sec document
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
(AMENDMENT NO. 2)
Filed by the Registrant | |
Filed by a Party other than the Registrant |X|
Check the 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 Under Rule 14a-12
THE TOPPS COMPANY, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CRESCENDO PARTNERS II L.P., SERIES Y
CRESCENDO INVESTMENTS II, LLC
CRESCENDO ADVISORS LLC
ERIC ROSENFELD
ARNAUD AJDLER
--------------------------------------------------------------------------------
(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
-1-
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------------
(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):
------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------------
| | Fee paid previously with preliminary materials:
------------------------------------------------------------------------------
| | Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------------
-2-
PRELIMINARY COPY - SUBJECT TO COMPLETION, DATED MAY 14, 2007
THE COMMITTEE TO ENHANCE TOPPS
May , 2007
--
Fellow Stockholders:
The attached proxy statement and the enclosed GOLD proxy card are being
furnished to you, the stockholders of The Topps Company, Inc., a Delaware
corporation ("Topps" or the "Company") in connection with the solicitation of
proxies by The Committee to Enhance Topps for use at the special meeting of
stockholders of Topps, and at any adjournments or postponements thereof (the
"Special Meeting"), relating to the proposed acquisition (the "Merger") of Topps
by certain entities controlled by Michael D. Eisner and Madison Dearborn
Partners, LLC (the "Acquisition Entities"). In connection with the proposed
Merger, Topps entered into an Agreement and Plan of Merger, dated as of March 5,
2007, with Tornante-MDP Joe Holding LLC and Tornante-MDP Joe Acquisition Corp,
the Acquisition Entities.
Pursuant to the attached proxy statement, we are soliciting proxies from
holders of shares of Topps common stock to vote AGAINST the proposed Merger.
The Special Meeting will be held on [________, ________ __], 2007 at
[__:__], Eastern Time, at the [________] located at [_______ __________ .
We urge you to carefully consider the information contained in the
attached proxy statement and then support our efforts by signing, dating and
returning the enclosed GOLD proxy card today. The attached proxy statement
and the enclosed GOLD proxy card are first being furnished to the
stockholders on or about [_________ __], 2007.
If you have already voted for management's proposals relating to the
merger, you have every right to change your vote by signing, dating and
returning a later dated proxy card.
If you have any questions or require any assistance with your vote,
please contact D.F. King & Co., Inc., which is assisting us, at their address
and toll-free numbers listed on the following page.
Thank you for your support,
/s/ Eric Rosenfeld
/s/ Arnaud Ajdler
--------------------------------------------
Eric Rosenfeld & Arnaud Ajdler
The Committee to Enhance Topps
--------------------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS, REQUIRE ASSISTANCE IN VOTING YOUR GOLD PROXY CARD,
OR NEED ADDITIONAL COPIES OF THE COMMITTEE'S PROXY MATERIALS, PLEASE CALL
D.F. KING & CO., INC. AT THE PHONE NUMBERS LISTED BELOW.
D.F. KING & CO., INC.
Call Toll-Free: L-800-628-8532
Banks and Brokerage Firms Call Toll-Free: 1-212-269-5550
--------------------------------------------------------------------------------
-2-
PRELIMINARY COPY--SUBJECT TO COMPLETION, DATED MAY 14, 2007
SPECIAL MEETING OF STOCKHOLDERS
OF
THE TOPPS COMPANY, INC.
-------------------------
PROXY STATEMENT
OF
THE COMMITTEE TO ENHANCE TOPPS
-------------------------
PLEASE SIGN, DATE AND MAIL THE ENCLOSED GOLD PROXY CARD TODAY
The members of The Committee to Enhance Topps ("the Committee" or "we")
are significant stockholders of The Topps Company, Inc. ("Topps" or the
"Company"). The Committee is writing to you in connection with the proposed
acquisition (the "Merger") of Topps by certain entities (the "Acquisition
Entities") controlled by Michael D. Eisner and Madison Dearborn Partners, LLC
("Madison Dearborn"). The Board of Directors of Topps (the "Topps Board") has
scheduled a special meeting of stockholders for the purpose of approving the
proposed Merger (the "Special Meeting"). The Special Meeting is scheduled to be
held on [_________, _________ __], 2007 at [__:__]a.m., Eastern Time, at
[________________________]. In connection with the proposed Merger, Topps
entered into an Agreement and Plan of Merger, dated as of March 5, 2007, with
Tornante-MDP Joe Holding LLC and Tornante-MDP Joe Acquisition Corp (the "Merger
Agreement").
The Committee opposes the proposed Merger and Merger Agreement because we
believe that:
o the $9.75 per share Merger consideration to be paid to the Company's
stockholders in the proposed Merger is inadequate and does not fully
reflect the Company's intrinsic value;
o a better alternative exists for maximizing stockholder value, including
replacing members of the existing Topps Board with highly-qualified
nominees dedicated to maximizing stockholder value, conducting a modified
"Dutch Auction" tender offer for between $10.00 and $10.50 per share and
focusing on improving the operations of the Company;
o the process that led to the signing of the Merger Agreement was flawed in
that the Topps Board did not shop the Company prior to signing the Merger
Agreement and thus failed to maximize the competitive dynamics of a sale
transaction that would have garnered the highest price possible for the
Company; and
o the deal-protection terms of the "go-shop" provision under the Merger
Agreement do not provide for a sufficient, post-signing market check.
You should refer to the information set forth under the heading "REASONS
TO DEFEAT THE PROPOSED MERGER" for a more detailed explanation of the
Committee's reasons for opposing the proposed Merger and Merger Agreement.
The Committee does not believe that the proposed Merger is in the best
interests of the stockholders and is soliciting proxies from the stockholders of
Topps AGAINST the following Merger-related proposals:
1. The Company's proposal to approve the Merger Agreement; and
2. The Company's proposal to approve any motion to adjourn or postpone the
Special Meeting to another time and place, if necessary, to permit the further
solicitation of proxies to establish a quorum or to obtain additional votes in
favor of Proposal 1.
The Committee is composed of Crescendo Partners II, L.P., Series Y, a
Delaware limited partnership ("Crescendo Partners II"), Crescendo Investments
II, LLC, a Delaware limited liability company ("Crescendo Investments II"),
Crescendo Advisors LLC, a Delaware limited liability company ("Crescendo
Advisors"), Eric Rosenfeld and Arnaud Ajdler. Mr. Ajdler is a director of
Topps. Mr. Ajdler voted against the Merger Agreement along with two other
members of the Topps Board, Timothy Brog and John Jones. Crescendo Partners
II, Crescendo Investments II, Crescendo Advisors, Mr. Rosenfeld and Mr.
Ajdler are deemed participants in this proxy solicitation. See "Other
Participant Information." This Proxy Statement and the GOLD proxy card are
first being furnished to Topps' stockholders on or about [________ __], 2007.
Topps has set the record date for determining stockholders entitled to
notice of and to vote at the Special Meeting as [______ __], 2007 (the "Record
Date"). The principal executive offices of Topps are located at One Whitehall,
New York, New York 10004. Stockholders of record at the close of business on the
Record Date will be entitled to vote at the Special Meeting. As of the Record
Date, there were [_____] shares of Topps common stock outstanding and entitled
to vote at the Special Meeting, which is the total number of shares of common
stock, $0.01 par value per share (the "Shares"), reported to be outstanding by
the Company. As of [______ __], 2007, the approximate date on which the
Committee expects to mail this Proxy Statement to the stockholders, the
Committee, together with all of the participants in this solicitation, are the
collective beneficial owners of an aggregate of [________] Shares, which
represents approximately [__]% of the Shares outstanding. Of the Shares
beneficially owned by the members of the Committee, [______] of such Shares may
be voted by the members of the Committee at the Special Meeting. The
participants in this solicitation intend to vote such Shares AGAINST the
Company's Merger proposals.
According to the Company's proxy statement filed with the Securities and
Exchange Commission (the "SEC") on [________ __], 2007, the approval of the
Merger Agreement requires the affirmative vote of at least a majority of the
Shares outstanding as of the Record Date.
