase Agreements, Stockholders' Agreement and Company
Registration Rights Agreement, is qualified in its entirety by reference to the
agreements described below, copies of which have been filed as exhibits to the
Schedule 13E-3.
THE STOCK PURCHASE AGREEMENTS
The Stock Purchase Agreements, each dated as of November 20, 1996 as
amended as of January 29, 1996, are, respectively, between Andrews Group and
Arad and between Andrews Group and the Perlmutter Group, and both contain
substantially similar provisions. Each provides for the purchase by Andrews
Group of all the shares in the Company owned by the Arad and the Perlmutter
Group upon the terms and the satisfaction or waiver of certain conditions
contained therein.
The Stock Purchase Agreements provide that on the closing dates pursuant to
such agreements (the 'Stock Closings'), the Perlmutter Group will sell 9,506,000
shares of Class A Common Stock and Arad will sell 4,150,000 shares of Class A
Common Stock. The aggregate purchase price for the shares sold by the Perlmutter
Group and Arad will be $171,184,000 in cash and $20 million in debt of Andrews
Group. In addition, (a) in the event 'Operating Cash Flow' (as defined in such
Agreements) for the 12 month period ended December 31, 1997 exceeds $70 million,
Arad and the Perlmutter Group will receive additional payments of an aggregate
of $10 million, and (b) if 'Operating Cash Flow' for the 12 month periods ended
December 31, 1997, 1998 and 1999 exceeds specified targets, Arad and the
Perlmutter Group will receive additional payments aggregating up to $10 million
((a) and (b), collectively, the 'Cash Flow Payments'). An additional payment
(the 'Special Payment') will be required to each of Arad and the Perlmutter
Group if Andrews Group and its affiliates sell or otherwise transfer for value,
including by way of merger, substantially all of the stock or assets of the
Company (a 'Trigger Event') within one year after the Stock Closings, in an
amount equal to the product of the shares held by Arad or the Perlmutter Group,
as the case may be, multiplied by the excess of (i) the price per share paid
pursuant to the Merger Agreement over (ii) the price per share (including any
Cash Flow Payments) paid pursuant to the Stock Purchase Agreements. In addition,
if a Trigger Event occurs within three years after the Closing, Arad and the
Perlmutter Group will be entitled to receive the full $20 million Cash Flow
Payments (to the extent not previously paid). The debt portion of the purchase
price payable under the Stock Purchase Agreements will be represented in each
case by a promissory note which shall bear interest at a rate per annum equal to
the five-year treasury bill rate at the time of issuance. Interest will be
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, commencing on the first such date after the second anniversary of the
issuance of the promissory notes. The principal amount of each promissory note
will be payable in full on the first business day after the fifth anniversary of
the Stock Closings or upon the occurance of a Trigger Event.
The Stock Purchase Agreements contain certain representations and
warranties of the parties thereto. The representations and warranties by the
Arad and the Perlmutter Group relate to, among other things: authority, title to
the shares, compliance with filing requirements of the Commission, and
accredited investor status. The representations and warranties by Andrews Group
relate to, among other things: corporate organization and authority. All
representations and warranties will survive the Stock Closings.
39
<PAGE>
During the period between the execution of the Stock Purchase Agreements
and the Stock Closings, each party covenants, among other things, to use its
reasonable best efforts to (i) prepare and file all required forms and notices
and to take necessary actions to obtain any requisite approvals, consents,
orders, exemptions and waivers; and (ii) to cause satisfaction of all conditions
to the Stock Closings. Arad and the Perlmutter Group also have agreed not to
sell, assign, or transfer the shares, nor permit the shares to become subject to
a lien until the closing or the termination of their respective Stock Purchase
Agreement. Perlmutter has also reaffirmed certain obligations to indemnify
Andrews Group with respect to damages arising from certain litigation.
Arad and the Perlmutter Group have agreed, in the Stock Purchase
Agreements, that prior to the Stock Closings or the termination of the Stock
Purchase Agreements they will not, without the consent of Andrews Group, grant
any consent that would permit the shares of Class B Common Stock not to be
converted into Class A Common Stock following a change of control of Marvel, as
provided for in the Stockholders' Agreement (as defined below). See
'--Stockholders' Agreement.'
The respective obligations of Andrews Group and Arad and the Perlmutter
Group to consummate the transactions contemplated by the Stock Purchase
Agreements will be subject to certain standard conditions, and in addition to
the conditions that a consulting agreement and a performance bonus agreement
between the Company and each of Arad and Perlmutter will have been duly
authorized, executed and delivered. See '--Consulting and Bonus Agreements with
Arad and Perlmutter.' In addition, the obligations of Andrews Group to
consummate the transactions contemplated by each of the Stock Purchase
Agreements are subject to the satisfaction of the conditions that (i) Marvel, an
affiliate thereof, or an affiliate of Andrews Group will have entered into an
agreement with the Company pursuant to which it would acquire the Company and
all conditions to closing thereunder will have been satisfied; (ii) the voting
trust agreements among Marvel, the Company, and each of Arad and Perlmutter will
have been terminated (See
'--Stockholders Agreement and Class B Voting Trust'); and (iii) there will not
have been a change of control of Marvel.
Each of the Stock Purchase Agreements may be terminated at any time prior
to the respective closings thereof (i) by mutual agreement of the parties
thereto; (ii) by Andrews Group, on the one hand, or Arad or the Perlmutter
Group, on the other hand, upon notice given to the other or others if the Stock
Closing will not have taken place on or before June 30, 1997; provided that the
failure of the Stock Closing to occur on or before such date is not the result
of the breach of the covenants, agreements, representations or warranties
thereunder of the party seeking such termination; or (iii) by Andrews Group, on
the one hand, and Arad or the Perlmutter Group, on the other hand, upon notice
given to the other if any governmental authority of competent jurisdiction will
have issued a final permanent order enjoining or otherwise prohibiting the
transactions contemplated by the Stock Purchase Agreements.
CONSULTING AND BONUS AGREEMENTS WITH ARAD AND PERLMUTTER
Arad is a party to a consulting agreement with the Company that has been
amended and restated, and Perlmutter has entered into a consulting agreement
with the Company, in both cases pursuant to the Stock Purchase Agreements.
Arad's consulting agreement will provide for Arad to be engaged exclusively in
the business of the Company, except for certain pre-existing commitments, work
performed under an employment contract with New World Animation Ltd. (which has
been assigned to Marvel Studios) and work performed under a letter agreement
with Marvel for the Marvel Films division of Marvel. Arad currently receives,
and will receive under his amended and restated consulting agreement, $375,000
annually and reimbursement of reasonable out-of-pocket expenses incurred in
performance of his duties, in addition to certain other benefits. Arad currently
receives under his contract with New World Animation Ltd., and will receive
under his contract with Marvel Studios, $375,000 annually in addition to certain
other employee benefits. 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's characters. Arad's
consulting agreement has and will have provisions that restrict Arad's ability
to
40
<PAGE>
compete with the Company for one year after he ceases to be engaged by the
Company if the termination results from a breach by Arad of his consulting,
employment or other agreement with the Company. Perlmutter's consulting
agreement provides for Perlmutter to provide consulting services for the Company
at the request of the current Chief Executive Officer of the Company. Arad,
Perlmutter, and Joseph Ahearn, the President and Chief Executive Officer of the
Company, will each be eligible to receive, at the end of a three-year
performance period, 6.66% of the difference between the original value of the
Company (defined for purposes of these agreements as $490,400,000) and the value
of the Company at the end of the period (based on 'Operating Cash Flow' (as
defined in such agreements) for the last four quarters of such period,
multiplied by 8, adjusted for sales and purchases of businesses and assets). In
the case of Joseph Ahearn, his eligibility to receive such bonus shall be
subject to the approval by shareholders of Marvel of his performance bonus
arrangement. Each of Arad, Perlmutter and Joseph Ahearn will have the right to
designate other employees or consultants of the Company to receive a portion of
the performance bonuses. No performance bonus will be paid to Arad and
Perlmutter if they are no longer in service with the Company at the end of the
three-year performance period or if they receive a Special Payment. However, if
Arad's, Perlmutter's or Joseph Ahearn's services to the Company cease by reason
of death or disability, then the Company will pay a prorated portion (based on
the portion of the performance period prior to cessation of service) of the
performance bonus to such individual (or his estate) at the time the bonus would
otherwise have been payable. In such circumstances, the forfeited portion of the
performance bonus will be used to augment the performance bonuses payable to the
other individuals. In addition, if during the period within one year after the
Stock Closings Arad and the Perlmutter Group become entitled to receive a
Special Payment, then Arad and Perlmutter will receive no performance bonus. If
a Trigger Event occurs following the first anniversary, and prior to the third
anniversary, of the Stock Closings, then the Company will pay Arad and
Perlmutter their choice between (a) the performance bonus determined as of such
date and (b) an amount equal to the product of the shares held by Arad or the
Perlmutter Group, as the case may be, multiplied by the excess of (i) the price
per share paid (including any Cash Flow Payments) pursuant to the Merger
Agreement over (ii) the price per share paid pursuant to the Stock Purchase
Agreements.
MARVEL LICENSE AGREEMENTS
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 characters owned by
Marvel (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 trademark. The Marvel License currently covers more than 3,500
different Marvel Characters.
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 Company and Marvel have entered into an exclusive license agreement
pursuant to which Marvel may use the Toy Biz 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 third party licensee.
The Company also 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, and during the year ended December 31,
1996, the Company's sales to that subsidiary totalled $[ ].
41
<PAGE>
LICENSE WITH AVI ARAD
Avi Arad & Associates ('Associates'), of which Avi Arad is the sole
proprietor, and the Company are parties to a license agreement which amended the
licenses between Associates 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 Associates thereafter. The license agreement provides that
Associates 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 Arad is
the inventor of record. In no event, however, may the total royalties payable to
Associates during any calendar year exceed $7.5 million. In connection with the
acquisition by Marvel of the Class A Common Stock owned by Arad, it is expected
that the license agreement between the Company and Associates will be amended to
reduce the maximum royalties payable during any calendar year to $2.5 million.
MARVEL SERVICES ARRANGEMENT
In connection with the IPO in March 1995, 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 certain management,
consulting and administrative services and certain services purchased from third
party providers, including legal and accounting services. The Company is
obligated to reimburse Marvel for the costs of 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 accrued or reimbursed to Marvel approximately $306,000 and $[ ] for
1995 and 1996, respectively.
STOCKHOLDERS' AGREEMENT AND CLASS B VOTING TRUSTS
In connection with the initial public offering of the Company in March
1995, Marvel, the Perlmutter Group, 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, Perlmutter
and Arad will vote their respective shares of common stock of the Company to
elect as directors of the Company (i) eight persons designated by Marvel, (ii)
two persons designated by Perlmutter and (iii) one person designated by 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 Perlmutter and Arad consent to such shares
remaining Class B Common Stock. The Stockholders' Agreement terminates upon,
among other events, the mutual agreement of the parties thereto, upon the sale
of all or substantially all of the assets of the Company or upon the conversion
into Class A Common Stock of the Class B Common Stock held by Marvel and its
Permitted Transferees pursuant to a change in control of Marvel and also will
terminate as to any holder owning Class B Common Stock (other than pursuant to
the Voting Trusts (as defined below)) when such holder no longer beneficially
owns or holds such Class B Common Stock. Arad and the Perlmutter Group have
agreed, in the Stock Purchase Agreements, that prior to the closing of the Stock
Purchase Agreements they will not, without the consent of Andrews Group, grant
any consent that would permit the shares of Class B Common Stock not to be
converted into Class A Common Stock following a change of control of Marvel. See
'Stock Purchase Agreements.'