-2-
THIS SOLICITATION IS BEING MADE BY THE COMMITTEE AND NOT ON BEHALF OF THE BOARD
OF DIRECTORS OR MANAGEMENT OF TOPPS. THE COMMITTEE IS NOT AWARE OF ANY OTHER
MATTERS TO BE BROUGHT BEFORE THE SPECIAL MEETING. SHOULD OTHER MATTERS, WHICH
THE COMMITTEE IS NOT AWARE OF A REASONABLE TIME BEFORE THIS SOLICITATION, BE
BROUGHT BEFORE THE SPECIAL MEETING, THE PERSONS NAMED AS PROXIES IN THE ENCLOSED
GOLD PROXY CARD WILL VOTE ON SUCH MATTERS IN THEIR DISCRETION.
THE COMMITTEE URGES YOU TO SIGN, DATE AND RETURN THE GOLD PROXY CARD TO VOTE
AGAINST THE COMPANY'S MERGER PROPOSALS.
IF YOU HAVE ALREADY SENT A PROXY CARD FURNISHED BY TOPPS MANAGEMENT TO THE TOPPS
BOARD, YOU MAY REVOKE THAT PROXY AND VOTE AGAINST THE COMPANY'S MERGER PROPOSALS
BY SIGNING, DATING AND RETURNING THE ENCLOSED GOLD PROXY CARD. THE LATEST DATED
PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
THE SPECIAL MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER
DATED PROXY FOR THE SPECIAL MEETING TO THE COMMITTEE, C/O D.F. KING & CO., INC.
WHICH IS ASSISTING IN THIS SOLICITATION, OR TO THE SECRETARY OF TOPPS, OR BY
VOTING IN PERSON AT THE SPECIAL MEETING.
-3-
IMPORTANT
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN. THE
COMMITTEE URGES YOU TO SIGN, DATE, AND RETURN THE ENCLOSED GOLD PROXY CARD TODAY
TO VOTE AGAINST THE COMPANY'S MERGER PROPOSAL.
The Committee does not believe that the Merger is in the best interest of
the Company's stockholders. A vote AGAINST the Company's Merger proposal will
enable you - as the owners of Topps - to send a message to the Topps Board that
you are committed to maximizing the value of your Shares and that you will not
approve a proposed transaction that does not fully and fairly value your Shares.
o If your Shares are registered in your own name, please sign and date
the enclosed GOLD proxy card and return it to the Committee, c/o D.F.
King & Co., Inc., in the enclosed envelope today.
o If any of your Shares are held in the name of a brokerage firm, bank,
bank nominee or other institution on the Record Date, only it can vote
such Shares and only upon receipt of your specific instructions.
Accordingly, please contact the person responsible for your account and
instruct that person to execute on your behalf the GOLD proxy card.
The Committee urges you to confirm your instructions in writing to the
person responsible for your account and to provide a copy of such
instructions to the Committee, c/o D.F. King & Co., Inc., who is
assisting in this solicitation, at the address and telephone numbers
set forth below, and on the back cover of this Proxy Statement, so that
we may be aware of all instructions and can attempt to ensure that such
instructions are followed.
YOU MAY ALSO VOTE BY TELEPHONE OR INTERNET.
Please refer to the voting instructions on the GOLD proxy card.
If you have any questions regarding your proxy, or need
assistance in voting your Shares by telephone or Internet, please call:
D.F. KING & CO., INC.
48 Wall Street
New York, NY 10005
Call Toll-Free: L-800-628-8532
BANKS AND BROKERAGE FIRMS CALL TOLL-FREE: 1-212-269-5550
-4-
PROPOSAL NO. 1
APPROVAL OF MERGER AGREEMENT
You are being asked by Topps to approve the Merger Agreement. For the
reasons discussed below, we oppose the proposed Merger and Merger Agreement. To
that end, we are soliciting your proxy to vote AGAINST Proposal No. 1.
WE URGE YOU TO DEMONSTRATE YOUR OPPOSITION TO THE PROPOSED MERGER AND TO
SEND A MESSAGE TO THE TOPPS BOARD THAT THE PROPOSED MERGER IS NOT IN THE BEST
INTEREST OF TOPPS STOCKHOLDERS BY SIGNING, DATING AND RETURNING THE ENCLOSED
GOLD PROXY CARD AS SOON AS POSSIBLE.
REASONS TO DEFEAT THE PROPOSED MERGER
I. THE $9.75 PER SHARE MERGER CONSIDERATION IS INADEQUATE AND DOES
NOT FULLY REFLECT THE COMPANY'S INTRINSIC VALUE
Based upon the failure of the Company's management to maximize the value
of the Company's brands and products, the Committee believes that the intrinsic
value of Topps is far greater than the $9.75 per Share Merger consideration.
The Merger consideration represents only a 3% premium to the average
closing price of the Shares for the 20 trading days preceding the announcement
of the Merger Agreement. In fact, Topps' Shares recently traded at prices
substantially higher than $9.75, closing as high as $9.97 on February 2, 2007.
It therefore stands to reason that the Board was contemplating a Merger at a
lower price per Share than the price at which the Company's Shares were trading
at certain times during the negotiations of the Merger Agreement. Furthermore,
since the signing of the Merger Agreement, the Company's stock has been
consistently trading at prices higher than the proposed $9.75 per Share offer
price, closing as high as $10.17 on April 19, 2007.
The Committee believes that there are several shortcomings in the analysis
used by the Topps Board to justify the low takeover premium, which the Committee
details below.
1. THE SUGGESTION OF AN INAPPROPRIATE SHARE PRICE BENCHMARK:
Instead of using the average closing price of the Shares for the 20-days
preceding the Merger, the Committee believes that the Company's proxy statement
suggests that $8.02 represents an appropriate benchmark for considering the
$9.75 Merger consideration. From the Company's proxy statement:
"The average closing price of our common stock for the two-week period
that preceded our 2006 annual meeting of stockholders held on July 28,
2006 was $8.02 per share. After we settled the second proxy contest by
Pembridge in July 2006 and the objecting directors were elected to our
Board, based on at least one analyst report, speculation had emerged in
the analyst community that the Company might have been the subject of a
transaction over the following months. The price of our common stock began
to increase over time. Many of our directors believed that this increase
may have reflected a transaction premium that was built into the price of
our common stock."
-5-
Since the Company discloses in its proxy statement that several directors
attribute the observed increase in the Company's share price since the Company's
2006 annual meeting to takeover speculation, the Committee believes that the
Company is suggesting to its stockholders that the average closing price of
$8.02 for the two weeks prior to the Company's 2006 annual meeting - more than
nine months ago - is an appropriate benchmark by which to consider the premium
in connection with the proposed Merger consideration. We disagree with this
suggestion and, in fact, believe that the increase in the Company's Shares from
$8.02 to $9.45, the approximate average closing price of the Shares for the 20
trading days preceding the announcement of the Merger Agreement, is due in large
part to (i) improved results of operations in fiscal year 2007, including better
than expected third quarter results and (ii) the prospect of a large return of
capital raised during the Company's third quarter conference call. We note that
the Company's stock price increased approximately 8% following the release of
the Company's third quarter results.
In fact, public statements made by certain members of management reveal
the inconvenient truth for the Company that there were other reasons for the
rise in the Company's Shares during this time period. Please consider the
following public statements made by the Company:
o IMPROVED FISCAL YEAR 2007 FINANCIAL OPERATIONS AND BETTER THAN
EXPECTED THIRD QUARTER RESULTS
"We have also made fundamental changes to the structure of the
Company to improve operating profitability, including implementing
new systems to improve efficiency. These actions in total are
beginning to bear fruit as evidenced by our results for the first
quarter fiscal 2007, which we reported on June 29, 2006. Highlights
in the quarter include:
o 79% increase in net income compared to the same period
last year; and
o $6.5 million returned to shareholders through dividends
and share repurchase."
ARTHUR SHORIN IN A LETTER TO THE COMPANY'S STOCKHOLDERS, DATED
JUNE 30, 2006, IN CONNECTION WITH THE 2006 ANNUAL MEETING.
"Third quarter revenue reflects continued momentum in the U.S.
sports card business and strong performance in the worldwide
confectionery business. Importantly, this is our third consecutive
quarter of strong earnings which highlight the progress we have made
in our turnaround plan."
ARTHUR SHORIN STATEMENT IN EARNINGS RELEASE FROM FISCAL 2007
THIRD QUARTER, DATED JANUARY 3, 2007.
-6-
o THE PROSPECT OF A LARGE RETURN OF CAPITAL
"Well, the Board was and is considering uses of cash and has decided
not to renew sort of in this interim period until they have a chance
to consider all the alternatives, including the renewal of a
10(b)(5)-1 program. So, my guess is that decision will be made
relatively shortly."
CATHY JESSUP DURING AN INVESTOR CALL CONDUCTED BY THE COMPANY
ON JANUARY 3, 2007.
To the Committee, the statements above paint a picture of a Company that
should expect that its improved results of operations were the driving force for
the increase in its stock price. On the one hand, in the context of a proxy
contest at last year's annual meeting, and in earnings releases and conference
calls, the Company would have its stockholders believe that its strong stock
performance is a product of initial positive results from its strategic
restructuring and turnaround, and on the other hand, in the context of
justifying a transaction premium, the Company would have stockholders believe
that the strong performance of its Shares is a result of takeover speculation.
The Company's management and the Topps Board cannot have it both ways.
Finally, an additional reason we do not lend any credence to the role of
takeover speculation in the increase in the Company's stock price is because the
last time that there was real takeover speculation in June 2005 (after the
Company announced it was exploring the sale of the confectionary division), the
stock price reached $10.94. At that time, the Company's entertainment business
was faring much worse than it is today. It therefore stands to reason that if
there truly was significant takeover speculation in the Company in the months
leading up to the Merger Agreement, that its Shares would have traded
significantly higher than $9.45 per share.
2. THE SELECTION AND USE OF "ADJUSTED CASE" PROJECTIONS
The Committee questions the use by Lehman Brothers Inc. ("Lehman
Brothers") of certain adjusted financial projections (the "Adjusted Case
Projections") in connection with its fairness analysis, which, according to the
Company's proxy statement are less favorable than the "management case"
projections. The Adjusted Case Projections appeared for the first time only on
January 25, 2007, after the $9.75 price had already been agreed to in principle.
Before that time, the Topps Board had seen and worked only with the "management
case" projections.
3. SHORTCOMINGS IN THE LEHMAN BROTHERS FAIRNESS ANALYSIS:
The Committee believes that the fairness analysis performed by Lehman
Brothers was flawed in several respects. In the Committee's opinion, it was a
mistake for Lehman Brothers to rely on certain financial and operating data from
the last twelve months (LTM) instead of using forward-looking projections in its
COMPARABLE COMPANY ANALYSIS and COMPARABLE TRANSACTION ANALYSIS. We believe this
-7-
analysis is flawed because the LTM numbers are depressed numbers and the Company
has projected significant EBITDA growth over the next fiscal year (44% in the
management case). The Company's projected EBITDA growth represents a
significantly higher growth rate than the comparable companies selected.
Therefore, the multiple implied by the comparable companies and comparable
transactions fail to reflect this high level of projected EBITDA growth.
We believe that Lehman Brothers should have instead analyzed the ratio of
EV (enterprise value) to the forward-looking projections of EBITDA of the
comparable companies and applied this to the Company's forward-looking
projections of EBITDA. If this approach had been employed, we believe that
Lehman Brothers' analysis would have resulted in a much higher valuation of the
Company. We believe that the use of LTM financial and operating data is improper
since it is representative of depressed operational circumstances and distorts
the intrinsic value of the Company.
We note that Lehman Brothers used forward-looking projections in
connection with recent fairness opinions, including one for Sierra Health
Services, Inc. ("Sierra Health"). In Sierra Health, Lehman Brothers calculated
the premium per share paid by the acquiror compared to the share price of Sierra
Health one day prior to the announcement of the merger. Ask yourself why Lehman
Brothers only used LTM numbers in its fairness analysis for Topps and why Lehman
Brothers used an $8.02 share price as a benchmark as opposed to the share price
of Topps the day before the Merger Agreement was announced.
Finally, we also believe that in the hypothetical STATUS-QUO VALUATION and
LEVERAGED ACQUISITION ANALYSIS performed by Lehman Brothers, the valuation of
the Company and the IRR should only have been discounted over two years, as
opposed to three. The market discounts future information and therefore we
believe that the market would value the Company in early fiscal year 2010
(February 2009) based on the expected fiscal year 2010 financial data. In the
same vein, a private equity buyer could take the Company public in early fiscal
year 2010 (February 2009) based on the projected 2010 numbers, and, therefore,
the IRR should be calculated based on a two-year, rather than a three-year
holding period.
4. FAILURE TO INCLUDE VALUE ASSOCIATED WITH THE POTENTIAL OF A FUTURE
'HIT' PRODUCT
The non-sport trading card is a hit-driven business. Sales and profits can
go from low to enormous levels and back to low levels in quick and unpredictable
cycles. This happened to Topps with Pokemon from 1999 to 2001. During this
timeframe, sales went from $229.4 million in 1999 to $437.4 million in 2001 and
back to $300 million in 2002. While we cannot predict when Topps will have its
next hit, it does not mean that this type of potential opportunity is valueless,
which has been Lehman's assumption.
-8-
THE COMMITTEE THEREFORE BELIEVES THAT THE $9.75 CONSIDERATION IS
INADEQUATE
In light of the progress that the Company has started to make in its
strategic turnaround plan, the Committee does not understand how the Topps Board
concluded that the per-share Merger consideration is greater than what long-term
stockholders would be able to sell their Shares for in the open market upon the
completion of a turnaround. The Committee also does not understand why the Topps
Board threw itself at the feet of the first suitor to make an offer for the
Company just as a strategic turnaround is beginning to bear fruit, without
having first conducted a full-blown competitive auction process.
In addition, the $9.75 per Share proposed Merger consideration amounts to
a net cash outlay of less than $7.60 per Share by the acquirors when considering
the amount of cash that the Company has on hand without any debt. Topps
currently has approximately $84 million in cash on hand as of the end of fiscal
2007 third quarter. This analysis suggests that more than 20% of the proposed
purchase of Topps is actually being funded by cash belonging to Topps'
stockholders.
The Company also fails to disclose in its proxy statement that the most
recent proposed stock repurchase program for the period September 2005 through
September 2006 that was approved by the Board in September 2005 - prior to the
election of Messrs. Brog, Jones and Ajdler - had a top price of $10.62 per
Share. The Committee does not understand how management and the Topps Board on
the one hand can recommend buying shares up to $10.62 per Share, but on the
other hand approve the sale of the Company at $9.75 per Share as the alternative
that maximizes stockholder value, particularly given the improvements in the
Company's financial performance in the first three quarters of fiscal year 2007.
As discussed above, the Company's fiscal 2007 third quarter results
reflect positive revenue and earnings growth. The Company has stated that it is
on track to meet or exceed its full year earnings guidance of $0.25 to $0.30 per
diluted share for fiscal year 2007. If the proposed Merger is consummated,
Madison Dearborn and Mr. Eisner will stand to reap the benefits of the Company's
initial strategic turnaround results, as opposed to the long-term stockholders
who have waited patiently through years of poor operating and stock performance
for the underlying value of their Shares to be unlocked. The Committee believes
it is grossly unfair for the Company's stockholders to be denied the opportunity
to participate in the Company's strong future growth outlook, especially when
the Company can engage in similar value-enhancing activities as the private
equity buyers are likely to undertake.
Based on the factors outlined above, we question how the Topps Board can
conclude that the sale of the Company at a price of $9.75 per Share is in the
best interests of the Company's stockholders.
II. A BETTER ALTERNATIVE EXISTS FOR MAXIMIZING STOCKHOLDER VALUE
The Committee has an alternative plan for maximizing stockholder value.
Instead of selling the Company today at a discount to the private equity
entities, the Committee believes that the Company should first engage in
value-enhancing activities of its own. More specifically, the Committee believes
that the Company can significantly increase stockholder value by first improving
the operations of the Company and fixing the Company's capital structure, and
-9-
only then exploring the sale of the Company at an appropriate time. The
Committee does not believe a "quick-fix" sale of the Company as it is still in a
depressed financial condition is in the best interest of stockholders. The
Committee believes that if the Company were to take certain steps, the Company's
Shares could be worth significantly more in the short-to-medium term. Using
management projections, the Committee believes that Topps' Shares could justify
an enterprise value (net of debt) between $16 and $18 per Share in two years(1),
not taking into account an M&A premium that could yield a much higher valuation.