Each of Arad and Perlmutter is the sole trustee of a Class B voting trust
in which Marvel deposited one share of Class B Common Stock (the 'Voting
Trusts'). Marvel is the sole beneficiary of each of the Voting Trusts. Each of
Messrs. Perlmutter and Arad has the right to vote the share of Class B Common
Stock held by his respective Voting Trust in his absolute discretion, subject to
certain exceptions, until the termination of such trust.
42
<PAGE>
The rights and obligations of the Perlmutter Group and Arad under the
Stockholders' Agreement cease, and the Voting Trusts of which Perlmutter and
Arad are the trustees will terminate and the shares of Class B Common Stock held
by the Voting Trusts will be distributed to Marvel, upon the occurrence of
certain events, including a reduction in the holdings of Class A Common Stock by
Perlmutter and Arad below specified amounts. In addition, each Voting Trust
terminates if either Perlmutter or Arad attempts to transfer or dispose of his
respective right to vote the Class B Common Stock subject to the Voting Trust of
which he is trustee or any interest therein. It is a condition to the closing of
the Stock Purchase Agreements that the respective Voting Trust agreements of
Arad and Perlmutter have terminated.
COMPANY REGISTRATION RIGHTS AGREEMENT
The Company is a party to a registration rights agreement (the 'Company
Registration Rights Agreement') with Marvel, Arad and Perlmutter, pursuant to
which they and certain of their transferees each 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 on two
occasions. In addition, Marvel, Arad, Perlmutter and certain of their
transferees have certain rights to participate in such registrations and in
other registrations by the Company of its Class A Common Stock. The Company is
obligated to pay any expenses incurred in connection with such registrations,
except for underwriting discounts and commissions attributable to the shares of
Class A Common Stock sold by stockholders pursuant to such registrations.
TANGIBLE MEDIA ADVERTISING SERVICES
Tangible Media, a corporation which is wholly owned by Perlmutter, acts as
the Company's media consultant in placing the Company's advertising and, in
connection therewith, receives certain fees and commission based on the cost of
the placement of such advertising. 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 on matters of advertising creativity.
Tangible Media received payments of fees and commissions totalling approximately
$970,000 and $[ ] in 1995 and 1996, respectively.
EMPLOYEE, OFFICE SPACE AND OVERHEAD COST SHARING ARRANGEMENTS
Under expense sharing arrangements with Tangible Media, Classic Heroes, REC
Sound and, Marvel Software, affiliated companies owned by Perlmutter, in the
case of Tangible Media, Classic Heroes and REC Sound, 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 and related overhead expenses. Since 1994,
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 may through its employees provide services
to another party, upon request, whereupon the party receiving services 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. 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 its executive offices. The
Company received
43
<PAGE>
net reimbursements from the Affiliates of approximately $355,000 and $[ ]
for 1995 and 1996, respectively.
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. 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.
MARVEL STUDIOS
The Company and Marvel formed Marvel Studios with the objective of
facilitating the release of live action and animated motion pictures and
television programming and other media based on the Marvel Characters in order
to create greater consumer interests in these characters and related
merchandise. The Company and Marvel believe that any feature film or television
programming, theatrical productions or other media and any advertising and
promotion associated with such media will create consumer interest in the Marvel
Characters and revenue opportunities for Marvel's businesses and the Company's,
including licensing and toy businesses. The Company and Marvel believe that
Marvel Studios will facilitate the release of feature films, television
programming and other media by giving Marvel and the Company greater control
over the development of such projects compared to the present practice of only
licensing the use of the Marvel Characters in film or television projects to an
unrelated third party. 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. Arad, an executive producer of the X-MEN and
SPIDER-MAN Saturday morning television shows, is to be the President, Chief
Executive Officer and creative head of Marvel Studios for film projects and
co-creative head for animated projects 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.
OTHER AGREEMENTS WITH AFFILIATES
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 trademarks.
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.
The Company believes that the terms of the foregoing transactions are no
less favorable than could be obtained by the Company from unrelated parties on
an arm's-length basis.
CREDIT FACILITIES
Credit Facility. In March 1995, the Company entered into a three-year $30
million revolving line of credit with a syndicate of banks for which The Chase
Manhattan Bank ('Chase') serves as administrative agent (the 'Credit Facility').
Substantially all of the assets of the Company are
44
<PAGE>
pledged under the Credit Facility. The Company had no outstanding indebtedness
under the Credit Facility as of December 31, 1996.
Upon consummation of the Joint Plan of Reorganization, Chase, as
administrative agent for a syndicate of banks, financial institutions and other
entities, including Chase will provide to the Company a new credit facility
('the New Credit Facility') in the aggregate principal amount of $160 million.
The New Credit Facility will be guaranteed by Marvel and its domestic
subsidiaries and will mature on August 31, 2001, subject to certain scheduled
amortization and commitment reductions.
The New Credit Facility will be secured by 74% of the issued and
outstanding capital stock of the Company (which will be acquired by Marvel), all
material intellectual property of the Company and its subsidiaries, including
the Marvel License, all accounts receivable of the Company and its subsidiaries
and all intercompany advances. In addition, the New Credit Facility will share
equally and ratably in the collateral security from time to time provided for in
Marvel's existing credit agreements, as amended.
The availability of the New Credit Facility is conditioned, among other
things, upon (i) the Merger having been consummated on or before April 30, 1997,
(ii) the existing Credit Facility having been terminated, and all amounts owing
thereunder having been paid, by such date, and (iii) the Bankruptcy Court having
entered a final order confirming the Joint Plan of Reorganization.
STOCKHOLDERS' RIGHTS OF APPRAISAL
Stockholders of the Company who do not vote in favor of adoption of the
Merger Agreement have the right to seek payment in cash of the fair value of
their shares of Class A Common Stock by complying with Section 262 of the DGCL
('Section 262').
The following discussion is not a complete statement of the law pertaining
to appraisal rights under Delaware law, and is qualified in its entirety by the
full text of Section 262 which is provided in its entirety as Annex C to this
Proxy Statement. All references in Section 262 and in this summary to a
'stockholder' are to the record holder of the shares of Common Stock as to which
appraisal rights are asserted.
Under Delaware law, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation must notify each of its
stockholders that appraisal rights are available, and must include in such
notice a copy of Section 262. This Proxy Statement constitutes such notice to
stockholders of the Company. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve his right to do so should review
carefully Annex C to this Proxy Statement because failure to timely and properly
comply with the procedures specified in Section 262 will result in the loss of
appraisal rights. Moreover, because of the complexity of the procedures for
exercising the right to seek appraisal of the Class A Common Stock, the Company
believes that stockholders who consider exercising such rights should seek the
advice of counsel.
A STOCKHOLDER WISHING TO EXERCISE HIS OR HER APPRAISAL RIGHTS (I) MUST NOT
VOTE IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT AND (II) MUST DELIVER TO THE
COMPANY PRIOR TO THE VOTE ON THE MERGER AGREEMENT AT THE SPECIAL MEETING TO BE
HELD ON , 1997, A WRITTEN DEMAND FOR APPRAISAL OF THE
STOCKHOLDER'S SHARES OF COMMON STOCK. THE STOCKHOLDER MUST BE THE RECORD HOLDER
OF SUCH SHARES OF COMMON STOCK ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS
MADE AND MUST CONTINUE TO HOLD SUCH SHARES OF RECORD UNTIL THE EFFECTIVE TIME.
ACCORDINGLY, A STOCKHOLDER WHO IS THE RECORD HOLDER OF SHARES ON THE DATE THE
WRITTEN DEMAND FOR APPRAISAL IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH SHARES
PRIOR TO THE EFFECTIVE TIME, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF SUCH
SHARES.
45
<PAGE>
A demand for appraisal should be executed by or on behalf of the
stockholder, fully and correctly, as such stockholder's name appears on such
stock certificates. If the shares are owned of record in a fiduciary capacity,
such as by the trustee, guardian or custodian, execution of the demand should be
made in that capacity. If the shares are owned of record by more than one person
as in a joint tenancy or tenancy in common, the demand should be executed by or
on behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a stockholder, however,
the agent must identify the record owner or owners and expressly disclose the
fact that, in executing the demand, the agent is agent for such owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising such rights with respect
to the shares held for one or more beneficial owners; in such case, the written
demand should set forth the number of shares as to which appraisal is sought and
where no number of shares is expressly mentioned the demand will be presumed to
cover all shares held in the name of the record owner. Stockholders who hold
their shares in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by such a
nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE DELIVERED TO THE COMPANY AT
[ ], ATTENTION: [ ].
Within 120 days after the Effective Time, but not thereafter, the Company
or any stockholder who has complied with the statutory requirements summarized
above may file a petition in the Delaware Chancery Court demanding a
determination of the value of the shares of Common Stock. The Company is under
no obligation to and has no present intention to file such a petition.
Accordingly, it is the responsibility of the stockholders seeking such a
determination of value to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262. In addition, within
120 days after the Effective Time, any stockholder who has complied with the
requirements for exercise of appraisal rights will be entitled, upon written
request, to receive from the Company a statement setting forth the aggregate
number of shares of Common Stock not voted in favor of adoption of the Merger
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of stockholders of such shares. Such statements must be
mailed by the Company within ten days after a written request has been received.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the 'fair value' of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. STOCKHOLDERS CONSIDERING SEEKING
APPRAISAL SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED
UNDER SECTION 262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE CONSIDERATION
THEY WOULD RECEIVE PURSUANT TO THE MERGER AGREEMENT IF THEY DID NOT SEEK
APPRAISAL OF THEIR SHARES AND THAT INVESTMENT BANKING OPINIONS AS TO FAIRNESS
FROM A FINANCIAL POINT OF VIEW ARE NOT NECESSARILY OPINIONS AS TO FAIR VALUE
UNDER SECTION 262. THE DELAWARE SUPREME COURT HAS STATED THAT 'PROOF OF VALUE BY
ANY TECHNIQUES OR METHODS WHICH ARE GENERALLY CONSIDERED ACCEPTABLE IN THE
FINANCIAL COMMUNITY AND OTHERWISE ADMISSIBLE IN COURT' SHOULD BE CONSIDERED IN
THE APPRAISAL PROCEEDINGS.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by stockholders. The costs of the
action may be determined by the Delaware Chancery Court and taxed upon the
parties as the Delaware Chancery Court deems equitable. The Delaware Chancery
Court may also order that all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all of the shares entitled to appraisal.
46
<PAGE>
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the Effective Time).