If the Merger is voted down by stockholders, the Committee intends to
nominate a slate of directors committed to maximizing stockholder value. We
believe that the existing Board has made and continues to make the wrong choices
by (i) not holding management accountable, (ii) overseeing a significant rise in
the Company's cost structure of the Company (the Company's gross margins
decreased from 37.9% for fiscal 2002 to 34.9% for fiscal 2007, and the Company's
SG&A expenses, as a percentage of net sales, increased from 25.7% for fiscal
2002 to 31.0% for fiscal 2007), (iii) failing to fix the Company's capital
structure (as of the end of fiscal 2007, the Company had approximately $81.6
million of cash and short-term investments on its balance sheet, representing
approximately 25.1% of the Company's net sales for fiscal 2007), (iv) overseeing
a stagnant stock price and (v) selling the Company at a discounted valuation for
an inadequate premium. We therefore believe that they are the wrong board
members to lead the Company in the future. We believe that the Company needs an
experienced board dedicated to aggressively improving business operations and
enhancing value. We are in discussions with a number of highly-qualified
candidates with extensive experience running companies and divisions of
companies and who also have industry expertise in certain areas, including
marketing, brand management, entertainment and strategic turnarounds.
Our nominees, if elected, would not seek an immediate sale of the Company,
unless the Company receives an offer at a significant premium to market which
adequately reflects the intrinsic value of the Company. Instead, our nominees
would first focus on fixing operations and the capital structure of the Company.
We believe that Topps can remain a public company and can undertake many of the
same value-enhancing activities that would likely be taken by any private equity
purchasers. By staying a public company, the public stockholders stand to reap
the benefits of the Company's operational and financial restructuring instead of
the private equity owners gaining those rewards.
In particular, if our slate is elected to the Topps Board, we plan to
undertake certain value-enhancing activities, including (i) conducting a
modified "Dutch Auction" tender offer for approximately 28% of the Company's
outstanding Shares between $10 and $10.50 and (ii) aggressively focusing on
improving the Company's operational performance.
------------------
(1) Range of enterprise value assumes a forward-looking EV/EBITDA multiple in
the 9.0x to 10.0x range to the projected 2010 EBITDA of approximately $51.2
million, a repurchase of $110 million of shares at a price of $10.25 and the
utilization of free cash flows to repay debt incurred to finance the
repurchase.
-10-
1. A MODIFIED "DUTCH AUCTION" TENDER OFFER:
As of the end of fiscal year 2007, the Company had in excess of $81
million of cash and short-term investments on its balance sheet. According to
the Company's own financial projections, the Company will continue to generate
significant free cash flows and could therefore support a significant amount of
debt. This idea is certainly validated by the existing Merger Agreement pursuant
to which Mr. Eisner plans to borrow between $140 and $165 million or between 4.8
and 5.6 times forecasted 2008 EBITDA. We do not believe that as a public company
Topps should support the same level of debt, and therefore we recommend that the
Company conservatively borrow $45 million, or approximately 1.5 times 2008
EBITDA (based on management projections). Between the Company's existing cash
(taking into account deal-related expenses and cash required to run the
business) and the additional debt, we anticipate that the Company would be able
to immediately return approximately $110 million to its stockholders. The
Committee strongly believes that this surplus cash should be returned to the
stockholders, the true owners of the Company. Although a few options exist for
achieving this, the Committee believes that the Company should undertake a
large-scale share repurchase through a modified "Dutch Auction" tender offer. We
note that the Company apparently has previously considered and rejected the use
of a modified "Dutch Auction" tender offer to provide value to its shareholders;
however, we believe such a tender offer would benefit the Company's stockholders
at this time. If the Company is able to buy back $110 million of shares at, say
$10.25, it will retire approximately 28% of its outstanding Shares. Such a
tender offer would have multiple advantages, which include (i) fixing the
capital structure by placing a limited amount of debt on the Company, (ii)
providing current liquidity to investors at a higher price per Share than the
Proposed Merger and (iii) providing long-term stockholders the ability to
participate in the Company's future growth in a more levered way.
CRESCENDO PARTNERS II INTENDS TO REMAIN A LONG-TERM STOCKHOLDER OF TOPPS
AND WILL NOT PARTICIPATE IN THIS TENDER OFFER.
2. AGGRESSIVE FOCUS ON IMPROVING OPERATIONS:
The Committee believes that senior management has not been aggressive
enough to improve the operations of the Company. We believe that the Company
should hire a new CEO with extensive marketing and turnaround experience, and
who would bring a fresh perspective to the organization. In light of Topps' sub
par EBITDA margins compared to industry peers, as shown in the table below(2),
the Committee believes that there are significant opportunities to increase
profitability. The industry peers set forth below were chosen because the
Committee believes these companies represent a cross-section of public
entertainment and confectionary companies that are similar to the Company in
several respects.
------------------
(2) Table includes (i) last fiscal year EBITDA margins for the comparable
companies according to Capital IQ and (ii) Topps' EBITDA margin based
on fiscal 2007 number from the Company's proxy statement.
-11-
EBITDA MARGIN (%)
-----------------
RC2 20.8
Jakks Pacific 18.1
Hasbro 17.3
Mattel 16.9
4Kids 22.9
Hershey 24.9
Tootsie Roll 20.8
Wrigley 23.8
Cadbury Schweppes 18.0
Average 20.4
Topps 6.3
According to Topps' own proxy statement, Lehman Brothers commented on the
confectionary division's low EBITDA margin compared to the industry average. We
believe that this has been caused by the above-average cost of goods sold of the
confectionary business. This is an area where we believe there are opportunities
to reduce costs since the Company's cost of goods sold, as a percentage of net
sales, for the fiscal 2007 is higher than the four confectionary companies in
the above list by an average of 9.9 percentage points, based on reported data
for the most recently ended fiscal years of such companies. We also believe that
there are significant top-line opportunities by improving the marketing
spending, improving the new product development process and broadening the
distribution capabilities of the Company. The Committee believes that the failed
re-launch of Bazooka is an example of senior management's failure to translate a
well-known brand into sales and profits due to poor marketing and execution. We
do not know whether and to what extent cost reductions in the Company's
confectionary division are part of the Company's restructuring plan.
On the entertainment side, there are several opportunities to grow the top
line by expanding more aggressively into trading games and interactive card
games. A recent BusinessWeek article suggests that if Topps were to introduce a
cross-over between a trading card game and a video game for professional
athletes, it could help the Company connect with a new audience that spends
increasingly more time online and playing video games.
The poor financial performance of WizKids (purchased by Topps in 2003) is
clear evidence of Topps' inability to perceive trends and to take advantage of
meaningful opportunities to extend its entertainment business in ways that will
attract and retain a new generation of customers. Mr. Eisner has said in the
press that he plans to grow the business in new and exciting ways. We believe
that Mr. Eisner is correct in his observation that Topps has the potential for
and needs to grow in new and exciting ways to reach a new generation. Topps'
senior management team has failed to reach this new generation. The Committee
believes that stockholders would be better served by replacing senior management
and taking strides to improve the business, rather than selling it today at a
discounted price.
Additionally, we believe that there are significant opportunities to cut
costs such as office consolidation and replacing the mainframe system with an
ERP system. Such a replacement usually takes 12-18 months on average (including
at companies many times larger than Topps). At Topps, under existing senior
management, this replacement is scheduled to take 5 years.
-12-
In conclusion, instead of selling to private equity firms today at a
discounted price, the Committee believes that stockholders would be better
served by doing their own recapitalization of the Company, replacing management
and focusing on improving the operations. We believe this will yield
significantly greater value in the near to medium term for Topps' stockholders.
III. THE PROCESS THAT LED TO THE SIGNING OF THE MERGER AGREEMENT WAS
FLAWED
The Committee's significant reservations about the proposed Merger extend
beyond the inadequate price. The Committee believes the principal reason that
the Merger consideration is inadequate and fails to provide full and fair value
for the Shares is because the Company failed to undertake a competitive sale
process to obtain the highest possible price for the Company and because the
sale process was tainted by conflicts of interest.
1. THE COMPANY'S SO-CALLED "SALE PROCESS"
Through an unnamed Company spokeswoman, Topps would have you believe that
the Company had been actively soliciting bids for the Company for the two years
leading up to the signing of the Merger Agreement. The Company spokeswoman was
quoted in a news article on March 8, 2007 as stating the following:
"Over the past two years, with the assistance of Lehman Brothers Inc., we
have examined all opportunities to deliver value to Topps stockholders,
and no other superior proposals have emerged in this time frame"
The Committee believes such a statement is misleading since it suggests
that a full sale process was conducted to solicit proposals prior to signing the
Merger Agreement. Otherwise, the Committee does not understand how the Company
could have had any expectations to receive "superior proposals" during that
time. Furthermore, information in the Company's proxy statement suggests that
the above statement is patently untrue. The Company states that it terminated
its engagement of Lehman Brothers to explore strategic alternatives in September
2005. Therefore, we believe that any suggestion that Lehman Brothers had been
assisting the Company "over the past two years" in examining "all opportunities
to deliver value" is false and misleading.
In its proxy statement, the Company finally admits that it "did not
undertake a full public auction of the entire Company prior to entering into the
merger agreement." In fact, the Company's proxy statement makes clear that its
entire sale process consisted of talking to only three potential interested
parties, Bidder A, Bidder B and Tornante/MDP before entering into the Merger
Agreement. In an era of unprecedented liquidity, the Committee does not
understand why a full process was not undertaken, especially when the proposed
offer price represents such an inadequate premium when compared to the price at
which the Shares were trading. In particular, given the `trophy' nature of the
entertainment division, the Committee believes that a full public process prior
to signing the Merger Agreement would have been the best way to maximize
stockholder value in a transaction.
-13-
The proxy statement acknowledges that no third parties were approached
prior to the signing of the Merger Agreement and, in particular, that Topps
never approached Bidder C, its main competitor for its entertainment division,
to see if it had any interest in acquiring the Company. The Company's proxy
statement also fails to mention that Bidder C had expressed interest in pursuing
a transaction with Topps even before the announcement of the proposed
transaction with the Acquisition Entities.
2. THE COMPANY'S REASONS FOR NOT CONDUCTING A FULL SALE PROCESS LACK
MERIT AND CREDIBILITY
The Company's proxy statement attempts to justify the Topps Board's
decision not to undertake a full public auction prior to entering into the
Merger Agreement by stating that the Company had an adequate opportunity to
ensure that $9.75 was the highest price it could receive "in light of the more
than two-year process leading up the execution of the Merger Agreement." This
seems to suggest to the Committee that given the prior efforts to sell the
confectionery business, any bidder interested in acquiring Topps would likely
have emerged during this timeframe. In other words, the Company and the Topps
Board appear to believe that the Company should have been understood to be in
play for the last two years. The Chairman's public statements suggest the
contrary.
In 2006, Mr. Shorin indicated that the Company had no interest in
soliciting bids for the sale of the Company. In a letter to the Company's
stockholders dated July 24, 2006, Arthur Shorin wrote the following:
"We are committed to completing the turnaround of the Company by following
through on our strategic plan. We are convinced that attempting a "quick
fix" sale of the Company AT THIS TIME will lead to a poor result --
inadequate offers, a harmful waste of time and a disrupted Topps
organization -- when a focus on operations is needed most."
According to the Merger Agreement, on that same day, July 24, 2006, the
Company entered into a confidentiality agreement with The Tornante Company LLC
in connection with a proposed buyout of the Company(3). It is this
confidentiality agreement that eventually led to what the Committee believes to
be a "quick fix" sale and "poor result" for the Company's stockholders, as
correctly predicted by Mr. Shorin.
The Committee also believes it is disingenuous for the Company to state on
the one hand that soliciting bids for the sale of the Company is not in the
Company's best interest, while on the same day negotiating and entering into a
confidentiality agreement with the Acquisition Entities in connection with a
proposed sale behind closed doors.
------------------
(3) According to the Merger Agreement, Madison Dearborn Partners, LLC
entered into a Confidentiality Agreement with the Company on July 17,
2006.
-14-
3. THE UNWARRANTED REMOVAL OF THE OBJECTING DIRECTORS FROM THE
"GO-SHOP" PROCESS
On March 13, 2007, the Company announced that the Topps Board had met and
decided to strip the Ad Hoc Committee of the Topps Board of its authority to
monitor the day-to-day developments with respect to the Company's "go-shop"
process, effectively removing Arnaud Ajdler and Timothy Brog from the process
altogether since, according to the other members of the Topps Board, they could
not "adequately represent the best interests of the Company's stockholders." The
Committee does not understand the basis for such a decision when it is incumbent
upon directors, as fiduciaries, to vigorously oppose a proposed Merger that they
do not believe to be in the best interests of a company's stockholders.
The Committee asks the Company's stockholders to consider whether it makes
sense for the Topps' Board to have concluded that two directors whose sole
interest with respect to the proposed Merger is seeking the highest price
possible for the Company's Shares are not suitable to supervise the "go-shop"
process. On the contrary, it seems logical to the Committee that two directors
who oppose the process that led to the proposed Merger and who believe the
Merger consideration to be inadequate would be the most suitable directors to
vigorously pursue alternative proposals during the "go-shop" process.
4. POTENTIAL CONFLICTS OF INTEREST MAY HAVE TAINTED THE SALE PROCESS
Finally, the Committee believes that potential conflicts of interest and
the lack of independence of certain members of the Topps Board may have further
tainted the process.
The Committee questions the ability of Arthur Shorin to exercise
independent judgment in voting to approve the Merger Agreement when he
negotiated a letter agreement with the Acquisition Entities regarding certain
amendments to his existing employment agreement upon consummation of the Merger
despite instructions given by the Topps Board to senior management not to
negotiate employment arrangements until after the signing of the Merger
Agreement and also when the future employment of his son-in-law, Scott
Silverstein, may depend on who purchases the Company.
The Committee does not understand how Willkie Farr & Gallagher LLP
("Willkie Farr"), the law firm for which Jack Nusbaum serves as Chairman, can be
expected to provide independent oversight of the sale process to the Topps
Board. The Company's proxy statement states that "based in part on consultations
with Topps management, Willkie Farr and Lehman Brothers, and in consideration of
other supporting factors (including, but not limited to, Lehman Brothers'
opinion), the Board, by a vote of seven to three, has approved and adopted the
Merger Agreement and the transactions contemplated thereby, including the
merger." The Committee believes that given the inherent conflict of interest,
either Mr. Nusbaum should have recused himself from the vote of the Topps Board
or the Topps Board should have been advised by an independent law firm.
-15-
IV. THE DEAL-PROTECTION TERMS OF THE `GO-SHOP' PROVISION DO NOT PROVIDE
FOR A SUFFICIENT, POST-SIGNING MARKET CHECK
The Committee believes that the terms of the "go-shop" provision under the
Merger Agreement were designed to deter rather than encourage the solicitation
of alternative proposals. As a general matter, there are risks and uncertainties
associated with any effort to interfere with a definitive transaction involving
a public company, especially when certain members of management have a vested
interest in the consummation of the transaction. The Committee believes that the
terms of the Merger Agreement created unreasonable barriers to receiving offers
from other interested parties. Therefore, the Committee believes that any
implication by the Company that contacting more than 100 companies during the
"go-shop" period provides for a substantial post-signing market check is a
`smokescreen.'
According to the terms of the Merger Agreement, the Company is precluded
from terminating the Merger Agreement to enter into a transaction to sell a
division of Topps. The Company's proxy statement discloses that this provision
was "heavily negotiated" and that the "definition of a superior proposal under
the merger agreement was discussed at length, particularly whether the
percentage contained therein should be 25% or 60%" and that "at a higher
percentage, which was ultimately agreed by the parties to be 60%, the Company is
effectively precluded from terminating the merger agreement to enter into a
transaction to sell a division of Topps." Therefore, during the go-shop period,
the Company had to find a party interested in acquiring the entire Company.
According to the Company's proxy statement, Lehman Brothers indicated that,
while it was able to identify potential strategic buyers for the confectionery
business and for the entertainment business, it had not been able to identify a
logical strategic buyer for the entire Company due to the different nature of
the two businesses. The Committee believes that the Company's acquiescence to
this provision strongly limited the efficacy of the post-signing market check.
The break-up fee payable by Topps for exercising its "fiduciary-out"
during the go-shop process, including reimbursable expenses, is approximately
3.9% of the Company's transaction value (less cash on hand), which, in the
Committee's opinion, is on the high-end of the range of what the Committee
believes to be acceptable for M&A transactions, which is between 1% and 5%(4).
The break-up fee increases to approximately 5.6% of the Company's transaction
value (less cash on hand) after 60 days following the Effective Date of the
Merger Agreement. The Committee believes that this 5.6% break-up fee is
unreasonable in the context of a proposed transaction that pays such a low
market premium.