If any stockholder who properly demands appraisal of his or her shares
under Section 262 fails to perfect, or effectively withdraws or loses, his or
her right to appraisal, as provided in the DGCL, the shares of such stockholder
will be converted into the right to receive the Merger Consideration. A
stockholder will fail to perfect, or effectively lose or withdraw, his right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the Effective Time, or if the stockholder delivers to the Company a
written withdrawal of his demand for appraisal and acceptance of the Merger. Any
such attempt to withdraw an appraisal demand more than 60 days after the
Effective Time will require the written approval of the Company.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION IN ACCORDANCE
WITH THE MERGER AGREEMENT).
47
<PAGE>
MARKET PRICES OF THE COMMON STOCK AND DIVIDEND POLICY
MARKET PRICES
The principal market on which the Class A Common Stock is traded is the
NYSE with the ticker symbol 'TBZ'. On , 1997, the last trading day
before the printing of this Proxy Statement, the high and low sales prices of
the Class A Common Stock were $ and $ , respectively. On December 26,
1996, the last trading day before the public announcement of the execution of
the Merger Agreement, the high and low sales prices of the Class A Common Stock
were $18 1/8 and $17 3/4, respectively. On November 19, 1996, the last trading
day before the public announcement by Andrews Group of its proposal to acquire
the outstanding public shares of the Company for $19 per share, the high and low
sales prices of the Class A Common Stock were $17 1/2 and $17 1/4, respectively.
On October 16, 1996, the last trading day before the public announcement that
Marvel was contemplating a possible negotiated acquisition of the Company, the
high and low sales prices of the Class A Common Stock were $18 3/4 and $18 3/8,
respectively. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR
THE CLASS A COMMON STOCK.
The high and low sales prices for the Class A Common Stock, as reported on
the NYSE Composite Tape, for fiscal years 1995 and 1996 and during the first
quarter to date of fiscal 1997 are shown below.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter (February 27 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................................................................ 20 1/4 14
Fourth Quarter............................................................... 19 7/8 17
1997
First Quarter (through January 29, 1997)..................................... 20 18 5/8
</TABLE>
The Company has not declared any dividends. For a description of certain
restrictions on payment of dividends, see Note 7 of Notes to Consolidated
Financial Statements dated December 31, 1995, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 14, 1997,
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, (b) each Director of the Company and (c) all Directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
------------------------ --------------------------
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
FIVE PERCENT STOCKHOLDERS, ------------------------ --------------------------
DIRECTORS AND PERCENT OF PERCENT OF PERCENT OF TOTAL
EXECUTIVE OFFICERS NUMBER CLASS NUMBER CLASS VOTING POWER
- ---------------------------------- ---------- ---------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
Ronald O. Perelman(1) ............ 7,394,000 26.7% 7,394,000 (2) 100% 78.4%
35 East 62nd Street
New York, New York 10021
Avi Arad(3) ...................... 4,150,000 20.4% 1 (4)
1698 Post Road East
Westport, Connecticut 06880
4.4%
Isaac Perlmutter(5) .............. 9,506,000 46.7% 1 (6)
P.O. Box 1028
Lake Worth, Florida
33460-1028
10.1%
Joseph M. Ahearn(7) .............. 270,100 1.3%
*
David J. Fremed(8) ............... 30,000 *
*
William C. Bevins ................ 10,000 *
*
Donald G. Drapkin(9) ............. 12,000 *
*
Terry C. Stewart ................. 1,000 *
*
Bobby G. Jenkins(8) .............. 50,000 *
*
James F. Halpin .................. 5,000 *
*
Alfred A. Piergallini ............ 4,000 *
*
Paul R. Verkuil .................. 2,000 *
*
Andrew R. Gatto(10) .............. 20,000 *
*
Daniel J. Werther(8) ............. 75,000 *
*
Alan Fine(10) .................... 10,000 *
*
All executive officers and
Directors as a group
(15 persons)(11) ............... 21,539,100 76.39%
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 January 15, 1996, Marvel had 101,809,657
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 January 29, 1996, 79,407,725 shares of
common stock of Marvel indirectly held by Mafco Holdings were pledged to secure
indebtedness of certain affiliates of Marvel and the capital stock of
intermediate holding companies also are pledged to secure obligations of Mafco
Holdings or its affiliates. Does not
(Footnotes continued on next page)
49
<PAGE>
(Footnotes continued from previous page)
include 13,656,000 shares which Andrews Group has the right to acquire pursuant
to the Stock Purchase Agreements.
(2) Includes two shares of Class B Common Stock held in voting trusts. Marvel is
the sole beneficiary of each voting trust.
(3) Mr. Arad is a Director and principal stockholder of the Company.
(4) Includes one share of Class B Common Stock held by a 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.
(6) Includes one share of Class B Common Stock held by a voting trust of which
Mr. Perlmutter is the sole trustee.
(7) Includes 270,000 shares of Class A Common Stock subject to employee options
granted pursuant to the Stock Option Plan which are immediately exercisable or
exercisable within 60 days. Does not include 10,000 shares of Class A Common
Stock subject to stock options granted pursuant to the Stock Option Plan which
are not otherwise immediately exercisable or exercisable within 60 days, but
which will become vested immediately prior to the Effective Time in accordance
with the Merger Agreement.
(8) Represents shares of Class A Common Stock subject to employee options
granted pursuant to the Stock Option Plan which are immediately exercisable or
exercisable within 60 days.
(9) Represents shares held in trusts for the benefit of Mr. Drapkin's children
for which Mr. Drapkin disclaims beneficial ownership.
(10) Represents shares of Class A Common Stock subject to employee options
granted pursuant to the Stock Option Plan which are immediately exercisable or
exercisable within 60 days. With respect to Messrs. Gatto and Fine, does not
include 10,000 and 20,000 shares of Class A Common Stock, respectively, subject
to employee options granted pursuant to the Stock Option Plan which are not
otherwise immediately exercisable or exercisable within 60 days, but which will
become vested immediately prior to the Effective Time in accordance with the
Merger Agreement.
(11) Includes 455,000 shares of Class A Common Stock subject to employee options
granted pursuant to the Stock Option Plan.
50
<PAGE>
DIRECTORS AND EXECUTIVE
OFFICERS OF MARVEL, ANDREWS GROUP, ACQUISITION AND THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS OF MARVEL
The following table sets forth certain information concerning each of the
directors and executive officers of Marvel.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Scott M. Sassa..................................... Chairman of the Board and Chief Executive Officer
David J. Schreff................................... President and Chief Operating Officer
Bobby G. Jenkins................................... Executive Vice President and Chief Financial
Officer
Scott C. Marden.................................... Executive Vice President, President and Chief
Executive Officer of Marvel Enterprises, and
President and Chief Executive Officer of Marvel
Interactive
Paul E. Shapiro.................................... Executive Vice President, General Counsel and Chief
Administrative Officer
Ronald O. Perelman................................. Director
William C. Bevins.................................. Director
Donald G. Drapkin.................................. Director
Michael Fuchs...................................... Director
Frank Gifford...................................... Director
E. Gregory Hookstratten............................ Director
Morton L. Janklow.................................. Director
Quincy Jones....................................... Director
Stan Lee........................................... Director
Terry C. Stewart................................... Director
Kenneth Ziffren.................................... Director
</TABLE>
The name, age, principal occupation for the last five years, selected
biographical information and period of service as a director and/or executive
officer of Marvel of each of the directors and executive officers of Marvel are
set forth below. On December 27, 1996, Marvel and its subsidiaries, other than
the Company and Panini S.p.A., Marvel Restaurant Venture Corp., a general
partner in Marvel's Marvel Mania restaurant joint venture, and inactive
subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. On December 27, 1996, Marvel Holdings, Marvel
(Parent), Marvel III and several of the subsidiaries of Marvel Holdings also, in
a separate case than Marvel, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.
51
<PAGE>
Ronald O. Perelman
Mr. Perelman (54) has been Chairman of the Executive Committee since 1996
and a Director of Marvel since 1989. Mr. Perelman was Chairman of the Board of
Marvel from 1989 to 1996. Mr. Perelman has been Chairman of the Board of the
Company since March, 1995. Mr. Perelman has been Chairman of the Board and Chief
Executive Officer of Mafco Holdings Inc. ('Mafco Holdings') MacAndrews & Forbes
Holdings Inc. ('MacAndrews & Forbes') and various of their affiliates since
1980. Mr. Perelman also is Chairman of the Board of Andrews Group, Consolidated
Cigar Holdings Inc. ('Consolidated Cigar'), Mafco Consolidated Group Inc.
('Mafco Consolidated'), Meridian Sports Incorporated ('Meridian Sports'), and
Power Control Technologies Inc. ('PCT'); and Chairman of the Executive
Committees of the Boards of Revlon, Inc. ('Revlon') and Revlon Consumer Products
Corporation ('Revlon Products'). Mr. Perelman is a director of the following
corporations which file reports pursuant to the Exchange Act: Andrews Group, The
Coleman Company, Inc. ('Coleman'), Coleman Holdings Inc. ('Coleman Holdings'),
Coleman Worldwide Corporation ('Coleman Worldwide'), Consolidated Cigar,
Consolidated Cigar Corporation, California Federal Bank, A Federal Savings Bank
('California Federal'), First Nationwide Holdings Inc., First Nationwide
(Parent) Holdings Inc., Mafco Consolidated, Marvel Holdings, Marvel (Parent),
Marvel III, Meridian Sports, PCT, Pneumo Abex Corporation, Revlon, Revlon
Products, Revlon Worldwide Corporation ('Revlon Worldwide') and the Company.
William C. Bevins
Mr. Bevins (50) has been a Director of Marvel since 1989, Chief Executive
Officer from 1991 to 1996 and President from 1994 to 1996. Mr. Bevins has been
President and Chief Executive Officer of Andrews Group and Executive Vice
President of MacAndrews & Forbes since 1988. Mr. Bevins also is a Director of
Andrews Group, Marvel Holdings, Marvel Parent, Marvel III, and the Company. 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
Mr. Drapkin (48) 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, Coleman Worldwide, Marvel Holdings, Marvel (Parent),
Marvel III, Revlon, Revlon Products, Revlon Worldwide, the Company, VIMRx
Pharmaceuticals Inc. and Algos Pharmaceutical Corporation. Mr. Drapkin was a
partner of the law firm of Skadden, Arps, Slate, Meagher & Flom for more than
five years prior to March 1987.
Michael Fuchs
Mr. Fuchs (50) has been a Director of Marvel since July 1992. Mr. Fuchs was
Chairman of the Board and Chief Executive Officer of Home Box Office from 1984
until May 1995, and Chairman of the Board of Home Box Office and Chairman of the
Board and Chief Executive Officer of Warner Music Group from May 1995 until
November 1995. Mr. Fuchs is a director of IMAX Corp. and Latin Communications
Group Inc.
52
<PAGE>
Frank Gifford
Mr. Gifford (66) has been a Director of Marvel since 1992. Mr. Gifford has
been a commentator with ABC Sports since 1971.