The fallibility of the Merger Agreement's "go-shop" provision became
apparent when the Topps Board received a non-binding indication of interest, not
subject to financing, from Bidder C to acquire Topps for $10.75 per share, but
nevertheless concluded that Bidder C's proposal was not reasonably likely to
result in a "superior proposal." Despite the many disadvantages for a "go-shop
bidder," including an un-level playing field, the Company did receive a bid
that, if consummated, would provide significantly greater value to the Company's
stockholders. This does not appear to the Committee to be an effective
post-signing market check. The Committee asks stockholders to consider if the
strategic bidder had been contacted prior to the signing of the Merger
Agreement, whether the Company could have concluded a transaction which yields
greater value for its stockholders.
-----------
(4) Courts have differed on what values to use in calculating the benchmark
percentage with regard to break-up fees. Some courts have calculated the
break-up fee as a percentage of the deal's transaction value while others
have used the deal's transaction value (less cash on hand) as the basis for
the calculation. The Committee believes that transaction value (less cash
on hand) is the appropriate value to use in calculating the break-up fee
percentage given the large amount of cash that the Company has on hand.
-16-
The Company fails to mention in its proxy statement that Mr. Ajdler
favored a declaration of Bidder C as an "excluded party" for the following
reasons: (1) the proposed purchase price was $1 more per share, (2) the proposal
was not contingent on financing, (3) the amount of liquidity in the financial
system is at an unprecedented level and it would be highly unlikely that Bidder
C would not get financing for this transaction, (4) Bidder C made concessions
regarding the deal terms, (5) this deal would be highly strategic for Bidder C
and (6) there would be potential of creating deal tension between the bidders to
maximize stockholder value.
In addition, the Merger Agreement provides that the Company is required to
pay Tornante-MDP Joe Holding LLC for its third party out-of-pocket expenses in
an amount up to $4.5 million in the event that the Company's stockholders do not
approve the proposed Merger and Merger Agreement at the Special Meeting,
regardless of whether an alternative proposal shall have been publicly
announced, disclosed or otherwise communicated to the Topps Board. The Committee
believes that this is an unwarranted and coercive attempt to ensure that the
Company's stockholders vote in favor of the proposed Merger. Why should the
stockholders be penalized if they determine that the transaction is not fair to
the stockholders? If Tornante-MDP Joe Holding LLC truly believed that the
consideration was adequate, then ask yourself why they would need or require
such protection?
In conclusion, the Committee believes that it was improper for the Topps
Board to rely on a post-signing market check, in light of such deal-protection
terms and the limited time for a third-party bidder to conduct due diligence and
arrange financing compared to the almost nine months given to the Acquisition
Entities.
THE COMMITTEE URGES YOU TO VOTE AGAINST THE MERGER PROPOSAL BY SIGNING,
DATING AND RETURNING THE ENCLOSED GOLD PROXY CARD AS SOON AS POSSIBLE.
PROPOSAL NO. 2
PROPOSAL TO APPROVE MOTION TO ADJOURN OR POSTPONE
THE SPECIAL MEETING
You are being asked by Topps to approve a proposal to approve any motion
to adjourn or postpone the Special Meeting to another time and place, if
necessary, to permit the further solicitation of proxies to establish a quorum
or to obtain additional votes in favor of Proposal 1. The Topps Board believes
approval of this proposal may be necessary due to the difficulty of obtaining
the necessary votes during the summer months when many stockholders are
unavailable due to vacation schedules. For the reasons discussed above, we
oppose the proposed Merger. To that end, we are soliciting your proxy to vote
AGAINST Proposal No. 2.
THE COMMITTEE URGES YOU TO VOTE AGAINST TOPPS' PROPOSAL TO APPROVE ANY
MOTION TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF NECESSARY, TO PERMIT THE
FURTHER SOLICITATION OF PROXIES TO ESTABLISH A QUORUM OR TO OBTAIN ADDITIONAL
VOTES IN FAVOR OF PROPOSAL 1.
-17-
CONSEQUENCES OF DEFEATING THE PROPOSED MERGER
In the event that the Merger Agreement is terminated as a result of the
failure to obtain the requisite vote of the Company's stockholders, the Company
will be required to reimburse Tornante-MDP Joe Holding LLC up to $4.5 million
for its documented out-of-pocket expenses in connection with the Merger. In
addition, in the event that the Merger Agreement is terminated as a result of
the failure to obtain the requisite vote of the Company's stockholders and
within twelve months after the date of the termination of the Merger Agreement,
the Company enters into a definitive agreement with respect to an Acquisition
Proposal (as that term is defined in the Merger Agreement) that is publicly
disclosed or announced, then the Company must also pay Tornante-MDP Joe Holding
LLC an additional $12 million.
We do not believe that our actions to date have constituted an Acquisition
Proposal and would strongly disagree with any view to the contrary. However, we
cannot be certain that an Acquisition Proposal will not be announced, disclosed
or otherwise communicated to the Topps Board prior to the Special Meeting or
that the Acquisition Entities will not claim that our actions have constituted
an Acquisition Proposal such that they are entitled to, in the circumstances
described above, payment of the termination fee. In addition, if the Acquisition
Entities make such assertions, despite our view to the contrary, it is possible
that the Topps Board will conclude that we have made an Acquisition Proposal and
authorize payment of such amount.
In the event the Merger is defeated, our present intentions are
to nominate directors to the Topps Board at the Company's next meeting of
stockholders at which directors are to be elected who we believe will take all
necessary steps to consider all options to maximize stockholder value. However,
there can be no assurance that if the Merger is defeated that an alternative
transaction will be presented to the stockholders in the future and, even if an
alternative merger transaction is presented to the stockholders, that it will be
for consideration equal to or in excess of the consideration to be paid in the
Merger. If Topps continues as an independent public company, there can be no
assurance that its share price will remain at or exceed recent trading levels.
-18-
VOTING AND PROXY PROCEDURES
Only stockholders of record on the Record Date will be entitled to notice
of and to vote at the Special Meeting. Each Share is entitled to one vote.
Stockholders who sell Shares before the Record Date (or acquire them without
voting rights after the Record Date) may not vote such Shares. Stockholders of
record on the Record Date will retain their voting rights in connection with the
Special Meeting even if they sell such Shares after the Record Date. Based on
publicly available information, the Committee believes that the only outstanding
class of securities of Topps entitled to vote at the Special Meeting is the
Shares.
Shares represented by properly executed GOLD proxy cards will be voted at
the Special Meeting as marked and, in the absence of specific instructions, will
be voted AGAINST the proposed Merger and AGAINST the proposal to approve any
motion to adjourn or postpone the Special Meeting to permit the further
solicitation of proxies to establish a quorum or to obtain additional votes in
favor of Proposal 1 at the Special Meeting, and, in the discretion of the
persons named as proxies, on all other matters as may properly come before the
Special Meeting.
QUORUM
In order to conduct any business at the Special Meeting, a quorum must be
present in person or represented by valid proxies. A quorum consists of a
majority of the Shares issued and outstanding on the Record Date. All Shares
that are voted "FOR", "AGAINST" or "ABSTAIN" on any matter will count for
purposes of establishing a quorum and will be treated as Shares entitled to vote
at the Special Meeting (the "Votes Present").
VOTES REQUIRED FOR APPROVAL
Approval of the proposed Merger and Merger Agreement and the proposal to
approve any motion to adjourn or postpone the Special Meeting to permit the
further solicitation of proxies to establish a quorum or to obtain additional
votes in favor of Proposal 1 at the Special Meeting require the affirmative vote
of a majority of Shares outstanding on the Record Date. Stockholders may cast
their votes by marking the ballot at the meeting or by specific voting
instructions sent with a signed proxy to either the Committee in care of D.F.
King & Co., Inc. at the address set forth on the back cover of this Proxy
Statement or to the Company at One Whitehall, New York, New York 10004, or any
other address provided by the Company.
ABSTENTIONS
Abstentions will count as Votes Present for the purpose of determining
whether a quorum is present. Abstentions will not be counted as votes cast on
any proposal set forth in this Proxy Statement. Accordingly, the Committee
believes that abstentions will have the legal effect of a vote "AGAINST" the
proposed Merger and Merger Agreement and the proposal to approve any motion to
adjourn or postpone the Special Meeting to permit the further solicitation of
proxies to establish a quorum or to obtain additional votes in favor of Proposal
1 at the Special Meeting.
-19-
BROKER NON-VOTES
Shares held in street name that are present by proxy will be considered as
Votes Present for purposes of determining whether a quorum is present. With
regard to certain proposals, the holder of record of Shares held in street name
is permitted to vote as it determines, in its discretion, in the absence of
direction from the beneficial holder of the Shares.
The term "broker non-vote" refers to shares held in street name that are
not voted with respect to a particular matter, generally because the beneficial
owner did not give any instructions to the broker as to how to vote such shares
on that matter and the broker is not permitted under applicable rules to vote
such shares in its discretion because of the subject matter of the proposal, but
whose shares are present on at least one matter. Such shares shall be counted as
Votes Present for the purpose of determining whether a quorum is present, if
voting instructions are given by the beneficial owner as to at least one of the
matters to be voted on. Broker non-votes will not be counted as votes cast with
respect to matters as to which the record holder has expressly not voted.
Accordingly, the Committee believes that broker non-votes will have the effect
of a vote "AGAINST" the proposed Merger and Merger Agreement and no effect on
the proposal to approve any motion to adjourn or postpone the Special Meeting to
permit the further solicitation of proxies to establish a quorum or to obtain
additional votes in favor of Proposal 1 at the Special Meeting.
REVOCATION OF PROXIES
Stockholders of Topps may revoke their proxies at any time prior to
exercise by attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy) or by delivering a written notice of revocation. The
delivery of a subsequently dated proxy which is properly completed will
constitute a revocation of any earlier proxy. The revocation may be delivered
either to the Committee in care of D.F. King & Co., Inc. at the address set
forth on the back cover of this Proxy Statement or to Topps at One Whitehall,
New York, New York 10004, or any other address provided by Topps. Although a
revocation is effective if delivered to Topps, the Committee requests that
either the original or photostatic copies of all revocations be mailed to the
Committee in care of D.F. King & Co., Inc. at the address set forth on the back
cover of this Proxy Statement so that the Committee will be aware of all
revocations and can more accurately determine if and when proxies have been
received from the holders of record on the Record Date of a majority of the
outstanding Shares. Additionally, D.F. King & Co., Inc. may use this information
to contact stockholders who have revoked their proxies in order to solicit later
dated proxies against the Company's proposals in connection with the Merger.
DISSENTERS' RIGHT OF APPRAISAL
Under the General Corporation Law of the State of Delaware, stockholders
who do not vote in favor of adopting the Merger Agreement will have the right to
seek appraisal of the fair value of their shares as determined by the Delaware
Court of Chancery if the proposed Merger is completed, but only if they submit a
written demand for an appraisal before the vote on the adoption of the Merger
Agreement and only if they comply with the Delaware law procedures, as more
fully explained in the Company's Proxy Statement. This appraisal amount could be
more than, the same as, or less than the amount a stockholder would be entitled
to receive under the merger agreement.
-20-
IF YOU WISH TO VOTE AGAINST THE COMPANY'S PROPOSALS IN CONNECTION WITH THE
MERGER, PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED GOLD PROXY CARD IN
THE POSTAGE-PAID ENVELOPE PROVIDED.
SOLICITATION OF PROXIES
The solicitation of proxies pursuant to this Proxy Statement is being made
by the Committee. Proxies may be solicited by mail, facsimile, telephone,
telegraph, in person and by advertisements. The Committee will not solicit
proxies via the Internet.
The Committee has entered into an oral agreement with D.F. King & Co.,
Inc. for solicitation and advisory services in connection with this
solicitation, for which D.F. King & Co., Inc. will receive a fee not to
exceed $[_______], together with reimbursement for its reasonable
out-of-pocket expenses. D.F. King & Co., Inc. will solicit proxies from
individuals, brokers, banks, bank nominees and other institutional holders.
The Committee has requested banks, brokerage houses and other custodians,
nominees and fiduciaries to forward all solicitation materials to the
beneficial owners of the Shares they hold of record. The Committee will
reimburse these record holders for their reasonable out-of-pocket expenses in
so doing. It is anticipated that D.F. King & Co., Inc. will employ
approximately [50] persons to solicit Topps' stockholders for the Special
Meeting.
The entire expense of soliciting proxies is being borne by the
Committee pursuant to the terms of the Joint Filing and Solicitation
Agreement (as defined below). Costs of this solicitation of proxies are
currently estimated to be approximately $[_________]. The Committee
estimates that through the date hereof, its expenses in connection with this
solicitation are approximately $[___________].
If Crescendo Partners II is successful in its solicitation of proxies to
defeat the proposed Merger at the Special Meeting, then it intends to seek
reimbursement from the Company for its expenses incurred in connection
therewith.
OTHER PARTICIPANT INFORMATION
Each member of the Committee is a participant in this solicitation. Eric
Rosenfeld is the Managing Member of Crescendo Investments II, which in turn is
the general partner of Crescendo Partners II. The principal occupation of Mr.
Rosenfeld is serving as the managing member of Crescendo Investments II and the
managing member of the general partner of Crescendo Partners II. The principal
business of Crescendo Investments II is acting as the general partner of
Crescendo Partners II. The principal business of Crescendo Partners II is
investing in securities. The principal business of Crescendo Advisors is
investing in securities. The principal business address of Mr. Rosenfeld,
Crescendo Partners II, Crescendo Investments II and Crescendo Advisors is 10
East 53rd Street, 35th Floor, New York, New York 10022.
-21-
The principal business address of Arnaud Ajdler is c/o Crescendo Partners,
L.P., 10 East 53rd Street, 35th Floor, New York, New York 10022.
As of [_______ __], 2007, Crescendo Partners II beneficially owned
2,547,700 Shares of the Company. As the general partner of Crescendo Partners
II, Crescendo Investments II may be deemed to beneficially own the 2,547,700
Shares of the Company beneficially owned by Crescendo Partners II. As of
[________ __], 2007, Crescendo Advisors beneficially owned 100 Shares of the
Company. Eric Rosenfeld may be deemed to beneficially own 2,547,900 Shares of
the Company, consisting of 100 Shares held by Eric Rosenfeld and Lisa Rosenfeld
JTWROS, 2,547,700 Shares Mr. Rosenfeld may be deemed to beneficially own by
virtue of his position as managing member of Crescendo Investments II and 100
Shares Mr. Rosenfeld may be deemed to beneficially own by virtue of his position
as managing member of Crescendo Advisors.
Arnaud Ajdler beneficially owns [2,301] Shares of the Company.
On March 6, 2007, the members of the Committee entered into a Joint Filing
and Solicitation Agreement in which, among other things, the parties agreed to
the joint filing on behalf of each of them of statements on Schedule 13D with
respect to the securities of the Company.
The Committee to Enhance Topps reserves the right to retain one or more
financial advisors and proxy solicitors, who may be considered participants in a
solicitation under Regulation 14A of the Exchange Act.
-22-
INFORMATION REGARDING TOPPS AND THE MERGER
According to the Company's Proxy Statement, Topps is a Delaware
corporation with its principal executive office located at One Whitehall, New
York, New York 10004; Telephone No. 212-376-0300. According to the Company's
Proxy Statement, there are two principle segments of Topps' business,
Confectionery and Entertainment. In the Confectionery segment, Topps markets
premium confectionery brands including lollipops such as Push Pop, Baby Bottle
Pop and Juicy Drop Pop, Bazooka brand bubble gum and certain licensed candy
items. The Company also manufactures and markets Ring Pop lollipops. In the
Entertainment segment, the Company markets branded products including trading
cards and sticker album collections featuring professional athletes and popular
television, movie and other licensed characters. The Company also markets
branded collectible strategy games.
Topps is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith is required to
file reports, proxy statements and other information with the SEC. Reports,
registration statements, proxy statements and other information filed by Topps
with the SEC, including the Company's Proxy Statement, are publicly available at
the SEC website: www.sec.gov.
We note that the Company's Proxy Statement contains information
regarding:
o a summary term sheet of the Merger;
o the terms of the Merger Agreement and the Merger and related
transactions;
o any reports, opinions and/or appraisals received by Topps in
connection with the Merger;
o past contacts, transactions and negotiations by and among the
parties to the Merger and their respective affiliates and
advisors;
o federal and state regulatory requirements that must be complied
with and approvals that must be obtained in connection with the
Merger;
o security ownership of certain beneficial owners and management
of
the Company, including 5% owners;
o the number of Shares outstanding as of the Record Date;
o the trading prices of Topps stock over time;
o the establishment of a quorum;
-23-
o the vote required for approval;
o the treatment of abstentions and "broker non-votes;"
o the compensation paid and payable to Topps' directors and
executive officers;
o the requirements for the submission of stockholder proposals to be
considered for inclusion in the Company's proxy statement for the
2007 annual meeting of stockholders, in the event that the Merger
Agreement and the Merger are not approved by the stockholders; and
o Topps, the Acquisition Entities and their respective affiliates.