E. Gregory Hookstratten
Mr. Hookstratten (64) has been a Director of Marvel since 1992. He has been
engaged in private law practice, specializing in entertainment law, as a partner
of Hookstratten & Hookstratten for more than five years.
Morton L. Janklow
Mr. Janklow (66) has been a Director of Marvel since 1992. He has been Of
Counsel to Janklow, Newborn & Ashley and Senior Partner of Janklow & Nesbit
Associates since 1989. Prior thereto, Mr. Janklow served as Chairman and Chief
Executive Officer of Morton L. Janklow Associates, Inc. since 1977.
Quincy Jones
Mr. Jones (63) has been a Director of Marvel since December 1993. Mr. Jones
has been Chairman and Co-Chief Executive Officer of Quincy Jones* David Salzman
Entertainment and Chairman and Chief Executive Officer of its predecessor,
Quincy Jones Entertainment Company, both multi-media entertainment firms, since
1990. He also has been Chairman of Quincy Jones Productions, Inc., a
television/film production company, and of Quest Records, Inc. for more than
five years.
Stan Lee
Mr. Lee (74) has been a Director of Marvel since 1991 and has been Chairman
and Publisher of Marvel Comics since 1990. Mr. Lee is widely known as one of the
'founding fathers' of the modern comic book industry and as the creator of some
of Marvel's most popular and enduring characters, including SPIDER-MAN, HULK,
FANTASTIC FOUR and X-MEN. Mr. Lee has been with Marvel for more than 50 years.
Mr. Lee's management and operational experience spans virtually all areas of
Marvel's publishing business, from writer to publisher, and its media
businesses.
Scott C. Marden
Mr. Marden (42) has been a Director and Executive Vice President of Marvel
and President and Chief Executive Officer of Marvel Interactive since February
1996 and President and Chief Executive Officer of Marvel Enterprises since
January 1997. From 1993 until he joined Marvel, Mr. Marden was President and
Chief Executive Officer of Philips Media, a division of Philips Electronics N.V.
Mr. Marden was a Senior Managing Director of Bear, Stearns & Co. Inc. from 1991
to 1993, and a Managing Director of Schroder Wertheim & Co., Incorporated from
1990 to 1991 and Bankers Trust Company from 1986 to 1990. Mr. Marden was
President of CBS International Publishing, a division of CBS Inc., from 1983 to
1986.
Scott M. Sassa
Mr. Sassa (37) has been Chairman of the Board and Chief Executive Officer
and a Director of Marvel since October 1996. In October 1996, Mr. Sassa also
became President and Chief Operating Officer of Andrews Group. Prior to becoming
a Director of Marvel, Mr. Sassa served as President of Turner Entertainment
Group and as a member of the Board of Directors of Turner Broadcasting System,
Inc. and the TBS Executive Committee. Mr. Sassa was named Executive Vice
President of Turner Network Television in 1992. From 1987 to 1988, Mr. Sassa
served as Vice President/New
53
<PAGE>
Business for Ohlmeyer Communications Co. Prior to that time, Mr. Sassa served as
Vice President/Network Management for Fox Broadcasting Co.
David J. Schreff
Mr. Schreff (41) has been a Director, President and Chief Operating Officer
of Marvel since August 1996. Prior to becoming an Officer and a Director of
Marvel, Mr. Schreff served as President, Marketing and Media Group for NBA
Properties. Prior to his six and a half years at the NBA, Mr. Schreff held
executive positions for the previous eight years with The Walt Disney Company
(The Disney Channel) and Viacom International (Showtime Networks).
Terry C. Stewart
Mr. Stewart (50) has been a Director of Marvel since 1991 and an Executive
Vice President 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, President and Chief
Operating Officer, Marvel Comics from July 1994 until March 1995, and Vice
Chairman of Marvel from March 1995 through December 1995. From 1984 to 1989, Mr.
Stewart was Vice President-Business Development at Combustion Engineering. Mr.
Stewart also is a director of the Company.
Kenneth Ziffren
Mr. Ziffren (56) has been a Director of Marvel since 1992. He has been a
partner with the law firm of Ziffren, Brittenham, Branca & Fischer since 1979.
Bobby G. Jenkins
Mr. Jenkins (34) 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 LLP, where he last served as Senior Audit Manager. Mr. Jenkins was
Chief Financial Officer and Treasuer of the Company from March, 1995 to October,
1996. Mr. Jenkins is also a Director of the Company.
Paul E. Shapiro
Mr. Shapiro (55) has been Executive Vice President and General Counsel of
Marvel since January 1994. Prior thereto, he was a shareholder in the law firm
of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel from 1991 to 1993, and
he currently is Of Counsel to such firm. Mr. Shapiro also is a director of Toll
Brothers, Inc.
54
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF ANDREWS GROUP
The following table sets forth certain information concerning each of the
directors and executive officers of Andrews Group.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Ronald O. Perelman................................. Chairman of the Board
William C. Bevins.................................. Chief Executive Officer
Donald G. Drapkin.................................. Vice Chairman
Howard Gittis...................................... Vice Chairman
Bruce Slovin....................................... Vice Chairman
Terry C. Bridges................................... Executive Vice President and Chief Administrative
Officer
Joseph P. Page..................................... Executive Vice President and Chief Financial
Officer
Barry F. Schwartz.................................. Executive Vice President and General Counsel
Paul E. Shapiro.................................... Executive Vice President
Scott M. Sassa..................................... President and Chief Operating Officer
Ronald O. Perelman................................. Director
William C. Bevins.................................. Director
Donald G. Drapkin.................................. Director
Howard Gittis...................................... Director
Bruce Slovin....................................... Director
</TABLE>
The name, age, principal occupation for the last five years, selected
biographical information and period of service as a director and/or executive
officer of Andrews Group of each of the directors and executive officers of
Andrews Group are set forth below.
Ronald O. Perelman
See description under 'Directors and Executive Officers of Marvel.'
William C. Bevins
See description under 'Directors and Executive Officers of Marvel.'
Donald G. Drapkin
See description under 'Directors and Executive Officers of Marvel.'
Howard Gittis
Mr. Gittis (62) has been Vice Chairman and Director of Mafco Holdings and
MacAndrews & Forbes and various of its affiliates since 1985. He is a Director
of the following corporations which file reports under the Exchange Act: Andrews
Group, Consolidated Cigar, Consolidated Cigar Corporation, California Federal,
First Nationwide Holdings, Inc., First Nationwide (Parent) Holdings Inc., Jones
Apparel Group, Inc., Mafco Consolidated, Loral Space & Communications Ltd., PCT,
Pneumo Abex Corporation, Revlon, Revlon Products, Revlon Worldwide and
Rutherford-Moran Oil Corporation.
Bruce Slovin
Mr. Slovin (61) has been President and Director of MacAndrews & Forbes
Holdings Inc. and various of its affiliates since 1980. He is a director of each
of Coleman, Coleman Holdings, Coleman Worldwide, Continental Health Affiliates,
Inc., Cantel Industries, Inc., Oak Hill Sportswear Corporation, Infu-Tech, Inc.,
Meridian Sports and PCT.
55
<PAGE>
Terry C. Bridges
Mr. Bridges (52) has been Executive Vice President and Chief Administrative
Officer of Andrews Group since 1993. Prior to joining Andrews Group in 1993, Mr.
Bridges was a partner in the law firm of Troutman Sanders in Atlanta, Georgia
for more than the previous five years.
Joseph P. Page
Mr. Page (42) has been Executive Vice President and Chief Financial Officer
of Andrews Group since 1994. Prior to joining Andrews Group in 1994, Mr. Page
was a partner in the accounting firm of Price Waterhouse for more than the
previous five years.
Barry F. Schwartz
Mr. Schwartz (46) has been the Executive Vice President and General Counsel
of Andrews Group since 1990 and has been the Executive Vice President and
General Counsel of MacAndrews & Forbes and various of its affiliates since 1993.
Mr. Schwartz was Senior Vice President of MacAndrews & Forbes from 1989 to 1993.
Irwin Engelman
Mr. Engelman (62) has been the Executive Vice President and Chief Financial
Officer of Andrews Group since 1992 and has been the Executive Vice President
and Chief Financial Officer of MacAndrews & Forbes and various of its affiliates
since February 1992. Mr. Engelman is a director of California Federal and Revlon
Products. Mr. Engelman was Executive Vice President and Chief Financial Officer
of GAF Corporation from 1990 to 1991. Mr. Engelman was Director, President and
Chief Operating Officer of Citytrust Bancorp Inc. from 1988 to 1990; Executive
Vice President of the Blackstone Group LP from 1987 to 1988; and Director,
Executive Vice President and Chief Financial Officer of General Foods
Corporation for more than five years prior to 1987.
Paul E. Shapiro
See description under 'Directors and Officers of Marvel.'
Scott M. Sassa
See description under 'Directors and Executive Officers of Marvel.'
DIRECTORS AND EXECUTIVE OFFICERS OF ACQUISITION
The following table sets forth certain information concerning each of the
directors and executive officers of Acquisition.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Ronald O. Perelman................................. Chairman of the Board, Chief Executive Officer and
Director
Donald G. Drapkin.................................. Vice Chairman and Director
Irwin Engelman..................................... Executive Vice President and Chief Financial
Officer
Barry F. Schwartz.................................. Executive Vice President and General Counsel
</TABLE>
56
<PAGE>
Ronald O. Perelman
See description under 'Directors and Executive Officers of Marvel.'
Donald G. Drapkin
See description under 'Directors and Executive Officers of Marvel.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning each of the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Ronald O. Perelman................................. Chairman of the Board of Directors
Joseph M. Ahearn................................... President and Chief Executive Officer
Daniel J. Werther.................................. Executive Vice President, Senior Legal Officer and
Secretary
Andrew R. Gatto.................................... Executive Vice President, Marketing
David J. Fremed.................................... Chief Financial Officer and Treasurer
Alan Fine.......................................... Chief Operating Officer
Ronald O. Perelman................................. Director
Joseph M. Ahearn................................... Director
Bobby G. Jenkins................................... Director
Avi Arad........................................... Director
William C. Bevins.................................. Director
Donald G. Drapkin.................................. Director
Isaac Perlmutter................................... Director
Terry C. Stewart................................... Director
James F. Halpin.................................... Director
Alfred A. Piergallini.............................. Director
Paul R. Verkuil.................................... Director
</TABLE>
The name, age, principal occupation for the last five years, selected
bibliographical information and period of service as a director and/or executive
officer of the Company of each of the directors and executive officers of the
Company are set forth below.
57
<PAGE>
Ronald O. Perelman
See description under 'Directors and Executive Officers of Marvel.'
William C. Bevins
See description under 'Directors and Executive Officers of Marvel.'
Donald G. Drapkin
See description under 'Directors and Executive Officers of Marvel.'
Terry C. Stewart
See description under 'Directors and Executive Officers of Marvel.'
Bobby G. Jenkins
See description under 'Directors and Executive Officers of Marvel.'
Isaac Perlmutter
Mr. Perlmutter (54) 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 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 and Tangible
Media, a media buying and barter advertising agency.
Avi Arad
Mr. Arad (49) has served as a Director 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 Fox Childrens Network 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
Mr. Ahearn (42) 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 provided 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.
58
<PAGE>
James F. Halpin
Mr. Halpin (46) 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
Mr. Piergallini (50) 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.
Paul R. Verkuil
Paul R. Verkuil (57), 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 University 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.
David J. Fremed
Mr. Fremed (36) has served as the Chief Financial Officer and Treasurer of
the Company since October 1996 and Vice President/Controller of the Company
since 1990.
Alan Fine
Mr. Fine (46) has served as the Chief Operating Officer of the Company
since September 1996. From June 1996 to September 1996, Mr. Fine was the
President and Chief Operating Officer of Toy Biz International Ltd. From May
1995 to May 1996, Mr. Fine was the President and Chief Operating Officer of
Kay-Bee Toys, a national toy retailer, and from December 1989 to May 1995, he
was the Senior Vice President General Merchandise Manager of Kay-Bee Toys.
Daniel J. Werther
Mr. Werther (35) 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
Mr. Gatto (49) 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.
59
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Ernst & Young LLP, the Company's independent public
accountants, are expected to be present at the Special Meeting. They will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
OTHER MATTERS TO COME BEFORE THE MEETING
No other matters are intended to be brought before the meeting by the
Company nor does the Company know of any matters that are expected to be
properly brought before the meeting by others.
______________________________________
By Order of the Board of Directors,
Daniel J. Werther
Secretary
New York, New York
, 1997
60
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ANDREWS GROUP INCORPORATED,
ANDREWS ACQUISITION CORP.
AND
TOY BIZ, INC.
DATED AS OF
DECEMBER 27, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION NO.
- --------------------------------------------------------------- -----------
<S> <C>
Acquisition Proposal........................................... 5.3
affiliate...................................................... 8.5
Agreement...................................................... Recitals
Arad........................................................... 1.6
Certificates................................................... 2.2(b)
Class A Shares................................................. 2.1
Class B Shares................................................. 2.1
Closing........................................................ 1.2
Closing Date................................................... 1.2
Common Certificates............................................ 2.2(b)
Company........................................................ Recitals
Company SEC Documents.......................................... 3.5
DGCL........................................................... 1.1
Dissenting Stockholders........................................ 2.1(c)
D&O Insurance.................................................. 5.8(b)
Effective Time................................................. 1.3
Employee Option................................................ 2.4(a)
Exchange Act................................................... 1.7(a)
Governmental Entity............................................ 3.4
Indemnified Party.............................................. 5.8(a)
Marvel......................................................... 3.2(c)
Merger......................................................... 1.1
Merger Consideration........................................... 2.1(c)
Parent......................................................... Recitals
Paying Agent................................................... 2.2(a)
Perlmutter Group............................................... 1.6
Preferred Certificates......................................... 2.2(b)
Preferred Merger Consideration................................. 2.1(d)
Preferred Shares............................................... 2.1
Preferred Stock................................................ 3.2(a)
Proxy Statement................................................ 1.7(a)
Purchaser...................................................... Recitals
Purchaser Common Stock......................................... 2.1
Qualifying Offer............................................... 5.9(b)
SEC............................................................ 1.7(a)
Secretary of State............................................. 1.3
Securities Act................................................. 3.5
Shares......................................................... 2.1
Special Committee.............................................. 1.6
Special Meeting................................................ 1.7(a)
Stock Option Plan.............................................. 2.4(a)
Stock Purchase Agreements...................................... 1.6
Subsidiary..................................................... 3.1
Surviving Corporation.......................................... 1.1
Voting Debt.................................................... 3.2(a)
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................. 1
Section 1.1 The Merger............................................. 1
Section 1.2 Closing................................................ 1
Section 1.3 Effective Time......................................... 1
Section 1.4 Certificate of Incorporation and By-Laws............... 1
Section 1.5 Directors and Officers of the Surviving Corporation.... 1
Section 1.6 Company Actions........................................ 2
Section 1.7 Stockholders' Meeting and Proxy Statement.............. 2
ARTICLE II CONVERSION OF SECURITIES............................... 2
Section 2.1 Conversion of Capital Stock............................ 2
Section 2.2 Exchange of Certificates............................... 3
Section 2.3 Dissenters' Rights..................................... 4
Section 2.4 Company Plans.......................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 5
Section 3.1 Organization........................................... 5
Section 3.2 Capitalization......................................... 5
Section 3.3 Authorization; Validity of Agreement; Company Action... 6
Section 3.4 Consents and Approvals; No Violations.................. 6
Section 3.5 SEC Reports and Financial Statements................... 6
Section 3.6 Information in Proxy Statement......................... 6
Section 3.7 Vote Required.......................................... 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE
PURCHASER............................................ 7
Section 4.1 Organization........................................... 7
Section 4.2 Authorization; Validity of Agreement; Necessary
Action............................................... 7
Section 4.3 Consents and Approvals; No Violations.................. 7
Section 4.4 Information in Proxy Statement......................... 7
ARTICLE V COVENANTS.............................................. 8
Section 5.1 Interim Operations of the Company...................... 8
Section 5.2 Consents and Approvals................................. 8
Section 5.3 No Solicitation........................................ 8
Section 5.4 Brokers or Finders..................................... 8
Section 5.5 Additional Agreements.................................. 9
Section 5.6 Publicity.............................................. 9
Section 5.7 Notification of Certain Matters........................ 9
Section 5.8 Directors' and Officers' Insurance and
Indemnification...................................... 9
Section 5.9 Assignment; Purchase of Shares......................... 9
Section
5.10 Stock Purchase Agreements.............................. 10
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VI CONDITIONS............................................. 10
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger............................................... 10
Section 6.2 Conditions to Parent's and the Purchaser's Obligations
to Effect the Merger................................. 10
Section 6.3 Conditions to Company's Obligations to Effect the
Merger............................................... 11
ARTICLE VII TERMINATION............................................ 11
Section 7.1 Termination............................................ 11
Section 7.2 Effect of Termination.................................. 11
ARTICLE VIII MISCELLANEOUS.......................................... 12
Section 8.1 Fees and Expenses...................................... 12
Section 8.2 Amendment, Modification and Other Action............... 12
Section 8.3 Nonsurvival of Representations and Warranties.......... 12
Section 8.4 Notices................................................ 12
Section 8.5 Interpretation......................................... 13
Section 8.6 Counterparts........................................... 13
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership......................................... 13
Section 8.8 Severability........................................... 13
Section 8.9 Governing Law.......................................... 13
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this 'Agreement'), dated as of December 27,
1996, by and among Andrews Group Incorporated, a Delaware corporation
('Parent'), Andrews Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent (the 'Purchaser'), and Toy Biz, Inc., a Delaware
corporation (the 'Company').
WHEREAS, the Board of Directors of the Company and the Board of Directors
of each of Parent and Purchaser have approved, and deem it advisable and in the
best interests of their respective stockholders to consummate, the acquisition
of the Company by Parent and the merger of Purchaser with and into the Company
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of theState of
Delaware (the 'DGCL'), at the Effective Time (as defined in Section 1.3), the
Company and the Purchaser shall consummate a merger (the 'Merger') pursuant to
which (a) the Purchaser shall be merged with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease, (b) the
Company shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the 'Surviving Corporation') and shall continue to be
governed by the laws of the State of Delaware, and (c) all of the rights,
privileges, immunities, powers and franchises of the Company and the Purchaser
shall vest in the Surviving Corporation and all obligations, duties, debts and
liabilities of the Company and the Purchaser shall become the obligations,
duties, debts and liabilities of the Surviving Corporation.
Section 1.2 Closing. The closing of the Merger (the 'Closing') shall take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VI hereof (the 'Closing Date'), at the offices
of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New
York 10022, unless another date or place is agreed to in writing by the parties
hereto.
Section 1.3 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI hereof, Parent,
the Purchaser and the Company will cause a Certificate of Merger to be executed
and filed on the date of the Closing (or on such other date as Parent and the
Company may agree) with the Secretary of State of Delaware (the 'Secretary of
State') as provided in the DGCL. The Merger shall become effective on the date
on which the Certificate of Merger has been duly filed with the Secretary of
State or such time as is agreed upon by the parties and specified in the
Certificate of Merger, and such time is hereinafter referred to as the
'Effective Time.'
Section 1.4 Certificate of Incorporation and By-Laws. At the Effective
Time, the Amended and Restated Certificate of Incorporation of the Company, as
amended, as in effect immediately prior to the Effective Time, shall be amended
as set forth in Exhibit A hereto. The Amended and Restated Certificate of
Incorporation, as so amended at the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended in
accordance with applicable law. The By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall be amended as set forth in
Exhibit B hereto. The by-laws of the Company, as so amended at the Effective
Time, shall be the by-laws of the Surviving Corporation until thereafter amended
in accordance with applicable law. The Merger shall have the effects specified
in the DGCL.
Section 1.5 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser and the officers of the Company at the Effective Time
shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed or qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
certificate of incorporation and by-laws.
A-1
<PAGE>
Section 1.6 Company Actions. The Company hereby approves of and consents to
the Merger and represents that its Board of Directors, at a meeting duly called
and held, has (i) upon the recommendation of its Special Committee (the 'Special
Committee'), unanimously determined that each of the Agreement and the Merger
are fair and in the best interests of the holders of the Class A Shares (as
defined in Section 2.1), other than Avi Arad ('Arad'), Isaac Perlmutter, Isaac
Perlmutter T.A., a Florida trust, and ZIB Inc., a Delaware corporation
(collectively, the 'Perlmutter Group'), whose shares are to be purchased
pursuant to the Stock Purchase Agreement, dated as of November 20, 1996, between
Parent and Arad and the Stock Purchase Agreement, dated as of November 20, 1996,
between Parent and the Perlmutter Group (together, the 'Stock Purchase
Agreements'), (ii) approved this Agreement and the transactions contemplated
hereby, including the Merger, and such approval constitutes approval of this
Agreement and the transactions contemplated hereby, including the Merger, and
(iii) resolved to recommend that the stockholders of the Company approve and
adopt this Agreement and the Merger.
Section 1.7 Stockholders' Meeting and Proxy Statement.
(a) If required by applicable law in order to consummate the Merger, the
Company shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold a special meeting of
its stockholders (the 'Special Meeting') and submit this Agreement and the
Merger to a vote of the Company's stockholders for their adoption and
approval as promptly as possible following the execution and delivery of
this Agreement;
(ii) prepare and file with the Securities and Exchange Commission (the
'SEC'), in accordance with Regulation 14A and Rule 13e-3 under the
Securities Exchange Act of 1934 (the 'Exchange Act'), a preliminary Proxy
Statement (as hereinafter defined) relating to the Merger and this
Agreement and use its best efforts (x) to obtain and furnish the
information required to be included by the SEC in the Proxy Statement and,
after consultation with Parent, to respond promptly to any comments made by
the SEC with respect to the preliminary Proxy Statement, provided that no
amendment or supplement thereto will be made by the Company without
consultation with Parent and its counsel, (y) cause a letter to
stockholders, notice of meeting, definitive Proxy Statement, including any
amendment or supplement thereto, and form of proxy (collectively, the
'Proxy Statement') to be mailed to its stockholders in connection with the
Merger and (z) to obtain the necessary approvals of the Merger and this
Agreement by its stockholders;
(iii) subject to the fiduciary obligations of the Board of Directors
under applicable law as advised by independent counsel, include in the
Proxy Statement its recommendation that the stockholders of the Company
vote in favor of the approval of the Merger and the adoption of this
Agreement; and
(iv) include in the Proxy Statement the written opinion of Wasserstein
Perella & Co. that the Merger Consideration (as defined in Section 2.1(c))
is fair to the holders of the Class A Shares (other than Arad and the
Perlmutter Group) from a financial point of view.
(b) Parent shall furnish to the Company written information concerning
itself and Purchaser expressly for inclusion in the Proxy Statement.
(c) Parent shall vote, or cause to be voted, all of the capital stock of
the Company then owned by it, the Purchaser or any of its other affiliates in
favor of the approval of the Merger and the adoption of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Purchaser,
the Company or the holders of any shares of Class A common stock, par value $.01
per share (the 'Class A Shares'), or Class B common stock, par value $.01 per
share, of the Company (the 'Class B Shares' and, collectively with the Class A
Shares, the 'Shares'), or the holders of any shares of Series A Preferred Stock
(the 'Preferred Shares') of the Company, or holders of common stock, par value
$1.00 per share, of the Purchaser (the 'Purchaser Common Stock')
A-2
<PAGE>
(a) Purchaser Common Stock. Each issued and outstanding share of the
Purchaser Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All Shares that
are owned by the Company as treasury stock and any Shares or other capital stock
owned by Parent, the Purchaser or any other wholly owned Subsidiary (as defined
in Section 3.1) of Parent shall be cancelled and retired and shall cease to
exist and no consideration shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding Share (other than
Shares to be cancelled in accordance with Section 2.1(b) and any Shares which
are held by stockholders ('Dissenting Stockholders') exercising appraisal rights
pursuant to Section 262 of the DGCL, which Shares shall be converted into the
right, if any, to receive payment from the Surviving Corporation of the 'fair
value' of such Shares as determined in accordance with Section 262 of the DGCL)
shall be converted into the right to receive $22.50 per Share in cash, payable
to the holder thereof, without interest (the 'Merger Consideration'), upon
surrender of the certificate formerly representing such Share in the manner
provided in Section 2.2. All such Shares, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.2.
(d) Exchange of Preferred Shares. Each issued and outstanding Preferred
Share (other than any Preferred Shares which are held by stockholders who are
Dissenting Stockholders, which Shares shall be converted into the right, if any,
to receive payment from the Surviving Corporation of the 'fair value' of such
Preferred Shares as determined in accordance with Section 262 of the DGCL) shall
be converted into the right to receive an amount per Preferred Share equal to
the then applicable Redemption Price (as defined and as set forth in the
Certificate of Designation for the Preferred Shares), payable to the holder
thereof, without interest (the 'Preferred Merger Consideration'), upon surrender
of the certificate formerly representing such Preferred Share in the manner
provided in Section 2.2. All such Preferred Shares, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such Preferred
Shares shall cease to have any rights with respect thereto, except the right to
receive the Preferred Merger Consideration therefor upon the surrender of such
certificate in accordance with Section 2.2.
Section 2.2 Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, Parent shall designate a bank or trust company to act as agent
for the holders of the Shares and the Preferred Shares in connection with the
Merger (the 'Paying Agent') to receive the funds, as needed, to which holders of
the Shares and the Preferred Shares shall become entitled pursuant to Section
2.1(c) and 2.1(d). Such funds shall be invested by the Paying Agent as directed
by Parent or the Surviving Corporation. All interest earned on such funds shall
be paid to Parent.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the 'Common Certificates') or Preferred Shares
(the 'Preferred Certificates,' and together with the Common Certificates, the
'Certificates'), whose Shares or Preferred Shares were converted pursuant to
Section 2.1 into the right to receive the Merger Consideration and the Preferred
Merger Consideration, respectively, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in such form and have such other provisions as Parent and the
Company may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration or the Preferred Merger Consideration, as the case may be. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by Parent, to gether with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration or the Preferred Merger
Consideration for each Share or Preferred Share formerly represented by such
Certificate and the Certificate so surrendered shall forthwith be cancelled. If
payment of the Merger Consideration or Preferred Merger Consideration is to be
made to a person other than the person in whose name the surrendered Certificate
is registered, it shall be a condition of payment that the
A-3
<PAGE>
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other non-income taxes required by reason of the payment
of the Merger Consideration or Preferred Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive the Merger Consideration
or Preferred Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares or
the Preferred Shares on the records of the Company. From and after the Effective
Time, the holders of Certificates evidencing ownership of the Shares or the
Preferred Shares outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to such Shares or Preferred Shares, except as
otherwise provided for herein or by applicable law. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration or Preferred Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a Certificate
for Merger Consideration or Preferred Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
Section 2.3 Dissenters' Rights. If any Dissenting Stockholder shall be
entitled to be paid the 'fair value' of such holder's Shares or Preferred
Shares, as provided in Section 262 of the DGCL, the Company shall give the
Parent notice thereof and the Parent shall have the right to participate in all
negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of the Parent, voluntarily make any payment with respect to, or settle
or offer to settle, any such demand for payment. If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Stockholder shall thereupon be
treated as though such Shares or Preferred Shares had been converted into the
Merger Consideration or Preferred Merger Consideration pursuant to Section 2.1.
Section 2.4 Company Plans. (a) With respect to each outstanding employee
stock option to purchase Shares (an 'Employee Option') granted under the
Company's 1995 Stock Option Plan (the 'Stock Option Plan'), the Company shall,
effective as of immediately prior to the Effective Time, and subject to the
consent, if required, of the holder of such Employee Option, (i) cause each
Employee Option, whether or not then exercisable or vested, to become fully
exercisable and vested, (ii) cause each Employee Option that is then outstanding
to be cancelled and (iii) in consideration of such cancellation, pay to such
holder of an Employee Option an amount in respect thereof equal to the product
of (A) the excess, if any, of the Merger Consideration over the exercise price
of each such Employee Option and (B) the number of Shares previously subject to
the Employee Option immediately prior to its cancellation (such payment to be
net of withholding taxes).
(b) Except as may be otherwise agreed to by the Parent or the Purchaser and
the Company, the Stock Option Plan shall terminate as of the Effective Time and
the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any of its subsidiaries shall be deleted as of the Effective Time and
no holder of Employee Options or any participant in the Stock Option Plan or any
other plans, programs or arrangements shall have any right thereunder to acquire
any equity securities of the Company, the Surviving Corporation or any
subsidiary thereof.
A-4
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser as follows:
Section 3.1 Organization. Each of the Company and its Subsidiary (as
defined below) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and governmental approvals would
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiary, taken as a whole. As used in this Agreement, the
term 'Subsidiary' shall mean all corporations or other entities in which the
Company or the Parent, as the case may be, owns a majority of the issued and
outstanding capital stock or similar interests. As used in this Agreement, any
reference to any state of facts, event or effect being material or having a
material adverse effect on or with respect to any entity (or group of entities
taken as a whole) means such state of facts, event or effect is materially
adverse to the consolidated financial condition, businesses or results of
operations of such entity (or, if used with respect thereto, of such group of
entities taken as a whole). Each of the Company and its Subsidiary is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiary, taken as a whole.
Section 3.2 Capitalization. (a) The authorized capital stock of the Company
consists of 100,000,000 Class A Shares, 20,000,000 Class B Shares and 25,000,000
shares of preferred stock, par value $.01 per share (the 'Preferred Stock'). As
of the date hereof, (i) 20,348,794 Class A Shares are issued and outstanding and
no Class A Shares are held in the treasury of the Company, (ii) 7,394,000 Class
B Shares are issued and outstanding and no Class B Shares are held in the
treasury of the Company, (iii) 59,091 Preferred Shares are issued and
outstanding, and (iv) 1,321,471 Class A Shares are reserved for issuance upon
exercise of then outstanding Employee Options granted under the Stock Option
Plan. All the outstanding shares of the Company's capital stock are, and all
Class A Shares which may be issued pursuant to the exercise of outstanding
Employee Options will be, when issued in accordance with the respective terms
thereof, duly authorized, validly issued, fully paid and non-assessable. There
are no bonds, debentures, notes or other indebtedness having general voting
rights (or convertible into securities having such rights) ('Voting Debt') of
the Company or its Subsidiary issued and outstanding. Except as set forth above,
as of the date hereof, (i) there are no shares of capital stock of the Company
authorized, issued or outstanding and (ii) there are no existing options,
warrants, calls, pre-emptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of the Company or its Subsidiary, obligating the Company or its
Subsidiary to issue, transfer or sell or cause to be issued, transferred or sold
any shares of capital stock or Voting Debt of the Company or its Subsidiary or
securities convertible into or exchangeable for such shares or equity interests,
or obligating the Company or its Subsidiary to grant, extend or enter into any
such option, warrant, call, subscription or other right, agreement, arrangement
or commitment.
(b) All of the outstanding shares of capital stock of its Subsidiary are
beneficially owned by the Company, directly or indirectly, and all such shares
have been validly issued and are fully paid and nonassessable and are owned by
either the Company free and clear of all liens, charges, claims or encumbrances.
(c) Except for the Stockholders Agreement, dated as of March 2, 1995, by
and among Arad, the Perlmutter Group, Marvel Entertainment Group, Inc.
('Marvel') and the Company, the Voting Trust Agreement, dated as of March 2,
1995, among Marvel, Isaac Perlmutter and the Company and the Voting Trust
Agreement, dated as of March 2, 1995, among Marvel, Arad and the Company, there
are no voting trusts or other agreements or understandings to which the Company
or its Subsidiary is a party with respect to the voting of the capital stock of
the Company or its Subsidiary.
A-5
<PAGE>
(d) Neither the Company nor its Subsidiary is required to redeem,
repurchase or otherwise acquire shares of capital stock of the Company, or its
Subsidiary, respectively, as a result of the transactions contemplated by this
Agreement.
Section 3.3 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated here by. The
execution, delivery and performance by the Company of this Agreement, and the
consummation by it of the transactions contemplated hereby, have been duly
authorized by the Board of Directors of the Company and, except for obtaining
the approval of its stockholders as contemplated by Section 3.7 or as otherwise
required by Delaware law, no other corporate action on the part of the Company
is necessary to authorize the execution and delivery by the Company of this
Agreement and the consummation by it of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and, assuming
due and valid authorization, execution and delivery hereof by Parent and the
Purchaser, is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act and the DGCL, neither the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the certificate of
incorporation or the by-laws of the Company or of its Subsidiary, (ii) require
any filing with, or permit, authorization, consent or approval of, any court,
arbitral tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a 'Governmental Entity'), (iii) except as set
forth in Section 3.4 of the Company Disclosure Schedule, result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company or its Subsidiary is a party
or by which either of them or any of their properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, its Subsidiary or any of their properties or assets,
excluding from the foregoing clauses (ii), (iii) and (iv) such violations,
breaches or defaults which would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiary, taken as a whole, and
which will not materially impair the ability of the Company to consummate the
transactions contemplated hereby.
Section 3.5 SEC Reports and Financial Statements. The Company has filed
with the SEC, and has heretofore delivered to Parent, true and complete copies
of, all forms, reports, schedules, statements and other documents required to be
filed by it under the Exchange Act or the Securities Act of 1933, as amended
(the 'Securities Act') (as such documents have been amended since the time of
their filing, collectively, the 'Company SEC Documents'). As of their respective
dates or, if amended, as of the date of the last such amendment, the SEC
Documents (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder.
Section 3.6 Information in Proxy Statement. The Proxy Statement (or any
amendment thereof or supplement thereto) will, at the date mailed to Company
stockholders and at the time of the Special Meeting, not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent or the Purchaser for inclusion in the
Proxy Statement. The Proxy Statement will comply in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Regulation 14A and Rule 13e-3.
Section 3.7 Vote Required. The affirmative vote of the holders of a
majority of the votes represented by the outstanding Class A Shares and Class B
Shares, voting together as one class, and the affirmative unanimous vote of the
holders of the outstanding Class B Shares are the only votes of the holders of
any class or series of the
A-6
<PAGE>
Company's capital stock necessary to approve this Agreement and the transactions
contemplated hereby, subject to any other vote which may be required by Delaware
law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as follows:
Section 4.1 Organization. Each of Parent and the Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and has all requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on Parent and the Purchaser, taken as a whole. Each of
Parent and the Purchaser is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, individually or in the
aggregate, have a material adverse effect on Parent and its Subsidiaries, taken
as a whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each of
Parent and the Purchaser has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by Parent and the Purchaser of this
Agreement, and the consummation by them of the transactions contemplated hereby,
have been duly authorized by the Boards of Directors of Parent and the Purchaser
and by Parent as the sole stockholder of the Purchaser and no other corporate
action on the part of Parent and the Purchaser is necessary to authorize the
execution and delivery by Parent and the Purchaser of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Parent and the Purchaser, and, assuming due and
valid authorization, execution and delivery hereof by the Company, is a valid
and binding obligation of Parent and the Purchaser, enforceable against them in
accordance with its terms.
Section 4.3 Consents and Approvals; No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act and the DGCL, neither the
execution, delivery or performance of this Agreement by Parent or the Purchaser
nor the consummation by Parent or the Purchaser of the transactions contemplated
hereby nor compliance by Parent or the Purchaser with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
respective certificate of incorporation or by-laws of Parent or the Purchaser,
(ii) require any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or the
Purchaser is a party or by which any of them or any of their respective
properties or assets may be bound or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (ii), (iii) and (iv) such violations, breaches or defaults which would
not, individually or in the aggregate, have a material adverse effect on Parent
and its Subsidiaries, taken as a whole and which will not materially impair the
ability of Parent or the Purchaser to consummate the transactions contemplated
hereby.
Section 4.4 Information in Proxy Statement. The information supplied by
Parent or the Purchaser specifically for inclusion or incorporation by reference
in the Proxy Statement will, at the date mailed to stockholders and at the time
of the Special Meeting, not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. All information supplied by Parent or the
Purchaser specifically for inclusion or incorporation by reference in the Proxy
Statement will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation 14A and Rule 13e-3.
A-7
<PAGE>
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as expressly contemplated by this Agreement or (ii) as
agreed in writing by Parent, after the date hereof and prior to the Effective
Time, the business of the Company and its Subsidiary shall be conducted only in
the ordinary and usual course, and, in particular: the Company will not,
directly or indirectly, (i) sell, transfer or pledge or agree to sell, transfer
or pledge any of the Shares (other than Class A Shares reserved for issuance on
the date hereof pursuant to the exercise of Options outstanding on the date
hereof) Preferred Stock or capital stock of its Subsidiary beneficially owned by
it; (ii) amend its certificate of incorporation or by-laws; (iii) split, combine
or reclassify the outstanding Shares or Preferred Shares; (iv) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to its capital stock; or (v) redeem (except pursuant to
the Certificate of Designation relating to the Preferred Shares), purchase or
otherwise acquire directly or indirectly any of its capital stock.
Section 5.2 Consents and Approvals. (a) Upon the terms and subject to the
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including, but not
limited to, (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the transactions contemplated by this
Agreement and the taking of such actions as are necessary to obtain any
requisite approvals, consents, order, exemptions or waivers by any third party
or Governmental Entity, and (ii) causing the satisfaction of all conditions to
the Closing.
(b) Each of Parent and the Company shall promptly consult with the other
with respect to, provide any necessary information that is not subject to legal
privilege with respect to, and provide the other (or its counsel) copies of, all
filings made by such party with any Governmental Entity or any other information
supplied by such party to a Governmental Entity in connection with this
Agreement and the transactions contemplated by this Agreement. Each of Parent
and the Company shall promptly inform the other of any communication from any
Governmental Entity regarding any of the transactions contemplated by this
Agreement. If such party receives a request from any such Governmental Entity
with respect to the transactions contemplated by this Agreement, then such party
will endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other party, an appropriate response
in compliance with such request.
Section 5.3 No Solicitation. Neither the Company nor its Subsidiary or
affiliates shall (and the Company shall use its best efforts to cause its
officers, directors, employees, representatives and agents, including, but not
limited to, investment bankers, attorneys and accountants, not to), directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, any of its affiliates or
representatives) concerning any merger, tender offer, exchange offer, sale of
assets, sale of shares of capital stock or debt securities or similar
transactions involving the Company, its Subsidiary or any division or operating
or principal business unit of the Company (an 'Acquisition Proposal').
Notwithstanding the foregoing, the Company may furnish information concerning
its business, properties or assets to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such entity
or group concerning an Acquisition Proposal, if the Board of Directors of the
Company concludes in good faith after consultation with independent legal
counsel that the failure to take such action would present a reasonable
possibility of violating the fiduciary obligations of such Board under
applicable law. Nothing shall prohibit the Company from taking and disclosing a
position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 under
the Exchange Act or, with respect to any Acquisition Proposal, from making any
other disclosure required by applicable law. The Company will immediately
communicate to Parent the terms of any Acquisition Proposal or request for
information or to negotiate (and will disclose any written materials received by
the Company in connection therewith) and the identity of the party making suh
Acquisition Proposal or request which it may receive in respect of any such
transaction.
Section 5.4 Brokers or Finders. Each of Parent and the Company represents,
as to itself, its Subsidiaries and its affiliates (other, than in the case of
Parent, the Company, and in the case of the Company, Parent or any of
A-8
<PAGE>
its affiliates, other than the Company and its Subsidiary), that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any brokers' or finders' fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement
(other than, in the case of the Company, Wasserstein Perella & Co., and in the
case of the Parent and its affiliates other than the Company and its Subsidiary,
Donaldson, Lufkin & Jenrette, Bear Stearns & Co. Inc., and CS First Boston
Corporation) and each of Parent and the Company agrees to indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other fees, commissions or expenses asserted by any person
on the basis of any act or statement alleged to have been made by such party or
its affiliates.
Section 5.5 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of the Company and Parent shall use all
reasonable efforts to take, or cause to be taken, all such necessary actions.
Section 5.6 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, so long as this Agreement is in effect, neither the
Company, Parent nor any of their respective affiliates shall issue or cause the
publication of any press release or other announcement with respect to the
Merger, this Agreement or the other transactions contemplated hereby without the
prior consultation of the other party, except as may be required by law or by
any listing agreement with a national securities exchange or trading market.
Section 5.7 Notification of Certain Matters. The Company shall give prompt
notice to Parent and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time and (ii) any material failure of the Company or Parent, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.7 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.8 Directors' and Officers' Insurance and Indemnification. (a)
Parent shall cause the Surviving Corporation (or any successor to the Surviving
Corporation) to indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its Subsidiary
(each an 'Indemnified Party') against all losses, claims, damages, liabilities,
fees and expenses arising out of actions or omissions occurring at or prior to
the Effective Time to the full extent permitted under Delaware law, subject to
the terms of the Company's certificate of incorporation and by-laws, all as in
effect at the date hereof.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance ('D&O Insurance') for a
period of not less than five years after the Effective Time; provided, that the
Parent may substitute therefor policies of substantially similar coverage and
amounts containing terms no less favorable to such former directors or officers;
provided, further, that in no event shall the Parent or the Surviving
Corporation be required to pay annual premiums for insurance under this Section
in excess of 150% of the premiums paid by the Company in 1996; and provided
further, however, that if the annual premiums for such insurance coverage exceed
such amount Parent or the Surviving Corporation shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount.
Section 5.9 Assignment; Purchase of Shares.
(a) In the event that the condition set forth in Section 6.2(c) is
satisfied, Parent shall (i) transfer all the outstanding shares of capital stock
of the Purchaser to Marvel and, if necessary, cause Marvel to authorize the
consummation of the transactions contemplated hereby as the then sole
stockholder of the Purchaser, and (ii) assign its rights, interests and
obligations hereunder to Marvel (it being understood that Marvel is not an
'interested stockholder' for purposes of Section 203 of the DGCL).
(b) In the event that the condition set forth in Section 6.2(c) is not
satisfied but is waived, Parent, Purchaser or any of their affiliates (other
than Marvel) shall have the right to offer to purchase all of the Class A Shares
A-9
<PAGE>
directly from the stockholders of the Company, provided that (i) such offer
shall be for any and all outstanding Class A Shares, (ii) such offer shall be
for cash in an amount per share not less than the Merger Consideration, and
(iii) such offer shall not contain any conditions not customary for an offer of
this type (a 'Qualifying Offer').
(c) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties,
except (i) as provided in Section 5.9(a)(ii) or (ii) that Parent may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to any direct or indirect Subsidiary of Parent. Upon any such
assignment (whether pursuant to Section 5.9(a)(ii) or otherwise), Parent's
assignee shall deliver to the Company a writing evidencing its agreement to
perform Parent's covenants hereunder and in which it makes representations to
the Company substantially in the form made by Parent in Article IV. No such
assignment (whether pursuant to Section 5.9(a)(ii) or otherwise), however, shall
relieve Parent of its obligations under this Agreement.
(d) The parties hereto shall take all reasonable actions as are necessary,
proper or advisable to give effect to the provisions of this Section 5.9,
including, without limitation, the execution of an amendment to this Agreement.
Section 5.10 Stock Purchase Agreements. Parent shall not alter or amend
(i) the Stock Purchase Agreements or (ii) the Performance Bonus Agreement
between the Company and Arad, the Performance Bonus Agreement between the
Company and Isaac Perlmutter, the Amended and Restated Consulting Agreement
between the Company and Arad or the Consulting Agreement between the Company and
Isaac Perlmutter (in the case of the documents referred to in this clause (ii),
in the form previously provided to the Company) so as to make such arrangements
economically more favorable to Arad or Isaac Perlmutter, or enter into any
similar agreements, without the consent of the Company, which consent shall not
unreasonably be withheld.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Parent or the Purchaser, as the case may be, to the extent permitted by
applicable law:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the holders of the Shares, if required by
applicable law or the Company's certificate of incorporation, in order to
consummate the Merger;
(b) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any Governmental Entity which
prohibits the consummation of the Merger and all governmental consents,
orders and approvals required for the consummation of the Merger and the
transactions contemplated hereby shall have been obtained and shall be in
effect at the Effective Time; and
(c) Injunctions. There shall be no order or injunction of a
Governmental Entity of competent jurisdiction in effect precluding,
restraining, enjoining or prohibiting consummation of the Merger.
Section 6.2 Conditions to Parent's and the Purchaser's Obligations to
Effect the Merger. The obligations of Parent and the Purchaser to consummate the
Merger are further subject to the fulfillment of the following conditions, which
may be waived in whole or in part by Parent and the Purchaser:
(a) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects both when
made and (except for those representations and warranties that address
matters only as of a particular date which need only be true and correct in
all material respects as of such date) as of the Effective Time after
giving effect to the Merger as if made at and as of such time;
(b) The Company shall have performed in all material respects each of
its obligations under this Agreement required to be performed by it at or
prior to the Effective Time;
A-10
<PAGE>
(c) The Plan of Reorganization (with such changes as Parent shall
approve) attached as Exhibit A to the Stock Purchase Agreement dated
December 27, 1996 between Parent and Marvel shall have been confirmed and
all conditions to closing under such agreement (excluding the condition
that all conditions to the closing of this Agreement be satisfied) shall
have been satisfied or waived.
Section 6.3 Conditions to Company's Obligations to Effect the Merger. The
obligations of the Company to consummate the Merger are further subject to the
fulfillment of the following conditions, which may be waived in whole or in part
by the Company:
(a) The representations and warranties of the Parent and Purchaser
contained in this Agreement shall be true and correct in all material
respects both when made and (except for those representations and
warranties that address matters only as of a particular date which need
only be true and correct in all material respects as of such date) as of
the Effective Time after giving effect to the Merger as if made at and as
of such time;
(b) Each of the Parent and Purchaser shall have performed in all
material respects each of its obligations under this Agreement required to
be performed by it at or prior to the Effective Time.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof:
(a) By mutual agreement of Parent, Purchaser and the Company.
(b) By Parent or the Company:
(i) if the Merger shall not have been consummated by June 30, 1997;
provided, however, that the right to terminate this Agreement under this
Section 7.1(b)(i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or prior to such
date;
(ii) if the stockholders of the Company fail to approve and adopt
this Agreement at the Special Meeting; provided, however, that the right
to terminate this Agreement under this Section 7.1(b)(ii) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
stockholders of the Company to approve and adopt this Agreement at the
Special Meeting;
(iii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; or
(iv) if, prior to the consummation of the Merger, (x) the Board of
Directors of the Company shall (A) have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser its approval of
this Agreement or the Merger in order to execute a definitive agreement
relating to an Acquisition Proposal which is a superior proposal to the
Merger, reasonably capable of being consummated, and (B) have concluded
in good faith after consultation with independent legal counsel that the
failure to take such action as set forth in the preceding clause (A)
would result in the Board of Directors violating its fiduciary
obligations under applicable law.
(c) By Parent, if it shall have purchased Shares pursuant to a
Qualifying Offer.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void, and there shall be no liability on the part of any party hereto except
(A) for fraud or for material breach of this Agreement and (B) as set forth in
this Section 7.2 and Section 8.1.
A-11
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. Except as contemplated by this Agreement,
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such expenses.
Section 8.2 Amendment, Modification and Other Action. Subject to applicable
law, this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the stockholders
of the Company, no such amendment, modification or supplement shall reduce the
amount or change the form of the Merger Consideration. Notwithstanding any
provision of this Agreement to the contrary, no action by the Company referred
to in Sections 1.2 or 1.3, Article VI or VII or this Article VIII, and no
consent under the first sentence of Section 5.9(c), shall be effective without
the approval of the Special Committee.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
if to Parent or the Purchaser, to:
Andrews Group Incorporated
3200 Windy Hill Road
Atlanta, Georgia 30339
Attention: General Counsel
Telephone No.: (212) 572-8600
Telecopy No.: (770) 563-9610
with a copy to:
MacAndrews & Forbes Holdings Inc.
35 East 62nd Street
New York, New York 10021
Attention: Barry F. Schwartz, Esq.
Telephone No.: 212-572-5170
Telecopy: 212-572-5056
with an additional copy to:
Alan C. Myers, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2001
and
if to the Company, to:
Toy Biz, Inc.
333 East 38th Street
New York, New York 10016
A-12
<PAGE>
Attention: General Counsel
Telephone No.: (212) 682-4700
Telecopy No.: (212) 682-3516
with a copy to:
Allen Finkelson, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone No.: (212) 474-1000
Telecopy No.: (212) 474-3700
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words 'include', 'includes' or 'including' are
used in this Agreement they shall be deemed to be followed by the words 'without
limitation'. As used in this Agreement, the term 'affiliate(s)' shall have the
meaning set forth in Rule l2b-2 of the Exchange Act.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments referred
to herein): (a) constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Section 5.8
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 8.8 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a Governmental Entity of competent jurisdiction to
be invalid, void, unenforceable or against its regulatory policy, the remainder
of the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
A-13
<PAGE>
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ANDREWS GROUP INCORPORATED
By: /s/ Glenn P. Dickes
-------------------------------
Name:
Title:
ANDREWS ACQUISITION CORP.
By: /s/ Glenn P. Dickes
-------------------------------
Name:
Title:
TOY BIZ, INC.
By: /s/ Daniel J. Werther
-------------------------------
Name:
Title: Executive Vice President
A-14
<PAGE>
ANNEX B
[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]
December 24, 1996
Special Committee of the
Board of Directors
Toy Biz, Inc.
333 East 38th Street
New York, NY 10016
Gentlemen:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders (other than Mr. Avi Arad ('Arad'), Mr.
Isaac Perlmutter ('Perlmutter'), Isaac Perlmutter T.A. and ZIB Inc.
collectively, the 'Selling Stockholders') of shares of Class A Common Stock, par
value $.01 per share (the 'Shares'), of Toy Biz, Inc., a Delaware corporation
(the 'Company'), of the consideration to be received by such holders pursuant to
an Agreement and Plan of Merger (the 'Merger Agreement') proposed to be entered
into among Andrews Group Incorporated, a Delaware corporation ('Parent'),
Andrews Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Parent ('Sub'), and the Company. The Merger Agreement will provide for, among
other things, the merger of Sub with and into the Company pursuant to which each
outstanding Share (other than as to be provided in the Merger Agreement) will be
converted into the right to receive $22.50 in cash (the 'Merger'). The terms and
conditions of the Merger will be set forth in more detail in the Merger
Agreement.
In connection with rendering our opinion, we have reviewed the Stock
Purchase Agreements, each dated November 20, 1996, between Parent and each of
the Selling Stockholders (the 'Stock Purchase Agreements') and a draft of the
Merger Agreement in the form to be executed by the parties. We have also
reviewed and analyzed certain publicly available business and financial
information relating to the Company for recent years and interim periods to
date, as well as certain internal financial and operating information, including
financial forecasts prepared by or on behalf of the Company and provided to us
for purposes of our analysis, and we have met with certain representatives of
the Company and Marvel Entertainment Group, Inc., a Delaware corporation (the
'Marvel Group') and Arad and Perlmutter to review and discuss such information
and, among other matters, the Company's business, financial condition, results
of operations and prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the toy industry specifically, and in other industries
generally, which we believe to be reasonably comparable to the Merger or
otherwise relevant to our inquiry. We have also performed such other studies,
analyses and investigations and reviewed such other information as we considered
appropriate.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial forecasts and other information provided to us and we have assumed,
with your consent, that the financial forecasts and other information provided
to us in connection with our review and analysis were reasonably prepared in
good faith and on bases reflecting the best currently available judgments and
estimates of the Company's management as of the date hereof, and we express no
opinion with respect to such projections or other information or the assumptions
upon which they are based. In addition, we have not reviewed any of the books
and records of the Company or assumed any responsibility for conducting a
physical inspection of the properties or facilities of the Company, or for
making or obtaining an
B-1
<PAGE>
independent valuation or appraisal of the assets or liabilities of the Company,
and no such independent valuation or appraisal was provided to us. Our opinion
is necessarily based on economic and market conditions and other circumstances
as they exist and can be evaluated by us as of the date hereof. Additionally, it
should be noted that, within the context of our engagement, we have not been
authorized to and have not solicited alternative offers for the Company or its
assets, or investigated any other alternative transactions which may be
available to the Company. Finally, we have assumed that, when executed, the
consulting and performance bonus agreements between the Company and each of Arad
and Perlmutter referred to in the Stock Purchase Agreements (the
'Arad/Perlmutter Consulting/Bonus Agreements') will be as previously described
to us and that there are, and as of the effective time of the Merger there will
be, no agreements, arrangements or understandings among either or both of Arad
or Perlmutter, on the one hand, and the Company, any member of the Marvel Group
or any affiliate of any of the foregoing, on the other hand, other than the
Stock Purchase Agreements and the Arad/Perlmutter Consulting/Bonus Agreements.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company (the 'Special Committee') in connection with the Merger
and will receive a fee for our services, including this opinion. In addition, we
have performed various investment banking and other services for various members
of the Marvel Group in the past and have received customary fees for rendering
such services and we may provide such services to the Marvel Group in the
future. In the ordinary course of our business, we may actively trade the debt
and equity securities of the Company and members of the Marvel Group for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
Our opinion addresses only the fairness from a financial point of view to
the holders of the Shares (other than the Selling Stockholders) of the
consideration to be paid to them pursuant to the Merger Agreement and does not
address the Company's underlying business decision to effect the Merger.
This letter is solely for the benefit and use of the Special Committee in
its consideration of the Merger, may not be relied upon by any other person,
used for any other purpose or reproduced, disseminated, quoted or referred to at
any time, in any manner or for any purpose without our prior writter consent
(except as otherwise provided in the engagement letter dated as of October 30,
1996, between the Company and us). This opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote or
otherwise act with respect to the Merger Agreement and the transactions
contemplated thereby and should not be relied upon by any stockholder as to any
such matter.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the $22.50 per Share cash consideration to be received by the holders of the
Shares (other than the Selling Stockholders) pursuant to the Merger Agreement is
fair to such holders from a financial point of view.
Very truly yours,
/s/ WASSERSTEIN PERELLA & CO., INC.
B-2
<PAGE>
ANNEX C
EXCERPTS FROM THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE RELATING TO THE RIGHTS
OF DISSENTING STOCKHOLDERS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
'stockholder' means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words 'stock' and 'share' mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
'depository receipt' mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
C-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
C-2
<PAGE>
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of
C-3
<PAGE>
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