OTHER MATTERS AND ADDITIONAL INFORMATION
The Committee is unaware of any other matters to be considered at the
Special Meeting. However, should other matters, which the Committee is not aware
of a reasonable time before this solicitation, be brought before the Special
Meeting, the persons named as proxies on the enclosed GOLD proxy card will vote
on such matters in their discretion.
See Schedule I for information regarding persons who beneficially own more
than 5% of the Shares and the ownership of the Shares by the management of
Topps.
The information concerning Topps contained in this Proxy Statement and the
Schedules attached hereto has been taken from, or is based upon, publicly
available information.
THE COMMITTEE TO ENHANCE TOPPS
[ ], 2007
--------- --
-24-
SCHEDULE I
THE FOLLOWING TABLE IS REPRINTED FROM THE COMPANY'S PRELIMINARY PROXY
STATEMENT ON FORM PREM 14A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MAY 7, 2007.
BENEFICIAL OWNERSHIP OF OUR COMMON STOCK BY CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of May 3, 2007 by each person or
entity known to us to be the beneficial owner of more than 5% of our
outstanding shares of common stock.
Shares Beneficially Owned
-----------------------------
Amount
and
Nature Percent of
of Class
Name Address Ownership(2) (%)
--------------------------------------------------------------------------------
Arthur T. Shorin(1) The Topps Company, 2,900,489 7.4
Inc.
One Whitehall Street
New York, New York
10001
Private Capital Management, 8889 Pelican Bay 3,027,421 7.8
Inc.(3) Blvd.
Naples, Florida 34108
Crescendo Partners II L.P., 10 East 53rd Street 2,547,700 6.6
Series Y(4) 35th Floor
New York, New York
10022
Dimensional Fund Advisors 1299 Ocean Avenue 2,514,497 6.5
LP(5) Santa Monica,
California 90401
GAMCO Asset Management Inc. One Corporate Center 2,374,861 5.9
(6) Rye, New York 10580
Royce and Associates, LLC(7) 1414 Avenue of the 2,286,570 5.9
Americas
New York, New York
10019
All listed 5% or greater 15,651,538 40.1
beneficial owners
(1) See Notes (3) and (4) to table under heading titled "Beneficial
Ownership of Our Common Stock by Our Board and Management."
(2) Under the rules of the SEC, a person is deemed to be the beneficial
owner of a security if such person, directly or indirectly, has or
shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities if that
person has the right to acquire beneficial ownership within 60 days
after any given date, which, for the purposes of the foregoing table is
May 3, 2007. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. Unless otherwise indicated by
footnote, the named individuals have sole voting and investment power
with respect to the shares of our common stock beneficially owned.
-25-
(3) Based upon a Schedule 13G filed with the SEC on February 14, 2007 by
Private Capital Management, Inc.
(4) Based upon a joint Schedule 13D filed with the SEC on March 14, 2007 by
Crescendo Partners II L.P., Series Y, Crescendo Investments II, LLC,
Crescendo Advisors LLC, Eric Rosenfeld and Mr. Ajdler.
(5) Based upon a Schedule 13G filed with the SEC on February 9, 2007 by
Dimensional Fund Advisors LP.
(6) Based upon a joint Schedule 13D/A filed with the SEC on January 2, 2006
by GGCP, Inc., Mario J. Gabelli, Gabelli Securities, Inc., Gamco
Investors, Inc., Gabelli Funds, LLC, and GAMCO Asset Management Inc.
(7) Based upon a Schedule 13G filed with the SEC on January 25, 2007 by
Royce and Associates, LLC.
-26-
IMPORTANT
Tell your Board what you think! Your vote is important. No matter how many
Shares you own, please give the Committee your proxy AGAINST the Company's
Merger proposals by taking three steps:
o SIGNING the enclosed GOLD proxy card,
o DATING the enclosed GOLD proxy card, and
o MAILING the enclosed GOLD proxy card TODAY in the envelope provided
(no postage is required if mailed in the United States).
If any of your Shares are held in the name of a brokerage firm, bank, bank
nominee or other institution, only it can vote such Shares and only upon receipt
of your specific instructions. Accordingly, please contact the person
responsible for your account and instruct that person to execute the GOLD proxy
card representing your Shares. The Committee urges you to confirm in writing
your instructions to the Committee in care of D.F. King & Co., Inc. at the
address provided below so that the Committee will be aware of all instructions
given and can attempt to ensure that such instructions are followed.
If you have any questions or require any additional information
concerning this Proxy Statement, please contact D.F. King & Co., Inc. at the
address set forth below.
D.F. KING & CO., INC.
48 Wall Street
New York, NY 10005
Call Toll-Free: L-800-628-8532
Banks and Brokerage Firms Call Toll-Free: 1-212-269-5550
THE COMMITTEE TO ENHANCE TOPPS
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described
on this instruction card votes all shares of Common Stock of The Topps
Company, Inc. that you are entitled to vote.
Please consider the issues discussed in the proxy statement and cast your
vote:
VIA INTERNET
Accessing the World Wide Web site http://www.________.com and follow the
instructions to vote via the internet.
BY PHONE
Using a touch-tone telephone to vote by phone toll free from the U.S. or
Canada. Simply dial 1-888-###-#### and follow the instructions. When you are
finished voting, your vote will be confirmed, and the call will end.
BY MAIL
Completing, dating, signing and mailing the white proxy card in the
postage-paid envelope included with the proxy statement.
You can vote by phone or via the Internet any time prior to 11:59 p.m.
Eastern Time, [_________ __], 2007. You will need the control number printed
at the top of this instruction card to vote by phone or via the Internet. If
you do so, you do not need to mail in your proxy card.
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL
----------------------------------------------------------------------------
PRELIMINARY COPY SUBJECT TO COMPLETION
DATED MAY 14, 2007
GOLD PROXY
THE TOPPS COMPANY, INC.
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF
THE COMMITTEE TO ENHANCE TOPPS
THE BOARD OF DIRECTORS OF THE TOPPS COMPANY, INC.
IS NOT SOLICITING THIS PROXY
P R O X Y
The undersigned appoints Eric Rosenfeld and Arnaud Ajdler, and each of them,
attorneys and agents with full power of substitution to vote all shares of
common stock of The Topps Company, Inc. (the "Company") which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Stockholders of the Company, and including at any adjournments or postponements
thereof and at any meeting called in lieu thereof (the "Special Meeting").
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to the shares of common stock of the Company held by
the undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take by
virtue hereof. If properly executed, this Proxy will be voted as directed on the
reverse and in their discretion with respect to any other matters as may
properly come before the Special Meeting that are unknown to The Committee to
Enhance Topps a reasonable time before this solicitation.
IF NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSALS ON THE REVERSE, THIS
PROXY WILL BE VOTED AGAINST PROPOSALS 1 AND 2.
This Proxy will be valid until the sooner of one year from the date indicated on
the reverse side and the completion of the Special Meeting.
IMPORTANT: PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] PLEASE MARK VOTE AS IN THIS EXAMPLE
1. The approval of the Agreement and Plan of Merger, dated as of March 5,
2007, with Tornante-MDP Joe Holding LLC and Tornante-MDP Joe Acquisition
Corp, which are entities owned by Michael D. Eisner and Madison Dearborn
Partners, LLC.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE COMMITTEE RECOMMENDS A VOTE "AGAINST" PROPOSAL 1.
2. The Company's proposal to approve any motion to adjourn or postpone the
Special Meeting to another time and place, if necessary, to permit the
further solicitation of proxies to establish a quorum or to obtain
additional votes in favor of Proposal 1.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE COMMITTEE RECOMMENDS A VOTE "AGAINST" PROPOSAL 2.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
DATED:
----------------------------
------------------------------------
(Signature)
------------------------------------
(Signature, if held jointly)
------------------------------------
(Title)
WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS SHOULD EACH SIGN.
EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY IN
WHICH SIGNING. PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY.