AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1996
REGISTRATION NO. 333-3301

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO
FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TYCO TOYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware 13-3319358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

TYCO TOYS, INC.
6000 MIDLANTIC DRIVE
MOUNT LAUREL, NEW JERSEY 08054
(609) 234-7400

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

GARY S. BAUGHMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TYCO TOYS, INC.
6000 MIDLANTIC DRIVE
MOUNT LAUREL, NEW JERSEY 08054
(609) 234-7400

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)

COPIES TO:

JOEL M. HANDEL, ESQ.
BAER MARKS & UPHAM LLP
805 THIRD AVENUE
NEW YORK, NY 10022
(212) 702-5700

MORTON A. PIERCE, ESQ.
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6092
(212) 259-8000

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

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box [ ]

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------

PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT(2) OFFERING PRICE(1)(2) REGISTRATION FEE
- --------------------------------- ------------------------ ------------------ -------------------- --------------------

Depositary Shares each
representing one- twentieth of a
share of Series C Mandatorily
Convertible Redeemable Preferred
Stock ........................... 16,100,000 shares (1) $5.375(2) $86,537,500 $32,936(3)
- --------------------------------- ------------------------ ------------------ -------------------- --------------------
Series C Mandatorily Convertible
Redeemable Preferred Stock ...... 805,000 shares (4) N/A N/A N/A
- --------------------------------- ------------------------ ------------------ -------------------- --------------------
Common Stock, par value $.01 per
share ........................... 17,887,100 shares (5) N/A N/A N/A
- --------------------------------- ------------------------ ------------------ -------------------- --------------------

- -----------------------------------------------------------------------------
(1) Includes 2,100,000 Depositary Shares issuable upon exercise of an
option granted to the Underwriters to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the
registration fee and based on the average of the high and low sales
prices of the Common Stock as reported on the New York Stock Exchange
on June 6, 1996 pursuant to Rule 457(c).

(3) Of this amount, $29,739 was paid by the Company upon the filing with
the Commission of the original registration statement on May 8, 1996.

(4) Includes 105,000 shares of Series C Mandatorily Convertible Redeemable
Preferred Stock to be issued if the Underwriters exercise their
over-allotment option in full.

(5) Represents the number of shares of Common Stock issuable upon the
mandatory conversion of the Series C Mandatorily Convertible Redeemable
Preferred Stock.

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

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

SUBJECT TO COMPLETION, DATED JUNE 20, 1996

PROSPECTUS
, 1996

[TYCO LOGO]
14,000,000 SHARES
TYCO TOYS, INC.
$ DEPOSITARY SHARES
EACH ONE REPRESENTING ONE-TWENTIETH OF A SHARE OF
SERIES C MANDATORILY CONVERTIBLE REDEEMABLE PREFERRED STOCK

Each of the $ Depositary Shares (the "Depositary Shares") represents
ownership of one-twentieth of a share of Series C Mandatorily Convertible
Redeemable Preferred Stock, $0.10 par value per share (the "Series C
Preferred Stock"), of Tyco Toys, Inc., a Delaware corporation (the
"Company"), deposited with the Depositary (as defined herein) and, through
the Depositary, entitles the owner to all proportionate rights, preferences
and privileges of the Series C Preferred Stock represented thereby.

The proportionate annual dividend rate for each Depositary Share is $0.
(based on the annual dividend rate for each share of Series C Preferred Stock
of $) and the proportionate liquidation preference of each Depositary Share
(based on the liquidation preference of each share of the Series C Preferred
Stock) is equal to the sum of (i) the per Depositary Share price to the
public shown below and (ii) one-twentieth of the amount of accrued and unpaid
dividends on each share of the Series C Preferred Stock. Dividends are
cumulative and are payable quarterly in arrears on , , and of
each year, commencing , 1996.

On , 2000 (the "Mandatory Conversion Date") unless either previously
converted at the option of the holder or redeemed by the Company, each
outstanding Depositary Share will mandatorily convert into (i) 1.111 shares
of common stock of the Company, par value $0.01 per share (the "Common
Stock") (equivalent to 22.22 shares for each share of Series C Preferred
Stock) and (ii) the right to receive an amount in cash equal to all accrued
and unpaid dividends thereon.

The Series C Preferred Stock is not redeemable prior to , 1999 (the
"First Call Date"). At any time and from time to time on or after the First
Call Date, until immediately prior to the Mandatory Conversion Date, the
Company may call the Series C Preferred Stock (and thereby the Depositary
Shares) in whole or in part for redemption. Upon such redemption, each holder
will receive, in exchange for each Depositary Share, the greater of (i) the
number of shares of Common Stock equal to the quotient of (a) the sum of (1)
$ at the First Call Date declining, as set forth herein, to $ at the
Mandatory Conversion Date (equivalent to $ for each share of Series C
Preferred Stock, declining to $ ) and (2) all accrued and unpaid dividends
thereon for each of the Depositary Shares so called, to, but not including,
the date fixed for redemption (the "Call Price"), divided by (b) the current
market price, as calculated herein, of a share of Common Stock on the
applicable date of determination and (ii) 0. of a share of Common Stock.

At any time prior to the Mandatory Conversion Date, unless previously
redeemed, each of the Depositary Shares is convertible, at the option of the
holder thereof, into 0. of a share of Common Stock, which is equivalent to a
conversion price of $ per share of Common Stock (equivalent to
shares for each share of Series C Preferred Stock or a conversion price of
$ per share of Series C Preferred Stock).

The conversion rates applicable to a conversion of the Series C Preferred
Stock are subject to adjustment in certain circumstances.

The Common Stock of the Company is listed on the New York Stock Exchange
("NYSE"), under the symbol TTI. On June 17, 1996, the closing price of the
Common Stock on the NYSE Composite Tape was $5 3/8 per share.

Application will be made to list the Depositary Shares on the NYSE under
the trading symbol "TTIPR."

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF RISK FACTORS
RELEVANT TO AN INVESTMENT IN THE DEPOSITARY SHARES OFFERED HEREBY.

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

UNDERWRITING
PRICE TO THE DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(3)
- ------------- --------------- ----------------- --------------

Per Share .... $ $ $
Total (4) .... $ $ $

- ---------------
(1) Plus accrued dividends, if any, from the date of issue.
(2) See "Underwriting" for indemnification arrangements with the
underwriters.

(3) Before deducting expenses payable by the Company, estimated at
$1,000,000.
(4) The Company has granted to the Underwriters an option, exercisable at
any time within 30 days from the date hereof, to purchase up to
2,100,000 additional Depositary Shares solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will
be $ , $ and $ , respectively. See "Underwriting".

The Depositary Shares are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to approval
of certain legal matters by counsel for the Underwriters. The Underwriters
reserve the right to withdraw, cancel or modify the offer and to reject
orders in whole or in part. It is expected that delivery of the Depositary
Shares will be made against payment therefor in New York, New York on or
about , 1996.

DONALDSON, LUFKIN & JENRETTE LAZARD FRERES & CO. LLC
SECURITIES CORPORATION

[PHOTOGRAPH]

The Company identifies its products with trademarks, some of which it owns
and some of which it licenses from others. The most important of these are
TYCO(Registered Trademark), MATCHBOX(Registered Trademark), TYCO
PRESCHOOL(Trademark), VIEW- MASTER(Registered Trademark), TYCO CLASSIC
GAMES(Trademark), MUTATOR(Trademark), DAGGER(Trademark), 9.6V
TURBO(Registered Trademark), 6.0V JET TURBO(Registered Trademark), REBOUND
4X4(Trademark), HAUNTED HIGHWAY(Trademark), CLIFF HANGERS(Registered
Trademark), MATCHBOX COLLECTIBLES(Registered Trademark), MATCHBOX ACTION
SYSTEMS(Trademark), ZERO G(Registered Trademark), KER PLUNK!(Registered
Trademark), TOSS ACROSS(Registered Trademark), ROCK 'EM SOCK 'EM
ROBOTS(Registered Trademark), REBOUND(Registered Trademark), MAGIC 8
BALL(Registered Trademark), DR. DREADFUL(Trademark), FASHION MAGIC(Registered
Trademark), MY NEWBORN NANCY(Registered Trademark), TYCOVIDEOCAM(Trademark),
BABY WIGGLES 'N GIGGLES(Trademark), FORMULA TYCO(Trademark),
SCALEXTRIC(Registered Trademark), KENYA(Registered Trademark), and DOODLE
BEAR(Trademark), all of which are owned by the Company. In addition, the
marks MAGNA DOODLE(Registered Trademark), HARLEY DAVIDSON(Registered
Trademark), BOOBY TRAP(Registered Trademark), WHEEL OF FORTUNE(Registered
Trademark), JEOPARDY!(Registered Trademark), KITCHEN LITTLES(Trademark), and
various vehicle brands and names are used under license or with permission.
Other marks used in this Prospectus are italicized. Sesame Street and the
Sesame Street characters are owned by the Children's Television Workshop.

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

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in, or
incorporated by reference into, this Prospectus. This Prospectus contains
certain forward looking statements and the Company's actual results may
differ significantly from the results discussed in such forward looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors." Unless otherwise indicated,
all information in this Prospectus assumes that the Underwriters'
over-allotment option has not been exercised.

THE COMPANY

OVERVIEW

Tyco Toys, Inc. ("Tyco" or the "Company") is engaged in the design,
development, manufacture and distribution of a broad range of toy products
worldwide. The Company markets more than 800 products to over 7,000 customers
in approximately 80 countries. Industry analysts estimate that worldwide
manufacturers' toy shipments, excluding video games, aggregated approximately
$36.6 billion in 1995. Measured in terms of 1995 worldwide net sales, the
Company is the third largest toy manufacturer in the United States. The
Company, together with its predecessors, has conducted business in the toy
industry for more than 60 years and markets a wide variety of well-known
branded products. Tyco holds the leading domestic or international market
share in several of its core product categories including diecast metal toy
vehicles, radio control vehicles, electric car racing sets, 3-D viewers,
large dolls and drawing toys. Other core product categories in which the
Company has a significant market presence include games, activity toys and
plush toys. The Company maintains a diversified product mix and does not
depend on the success of any single product.

The Company's core product categories consist of toys that generally have
demonstrated a product life cycle of greater than three years and, in many
cases, the toys have sold for much longer. Core product categories accounted
for approximately 70%, 76% and 83% of net sales in 1993, 1994 and 1995,
respectively. Based upon their contribution to net sales over recent years,
customer response from previews and trade shows, the Company believes its
core product categories will continue to represent a consistent revenue
source. Core product lines include Matchbox toys; View-Master 3-D products;
Magna Doodle drawing toys; Tyco Radio Control toys; Tyco electric racing sets
such as Haunted Highway; games such as Toss Across, Jeopardy! and Wheel of
Fortune; Sesame Street toys; Magic 8 Ball and a number of large dolls such as
My Newborn Nancy and Kenya. The Company's other lines provide additional
revenue growth and a source of potential future core products.

Since the beginning of 1996, the Company has introduced both core product
line extensions and approximately 50 additional new toys. These 1996
introductions include Matchbox Action Systems -- a series of interactive
playsets, TycoVideoCam -- a children's video camera, Kitchen Littles -- a
line of miniature kitchen toys designed for play primarily with 11-1/2 inch
fashion dolls, Baby Wiggles 'n Giggles doll, Up for Grabs (Trade Mark) --
Tyco's new, family word game, Color Doodler (Trade Mark) -- an erasable
marker board, Radio Control Speedway (Trade Mark) -- an innovative car racing
set and new View-Master titles such as Disney's The Hunchback of Notre Dame
and 101 Dalmatians. These new products have been previewed by the major toy
retailers and the Company expects them to be well received.

BUSINESS STRATEGY

The Company's strategy is based on utilizing its competitive strengths
which include its leading market position in a number of product categories,
highly recognized brand names, extensive marketing and distribution
capabilities, and strong product development program. The Company's strategy
for achieving sales growth and increased profitability includes (i)
introducing new products, (ii) leveraging the strength of existing core
brands, (iii) developing its preschool business and (iv) rationalizing
product lines and maintaining a low overall cost structure.

In 1995 alone, the Company introduced more than 40 new products or product
lines. During 1996, the Company will continue to promote proven 1995 products
as well as introduce approximately 50 additional new toys. These new products
have been previewed by the Company's major customers at the industry's
largest domestic and international trade shows. Based upon consumer and
market research and the reception of the Company products at such trade
shows, the Company believes its new products will be well received at retail.

Leveraging Strength of Existing Core Brands. The Company's core product
portfolio includes a wide variety of well-known branded products which have
provided a consistent stream of revenue and profits. Based on sales in recent
years, sales levels of competing products and the worldwide popularity of
certain brands, the Company believes that several of its core brands
represent underutilized assets and has refocused on further developing these
brands. As an example, Matchbox is a brand that has existed for almost 50
years and currently sells more than 50 million diecast cars annually. In
1993, the Company significantly expanded its Matchbox Collectibles division
which markets highly detailed vehicles primarily in the $15 to $49 price
range via direct mail to consumers. This collectibles line grew to
approximately $18 million in revenues in 1995 from less than $4 million in
1993. In 1996, the Company is introducing Matchbox Action Systems, a new line
of playsets which management expects will lead to increased diecast car sales
as well as playset revenues.

Developing Preschool Business. The Company intends to further develop its
preschool line of products which is primarily based on Sesame Street toys and
the Looney Tunes (Trade Mark) Lovables product line. In 1995, Tyco expanded
its license agreement with Children's Television Workshop ("CTW") to become
CTW's primary toy licensee and will introduce certain new product lines,
Sesame Street plush and talking toys. In 1996, Tyco will promote certain
Sesame Street products on television to drive retail sales and increase brand
recognition. Looney Tunes Lovables are baby Looney Tunes character products
that were successfully introduced in 1995 and will be expanded from 15 to 22
products in 1996. The Company expects that the new product mix and television
advertising will result in increased sales and improved profitability.

Rationalizing Product Lines and Maintaining Low Overall Cost
Structure. Since 1993, the Company has incurred more than $40 million in
charges associated with the extensive reorganization of its operations and
rationalization of its product lines. As a result of such measures, the
Company expects to generate annual ongoing savings of more than $10 million
in fixed costs and believes it has the appropriate cost and operating
structure and focused product lines to generate increased future sales and
greater profitability.

BUSINESS RATIONALIZATION

In 1993, the Company experienced substantial volume declines in two major
promotional lines, Disney's The Little Mermaid and The Incredible Crash
Dummies(Registered Trademark), which represented approximately $130 million
in annual revenues on a combined basis in 1992, materially decreasing the
Company's sales and profits. As a result of the volume declines and the
expansion of its international direct sales and marketing operations, the
Company experienced losses from 1993 through 1995 and undertook certain
broad-based restructuring programs. These restructuring programs together
with the elimination of unprofitable or non-strategic product lines form the
basis of the Company's business rationalization efforts. In 1995, these
efforts were focused on its international business and the Tyco Preschool
unit.

In 1995, the Company rationalized its product lines and streamlined its
organizational structure by consolidating many operations in Europe and the
Far East and reducing its worldwide salaried workforce by more than ten
percent. Specifically, the actions taken during 1995 and the first quarter of
1996 included (i) elimination of unprofitable or non-strategic product lines
such as boys' action figures, (ii) centralization of European marketing and
administrative functions, (iii) closure of Tyco's distribution center in the
United Kingdom and its manufacturing facility in Belgium, (iv) consolidation
of Matchbox and Tyco operations in the United Kingdom, (v) appointment of new
management in the United Kingdom, Germany and France, (vi) a shift of radio
control, electric racing and Matchbox manufacturing to lower cost production
locations in the Far East and (vii) a reorganization of the Tyco Preschool
(formerly Playtime) business unit. As a result of these measures, the Company
expects to generate annual ongoing savings of more than $10 million in fixed
costs. In 1995, without the full benefit of these measures, the Company
generated approximately $41 million of earnings before interest, taxes,
depreciation, amorti-

zation and before restructuring and special charges of $8.9 million. The
Company also generated $40.2 million of cash flow from operating activities,
while utilizing $16.1 million and $23.1 million for its investing and
financing activities, respectively, during this period. The Company's net
loss for 1995 was $30.4 million.

The Company believes that these substantial reorganization efforts have
provided the Company with an operational structure which will support future
growth and profitability. Additionally, the Company believes its financial
performance is less susceptible to volume declines as a result of its
increased focus on sales of core products. Management believes that its
restructuring and product line rationalization efforts, in combination with
the Company's well-known branded products and current business strategy, will
improve its results of operations in 1996. The Company's beliefs are based on
the reductions in selling, administration and other overhead expenses already
achieved, the efforts under way to enhance the Company's product development
program and the improvements in cash flow and operating profits that have
already been accomplished. In addition, by moving away from the high margin,
high risk categories such as action figures and small dolls, the Company has
taken important steps to moderate the volatility associated with the sales of
these products.

The Company's principal executive offices are located at 6000 Midlantic
Drive, Mount Laurel, New Jersey 08054, and its telephone number is (609)
234-7400.

THE OFFERING

Securities ............. The Series C Preferred Stock ranks senior to
the Company's common stock, par value $0.01
per share (the "Common Stock"), and on
parity with the Company's Series B Voting
Convertible Exchangeable Preferred Stock
(the "Series B Preferred Stock") as to
payment of dividends and distributions of
assets upon liquidation. Shares of Series C
Preferred Stock (and thereby Depositary
Shares) convert automatically into shares
of Common Stock on , 2000 (the
"Mandatory Conversion Date"). From and after
, 1999, the Company has the option to
redeem, in shares of Common Stock, shares of
Series C Preferred Stock at any time and
from time to time on or after that date
until immediately before the Mandatory
Conversion Date at the Call Price (as
defined herein). A holder of the Depositary
Shares may, at any time before the Mandatory
Conversion Date, convert the Depositary
Shares into shares of Common Stock.
Each Depositary Share represents ownership
of one-twentieth of a share of Series C
Preferred Stock to be deposited with
Midlantic Bank N.A., as Depositary, and
entitles the owner to all of the
proportionate rights, preferences and
privileges of the Series C Preferred Stock
represented thereby. See "Description of
Depositary Shares."

Dividends .............. Holders of Depositary Shares are entitled to
receive, when and as dividends on the Series
C Preferred Stock are declared by the Board
of Directors out of funds legally available
therefor, cash dividends from the issue date
of the Series C Preferred Stock, accruing at
the rate per share of $ per annum
(equivalent to % per annum) or $ per
quarter for each of the Depositary Shares
(equivalent to $ per annum or $
per quarter for each share of Series C
Preferred Stock), payable quarterly in
arrears on , , , and
of each year, commencing ,
1996, or if any such date is not a business
day, the next succeeding business day.
Dividends will cease to accrue in respect of
the Series C Preferred Stock on the
Mandatory Conversion Date or on the date of
their earlier conversion or redemption. See
"Description of the Series C Preferred Stock
-- Dividends."

APITAL PRINTING SYSTEMS]

Mandatory Conversion of
the Depositary Shares . On the Mandatory Conversion Date, unless
either previously converted at the option of
the holder or redeemed by the Company, each
outstanding Depositary Share will
mandatorily convert into (i) 1.111 shares of
Common Stock (equivalent to 22.22 shares for
each share of Series C Preferred Stock), and
(ii) the right to receive an amount in cash
equal to all accrued and unpaid dividends
thereon. See "Description of the Series C
Preferred Stock--Mandatory Conversion of the
Series C Preferred Stock."

Optional Redemption of
the Depositary Shares . The Series C Preferred Stock is not
redeemable prior to , 1999 (the
"First Call Date"). At any time and from
time to time on or after the First Call Date
until immediately prior to the Mandatory
Conversion Date, the Company may call the
Series C Preferred Stock (and thereby the
Depositary Shares) in whole or in part for
redemption. Upon such redemption, each
holder will receive, in exchange for each
Depositary Share, the greater of (i) the
number of shares of Common Stock equal to
the quotient of (a) the sum of (1) $ ,
at the First Call Date, declining as set
forth herein, to $ at the Mandatory
Conversion Date (equivalent to $ for
each share of Series C Preferred Stock,
declining to $ ) and (2) all accrued and
unpaid dividends thereon for each of the
Depositary Shares so called to, but not
including, the date fixed for redemption
(the "Call Price"), divided by (b) the
Current Market Price of a share of Common
Stock on the applicable date of
determination and (ii) 0. of a share of
Common Stock.

Conversion at the Option
of the Holder ......... The Depositary Shares are convertible, in
whole or in part, at the option of the
holder, at any time before the Mandatory
Conversion Date, unless previously redeemed,
into shares of Common Stock at a rate of 0.
of a share of Common Stock for each
Depositary Share (equivalent to shares
of Common Stock for each share of Series C
Preferred Stock) which is equivalent to a
conversion price of $ per Depositary
Share ($ per share of Series C
Preferred Stock) (the "Conversion Price").
The right to convert Depositary Shares
called for redemption will terminate
immediately before the close of business on
any redemption date with respect to such
shares. See "Description of the Series C
Preferred Stock -- Conversion at the Option
of the Holder."

Higher Dividend Yield
and Less Equity
Appreciation than
Common Stock .......... Dividends will accrue on the Depositary
Shares at a higher rate than the rate at
which dividends and cash distributions
historically have been paid on the Common
Stock. The opportunity for equity
appreciation afforded by an investment in
the Depositary Shares (and the Series C
Preferred Stock) is less than that afforded
by an investment in the Common Stock because
the Conversion Price relating to a
Depositary Share is % of the price to
the public of a Depositary Share set forth
on the cover of this Prospectus and the
Company may, at its option, redeem the
Series C Preferred Stock (and thereby the
Depositary Shares) at any time on or after
the First Call Date, and before the
Mandatory Conversion Date, at the Call
Price, and although not obligated to do so,
may do so if, among other circumstances, the
Current Market Price of the Common Stock
exceeds the Call Price of a Depositary
Share. In such event, a holder of a
Depositary Share will receive less than
1.111 shares of Common Stock, but in no
event less than 0. of a share of Common
Stock. The per share value of the Common
Stock received by holders of Depositary
Shares may

be more or less than the per share amount
paid for Depositary Shares offered hereby,
due to market fluctuations in the price of
Common Stock. See "Description of the Series
C Preferred Stock -- Higher Dividend Yield
and Less Equity Appreciation than Common
Stock."

Certain Adjustments .... The conversion rates applicable to a
conversion of the Series C Preferred Stock
are subject to adjustment in certain
circumstances. See "Description of the
Series C Preferred Stock -- Conversion
Adjustments" and "Description of the Series
C Preferred Stock -- Adjustments for Certain
Transactions."

Liquidation Rights ..... In the event of any voluntary or involuntary
liquidation, dissolution or winding up of
the Company, the holders of outstanding
Series C Preferred Stock are entitled to
receive, pari passu, i.e. ratably, with the
rights of holders of Parity Preferred Stock
(as defined herein), an amount equal to the
per share price to the public of the Series
C Preferred Stock shown on the cover page of
this Prospectus, plus accrued and unpaid
dividends thereon, out of the assets of the
Company available for distribution to
shareholders, before any distribution of
assets is made to holders of Junior Stock
(as defined herein). See "Description of the
Series C Preferred Stock -- Liquidation
Rights."

Voting Rights .......... The holders of Depositary Shares will have
the right, voting together with the holders
of Common Stock as one class, to vote in the
election of directors and upon each other
matter coming before any meeting of the
holders of Common Stock (except as otherwise
provided by law or the Company's Restated
Certificate of Incorporation) on the basis
of one vote for each Depositary Share held
(equivalent to 20 votes for each share of
Series C Preferred Stock). In the event that
the equivalent of six quarterly dividends
payable on the Series C Preferred Stock (and
therefore the Depositary Shares) shall be in
arrears, the number of directors of the
Company will be increased by two and the
holders of the Depositary Shares shall have
the exclusive right, voting separately and
as a class, with each Depositary Share
entitled to one vote, to elect the two
additional directors. Such right shall
continue until all dividends in arrears and
dividends in full for the current quarterly
period have been paid or declared and set
apart for payment. In addition, the holders
of Depositary Shares will have voting rights
with respect to certain alterations of the
Company's Restated Certificate of
Incorporation and certain other matters. See
"Description of the Series C Preferred Stock
-- Voting Rights" and "Description of the
Depositary Shares -- Voting of the Series C
Preferred Stock."

New York Stock Exchange
("NYSE") Symbol for
Common Stock .......... TTI

Listing ................ Application will be made to list the
Depositary Shares on the NYSE under the
trading symbol "TTIPR."

Use of Proceeds ........ The Company intends to use the net proceeds
of this offering, estimated to be
approximately $72,000,000, to reduce
short-term indebtedness, for working capital
and general corporate purposes, and
potentially for product line or business
acquisitions. See "Use of Proceeds."

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)

All financial information in this table should be read in conjunction with
the notes below, the information contained in "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the "Consolidated
Financial Statements" and the notes thereto included elsewhere in this
Prospectus.

THREE MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995 1996

INCOME STATEMENT DATA:
Net sales ...................... $548,701 $ 768,589 $730,179 $753,098 $709,109 $116,060 $ 95,768
Gross profit ................... 238,339 318,896 293,538 307,704 292,873 49,103 40,635
Marketing, advertising and
promotion ..................... 107,630 166,097 180,815 172,462 160,779 28,868 24,967
Restructuring and other special
charges(1) .................... 6,938 2,797 28,214 4,700 8,900 -- --
Operating income (loss) ........ 46,277 44,082 (56,914) 635 (2,282) (8,757) (10,986)
Interest expense, net .......... 19,676 13,274 23,487 30,913 28,026 5,865 5,276
Net income (loss)(2) ........... 18,441 18,012 (69,940) (32,973) (27,229) (6,669) (10,197)
Preferred stock dividends(3) .. -- -- -- 2,157 3,200 784 827
Net income (loss) applicable to
common stockholders(2) ........ $ 18,441 $ 18,012 $(69,940) $(35,130) $(30,429) $ (7,453) $(11,024)
Net income (loss) per common
share:
Primary ....................... $ 1.10 $ 0.60 $ (2.08) $ (1.01) $ (0.87) $ (0.21) $ (0.32)
Fully diluted ................. 0.94 0.60 (2.08) (1.01) (0.87) (0.21) (0.32)
Weighted average shares
outstanding:
Primary ....................... 18,412 29,743 33,595 34,687 34,788 34,757 34,827
Fully diluted ................. 25,152 31,127 33,595 34,687 34,788 34,757 34,827
Ratio of earnings to fixed
charges(4) .................... 2.2x 2.8x -- -- -- -- --
OTHER DATA:
EBITDA before restructuring and
other special charges(5) ...... $ 62,287 $ 64,694 $ 2,870 $ 37,220 $ 41,238 $ (1,075) $ (4,291)
Cash flows from (for):
Operating activities .......... 2,624 18,491 (42,709) 18,273 40,219 35,564 12,703
Investing activities .......... (15,211) (216,905) (29,755) (20,580) (16,098) (5,124) (4,960)
Financing activities .......... 20,215 235,614 60,527 6,524 (23,144) (46,692) (25,543)

AS OF MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(6)

BALANCE SHEET DATA:
Working capital ...... $ 91,039 $163,039
Total assets ......... 521,960 558,492
Short-term debt ...... 36,410 942
Long-term debt ....... 147,057 147,057
Stockholders' equity 255,275 327,275

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

(1) The charge incurred in 1991 relates to the Company's purchase of 1,462
shares of Common Stock and share equivalents held by the members of a former
control group.

The restructuring charges incurred in 1992, 1993, 1994 and 1995
related primarily to:

1992 -- The costs associated with the relocation of certain of the
Company's Hong Kong and United Kingdom facilities and the consolidation of
the Company's domestic distribution facilities in Portland, Oregon.

1993 -- The consolidation of the Company's subsidiaries in Germany
and Australia, the then planned sale of the Company's Italian subsidiary, and
the integration of Playtime's separate operations in the United States and in
Hong Kong.

1994 -- The closure of the Company's Italian subsidiary.

1995 -- The consolidation of the International and Preschool
businesses and the closure of a manufacturing facility in Temse, Belgium and
a distribution facility in the United Kingdom.

(2) Includes for 1991 an extraordinary loss of approximately $2,747, or
$1,813 net of tax, relating to the early retirement of $33,400 of Tyco's
11.5% Senior Subordinated Notes and an extraordinary gain of approximately
$1,054 relating to the exchange of approximately $6,724 of 12% Convertible
Subordinated Notes for approximately 350 shares of Common Stock.

(3) Reflects the value of dividends paid in the form of shares of preferred
stock.

(4) The ratio of earnings to fixed charges is computed by dividing the sum of
earnings before taxes, extraordinary item and fixed charges, by the sum of
fixed charges and preferred stock dividends. Fixed charges consist of
interest on all indebtedness and one-third of rental expense, which is
considered indicative of the interest factor therein. For the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995
and 1996, the Company's earnings were insufficient to cover fixed charges by
$83,340, $33,630, $31,434, $11,077 and $16,515, respectively.

(5) EBITDA is defined as operating earnings before interest, taxes,
depreciation, amortization and restructuring and other special charges. The
Company has included EBITDA data because it believes such data provides a
measure of its ability to service debt, pay preferred dividends, fund capital
expenditures and meet working capital requirements. The Company also believes
that EBITDA, while providing useful information, should not be considered in
isolation or as a substitute for consolidated statement of operations or cash
flow data prepared in accordance with generally accepted accounting
principles.

(6) As adjusted to give effect to: (i) the sale of all of the Depositary
Shares offered hereby and (ii) the application of the net proceeds thereof in
repayment of $35,468 of short-term indebtedness of the Company.

RISK FACTORS

Prior to making an investment, prospective investors should carefully
consider the following factors, as well as other information described
elsewhere or incorporated by reference in this Prospectus.

RECENT LOSSES

The Company reported net losses for each of its three fiscal years ended
December 31, 1995 and had an accumulated deficit as of March 31, 1996 of
approximately $69.3 million. As a result of the extensive restructuring of
its International operations and its Preschool unit and other activities
described elsewhere in this Prospectus, the Company expects a significant
improvement in its results of operations for its 1996 fiscal year. However,
there can be no assurance that the Company will report a profit for such year
or operate profitably in future years.

HIGH LEVERAGE

The Company has substantial obligations with respect to its 10.125% Senior
Subordinated Notes due 2002 (the "Senior Subordinated Notes"), 7% Convertible
Subordinated Notes ("Convertible Notes"), domestic credit facilities ("Credit
Facilities") and foreign credit facilities. See "Description of Principal
Indebtedness." The Company's high degree of leverage has important
consequences including the following: (i) dedication of a substantial portion
of the Company's cash flow from operations to the payment of interest in
respect of its debt obligations, which will reduce the funds available to the
Company for its operations and future business opportunities; (ii) potential
impairment of the Company's ability to obtain additional financing in the
future; and (iii) potential vulnerability of the Company to a downturn in its
business or the United States economy generally. In addition, the Company's
high degree of leverage may make it difficult for the Company to generate
additional working capital, especially in the event of covenant defaults
under agreements with lenders. An inability to secure working capital could
adversely affect the Company's financial conditions and operations.

RESTRICTIONS ON PAYMENT OF DIVIDENDS

The terms the of Company's Senior Subordinated Notes, Convertible Notes,
Series B Preferred Stock and Credit Facilities restrict the Company from
paying dividends on its capital stock. See "Description of Other Capital
Stock -- Restrictions on Dividends," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition and
Liquidity -- Dividends,""Description of Principal Indebtedness -- Long Term
Debt," "Description of Principal Indebtedness -- Short-Term Debt,"
"Description of the Series C Preferred Stock --Dividends," and Note 5 of the
Notes to Consolidated Financial Statements. The Company's lender under the
Credit Facilities has agreed that, for as long as there is no default in the
payment of principal or interest or any other default causing the
acceleration of indebtedness, the Company will be permitted to pay dividends
on the Series C Preferred Stock. Based on discussions with the holders of the
Convertible Notes, the Company expects that it will receive a similar consent
from such holders. The Company currently has capacity under the financial
tests and other terms relating to the Senior Subordinated Notes and the
Series B Preferred Stock to pay dividends on the Series C Preferred Stock.
With the proceeds of this offering, such capacity will be increased. The
restrictions on the payment of dividends could prevent the payment of
dividends on the Series C Preferred Stock in the event the Company were
unable to make the payment of principal or interest as required by the
Company's Credit Facilities or if future losses reduced the availability to
make such dividend payments under the provisions of the Company's Senior
Subordinated Notes or Series B Preferred Stock.

ABSENCE OF EARNINGS AND PROFITS

Company on the Series C Preferred Stock will be treated as returns of capital
rather than dividends eligible for the dividends-received deduction. No
assurance can be given that the Company will be able to generate sufficient
earnings and profits to prevent all or a part of the distributions on the
Series C Preferred Stock from being treated as returns of capital. See
"Certain Federal Income Tax Consequences -- Absence of Earnings and Profits."

RELIANCE ON LICENSE ARRANGEMENTS

The Company markets its products under a variety of trademarks, including
some owned by third parties and covered by license agreements. Certain
license agreements require minimum guaranteed royalty payments regardless of
the actual sales of the products in question. In addition, the inability of a
particular licensed product or line of products to achieve certain levels of
sales could adversely affect the Company's ability to retain the relevant
license. The Company believes that the loss of rights to the CTW license for
the Sesame Street toy line would have a material adverse effect on the
Company. Based upon its dealings with CTW to date, the Company believes its
relationship with CTW is good and management has no reason to believe that it
will lose the Sesame Street license.

RAPIDLY CHANGING CONSUMER PREFERENCES

The toy industry is subject to rapidly changing consumer preferences, a
high level of seasonality and competition and a constant need for creating
and marketing new products. Demand for toy products in general and for
particular types of toys is influenced by cultural and demographic trends in
society, marketing and advertising expenditures by toy companies,
technological developments, the popularity of certain themes and by general
economic conditions. Because these factors can change rapidly, consumer
demand and preferences also can shift quickly. New toy products frequently
are successfully marketed for only one or two years. The Company may not
always be able to respond to changes in consumer demand and preferences
because of the significant amount of time and financial resources needed to
bring new products to market. The inability to respond quickly to market
changes could have an adverse impact on the Company's financial position.

SEASONALITY

The toy industry is highly seasonal and characterized by heavy customer
demand for toys during the Christmas holiday season. Typically, 55% to 90% of
the Company's orders are received in the first half of the year, after the
major toy industry fairs, while approximately 60% to 70% of the Company's
shipments do not occur until the third and fourth quarters. This seasonality
creates an uneven demand for working capital and makes it difficult to
forecast accurately sales levels. As a result, the Company's operating
results have varied significantly from quarter to quarter. The Company
expects that its operating results will continue to vary significantly from
quarter to quarter. See "Business -- Seasonality and Backlog."

DEPENDENCE ON CERTAIN CUSTOMERS

Certain customers of the Company account for a disproportionately large
share of its net sales. For the fiscal year ended December 31, 1995, Toys 'R'
Us, Inc. ("Toys 'R' Us") accounted for approximately 25% of the Company's net
sales, Wal-Mart Stores, Inc. ("Wal-Mart") accounted for approximately 13% of
net sales and the Company's ten largest customers accounted in the aggregate
for approximately 62% of net sales. If certain of these customers ceased
doing business with the Company, or significantly reduced the amount of their
purchases from the Company, the Company's business could be adversely
impacted. Pressures on the Company to provide financial incentives to its
customers or pressures to reduce prices or change the terms of sale of the
Company's products also could have a material adverse effect on the Company.
See "Business -- Marketing and Distribution."

INTENSE COMPETITION

The toy industry is highly competitive. Among the Company's competitors
are several larger or better capitalized toy companies, and some smaller
domestic and foreign toy and entertainment products

manufacturers, importers and marketers. In general, the Company faces
competition in the design and development of new toys, the procurement of
licenses and for favorable retail shelf space for its products, as well as
with respect to the continual improvement of existing products, marketing and
distribution. Competition has in the past, and may in the future, force price
reductions which could adversely affect the Company's operating results and
financial condition. See "Business -- Competition."

DEPENDENCE ON FOREIGN MANUFACTURING; TRADE RESTRICTIONS

The Company utilizes manufacturing facilities located in Hong Kong, the
People's Republic of China ("China"), Thailand and other Far East countries.
Accordingly, the Company could be affected by political, economic or legal
disruptions affecting businesses in or trade with such countries including,
but not limited to, the matters discussed below.

Maintenance of normal U.S. import duty rates is dependent on retention of
most favored nation ("MFN") tariff treatment for the exporting country. For
imports into the United States from China, MFN tariff treatment requires an
annual presidential waiver under the Jackson-Vanik Amendment, which was last
issued in June 1995. The waiver can be disapproved through a joint resolution
of the U.S. government. As a result of political opposition to certain
policies of the Chinese government, there has been and may continue to be
opposition to extending MFN tariff treatment to China in the future. The loss
of MFN tariff treatment by China would, and conditions placed on MFN
treatment could, result in a substantial increase in import duty for the
Company's products produced there and imported into the United States, which
could materially affect the Company's business.

In addition, imports into the United States from China, Hong Kong,
Thailand and other Far East countries where manufacturing facilities for
certain of the Company's products are located could be subjected to
sanctions, restrictions and other trade measures imposed by the U.S.
government. Such potential trade measures include, but are not limited to,
import measures such as tariffs or quotas imposed by the United States Trade
Representative (the "USTR") in response to unfair trade practices.
Authorities relating to the imposition of such measures by the USTR include:
(i) "Section 301," which provides for measures in response to trade agreement
violations and other unfair trade practices; (ii) "Special 301," which
provides for the identification of and proceedings against unfair trade
practices regarding the protection of intellectual property rights based on
annual country reviews; and (iii) "Super 301," which provides for the
identification of and proceedings against foreign trade barriers based on
annual country reviews. Other trade measures that could be imposed on imports
into the United States of the Company's products include anti-dumping duties,
which apply to imports that are considered to be unfairly priced, and
countervailing duties, which apply to imports that are considered to be
subsidized. The European Community has also imposed limitations on the
importation of Chinese products. To date, such regulations have not
materially affected the Company.

The potential for the imposition of trade measures on imports from China
is especially significant. Among other things, the USTR increased duties to
100 percent ad valorem on various products imported from China in February
1995 based on a determination that unfair trade practices exist with respect
to the protection of intellectual property in China. Although the duty
increases did not cover toys such as those which the Company produces in
China, and the duty increases were subsequently terminated, stringent U.S.
government review of Chinese intellectual property protection is ongoing.
There can be no assurance that future trade measures imposed on Chinese
imports, regarding intellectual property protection or other issues, would
not affect the Company's products.

Hong Kong, where merchandise sourcing operations and manufacturing of
certain of the Company's products takes place, is scheduled to come under the
rule of the Chinese government in 1997. This development could precipitate
political, legal and other changes that could impair current merchandise
sourcing arrangements.

Possible trade measures and other developments such as those described
above could result in significant supply disruptions or higher merchandise
costs to the Company. The ultimate impact on the

Company from such a change in trade status would depend on several factors,
including the Company's ability to procure alternative manufacturing sources
outside the affected country and its ability to pass on resultant cost
increases to its customers as product price increases. See "Business --
Manufacturing and Suppliers."

Changes in tariffs or in relationships between the United States dollar
and currencies of countries in which the Company does business also could
adversely affect the Company's financial condition and, accordingly, its
ability to pay dividends on the Series C Preferred Stock. To reduce the
effect of currency fluctuations, the Company enters into forward foreign
exchange contracts to hedge foreign currency commitments.

The Company's radio control toy products are manufactured in the Far East
primarily by Taiyo Kogyo Co., Ltd. ("Taiyo"). Although the Company owns a
minority interest in Taiyo, the Company does not control the operations of
Taiyo and consequently the loss of Taiyo as a supplier or the imposition of
trade sanctions against Japanese toy manufacturers could adversely affect the
Company's sales and earnings and its ability to pay dividends on the Series C
Preferred Stock.

NO ASSURANCE OF ACQUISITIONS

The Company may use a portion of the proceeds of this offering to acquire
product lines or businesses that will fit into the Company's current business
strategy. See "Business -- Business Strategy." The Company currently is not a
party to any agreements relating to any material acquisitions. There can be
no assurance that the Company will enter into any such agreements or, if
entered into, that any such agreements will be successful. See "Use of
Proceeds."

LACK OF TRADING MARKET

Prior to this offering, there has been no public market for the Depositary
Shares and there can be no assurance that an active market in such securities
will be developed or sustained after the offering.

EFFECT OF ANTI-TAKEOVER MEASURES

The Company's Restated Certificate of Incorporation includes staggered
classes of directors, authorized but unissued shares of Common Stock and
preferred stock, and super-majority voting rights of stockholders on certain
business combination transactions. The Company also has implemented a
Preferred Stock Rights Plan. The cumulative effect of these anti-takeover
measures may deter certain mergers, tender offers or future takeover attempts
and may thereby adversely affect the market price of the Company's
securities. See "Description of Other Capital Stock."

FORWARD LOOKING STATEMENTS

Prospective investors are cautioned that certain statements in this
Prospectus are forward looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those discussed in Exhibit
10.53 to the Company's 1995 Annual Report on Form 10-K which is incorporated
herein by reference.

USE OF PROCEEDS

The Company intends to use the net proceeds of this offering, estimated to
be approximately $72,000,000, initially for the reduction of indebtedness
aggregating approximately $35,468,000 under its short-term credit facilities,
and for working capital and general corporate purposes. After reducing its
indebtedness under the short-term credit facilities, the Company might
reborrow amounts thereunder for working capital and general corporate
purposes, and potentially for product line or business acquisitions. The
Company continually explores acquisition opportunities; however, no
agreements regarding any material acquisition transaction currently exist.

The Credit Facilities consist of: (i) three separate three-year revolving
credit facilities (the "Revolving Credit Facilities"), maturing in February
1998, in an aggregate amount of $90,000,000; and (ii) a $200,000,000,
five-year domestic receivables securitization facility (the "Receivables
Facility") maturing in February 2000.

Interest rates on borrowings under the Revolving Credit Facilities are
determined at the option of the Company based on various indices, including
Libor or a bankers' acceptance rate, plus 2.75%. The interest rate on the
Receivables Facility is the lender's market rate for commercial paper plus
1.55%.

At December 31, 1995, total utilization under the Revolving Credit
Facilities and the Receivables Facility was $51,874,000 which included
$45,420,000 in borrowings and $6,454,000 in letters of credit. See
"Description of Principal Indebtedness."

The Company also has credit facilities with various European, Australian
and Hong Kong banks which provide for short-term borrowings up to
approximately $35,764,000 or equivalent in local currencies, including
letters of credit. At December 31, 1995, outstanding borrowings under these
facilities were $15,503,000 at an average interest rate of approximately
8.3%.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the NYSE. The following table sets
forth, for the periods indicated, the high and low closing sales prices of
the Common Stock as reported on the NYSE Composite Tape. The reported last
sale price of the Common Stock on the NYSE on June 7, 1996 was $5 3/8 .

PRICE RANGE OF
COMMON STOCK
-----------------
YEAR ENDED DECEMBER 31, 1994 HIGH LOW
-------- -------
First Quarter ........................... $9 3/4 $8 3/8
Second Quarter .......................... 9 6 5/8
Third Quarter ........................... 8 1/2 6 3/4
Fourth Quarter .......................... 8 1/8 5 3/8

YEAR ENDED DECEMBER 31, 1995
First Quarter ........................... $5 3/4 $4 1/2
Second Quarter .......................... 7 3/8 4 5/8
Third Quarter ........................... 7 1/8 5 1/4
Fourth Quarter .......................... 5 7/8 4 1/4

YEAR ENDED DECEMBER 31, 1996
First Quarter ........................... $6 5/8 $4
Second Quarter (through June 7, 1996) .. 6 5 1/4

DIVIDEND POLICY AND DIVIDENDS

DIVIDEND RESTRICTIONS

The instruments relating to the Company's outstanding Series B Preferred
Stock, Senior Subordinated Notes, Convertible Notes and Credit Facilities all
place limitations on the ability of the Company to declare and pay cash
dividends. These limitations generally prohibit the payment of cash dividends
if after giving effect thereto: (a) a default or event of default under the
applicable instrument would occur and be continuing; (b) the Company would
not be able to incur any additional indebtedness under the tests set forth in
the applicable instrument that permit the occurrence of additional
indebtedness (these tests require, among other matters, that the Company
generate a certain level of cash flow to cover fixed charges); (c) the
aggregate amount of all dividend payments, combined with other restricted
payments, would exceed the sum of: (i) 50% of the aggregate cumulative
consolidated net income (minus a 100% of any accumulated net loss) for
designated periods and (ii) 100% of the net proceeds from the sale of
Qualified Capital Stock (as defined); or (d) the Company would not maintain a
certain level of tangible net worth. For a more detailed description of these
dividend restrictions, see "Description of Other Capital Stock -- Dividend
Restrictions."

PAYMENTS

Since 1994, the Company has been precluded from paying cash dividends to
holders of shares of the Series B Preferred Stock under its credit facilities
and issued approximately $6.2 million of additional shares of Series B
Preferred Stock in lieu of cash dividends. The Company paid a cash dividend
on its Common Stock in the amount of approximately $2.5 million in 1993.

Beginning in July 1996, the Company is obligated to commence the payment
of cash dividends to the holders of shares of the Series B Preferred Stock,
and the lenders of the Credit Facilities have agreed to such cash payments in
1996. In addition, the Company's lenders under the Credit Facilities has
agreed that, for as long as the Company is not in default in the payment of
principal and interest or any other default causing acceleration of
indebtedness, the Company will be permitted to pay dividends on the Series C
Preferred Stock.

Subject to the restrictions on the payment of dividends referred to above,
the declaration of cash dividends at any time in the future on the Common
Stock may be considered by the Board of Directors from time to time,
depending on the Company's net income, financial position and capital
requirements along with market conditions and other factors. Accordingly, no
assurance can be given as to the timing or amount of future dividend payments
on the Common Stock, if any.

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996, and as adjusted to include the sale of shares
offered hereby and the application of the net proceeds therefrom. This table
should be read in conjunction with the Consolidated Financial Statements and
the notes thereto included elsewhere in this Prospectus.

AS OF MARCH 31, 1996
-------------------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
ACTUAL AS ADJUSTED

Cash and cash equivalents ................................. $ 9,880 $ 46,412
========== =============
Short-term debt:
Notes payable (1) ....................................... $ 35,468 $ --
Current portion of long-term debt ....................... 942 942
---------- -------------
Total short-term debt ................................... 36,410 942
---------- -------------
Long-term debt (less current portion):
Capital lease obligations ............................... 918 918
7% Convertible Subordinated
Notes due 2001(2) ..................................... 16,034 16,034
10.125% Senior Subordinated
Notes due 2002 ........................................ 126,500 126,500
Mortgage note payable ................................... 3,605 3,605
---------- -------------
Total long-term debt .................................... 147,057 147,057
---------- -------------
Total debt .............................................. 183,467 147,999
---------- -------------
Stockholders' equity:
Preferred stock, $.10 par value per share, 1,000,000
shares authorized consisting of the following:
Series B Convertible Exchangeable Preferred Stock,
$.10 par value per share; 52,839 shares authorized,
issued and outstanding as of March 31, 1996(3) ...... 5 5
Series C Mandatorily Convertible Redeemable Preferred
Stock ("Series C Preferred Stock"); $.10 par value
per share; shares authorized; shares issued and
outstanding as adjusted ............................. -- 70
Common Stock $.01 par value per share; 75,000,000 shares
authorized; 35,017,158 issued(3) ........................ 350 350
Additional paid-in capital ................................ 347,852 419,782
Accumulated deficit ....................................... (69,285) (69,285)
Treasury stock, at cost ................................... (1,676) (1,676)
Cumulative translation adjustment ......................... (21,971) (21,971)
---------- -------------
Total Stockholders' equity ............................... 255,275 327,275
---------- -------------
Total capitalization(4) ................................ $438,742 $475,274
========== =============

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

(1) $ as of , 1996.

(2) The Convertible Notes are convertible at a price of $10 per share into
approximately 1,603,000 shares of Common Stock at March 31, 1996.

(3) Does not include: (i) shares of Common Stock issuable upon conversion
of the Convertible Notes at a conversion price of $10 per share
(1,603,000 at March 31, 1996); (ii) shares of Common Stock issuable
upon conversion of the Series B Preferred Stock at a conversion price
of $10 per share (5,548,095 at March 31, 1996); (iii) 1,655,266 shares
of Common Stock issuable upon exercise of outstanding options granted
under the Company's stock option plans of which 1,178,609 shares were
exercisable within 60 days of June 7, 1996 at a weighted exercise price
of $8.41; (iv) 759,000 shares of Common Stock issuable upon vesting of
Restricted Stock Units granted to senior managers of the Company
pursuant to the Company's 1995 Long-Term Incentive Plan, of which no
shares of Common Stock were issued as of June 7, 1996; (v) 40,836
shares of Common Stock issuable upon the vesting of certain stock
awards granted to senior managers of the Company, in lieu of cash
bonuses, pursuant to the Company's Executive Bonus Program; and (vi)
shares of Common Stock issuable upon conversion of the Series C
Preferred Stock.

(4) Includes short-term debt.

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)

The following selected consolidated financial data of the Company for and
as of the end of each of the fiscal years in the five-year period ended
December 31, 1995 and the three month periods ended March 31, 1995 and 1996
have been derived from the Consolidated Financial Statements of the Company.
The selected financial data for the three month periods ended March 31, 1995
and 1996 reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of interim period financial
data. Operating results for the three month period ended March 31, 1996 are
not indicative of the results for the fiscal year ending December 31, 1996.
The following summary is qualified in its entirety by reference to the
Consolidated Financial Statements and to all the financial information and
notes contained therein and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996

INCOME STATEMENT DATA:
Net sales ....................... $548,701 $ 768,589 $730,179 $753,098 $709,109 $116,060 $ 95,768

Gross profit .................... 238,339 318,896 293,538 307,704 292,873 49,103 40,635
Marketing, advertising and
promotion ...................... 107,630 166,097 180,815 172,462 160,779 28,868 24,967
Restructuring and other special
charges(1) ..................... 6,938 2,797 28,214 4,700 8,900 -- --
Amortization of goodwill ........ 2,503 3,765 6,476 6,285 6,410 1,593 1,607
Other selling and administrative
expenses ....................... 74,991 102,155 134,947 123,622 119,066 27,399 25,047
---------- ----------- ----------- ----------- ----------- ---------- -----------
Operating income (loss) ......... 46,277 44,082 (56,914) 635 (2,282) (8,757) (10,986)
Interest expense, net ........... 19,676 13,274 23,487 30,913 28,026 5,865 5,276
---------- ----------- ----------- ----------- ----------- ---------- -----------
Income (loss) before taxes ...... 27,194 30,136 (83,340) (31,473) (28,234) (10,293) (15,688)
Provision (benefit) for income
taxes .......................... 7,994 12,124 (13,400) 1,500 (1,005) (3,624) (5,491)
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net income (loss)(2) ............ 18,441 18,012 (69,940) (32,973) (27,229) (6,669) (10,197)
Preferred stock dividends(3) .... -- -- -- 2,157 3,200 784 827
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net income (loss) applicable to
common shareholders(2) ......... $ 18,441 $ 18,012 $(69,940) $(35,130) $(30,429) $ (7,453) $(11,024)
========== =========== =========== =========== =========== ========== ===========
Net income (loss) per common
share:
Primary ........................ $ 1.10 $ 0.60 $ (2.08) $ (1.01) $ (0.87) $ (0.21) $ (0.32)
Fully diluted .................. 0.94 0.60 (2.08) (1.01) (0.87) (0.21) (0.32)
Weighted average shares
outstanding:
Primary ........................ 18,412 29,743 33,595 34,687 34,788 34,757 34,827
Fully diluted .................. 25,152 31,127 33,595 34,687 34,788 34,757 34,827
Ratio of earnings to fixed
charges(4) ..................... 2.2x 2.8x -- -- -- -- --
OTHER DATA:
EBITDA before restructuring and
other special charges(5)........ $ 62,287 $ 64,694 $ 2,870 $ 37,220 $ 41,238 $ (1,075) $ (4,291)
Cash flows from (for):
Operating activities ........... 2,624 18,491 (42,709) 18,273 40,219 35,564 12,703
Investing activities ........... (15,211) (216,905) (29,755) (20,580) (16,098) (5,124) (4,960)
Financing activities ........... 20,215 235,614 60,527 6,524 (23,144) (46,692) (25,543)

AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
BALANCE SHEET DATA:
Working Capital ................. $125,292 $ 212,616 $132,341 $124,352 $103,851 $110,246 $ 91,039
Total assets .................... 390,338 749,229 715,169 670,635 615,132 587,963 521,960
Short-term debt ................. 5,027 29,664 84,222 78,996 61,976 38,131 36,410
Long-term debt .................. 91,017 198,865 179,771 146,851 147,180 147,359 147,057
Total stockholders' equity ...... 181,222 335,241 277,449 296,232 265,340 287,682 255,275

- ------------
(1) The charge incurred in 1991 relates to the Company's purchase of 1,462
shares of Common Stock and share equivalents held by the members of a
former control group.

The restructuring charges incurred in 1992, 1993, 1994 and 1995 related
primarily to:

1992 -- The costs associated with the relocation of certain of the
Company's Hong Kong and United Kingdom facilities and the
consolidation of the Company's domestic distribution facilities in
Portland, Oregon.

1993 -- The consolidation of the Company's subsidiaries in Germany
and Australia, the then planned sale of the Company's Italian
subsidiary, and the integration of Playtime's separate operations in
the United States and in Hong Kong.

1994 -- The closure of the Company's Italian subsidiary.

1995 -- The consolidation of the International and Preschool
businesses and the closure of a manufacturing facility in Temse,
Belgium and a distribution facility in the United Kingdom.

(2) Includes for 1991 an extraordinary loss of approximately $2,747, or
$1,813 net of tax, relating to the early retirement of $33,400 of
Tyco's 11.5% Senior Subordinated Notes and an extraordinary gain of
approximately $1,054 relating to the exchange of approximately $6,724
of 12% Convertible Subordinated Notes for approximately 350 shares of
Common Stock.

(3) Reflects the value of dividends paid in the form of shares of preferred
stock.

(4) The ratio of earnings to fixed charges is computed by dividing the sum
of earnings before taxes, extraordinary item and fixed charges, by the
sum of fixed charges and preferred stock dividends. Fixed charges
consist of interest on all indebtedness and one-third of rental
expense, which is considered indicative of the interest factor therein.
For the years ended December 31, 1993, 1994 and 1995 and the three
months ended March 31, 1995 and 1996, the Company's earnings were
insufficient to cover fixed charges by $83,340, $33,630, $31,434,
$11,077 and $16,515, respectively.

(5) EBITDA is defined as operating earnings before interest, taxes,
depreciation, amortization and restructuring and other special charges.
The Company has included EBITDA data because it believes such data
provides a measure of its ability to service debt, pay preferred
dividends, fund capital expenditures and meet working capital
requirements. The Company also believes that EBITDA, while providing
useful information, should not be considered in isolation or as a
substitute for consolidated statement of operations data prepared in
accordance with generally accepted accounting principles.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is engaged in the design, development, manufacture and
distribution of a broad range of toy products worldwide. The toy industry is
subject to rapidly changing consumer preferences, a high level of seasonality
and competition, and a constant need for creating and marketing new products.
The toy industry is characterized by heavy consumer demand for toys during
the Christmas season. Typically, 60-70% of the Company's sales occur after
the second half of the year. This seasonality creates an uneven demand for
working capital. As a result of these factors, the Company expects that its
operating results will vary significantly from quarter to quarter.

Revenues are recognized as product is shipped. The Company provides
reserves for defective returns and the other allowances at the time of
shipment as a percentage of sales, based upon historical experience. Most of
the Company's products are sold on trade terms which provide for payment at
dates subsequent to the date of shipment. Certain products, however, are
manufactured and sold based upon orders accompanied by letters of credit that
entitle the Company to draw thereunder upon shipment ("Direct Import Sales").

Cost of goods sold consists of all product-related costs including
provisions for obsolescence and royalty payments under license agreements.
Major raw materials used in the production of the Company's products include
plastic resin, paper and corrugated products, film, textiles, zinc alloy and
magnetic screens.

The Company utilizes a high level of product promotion, primarily through
television advertising, in order to build and retain consumer recognition of,
and commercial success for, its product lines. The Company's advertising
program is similar to that of other companies in the toy industry in that
most of its advertising budget is allocated to children-oriented television
programming, with lesser amounts targeted to magazines likely to be read by
parents. The Company also offers customers advertising incentives in order to
promote the Company's products in price-oriented newspaper advertisements.
Direct Import Sales, unlike the majority of the Company's product offerings,
typically utilize minimal levels of product promotions.

In 1995, the Company restructured its operations and rationalized its
product lines. As a result of the restructuring measures, the Company expects
to generate annual ongoing savings in fixed costs of more than $10 million
and believes that it has the appropriate cost and operating structure and
focused product lines to generate increased future sales and greater
profitability.

The following table sets forth for the periods indicated certain items
from the Company's consolidated statement of operations, expressed as a
percentage of net sales.

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996

Net sales ............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ...................... 56.6 58.5 59.8 59.1 58.7 57.7 57.6
-------- -------- -------- -------- -------- -------- ---------
Gross profit ............................ 43.4 41.5 40.2 40.9 41.3 42.3 42.4
Marketing, advertising and promotion ... 19.6 21.6 24.7 22.9 22.7 24.9 26.1
Selling, distribution and administrative
expenses ............................... 13.6 13.3 18.5 16.4 16.8 23.6 26.1
Restructuring and other special charges.. 1.3 0.4 3.9 0.6 1.2 -- --
Amortization of goodwill ................ 0.5 0.5 0.9 0.8 0.9 1.4 1.7
-------- -------- -------- -------- -------- -------- ---------
Total operating expenses ................ 35.0 35.8 48.0 40.7 41.6 49.9 53.9
-------- -------- -------- -------- -------- -------- ---------
Operating income (loss) ................. 8.4 5.7 (7.8) 0.2 (0.3) (7.6) (11.5)
Interest expense, net ................... 3.6 1.7 3.2 4.2 4.0 5.0 5.5
Foreign exchange (gain) loss ............ -- 0.1 0.5 0.4 -- (1.2) (0.6)
Other income, net ....................... (0.2) -- (0.1) (0.3) (0.3) (2.5) --
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before income taxes
and extraordinary item ................. 5.0 3.9 (11.4) (4.1) (4.0) (8.9) (16.4)
Provision (benefit) for income taxes ... 1.5 1.6 (1.8) 0.2 (0.1) (3.1) (5.7)
-------- -------- -------- -------- -------- -------- ---------
Income (loss) before extraordinary item 3.5 2.3 (9.6) (4.3) (3.9) (5.8) (10.7)
Extraordinary loss ...................... 0.1 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Net income (loss) ....................... 3.4% 2.3% (9.6)% (4.3)% (3.9)% (5.8)% (10.7)%
======== ======== ======== ======== ======== ======== =========
OTHER DATA:
EBITDA before restructuring and
other special charges(1) ............... 11.4% 8.4% 0.4% 4.9% 5.8% (0.9)% (4.5)%

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

(1) EBITDA is defined as operating earnings before interest, taxes,
depreciation, amortization and restructuring and other special charges.
The Company has included EBITDA data because it believes such data
provides a measure of its ability to service debt, pay preferred
dividends, fund capital expenditures and meet working capital
requirements. The Company also believes that EBITDA, while providing
useful information, should not be considered in isolation or as a
substitute for consolidated statement of operations data prepared in
accordance with generally accepted accounting principles.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1996 vs. 1995

The Company markets its toys through three separate groups: Domestic,
International and Tyco Preschool. Net Sales for the quarter ended March 31,
1996 were $95,768,000 compared to $116,060,000 for the same period last year.
The decrease in first quarter sales was attributable to the discontinuance of
certain 1995 product categories, in particular, action figures, small dolls
and videos in conjunction with the Company's focus on core product lines.
Additionally, many new 1996 products, such as TycoVideoCam, Kitchen Littles
as well as Radio Control toys and Matchbox playsets are scheduled to ship
later in the year and did not contribute to the first quarter results. Sales
for the Company's Domestic unit were $60,857,000 in 1996 compared to
$74,136,000 in the prior year. The decrease in sales was solely attributable
to the discontinued product categories described above. International sales
decreased $5,613,000 to $27,912,000. This reduction was primarily due to the
discontinuance of certain action figure categories in 1996. Preschool sales
of $8,049,000 were approximately $700,000 below 1995. Sales for 1995 included
approximately $1,500,000 of lower margin non-preschool products. As part of
the Company's 1995

restructuring, the marketing of certain non-preschool products was
transferred to the Company's Domestic operations. Sales of these transferred
non-preschool products included in the Company's 1996 Domestic operations
were not material to the first quarter domestic results.

Gross profit for the quarter ended March 31, 1996 was $40,635,000 (42.4%
of net sales) compared to $49,103,000 (42.3% of net sales) for the comparable
quarter last year reflecting the reduction in sales volume. Gross profit as a
percent of net sales remained relatively constant in the Company's Domestic
and International units. Direct Import margins improved by 6% in 1996
compared to the 1995 quarter. Approximately one-half of the increase is
attributable to reduced depreciation and the remainder is due to an improved
product mix resulting from the exclusion of non-preschool products in the
1996 results.

Total operating expenses for the quarter ended March 31, 1996 were
$51,621,000 compared to $57,860,000 for the same period last year. In the
Domestic business unit, operating expenses were reduced by approximately
$2,500,000 primarily reflecting reduced marketing expenses associated with
lower sales volume. Operating expenses in the International and Preschool
units decreased by approximately $2,800,000 and $600,000, respectively, from
1995, primarily reflecting the effects of the Company's restructuring
programs.

Interest expense, net, for the quarter ended March 31, 1996 was $5,276,000
compared to $5,865,000 for the same period last year. The decrease reflects
substantially lower average borrowings, partially offset by slightly higher
effective borrowing rates, including the amortization of financing costs.
Total average borrowings for the quarter ended March 31, 1996 were
$181,536,000 at an average borrowing rate of 10.9% compared to total average
borrowings of $205,774,000 at an average rate of 10.5% for the first quarter
of 1995. Excluding long-term debt, average short-term borrowings were
$33,501,000 and $58,932,000 during 1996 and 1995, respectively.

Included in other income for 1996 is a net foreign currency gain of
$553,000 compared to a gain of $1,355,000 in the prior year. Other income for
1995 also included a pre-tax profit of approximately $2,500,000 from the sale
of the Company's distribution rights for the Kidsongs Music Video line.

The Company recorded an income tax benefit of $5,491,000 for the quarter
ended March 31, 1996 compared to $3,624,000 for the same period last year,
reflecting the same overall effective rate applied to the increase in
consolidated pre-tax losses.

The consolidated federal income tax returns of Tyco Toys, Inc. for the
fiscal years ended December 31, 1990 through December 31, 1993 are presently
being examined by the Internal Revenue Service. While the final outcome of
this examination is not determinable at this time, management of the Company
believes that any proposed adjustments, if sustained, will not materially
affect the financial condition, results of operations (including realization
of net operating loss carryforwards) or liquidity of the Company.

Year Ended December 31, 1995 vs. Year Ended December 31, 1994

Net sales were $709,109,000 in 1995 compared to $753,098,000 in 1994, a
decrease of $43,989,000 or 5.8%. In the Company's Domestic unit, sales
increased $11,783,000 or 3.1% to $386,058,000. Sales of Radio Control
products (12.3% increase), led by the new Rebound product, Matchbox products
(5.5% increase) particularly Matchbox Collectibles and drawing toys (9.6%
increase), contributed to the majority of the sales growth. International
sales, however, decreased in 1995 to $242,090,000 from $289,141,000 in the
prior year. This decrease was primarily attributable to weaker sales in
Europe, particularly in the United Kingdom, Germany, France and the Benelux
countries, which collectively represented over $50 million in reduced sales
and offset increases in the Company's other International operations. The
sales decrease in the United Kingdom and the Benelux countries were primarily
attributable to discontinued product lines (e.g. action figures). In Germany
and France, the weak retail environment, particularly with respect to radio
control and Matchbox products, together with certain inefficiencies resulting
from the Company's restructuring program contributed to the sales declines.
Sales of the Company's Tyco Preschool products were $84,171,000 in 1995, a
$7,208,000 reduction from the 1994 level primarily as a result of reduced
sales of non-Sesame Street products.

Gross profit was $292,873,000 in 1995 compared to $307,704,000 in 1994, a
decrease of $14,831,000 or 4.8% primarily due to the reduced sales volume.
Gross profit as a percentage of net sales increased marginally to 41.3% from
40.9% in 1994. Domestic margins improved by approximately 2% and
International margins remained relatively unchanged. Preschool margins,
however, declined by approximately 6.0%. Domestic margins improved for the
year primarily as a result of reduced duty costs. Reduced margins in the
Preschool business reflect increased tooling and royalty costs coupled with
increased vendor costs for plastic resin. By year end 1995, resin costs had
declined substantially from mid-year levels.

Total operating expenses in 1995 were $295,155,000, representing an
$11,914,000 improvement over the prior year despite a current year
restructuring charge of $8,900,000. This reduction reflects the Company's
continued cost containment efforts. On a business unit basis, Domestic
operating expenses decreased slightly. Internationally, operating expenses
were reduced by $12,090,000 over 1994. Approximately 70% of this reduction
reflects volume-related reduced marketing costs with the remainder
attributable to the Company's restructuring and streamlining initiatives. In
the Preschool business, a $3,758,000 or 16% reduction in operating expenses
was achieved.

During the second quarter of 1995, the Company adopted a restructuring
program focused on reducing the overhead costs of its European, United
Kingdom and Tyco Playtime units. The restructuring program resulted in a
pre-tax charge of $4,900,000 and is expected to generate annual savings in
excess of $10,000,000 through the combined effect of job eliminations,
facility consolidations and streamlined operations.

The program included the elimination in 1995 of approximately 10% of the
Company's worldwide salaried workforce. As part of the restructuring, the
Company consolidated the marketing and administrative functions of its
subsidiaries in Germany, France and the Benelux countries into the Company's
European headquarters in Belgium. In the United Kingdom, the Company
consolidated its Tyco and Matchbox operations. The restructuring also
included a reorganization of the Tyco Playtime unit whereby its non-preschool
products and certain administrative functions were consolidated into Tyco
U.S. As part of the program, Tyco Playtime was renamed Tyco Preschool with
its focus on the profitable long-term growth of the preschool business,
primarily Sesame Street toy products. The reduction in workforce included the
elimination of 72 positions in Continental Europe and the United Kingdom and
61 positions at Tyco Preschool and Tyco U.S. The charge consisted primarily
of approximately $3,000,000 in termination and other employee benefits,
$1,300,000 of facility consolidation costs and lease termination payments,
and an approximate $300,000 non-cash write-off of assets. The program was
substantially completed as of December 31, 1995.

During the fourth quarter of 1995, the Company adopted an additional
restructuring program to further reduce European operating expenses. As part
of this restructuring program, the Company expects to close, in the first
quarter of 1996, its manufacturing facility located in Temse, Belgium and its
distribution facility located in the United Kingdom. The program resulted in
a pre-tax charge of $4,000,000 and is expected to generate annual savings
primarily from reduced product costs resulting from the transfer of
production to lower cost sources in the Far East and Portland. Approximately
75 positions have been eliminated as a result of this restructuring. The
program is expected to be substantially completed by April 1996. The fourth
quarter charge consisted primarily of termination benefits which totalled
$3,500,000.

As of December 31, 1995, $4,434,000 of the 1995 restructuring charges
(primarily termination benefits) were reflected in accrued expenses.

Interest expense decreased $2,887,000 to $28,026,000 in 1995 due to
reduced bank amendment fees and lower average borrowing rates. Total average
borrowings were $235,909,000 in 1995 with an average

borrowing rate of 10.9% compared to average borrowings of $235,560,000 with
an average borrowing rate of 11.6% in 1994. Excluding long-term debt, average
short-term borrowings were $89,501,000 and $90,015,000 in 1995 and 1994,
respectively, with maximum seasonal borrowings of $170,122,000 and
$156,971,000, respectively.

Other income in 1995 included a gain of approximately $2,500,000 resulting
from the Company's sale of its distribution rights for Kidsongs music videos.
The sale was made in conjunction with the Company's increased focus on the
continued development of its core brands.

Realized and unrealized gains on foreign currency transactions were
$250,000 in 1995 compared to a loss of $3,138,000 in the prior year which
included an approximate $2,000,000 loss with respect to the December 1994
devaluation of the Mexican peso.

As of December 31, 1995, the Company had domestic net operating loss
carryforwards of $76,493,000. These net operating loss carryforwards are
available to reduce the Company's future taxable income and expire in the
years 2008 through 2010. The Company also has net operating loss
carryforwards of $47,500,000 related to preacquisition loss carryforwards of
Matchbox. The Matchbox net operating losses are subject to an annual
limitation and can only be used to offset taxable income of the Matchbox
domestic companies. These net operating losses expire during the years 2001
through 2004.

The reconciliation of the Company's loss before taxes for financial
statement purposes to domestic taxable loss for the three years ended
December 31, 1995 is as follows (in thousands):

1993 1994 1995
----------- ----------- -----------

Loss before taxes ........................................... $(83,340) $(31,473) $(28,234)
Differences between loss before taxes for financial
statement purposes and taxable loss:
Permanent differences ...................................... 14,608 13,768 (9,055)
Loss from subsidiaries not included in
the consolidated tax return ............................... 42,022 18,174 24,821
Net change in temporary differences ........................ (30,813) (14,018) (2,510)
Stock option deductions .................................... (1,264) -- --
----------- ----------- -----------
Taxable loss ................................................ $(58,787) $(13,549) $(14,978)
=========== =========== ===========

Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109), the Company is required to record a net deferred
tax asset for the future tax benefits of tax loss and tax credit
carryforwards, as well as for other temporary differences, if realization of
such benefits is more likely than not. Based on the weight of available
evidence, management has concluded that it is more likely than not that the
Company's future taxable income (by taxing jurisdiction) will be sufficient
in the carryforward period to realize a tax benefit on certain of its
temporary differences. Accordingly, the Company has recorded a benefit on
that portion of its temporary differences, including net operating loss
carryforwards which will more likely than not be realized prior to their
expiration dates.

Management believes that the Company's future taxable income will be at a
level sufficient to fully utilize the 1995, 1994, and 1993 domestic net
operating loss carryforwards and other temporary differences. Annual domestic
pre-tax income (as adjusted for changes in temporary differences, certain
permanent items, nonrecurring charges and other appropriate adjustments) for
the four year period ending December 31, 1995 averaged approximately
$2,600,000. This level of domestic taxable income, if earned each year over
the carryforward period, would not be sufficient to realize approximately
$13,000,000 of the tax benefits represented by the net domestic net operating
loss and tax credit carryforwards and other temporary differences prior to
their expiration. SFAS 109 includes the consideration of tax planning
strategies in the determination of the amount of valuation allowance needed.
Through the use of an appropriate tax planning strategy, which management
would implement to prevent the expiration of tax benefits, an additional
$3,500,000 of annual domestic taxable income would be realized. This
additional taxable income, when added to the above average income, would be
sufficient to fully realize the tax benefits represented by the net operating
loss carryforwards and other

temporary differences prior to their expiration. If no tax planning
strategies were implemented, adjusted average annual domestic pre-tax income
would have to grow at an average annual compound rate of 8% in order to fully
realize the tax benefits prior to their expiration.

Management believes that taxable income over a four-year period represents
the cyclical pattern of the Company's core business. The Company's core
business includes product lines with lives exceeding three years. These core
products appear in the Company's product line from year to year in their base
form with some modifications. During 1995, sales of core product lines
approximated 70% of sales.

Based on the Company's core product line and expanded non-core or
promotional product line, as well as the Company's prior history of earnings,
management anticipates that the Company will be able to return to
profitability. Management believes that the Company's domestic subsidiaries'
royalty arrangements with its international subsidiaries will contribute to
future domestic profitability.

While management expects the Company to return to profitability, future
levels of operating income are dependent upon general economic conditions,
including competitive pressures on sales and profit margins, and other
factors beyond the Company's control. Accordingly, no assurance can be given
that sufficient taxable income will be generated to allow full utilization of
the net operating loss and tax credit carryforwards and other temporary
differences. Management has considered these factors in reaching its
conclusion that it is more likely than not that future taxable income will be
sufficient to utilize certain net operating loss carryforwards and other
temporary differences prior to their expiration.

Valuation allowances totalling $82,207,000 have been established due to
management's analysis indicating that certain tax credit and net operating
loss carryforwards, the use and life of which are limited under the income
tax laws, may expire prior to their full utilization. The valuation
allowances include $16,168,000 related to the preacquisition net operating
losses of Matchbox. Any subsequently recognized benefits related to these net
operating losses will be allocated to reduce goodwill.

The Company also has general business and foreign tax credit carryovers of
$625,000 and $7,101,000, respectively. The Company's future federal income
tax liability can be reduced by the general business tax credits through the
year 2009 and by the foreign tax credits through the year 2000. These credits
expire as follows (in thousands):

YEAR OF EXPIRATION GENERAL BUSINESS FOREIGN
- ------------------ ---------------- ---------

1996 $ -- $ 682
1997 24 1,338
1998 47 2,045
1999 112 1,883
2000 60 1,153
2001 to 2009 382 --
---------------- ---------
$625 $7,101
================ =========

Additionally, the Company's international subsidiaries had, in the
aggregate, approximately $112,143,000 of tax loss carryforwards available at
December 31, 1995. These tax losses are available to reduce the originating
subsidiary's future taxable income and have varying expiration dates.

The Internal Revenue Service has examined the consolidated federal income
tax returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987
through August 31, 1990. The Company reached a settlement that did not
materially affect the results of operations (including realization of net
operating losses and tax credit carryforwards), financial condition or
liquidity of the Company.

Year Ended December 31, 1994 vs. Year Ended December 31, 1993

Net sales were $753,098,000 in 1994 compared to $730,179,000 in 1993, an
increase of $22,919,000 or 3.1%. ln the Domestic unit, sales increased
$36,616,000 or 10.8% to $374,275,000. Sales of activity toys, led by the new
Dr. Dreadful product line, contributed to a majority of the sales increase. A
more than 30% increase in Matchbox-related product which included the
Matchbox Collectibles lines, a 50% increase in

games sales and a 6% increase in girls' toys also contributed to the sales
growth. Within the girls' category, increases in plush product sales offset
declines in the large doll and Disney's The Little Mermaid lines.
International sales decreased slightly in 1994 to $289,141,000 from
$295,354,000 in the prior year. The Company's continued worldwide focus on
development of its core product lines resulted in a 50% increase in radio
control and a 30% increase in View-Master sales internationally. These
increases offset an approximate $60,000,000 aggregate decrease in promotional
toy lines including The Incredible Crash Dummies, Disney's The Little Mermaid
and Thunderbirds(Trademark). The 1994 results also included approximately
$20,000,000 of close-out sales as the Company focused on aggressive inventory
reduction. Sales of the Company's Playtime product lines were $91,379,000 in
1994, a more than $13,000,000 reduction from the 1993 level. Delays in the
market availability of new products, primarily based upon the popular Sesame
Street license, caused this sales decrease. However, by the fourth quarter of
1994, these delays were eliminated and sales during that quarter were
approximately 6% above the comparable quarter in 1993.

Gross profit was $307,704,000 in 1994 compared to $293,538,000 in 1993, an
increase of $14,166,000 or 4.8%, primarily due to higher sales volume in
1994. Gross profit as a percentage of net sales increased to 40.9% from 40.2%
in 1993 as the higher margin Domestic business experienced an approximate 5%
increase which was substantially offset by an approximate 5% decrease in
International margins. Domestic percentage margins improved primarily as a
result of lower obsolescence provisions reflected in 1994 results compared
with higher obsolescence levels recorded in the prior year. Also contributing
to the margin improvements was the 1994 introduction of the Dr. Dreadful
product line. In the International business unit, approximately half of the
5% reduction in gross profit margin was related to the Company's inventory
reduction program. The change in the product mix contributed to the remainder
of the margin decrease. Playtime 1994 gross profit as a percentage of net
sales remained unchanged from 1993.

Total operating expenses in 1994 were $307,069,000, representing a more
than $43,000,000 improvement over the prior year. Operating expenses, net of
restructuring and other special charges, decreased by $19,869,000 despite a
$22,919,000 increase in sales. This reduction reflects the Company's
continued cost containment efforts. On a business unit basis, Domestic
operating expenses remained virtually unchanged as a 4% increase in
marketing, advertising and promotional costs required to support the 9.7%
sales increase was offset by reduced selling and administrative expenses.
Internationally, continued cost reduction and streamlining initiatives
resulted in an 11% reduction in operating expenses. In the Playtime business,
a $6,400,000 improvement, or more than 20%, was achieved through a reduction
in all operating expense categories.

During 1994, the Company recorded a $4,700,000 pre-tax charge related to
additional costs to close its Italian subsidiary, including legal costs
associated with the lawsuit filed by the former managing director of Tyco
Italy against the Company (see Note 10 of the Notes to Consolidated Financial
Statements). In 1994, the Company entered into a five-year agreement with an
Italian distributor to market the Company's products in Italy. The Company is
entitled to minimum royalty payments in accordance with this agreement.
During 1993, the Company recorded restructuring and other special charges
aggregating $28,214,000, of which $22,238,000 were non-cash in nature. The
restructuring plan was based upon consolidations of Company subsidiaries in
Germany and Australia, the planned sale of the Company's Italian subsidiary,
as well as the integration of the two separate Playtime operations in the
U.S. and Hong Kong. The charges also included severance of $3,721,000 and
facility consolidation costs totalling $2,255,000. The restructuring program
and related cash payments were completed in 1994.

Interest expense increased $7,426,000 to $30,913,000 in 1994, reflecting
increased bank interest associated with greater utilization of the Company's
credit facilities and the payment of bank amendment fees. Total average
borrowings were $235,560,000 in 1994 with an average borrowing rate of 11.6%
compared to average borrowings of $218,167,000 with an average borrowing rate
of 10.3% in 1993. Excluding long term debt, average short-term borrowings
were $90,015,000 and $72,594,000 in 1994 and 1993, respectively, with maximum
seasonal borrowings of $156,971,000 and $112,056,000, respectively.

Realized and unrealized losses on foreign currency transactions decreased
to $3,138,000 in 1994 from $3,746,000 in the prior year. The 1994 loss,
however, included approximately $2,000,000 from the devaluation of the
Mexican peso in December 1994.

FINANCIAL CONDITION AND LIQUIDITY

Three Months Ended March 31, 1996

For the quarter ended March 31, 1996, cash and cash equivalents decreased
$17,724,000 to $9,880,000. Contributing to the $12,703,000 generation of cash
from operating activities was the seasonal reduction of receivables
($79,097,000) which were offset by the payment of year end accruals
($57,776,000) and the 1996 first quarter loss of $10,197,000. Cash on hand
and cash from operations was primarily used to reduce short-term debt of
$25,406,000 and to purchase fixed assets of $4,960,000.

Year Ended December 31, 1995

For the year ended December 31, 1995, cash and cash equivalents decreased
$2,872,000 to $27,604,000. Non-cash depreciation and amortization of
$37,021,000 and a significant reduction in receivables ($17,824,000) and
inventories ($16,040,000) more than offset the $27,229,000 net loss and
contributed to $40,219,000 in cash generated from operating activities. The
cash provided by the Company's operating activities along with available cash
balances were used primarily to fund capital expenditures of $15,959,000, to
repay $17,779,000 of short-term debt, and to provide for the fees and
expenses associated with the Credit Facilities. The effect of foreign
exchange rate translation for the year ended December 31, 1995 accounted for
a $3,849,000 reduction in cash.

Credit Facilities

The Credit Facilities consist of three separate three-year revolving
credit facilities in an aggregate amount of $90,000,000 and a $200,000,000
five-year domestic receivables securitization facility (see Note 5 of the
Notes to Consolidated Financial Statements for a more detailed discussion of
these facilities). Borrowings under the Credit Facilities were used to
refinance outstanding indebtedness under the prior principal credit facility
and certain other credit facilities of the Company's foreign subsidiaries.

Under the terms of the Credit Facilities, the Company and its subsidiaries
are (1) subject to covenants and conditions relating to the maintenance of
net worth, fixed charge coverage and operating income; (2) restricted from
incurring additional indebtedness or certain obligations and from acquiring
any other entities, whether by asset purchase, merger or otherwise; (3)
restricted in the ability to pay cash dividends on capital stock subject to
certain limitations, (4) permitted to guarantee additional amounts of debt
incurred by certain of its subsidiaries up to an aggregate of $70,000,000 and
(5) required to annually retire outstanding borrowings for five days under
the receivables facility and 30 days under the revolving credit facilities.
During the fourth quarter of 1995, the Company was not in compliance with
certain financial covenants under the Credit Facilities and received waivers
from its lenders. The Company has amended the Credit Facilities to reflect
revisions to its financial covenants. In connection with the amendment, the
interest rate on the facilities was increased by .25% beginning in 1996. As
of December 31, 1995, the average interest rate applicable to the Credit
Facilities was approximately 7.4%.

At December 31, 1995, certain foreign subsidiaries of the Company had
agreements with various banks which provide for credit extensions of
approximately $35,764,000. Short-term borrowings under these facilities were
$15,503,000 at December 31, 1995. Borrowings under these agreements are
subject to a variety of terms and conditions, including collateral
requirements. These subsidiaries also had outstanding letters of credit
aggregating $7,826,000 at December 31, 1995. At December 31, 1995, the
average interest rate on outstanding borrowings under these facilities was
approximately 8.3%.

The Company has the following sources of liquidity to support the cyclical
working capital requirements of its business: existing cash balances and
related interest earnings, internally-generated funds, available borrowings
under foreign lines of credit and the Credit Facilities, and proceeds from
potential equity or debt offerings. The Company believes that its existing
credit facilities as amended and internally-generated funds will provide
adequate financing for its current and foreseeable levels of operation.

Dividends

During 1994 and 1995 and the first quarter of 1996, the Company was
precluded from paying cash dividends pursuant to restrictions under its bank
credit facilities. Dividends declared on common stock

were $2,531,000 in 1993. The Credit Facilities restrict the Company's ability
to pay cash dividends until the Company achieves a defined level of tangible
net worth. Reference is made to Note 5 of the Notes to Consolidated Financial
Statements. The terms of the Company's Series B Preferred Stock, Senior
Subordinated Notes and Convertible Notes also have limitations on the payment
of dividends by the Company.

Since 1994, the Company issued additional shares of Preferred Stock in
lieu of cash dividends. Preferred Stock dividends valued at $3,200,000,
$2,157,000 and $827,000 were issued for the years ended December 31, 1995 and
1994 and for the three months ended March 31, 1996, respectively.

Commitments

Guaranteed Royalties

The Company markets its products under a variety of trademarks, some of
which are not owned by the Company and for which the Company pays a royalty.
For the years ended December 31, 1995, 1994 and 1993, the Company incurred
$33,016,000, $33,079,000 and $33,036,000 in royalty expense, respectively.
Certain license agreements require minimum guaranteed royalty payments over
the term of the license. At December 31, 1995, the Company is committed to
pay total future minimum guaranteed royalties aggregating $88,204,000 which
are payable as follows: 1996 --$14,726,000; 1997 -- $11,660,000; 1998 --
$12,067,000; 1999 -- $12,292,000; 2000 -- $12,897,000; and thereafter --
$24,562,000.

Guaranteed Purchases

In the ordinary course of business, the Company has entered into
guaranteed purchase agreements with certain suppliers to ensure the timely
delivery and availability of products. As of December 31, 1995, the Company
was committed for future purchases aggregating $7,701,000 from its suppliers.

Foreign Exchange Risk Management

The primary focus of the Company's foreign exchange risk management
program is to reduce earnings and cash flow volatility due to foreign
exchange rate fluctuations. In accordance with this policy, the Company
enters into foreign currency forward exchange contracts and options as hedges
of inventory purchases, and various other intercompany transactions. The
credit risks associated with the Company's foreign currency forward exchange
contracts and options are controlled through the evaluation and monitoring of
the creditworthiness of the counterparties. Although the Company may be
exposed to losses in the event of nonperformance by the counterparties, the
Company does not expect such losses, if any, to be significant.

At December 31, 1995, the Company had outstanding foreign currency forward
exchange contracts totalling $33,141,000 to purchase U.S. dollars. In January
1996, the Company entered into an additional $32,432,000 of forward contracts
which primarily provide for the purchase of U.S. dollars with foreign
currencies. The principal currencies being hedged are the Belgian franc,
British pound, Australian dollar and Canadian dollar. Foreign currency
forward exchange contracts and options expire within twelve months.

New Accounting Pronouncements

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which will be adopted by the Company in 1996 as
required by the statement. The Company has elected to continue to measure
such compensation expense using the method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
as permitted by SFAS 123. When adopted, SFAS 123 will not have a significant
effect on the Company's financial position or results of operations but will
require the Company to provide expanded disclosure regarding its stock-based
employee compensation plans.

BUSINESS

COMPANY OVERVIEW

Tyco Toys, Inc. ("Tyco" or the "Company") is engaged in the design,
development, manufacture and distribution of a broad range of toy products
worldwide. The Company markets more than 800 products to over 7,000 customers
in approximately 80 countries. Industry analysts estimate that worldwide toy
shipments, excluding video games, aggregated approximately $36.6 billion in
1995. Measured in terms of 1995 worldwide manufacturers' net sales, the
Company is the third largest toy manufacturer in the United States. The
Company, together with its predecessors, has conducted business in the toy
industry for more than 60 years and markets a wide variety of well-known
branded products. Tyco holds the leading domestic or international market
share in several of its core product categories including diecast metal toy
vehicles, radio control vehicles, electric car racing sets, 3-D viewers,
large dolls and drawing toys. Other core product categories in which the
Company has a significant market presence include games, activity toys and
plush toys. The Company maintains a diversified product mix and does not
depend on the success of any single product.

The Company's core product categories consist of toys that generally have
demonstrated a product life cycle of greater than three years and, in many
cases, the toys have sold for much longer. Core product categories accounted
for approximately 70%, 76% and 83% of net sales in 1993, 1994 and 1995,
respectively. Based upon their contribution to net sales over recent years,
customer response from previews and trade shows, the Company believes its
core product categories will continue to represent a consistent revenue
source. Core product lines include Matchbox toys; View-Master 3-D products;
Magna Doodle drawing toys; Tyco Radio Control toys; Tyco electric racing sets
such as Haunted Highway; games such as Toss Across, Jeopardy! and Wheel of
Fortune; Sesame Street toys; Magic 8 Ball and a number of large dolls such as
My Newborn Nancy and Kenya. The Company's new lines provide additional
revenue growth and a source of potential future core products. In 1995, other
product successes included My Newborn Nancy doll, Doodle Bear soft toy and
Dr. Dreadful -- a children's food making laboratory.

Since the beginning of 1996, the Company has introduced both core product
line extensions and approximately 50 additional new toys. These 1996
introductions will include Matchbox Action Systems -- a series of interactive
playsets, TycoVideoCam -- a children's video camera, Kitchen Littles -- a
line of miniature kitchen toys designed for play primarily with 11-1/2 inch
fashion dolls, Baby Wiggles 'n Giggles doll, Up for Grabs -- Tyco's new,
family word game, Color Doodler -- an erasable marker board, Radio Control
Speedway -- an innovative car racing set and new View-Master titles such as
Disney's The Hunchback of Notre Dame and 101 Dalmatians. These new products
have been previewed by the major toy retailers and the Company expects them
to be well received.

INDUSTRY OVERVIEW

Based on industry data, the Company believes that the U.S. is the world's
largest toy market. The top three manufacturers of non-video toys in the U.S.
collectively hold a dominant share of the domestic non-video toy market.
Consolidation of market share among large toy manufacturers has allowed them
to position themselves to better respond to the increasing operational
demands of the major retailers who dominate the retail channels.

The top five U.S. toy retailers collectively hold more than half of the
retail domestic market for toy sales, and their share has also grown in
recent years. Generally, these retailers feature a large selection of toys
and seek to maintain everyday low prices. As a result of the need for
retailers to respond quickly to changes in consumer preferences, it is
expected that there will be continued pressure from retailers to require
manufacturers to keep prices low and to adopt effective inventory control
methods.

While many large American toy manufacturers hold dominant market shares in
foreign countries, their market shares are generally lower than in the United
States. The Company believes that foreign markets generally continue to
present an opportunity for expansion because consumer spending on toys

is increasing in these markets and retailers such as Toys 'R' Us are
expanding their share of the retail toy market outside of the U.S. In 1995,
the generally negative economic environment in Europe resulted in declining
industry sales there. It is anticipated that, as the foreign economies
improve, consumer spending on toys will also increase.

Most of the industry's products are sold on terms that require payment
only after shipment. Certain products, however, are only manufactured upon
receipt of orders accompanied by letters of credit that entitle the
manufacturer to draw thereunder upon shipment. These Direct Import Sales
typically involve low price toys or products which are low cost versions of
products promoted in the past under brand names.

BUSINESS STRATEGY

Introducing New Products. Through its internal design and development
efforts and established relationships with third party professional inventors
and designers, the Company continually introduces new products intended to
exploit the Company's competitive strengths. The Company's product strategy
includes the introduction of products designed and manufactured to be
marketed both domestically and internationally, spreading the cost of product
development (or acquisition) across a broad market. Tyco believes that the
development of such global products more effectively utilizes its
distribution infrastructure and will generate higher overall operating
margins. This belief is based in part upon the fact that the Company's
international distribution system has historically supported higher levels of
distribution activity. In 1995 alone, the Company introduced more than 40 new
products or product lines. During 1996, the Company will continue to promote
proven 1995 products as well as introduce approximately 50 additional new
toys. These new products have been previewed by the Company's major customers
at the industry's largest domestic and international trade shows. Based upon
consumer and market research and the reception of the Company's products at
such trade shows, the Company believes that its new products will be well
received at retail.

Leveraging Strength of Existing Core Brands. The Company's core product
portfolio includes a wide variety of well-known branded products which have
provided a consistent stream of revenue and profits. Based on sales in recent
years, sales levels of competing products and the worldwide popularity of
certain brands, the Company believes that several of its core brands
represent underutilized assets and has refocused on further developing these
brands. As an example, Matchbox is a brand that has existed for almost 50
years and currently sells more than 50 million diecast cars annually. In
1993, the Company significantly expanded its Matchbox Collectibles division
which markets highly detailed vehicles primarily in the $15 to $49 price
range via direct mail to consumers. This collectibles line grew to
approximately $18 million in revenues in 1995 from less than $4 million in
1993. In 1996, the Company is introducing Action Systems, a new Matchbox line
of playsets which management expects will lead to increased diecast car sales
as well as playset revenues.

Developing Preschool Business. The Company intends to further develop its
preschool line of products which is primarily based on Sesame Street toys and
the Looney Tunes Lovables product line. In 1995, Tyco expanded its licensed
agreement with CTW to become CTW's primary toy licensee and will introduce
certain new product lines, Sesame Street plush and talking toys. In 1996,
Tyco will promote certain Sesame Street products on television to drive
retail sales and increase brand recognition. Looney Tunes Lovables are baby
Looney Tunes character products that were successfully introduced in 1995 and
will be expanded from 15 to 22 products in 1996. The Company expects that the
new product mix and television advertising will result in increase sales and
improved profitability.

Rationalizing Product Lines and Maintaining Low Overall Cost
Structure. Since 1993, the Company has incurred more than $40 million in
charges associated with the extensive reorganization of its operations and
rationalization of its product lines. As a result such measures of the
Company expects to generate annual ongoing savings of more than $10 million
in fixed costs and believes that it has the appropriate cost and operating
structure and focused product lines to generate increased future sales and
greater profitability.

BUSINESS RATIONALIZATION

In 1993, the Company experienced substantial volume declines in two major
promotional lines, Disney's The Little Mermaid and The Incredible Crash
Dummies, which represented approximately $130 million in annual revenues on a
combined basis in 1992, materially decreasing the Company's sales and
profits. As a result of the volume declines and the expansion of its
international direct sales and marketing operations, the Company experienced
losses from 1993 through 1995 and undertook certain broad-based restructuring
programs. These restructuring programs together with the elimination of
unprofitable or non-strategic product lines form the basis of the Company's
business rationalization efforts. In 1995, these efforts were focused on its
international business and the Tyco Preschool division.

In 1995, the Company rationalized its product lines and streamlined its
organizational structure by consolidating many operations in Europe and the
Far East and reducing its worldwide salaried workforce by more than ten
percent. Specifically, the actions taken during 1995 and the first quarter of
1996 included (i) elimination of unprofitable or non-strategic product lines
such as action boys' figures, (ii) centralization of European marketing and
administrative functions, (iii) closure of Tyco's distribution center in the
United Kingdom and its manufacturing facility in Belgium, (iv) consolidation
of Matchbox and Tyco operations in the United Kingdom, (v) appointment of new
management in the United Kingdom, Germany and France, (vi) a shift of radio
control, electric racing and Matchbox manufacturing to lower cost production
locations in the Far East and (vii) a reorganization of the Tyco Preschool
(formerly Playtime) business unit. As a result of these measures, the Company
expects to generate annual ongoing savings of more than $10 million in fixed
costs. In 1995, without the full benefit of these measures, the Company
generated approximately $41 million of earnings before interest, taxes,
depreciation, amortization and before restructuring and special charges of
$8.9 million. The Company also generated $40.2 million of cash flow from
operating activities, while utilizing $16.1 million and $23.1 million for its
investing and financing activities, respectively, during this period. The
Company's net loss for 1995 was $30.4 million.

PRODUCTS

The Company's core product lines include Matchbox toys, View-Master 3-D
products, Magna Doodle drawing toys, Tyco Radio Control toys, Tyco electric
racing sets such as Haunted Highway, games such as Toss Across, Jeopardy! and
Wheel of Fortune, Sesame Street toys, Magic 8 Ball and a number of large
dolls such as My Newborn Nancy and Kenya. These core product categories
accounted for approximately 70%, 76% and 83% of sales in 1993, 1994 and 1995,
respectively, and continue to represent a consistent revenue source. Net
sales by category for the periods indicated were as follows:

YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

Product Categories
Boys' Toys ................... $130,179 $187,391 $237,271 $255,360 $258,502
Games and Activity Toys ..... 122,403 126,741 99,480 148,574 154,156
Girls' Toys .................. 45,098 64,924 100,278 108,944 101,288
Preschool .................... 8,065 69,319 72,381 61,209 75,210
---------- ---------- ---------- ---------- ----------
Core Product Subtotal ....... 305,745 448,375 509,410 574,087 589,156
---------- ---------- ---------- ---------- ----------
Third Party .................. 973 2,363 21,972 39,195 29,011
Other Direct Import .......... 50,593 63,620 45,476 38,269 15,279
Other Toys ................... 191,390 254,231 153,321 101,547 75,663
---------- ---------- ---------- ---------- ----------
Total consolidated net sales $548,701 $768,589 $730,179 $753,098 $709,109
========== ========== ========== ========== ==========
Core product percentage of
total consolidated net
sales ...................... 56% 58% 70% 76% 83%

Boys' Toys

Radio Control. Tyco Radio Control toys are wireless battery-operated toy
vehicles designed for speed and performance. The Company maintains the
largest market share of this core category worldwide. Radio control sales
have benefitted from the expanded television advertising by competitors of
the Company and by Tyco's addition of new concepts in 1995. Tyco is a
recognized innovator in speed, performance and styling for radio control
toys. The Company's recent products include the highly successful Tyco 6.0V
Jet Turbo(Registered Trademark) Rebound 4X4(Trademark) and the radio control
motorcycle marketed under the Harley Davidson brand. In 1996, the Company
will feature the Tyco 6.0V Jet Turbo Dagger(Trademark), a three-wheeled
dragster with exciting performance features and the Tyco 9.6V
Turbo(Registered Trademark) Mutator(Trademark), which transforms into several
differently styled vehicles; both of these items will be advertised on
television. A new Tyco 6.0V Jet Turbo Samurai racing motorcycle will be added
to the line, and the top selling Rebound 4X4 will return for a second year.
During recent years, the Company has successfully reduced the price points on
a range of radio control toys, and expanded the sale of its battery packs and
chargers. The battery packs and chargers account for approximately 26% of
sales and represent a profitable and consistent business within Radio
Control. In 1996, the Company's batteries will be promoted for the first time
through television advertising and with coupons packaged with car sales.

Matchbox. Matchbox toys are authentic metal diecast miniature toy vehicles
and push-around playsets. One of the world's best known brands, Matchbox is
among the Company's largest core brands. Focusing on the brand's history of
nearly fifty years, and based on the volume of more than 50 million diecast
cars sold annually, the Company will introduce the new Matchbox Action
Systems, a new series of high-quality playsets for Matchbox cars capable of
being linked to one another. In addition, the Company intends to expand the
successful Matchbox Collectibles business, which sells, via direct mail,
higher-priced and highly detailed vehicles to adult consumers. Recent sales
of the Matchbox line have grown through the successful introduction of the
new Zero-G action track system which permits spirals and other stunts not
possible with conventional track, and by the significant effort devoted to
the development of the Matchbox Collectibles business.

Electric Racing. Tyco electric racing sets include slot cars and slotted
tracks in a variety of configurations. Tyco maintains the leading market
share in this core category. In 1996 the Company will introduce even faster
race cars, and continue to promote its best selling set in a decade -- the
Haunted Highway race set. Tyco's long-running Cliff Hangers sets will also
continue in 1996 with the addition of a new Gravity Twisting Cliff
Hangers(Trademark) set using faster cars and new performance stunts. In
European markets, the Company will continue the promotion of its
Scalextric/Formula Tyco racing sets, which feature a higher price point and
the highly detailed styling possible with a slightly larger scale vehicle.
The 1996 introduction of Radio Control Racing on a closed track without slots
or wires is another innovative product.

Games and Activity Toys

Drawing Toys. Magna Doodle drawing toys and accessories feature the Magna
Doodle erasable magnetic drawing board. Magna Doodle, the most popular
drawing toy in the world, has a market share larger than its three largest
competitors combined. In 1995, Magna Doodle celebrated production of over 40
million Magna Doodle toys. Magna Doodle sales and the classic reputation of
this item were reinforced in 1995 by parent-directed advertising and the
successful introduction of more Magna Doodle brand products such as the
3-in-1 Play Center(Trademark) which offers three different board surfaces for
doodling, drawing and blocks play. Tyco will add the new Color Doodler to the
line in 1996, featuring erasable color markers designed to be safe for young
children. Other Magna Doodle accessories include drawing stencils for
Spiderman and Disney's Pocahontas and Lion King characters.

Activity Toys. Dr. Dreadful and Dr. Dreadful, MD(Trademark) are the
Company's very successful line of "looks gross, tastes great" playsets in
their second year of promotion. The number of related product offerings in
1996 has been increased to include products such as a new series of Dr.
Dreadful radioactive labs and the new Dr. Dreadful lunch lab. More
conventional cooking products include Tyco's Watch It Bake!(Registered
Trademark) Oven marketed under the Betty Crocker label, and the Tyco 3-Minute
Ice Cream Maker(Registered Trademark). Other items in this category include
Tyco's line of long standing science and craft sets.

View-Master. View-Master viewers, reels and toys provide 3-D viewing
images for children of all ages. The Tyco classic View-Master product line
continues to build on the 40 year popularity of this brand and maintains the
dominant market share of this category. In addition to offering the inventory
of existing titles, new story reels will be released in 1996 such as Disney's
Hunchback of Notre Dame and 101 Dalmatians, Toy Story, Flipper and Spiderman.
All new and old films will fit any View-Master viewer, and classic favorites
like Disney's Snow White and Cinderella are still available. Other favorites
include Looney Tunes, Casper, Mighty Morphin' Power Rangers and Jurassic
Park. A new drawing toy will also be released this year which allows children
to draw from a projection image of regular and specially- designed
View-Master film reels.

Games. Tyco Classic Games feature a variety of well-known games for
children and adults. The Company's core games category includes a family of
Tyco Classic Games such as Toss Across, Ker Plunk!, an updated Rock 'Em Sock
'Em Robots, Jeopardy!, Wheel of Fortune, the Magic 8 Ball and Rebound. All of
these games sold well in 1995. This year, the Tyco Classic Games will include
another long-standing favorite, Booby Trap, and the Company will add four new
games to the line, an action game called Pickin' Chickens(Trademark); Power
Zone(Trademark), an arcade-like game with shooting turbo disks; Up for Grabs,
a new, family word game; and Game Babies(Trademark), a series of action games
featuring miniature baby-shaped playing pieces.

Girls' Toys

Plush Toys. Soft, furry, toy animals or dolls have been a mainstay of the
toy industry for decades. Following its successful Kitty Kitty
Kittens(Registered Trademark) and Puppy Puppy Puppies(Registered Trademark),
Tyco's presence in this core category was solidified in 1995 with the
introduction of Doodle Bear and the movement of the Company to a position as
one of the leaders in the plush toy category. In 1996, the Doodle Bear line
will be expanded to include Secret Message Doodle Bear(Trademark) and Doodle
Pets(Trademark). Bunny Bunny Babies(Trademark), Baby Baby Farm
Babies(Trademark), and Playtime Farm Friends(Trademark) will all accompany
the Doodle plush toys this year. Doggie Bag Doggies(Trademark) and Lil'
Fursons(Trademark) will be added to the plush line as value-priced items, and
Tyco has also introduced a new electronic talking plush item, Real Talkin'
Bubba(Trademark). Bubba, a battery operated, plush bear, entertains children
with over 200 different sayings -- including talking backwards when he's
upside down, and muffled conversation when you cover his mouth.

Large Dolls. Large dolls are greater than 11 1/2 inches and usually
incorporate mechanical or electronic features. Tyco, among the market leaders
in this core category, will be marketing several large dolls on television
this year. The line includes new items such as Baby Wiggles 'n Giggles, Milk
'n Cookies Baby(Trademark), Magic Cradle Megan(Trademark), and the return of
the highly successful My Newborn Nancy. The Company is also one of the few
national marketers of African American dolls, with its Kenya, Bedtime Kenya,
and Hairplay Fun! Kenya(Trademark). The Kenya dolls will be highlighted in a
series of national promotions with cross-marketing by a number of other
consumer product companies whose products can be associated with Kenya.

Girls' Activity Toys. In addition to dolls, plush and activity toys for
girls, over the years the Company has marketed other girls' products such as
the Fashion Magic line, first introduced in 1993. The new product in this
category for 1996 is Kitchen Littles, miniature diecast kitchen toys,
cabinets and appliances with moving parts and popular brand names. Kitchen
Littles are designed for play with all 11 1/2 inch fashion dolls. The Company
estimates that there are approximately 60 million, 11 1/2 inch fashion dolls
sold each year. Other items in this core category include Scrunch 'n
Wear(Trademark) Minis and the new Fingernail Fun(Trademark) nail decorating
playset.

Tyco Preschool

Tyco's preschool subsidiary accounted for approximately 11% of 1995 sales.
In 1995, the Company was designated by Children's Television Workshop as the
primary toy licensee for Sesame Street products, allowing Tyco Preschool to
greatly expand the number of Sesame Street toy product categories, including
expansion into the plush toy category. In 1996, the historically popular line
of Sesame Street products will include new electronic talking and promotional
toys like 1-2-3 Melody Keys(Trademark) and Tickle Me Elmo, both of which are
expected to benefit from a major television advertising campaign. Other Tyco
Preschool products include crib and baby items; preschool toys including
trains, cars, and other vehicles which have action features, sound features
or even bubble making features; Talktronics(Trademark) talking toys with the
voices of memorable Sesame Street characters; role playing toys and playsets;
a variety of sizes of big and soft Sesame Street pals; action toys like
Tumbling Ernie and Talking Big Bird; and arts and crafts products with
easy-to-do features for preschoolers with stampers, stickers, finger paints
and crayons.

Third Party Products

To complement and support the distribution of proprietary or branded
products in foreign markets, the Company also distributes products licensed
from third parties. Examples of such products have included X-MEN (in Europe)
and Mighty Morphin Power Rangers (in Australia). As part of its strategy to
improve the profitability of the Company's international business, Tyco will
continue to market third party products in selected foreign markets.

Other Direct Imports

Direct import products are sold on terms which differ from the traditional
sales terms in domestic markets. Most of the Company's domestic products are
sold on terms that require payment only after shipments are received, usually
later in the year. Certain other products are only manufactured after receipt
of orders accompanied by letters of credit which entitle the Company to
payment upon shipment. The direct import segment of the Company's business
has expanded significantly as a result of the acquisition of the Playtime and
Illco (now Tyco Preschool) businesses. In 1996, the Company will be marketing
additional products to be offered on this Direct Import Sales basis. Some
direct import products are low cost versions of products promoted in the past
under the Tyco brand, such as Tiny Tears(Registered Trademark) and Betsy
Wetsy(Registered Trademark).

Other Toys

As part of its rationalization of product lines, the Company has elected
to eliminate certain high risk product categories, such as action figures and
fashion and small dolls. Examples of these products include Disney's The
Little Mermaid, The Incredible Crash Dummies, and Quints(Registered
Trademark) dolls. By focusing on the development of products in core
categories, the Company has elected to forego the volatile profitability
associated with the short life of these products.

Children's Electronics

In 1996, the Company will be entering this new category with the
proprietary TycoVideoCam, a child's video camera designed for simple
point-and-shoot operation, durability and an affordable price. The
TycoVideoCam is expected to sell at a retail price of about $100,
significantly less than adult video cameras. This new item will be advertised
on television and was prominently featured in the national press during the
American International Toy Fair that was held in New York City in February
1996.

MARKETING AND DISTRIBUTION

The Company markets its toys primarily for children from infancy to age
12. In the United States, the Company markets its products primarily to large
retail chains, wholesalers and independent retailers through a full-time
sales department. Generally, the products developed for domestic sales can
also be sold by the Company's international subsidiaries and licensed
distributors. The Company actively markets its own products in Canada,
Mexico, Australia, New Zealand, Spain, Portugal, England, Germany, France and
the Benelux countries. Markets covered by licensed distributors include
Japan, Hong Kong, Central American and South American markets, Singapore,
Indonesia, Malaysia, Korea and the Philippines. As part of its strategy to
reduce fixed costs and improve profitability, the Company embarked upon a
program of streamlining its sales and marketing operations in foreign
markets. New management was installed in England, France and Germany in 1995.
The Company has moved its Belgian manufacturing operations to lower cost
locations and closed its distribution facility in the UK. All European
distribution is now organized around a central distribution facility in
Belgium. International sales accounted for approximately 41%, 40% and 34% of
the Company's sales in the years ended December 31, 1993, 1994 and 1995,
respectively.

The Company utilizes a high level of product promotion, primarily through
television advertising, in order to build and retain consumer recognition of,
and commercial success for, its product lines. The Company's advertising
program is similar to that of other companies in the toy industry in that
most of its advertising budget is allocated to children-oriented television
programming, with lesser amounts targeted to magazines likely to be read by
parents. The Company also offers customers advertising incentives in order to
promote the Company's products in price-oriented newspapers ads. In 1993,
1994, 1995, the Company's expenditures for marketing, advertisement and
promotion were approximately 25%, 23% and 23% of net sales, respectively.

For the years ended December 31, 1993, 1994 and 1995, approximately 54%,
59% and 62%, respectively, of the Company's net sales were attributable to
its ten largest customers. For the years ended December 31, 1993, 1994 and
1995, Toys 'R' Us, accounted for 24%, 27% and 25%, respectively, of Company
revenues. During the three years ended December 31, 1995, Wal-Mart accounted
for approximately 9%, 10% and 13%, respectively, of net sales. No other
customer accounted for more than 10% of net sales during these periods. The
Company's business would be adversely impacted in the event that it lost
either Toys 'R' Us or Wal-Mart as a customer. Based on the relationships
between the Company and these customers during recent years, their purchasing
levels and the response received from them, the Company believes, however,
that its relationships with Toys 'R' Us and Wal-Mart are good and it has no
reason to expect such a development.

MANUFACTURING AND SUPPLIERS

Tyco (Hong Kong) Ltd. negotiates with factories throughout the Far East
for the manufacture of various Tyco products. Products obtained by Tyco (Hong
Kong) Ltd. are shipped to facilities of the Company or its licensees where
they are packaged and/or distributed. The Company's radio control toy
products are manufactured in the Far East principally by Taiyo Kogyo Co.,
Ltd., a company in which Tyco holds an 18.5% ownership interest. The
View-Master product line along with certain plastic toys and games are
manufactured in Beaverton, Oregon. The Matchbox product line is manufactured
primarily at joint venture facilities in Thailand and China. The Company's
suppliers utilize manufacturing facilities located in China, Hong Kong and
other Far East countries. The Company could be adversely affected by
political, economic or legal disruptions affecting businesses in or trade
with such countries including, but not limited to, the matters discussed
above. See "Risk Factors--Foreign Operations"

Packaging, plastics, and other raw materials essential to the production
and marketing of toy products are currently in adequate supply. The Company
does not anticipate shortages of raw materials in the foreseeable future.

DESIGN AND DEVELOPMENT

The Company develops toy concepts which are produced internally by its 81
person product development group or submitted to the Company by independent
designers or engineers. Tyco has a well

established relationship with the independent toy inventor community and
consequently reviews approximately 5,000 toy concept submissions annually.
Through the Company's screening and qualification process, a fraction of the
concepts reach the initial research stage. In this stage, the concept is
reviewed by cross-functional teams in order to obtain cost, market research
and financial forecast data. The concept also is reviewed by senior
management. In most cases, the Company is seeking a concept that can result
in a product line rather than any single item. In the next stage, the concept
is prototyped and prepared for engineering which works cooperatively with
manufacturing and marketing. Throughout this process, monthly reviews occur
which monitor the financial forecast and gauge the profitability of the toy.
In addition to consumer focus groups and other forms of market research, the
Company solicits the reaction of its principal retail customers to the new
toy or product line. Tyco also gauges the interest of the overall trade at
the domestic and international toy fairs. Character licensors typically
retain the right to approve the product being marketed. In recent years,
based on improved systems and procedures that enable the Company to
accelerate the development of new products for marketing, the Company
believes it has significantly improved its ability to monitor and adjust to
changes in anticipated demand during the development process.

The Company spent $19,062,000, $17,519,000 and $20,740,000 in the years
ended December 31, 1993, 1994 and 1995, respectively, for design and
development.

INTELLECTUAL PROPERTY

The Company markets its products under a variety of trademarks, some of
which are not owned by the Company and for which the Company pays a royalty.
For a list of the more significant trademarks owned or licensed for use by
the Company, see the inside front cover of this Prospectus. The Company
typically seeks to register the trademarks for its products when the
anticipated strength of the product and other factors warrant, and seeks,
patent or copyright protection for its products when proprietary rights and,
in the case of patents, the anticipated strength of the product supports such
protection. The Company also licenses patents and copyrights for products
from others, generally for the life of the patent or copyright, or until the
Company ceases marketing of the product. Such license agreements typically
require guaranteed minimum royalty payments.

SEASONALITY AND BACKLOG

The toy industry is highly seasonal due to heavy consumer demand for toy
products during the December holiday season. Traditionally, orders received
by the Company in the first six months range between 55% to 90% of total
calendar year orders, while shipments for that period represent 30% to 40% of
the year's total. Due to these significant fluctuations, the results of
operations for any quarterly period are not necessarily indicative of the
results of operations for the full year.

The timing or orders is largely influenced by the degree of consumer
demand for a product line, inventory levels at retailers, marketing
strategies and overall economic conditions. The Company's fulfillment of its
order backlog is dependent upon manufacturing capacity and the extent to
which orders may be received and/or cancelled due to changes in consumer
demand. There can be no assurance that cancellations will not reduce the
amount of net sales realized from the fulfillment of backlog orders.

COMPETITION

The toy industry is highly competitive. Among the Company's competitors
are larger toy companies, such as Mattel and Hasbro, which are better
capitalized, and some small domestic and foreign toy and entertainment
product manufacturers, importer and marketers. Some of these competitors make
and distribute radio controlled toys, large dolls, games and activity toys,
diecast vehicles, preschool toys and other products in the Company's core
categories. The Company's principal strength in this competition are its
large market share in core categories, dominance of certain categories, and
its reputation for high quality, high performance products.

GOVERNMENT AND INDUSTRY REGULATION

The Company is subject to the provisions of the Federal Hazardous
Substances Act and the Federal Consumer Product Safety Act. These laws
empower the Consumer Product Safety Commission ("CPSC")

to protect children from hazardous toys and other articles. The CPSC has the
authority to exclude from the market articles which are found to be hazardous
and can require a manufacturer to repurchase such toys under certain
circumstances. Similar laws exist in specific jurisdictions within the United
States as well as in certain foreign countries. Penalties for violation of
these laws may include injunctive enforcement and seizure, and civil and
criminal fines. In the pre-production stages and periodically thereafter, the
Company sends sample toys to independent laboratories to test for compliance
with the CPSC's rules and regulations, as well as with the voluntary industry
standards published by the American Society for Testing and Materials. The
Company designs its products to exceed the highest safety standards imposed
either by government or industry regulatory authorities. To date, the Company
has not experienced any material safety or governmental compliance problems
with respect to its products.

EMPLOYEES

As of December 31, 1995, the Company employed approximately 2,200 people,
including approximately 1,000 in various foreign countries. As of December
31, 1994, the Company had employed approximately 2,500 people, including
approximately 1,300 in various foreign countries. The reduction in the
Company's workforce is primarily attributable to its extensive reorganization
and rationalization activities described above under "Business
Rationalization." In the opinion of management, the Company has good working
relations with its employees.

PROPERTIES

The Company leases a total of 146,000 square feet for its operations and
administrative offices in Mt. Laurel, New Jersey; 500,000 square feet for a
distribution center in Portland, Oregon; 240,000 square feet for
manufacturing facilities in Beaverton, Oregon; and 134,000 square feet for
its European headquarters in Sint Niklaas, Belgium. In addition, the Company
owns an interest in manufacturing facilities in Thailand and in China through
various partnerships and joint ventures. Based on current and projected sales
levels for the immediate future, existing capacity for expansion and the
anticipated space needs of the Company, the Company believes that its
facilities are suitable for its business needs at the present time and for
the immediate future.

ENVIRONMENTAL MATTERS

The Company and its subsidiaries are subject to legal and financial
obligations under environmental, health and safety laws ("EH&S laws") in the
United States and in some of the foreign jurisdictions in which they operate
manufacturing facilities or warehousing facilities. The Company is not
currently aware of any material environmental liabilities associated with its
sole U.S. manufacturing facility in Beaverton, Oregon or any of its foreign
manufacturing facilities. EH&S laws are at an early stage of evolution in
most foreign jurisdictions in which the Company operates.

Tyco Industries, the principal operating subsidiary of the Company, has
been a party to three matters in New Jersey that arose out of Tyco
Industries' use of a waste transporter to dispose of waste generated at one
of its former facilities. Two of the matters have been settled for monetary
amounts that are not material to Tyco Industries. The third matter, a claim
by the New Jersey Department of Environmental Protection for a share of
remediation costs at a landfill, is still pending, but the Company believes
that its share of a negotiated settlement will be de minimis. These matters
and all other financial obligations imposed under EH&S laws are not likely to
have a material adverse impact on the earnings, financial condition or
liquidity of the Company.

MANAGEMENT

The Directors and Executive Officers of the Company are as follows:

NAME AGE POSITION
- --------------------------- ----- ------------------------------------------------

Richard E. Grey (1) ........ 61 Chairman
Gary S. Baughman (2) ....... 49 President, Chief Executive Officer and Director
Harry J. Pearce (3) ........ 51 Vice Chairman and Chief Financial Officer
John A. Canning (2) ........ 51 Director
Jerome I. Gellman (3) ..... 68 Director
Joel M. Handel (1) ......... 60 Director
Timothy J. Danis (3) ....... 49 Director
Jonathan Kagan (2) ......... 39 Director
David B. Golub (1) ......... 34 Director
LaSalle D. Leffall, Jr. (2) 64 Director
Arnold Thaler (3) .......... 73 Director
Michael J. Lyden ........... 53 Executive Vice President and President - Tyco
U.S.
Douglas G. Hartley (4) .... 51 Executive Vice President - Sales
Karsten Malmos (4) ......... 51 President - Tyco International
Paul J. Weaver (4) ......... 45 Executive Vice President - International Finance
and Operations
B. James Alley (4) ......... 46 Executive Vice President - Marketing
R. Michael Kennedy, Jr. ... 52 Senior Vice President, General Counsel and
Secretary
Anthony DiMichele, Jr. .... 40 Senior Vice President - Finance and Treasurer
Martin Scheman (5) ......... 64 Chairman, Tyco Preschool
Neil Friedman (5) .......... 48 President, Tyco Preschool

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

(1) Term will expire at the Annual Meeting in 1999.

(2) Term will expire at the Annual Meeting in 1997.

(3) Term will expire at the Annual Meeting in 1998.

(4) Officer of the Company's principal operating subsidiary.

(5) Officer of a wholly-owned subsidiary.

Richard E. Grey has served as Chairman since July 1991, and as a Director
since 1988 and as Chief Executive Officer of the Company from
December 1985 until December 1995. Mr. Grey has also served as
Chief Executive Officer, Director and member of the Executive Committee of
the Company's principal operating subsidiary from 1973 until December 1995 and
as President until October 1994. Mr. Grey was employed by the Company and its
predecessor since 1958. Mr. Grey has served as a Director and Chairman of the
Board of Toy Manufacturers of America, Inc., a toy industry trade organization.

Gary S. Baughman was appointed President, Chief Operating Officer and a
Director in October 1994. For more than five years prior to that time he was
President of the Little Tikes division of Rubbermaid, Inc. He was appointed
Chief Executive Officer of the Company in January 1996.

Harry J. Pearce was appointed Executive Vice President in September 1987
and has served as Senior Vice President - Finance and Chief Financial Officer
of the Company since December 1985. He has

served as a Director of the Company since September 1988, and was appointed
Vice Chairman in April, 1993. Mr. Pearce is a Director and former Chairman of
Toy Manufacturers of America, Inc., a toy industry trade organization.

John A. Canning, Jr. was appointed to the Board in July 1991. He is the
President of Madison Dearborn Partners, Inc. From 1988 until January 1993, he
served as President of First Chicago Venture Capital, an affiliate of First
Chicago Investment Corporation (FCIC); FCIC and Madison Dearborn Partners IV
("Madison Dearborn"), of which he is a partner, provided the financing for
the purchase by the Company of the equity interest of the Selzer family
members in July 1991. Mr. Canning is also a director of Bayou Steel
Corporation and the Interlake Corporation.

Jerome I. Gellman has served as a Director of the Company since April
1987. For over five years, until January 1988, he was a partner in the law
firm of Tucker, Gellman & Mulderig, P.C. In January 1988, he became Of
Counsel to the law firm of Cowan, Liebowitz & Latman, P.C.

Joel M. Handel has served as a Director of the Company since April 1987.
He has been for more than the past five years a partner in the law firm of
Baer Marks & Upham LLP, which has served as counsel to the Company.

Timothy J. Danis was appointed to the Board in December 1990. He is the
Chairman and Chief Executive Officer of Rollins Hudig Hall of Illinois. For
more than five years until January 1992, he served as President and Chief
Executive Officer of Corroon and Black of Missouri, Inc. In January 1992, he
joined the Rollins Burdick Hunter Group as Chief Executive Officer. Rollins
Burdick Hunter Group is an international insurance brokerage firm which
became Rollins Hudig Hall in January 1993.

David B. Golub was appointed a Director in April 1994. He is a Managing
Director of Corporate Advisors, L.P. where he has been employed for more than
the past five years. Corporate Advisors, L.P. is the investment advisor to
the three entities who hold the Series B Preferred Stock.

Jonathan Kagan was appointed Director in April 1994. For more than the
past five years he has served as a Managing Director of Corporate Advisors,
L.P. and of Lazard Fr|f4res & Co. LLC. He also is a director of Continental
Cablevision, Inc. and LaSalle Re Holdings Limited.

Dr. LaSalle D. Leffall, Jr. was appointed as a Director of the Company in
February 1993. For more than the last five years, he has been Chairman of the
Department of Surgery at Howard University College of Medicine in Washington,
D.C. Dr. Leffall also serves as a Director of the Warner Lambert Company and
Mutual of America.

Arnold Thaler was President of View-Master Ideal Group., Inc.
("View-Master") from July 1981, when he purchased the View-Master line with a
group of investors, until his retirement in 1990. View-Master became a public
company in 1983, and was acquired by the Company in 1989. He was appointed as
a Director of the Company in February 1990. He also served previously as
President of Ekco Housewares Company and as an officer of its parent,
American Home Products Corporation. Mr. Thaler retired as an active officer
on December 31, 1990.

Michael J. Lyden has been employed by the Company since 1987 as Vice
President, Business Development; he was appointed Senior Vice President in
1990, President - Tyco U.S. in January 1994 and Executive Vice President in
January 1996.

Douglas G. Hartley served as Vice President and then President of the
Company's Canadian subsidiary until his appointment as Executive Vice
President in February 1996.

Karsten Malmos joined the Company's principal operating subsidiary as Vice
President - International in 1980. He was appointed Senior Vice President -
International of the Company's principal operating subsidiary in December
1987, Executive Vice President in July 1992 and President - Tyco
International in April 1993.

Paul J. Weaver has been employed by the Company's principal operating
subsidiary since 1975. He was appointed Vice President and Controller of the
Company in October 1987, Senior Vice President in 1990, and Executive Vice
President - International Finance and Operations in May 1994.

B. James Alley has been employed by the Company's principal operating
subsidiary since December 1976, including service as Senior Vice President -
Marketing since October 1986 and as Vice President - Marketing from May 1981
until October 1986. He became Executive Vice President in June 1994.

R. Michael Kennedy, Jr. was appointed Vice President and General Counsel
of the Company in October 1987 and Senior Vice President in 1990. He was
appointed Secretary in July 1991. For over five years prior to 1987, he was
Vice President and General Counsel of Wendy's International, Inc., an
operator and franchisor of fast-food hamburger restaurants in the United
States and other countries.

Anthony DiMichele, Jr. was appointed Senior Vice President-Finance in
November 1994 and Treasurer in July 1995. For more than five years prior to
that time he was Senior Vice President of AWT, an environmental services
company.

Martin Scheman has, for more than the last five years, been President of
Tyco Preschool Toys, Inc. (formerly Illco Toy Co. U.S.A., Inc.), which the
Company acquired in June 1992. He was appointed Chairman of the Company's
Tyco Playtime and Preschool subsidiaries in June 1993.

Neil Friedman was appointed President of Tyco Preschool in August 1995.
For more than five years prior to that time he was President of MCA/Universal
Merchandising or President of Aviva/Hasbro.

VOTING SECURITIES AND PRINCIPAL HOLDERS

The following table sets forth information as of March 31, 1996, with
respect to persons known by the Company to be beneficial owners of more than
5% of the Common Stock and by each of the Company's Directors, each of the
named Executive Officers and all Directors and Executive Officers as a group:

NUMBER OF PERCENT OF TOTAL(1)(2)
SHARES -----------------------
BENEFICIALLY BEFORE AFTER
OWNED(1)(2) OFFERING OFFERING(3)
-------------- ---------- -----------

Corporate Advisors, L.P. (4)(5) ................ 5,563,095 13.8% 10.2%
30 Rockefeller Plaza
New York, New York 10020
The Capital Group Companies, Inc. (4) ......... 4,033,300 11.6 8.3
333 South Hope Street
Los Angeles, CA 90071
State of Wisconsin Investment Board (4) ....... 3,454,800 9.9 7.1
121 East Wilson Street
Madison, Wisconsin 53708
Richard E. Grey (6)(7) ......................... 313,500 * *
Harry J. Pearce (6)(7) ......................... 105,418 * *
Gary S. Baughman (6)(7)(8) ..................... 53,225 * *
Jerome I. Gellman (6) .......................... 9,000 * *
Joel M. Handel (6) ............................. 9,000 * *
Arnold Thaler (6) .............................. 40,614 * *
Timothy J. Danis (6) ........................... 9,000 * *
John A. Canning, Jr. (6)(9) .................... 200,337 * *
Dr. LaSalle D. Leffall, Jr. (6) ................ 5,200 * *
Jonathan Kagan (5)(6) .......................... 5,548,095 13.7 10.2
David B. Golub (5)(6) .......................... 5,563,095 13.8 10.2
Michael J. Lyden (6)(7) ........................ 45,500 * *
Karsten Malmos (6)(7) .......................... 28,840 * *
All Directors and Executive Officers as a group
(20 persons) (5)(6)(7)(8) ..................... 6,489,365 15.8 11.8

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

* Represents less than 1% of the outstanding shares of Common Stock.

(1) As of March 31, 1996, there were 34,826,668 shares of Common Stock
issued and outstanding. As of such date, the Company had reserved an
aggregate of 9,606,197 shares of Common Stock issuable upon the
conversion or exercise of (i) Company's outstanding Series B Preferred
Stock, (ii) Convertible Notes; and (iii) outstanding options and
restricted stock units granted under the Company's stock option plans,
of which an aggregate of 1,178,609 shares of Common Stock were subject
to being acquired within 60 days of such date.

(2) The amount and percentage of securities "beneficially owned" by an
individual are determined in accordance with the regulations of the
Securities and Exchange Commission and, accordingly, may include
securities owned by or for, among others, the spouse and/or minor
children of the individual and any other relative who has the same home
as such individual. In addition, shares subject to outstanding stock
options which the individual has the right to acquire within sixty (60)
days after March 31, 1996 and shares issuable upon conversion of Series
B Preferred Stock or the Convertible Notes are deemed to be outstanding
for the purpose of computing the percentage of outstanding securities
of the class owned by such individual, or any group including such
individual, but are not deemed outstanding for the purpose of computing
the percentage of the class by any other individual. Beneficial
ownership may be disclaimed as to certain of the securities. Unless
otherwise indicated, the persons and entities named have sole voting
and dispositive power over their shares.

(3) For illustrative purposes, this column assumes conversion of the
Depository Shares into shares of Common Stock on a 1 for 1 basis.

(4) Based on information filed with the Securities and Exchange Commission
by the reporting person.

(5) Includes 52,839 shares of Series B Preferred Stock. Each share of
Series B Preferred Stock is currently convertible into 105 shares of
Common Stock. All such shares listed in the table as being beneficially
owned by Messrs. Kagan and Golub are beneficially owned by Corporate
Advisors, L.P. which is the general partner of Corporate Partners, L.P.
and Corporate Offshore Partners, L.P. and serves as investment manager
over certain assets of the State Board of Administration of Florida,
including its Series B Preferred Stock. Mr. Kagan, who is a Managing
Director of Lazard Freres & Co. LLC, and Mr. Golub may be deemed to
have shared voting and investment power over such shares as Managing
Directors of Corporate Advisors, L.P. A wholly owned subsidiary of
Lazard Freres & Co. LLC is the general partner of Corporate Advisors,
L.P. See "Underwriting." The address of Messrs. Kagan and Golub is the
address of Corporate Advisors, L.P. These stockholders may be deemed to
be a "group" of persons acting together for the purpose of acquiring,
holding, voting or disposing of shares of Series B Preferred Stock.
Corporate Advisors, L.P. has sole voting and dispositive power as to
the shares of Series B Preferred Stock held by Corporate Partners,
L.P., Corporate Offshore Partners, L.P. and the State Board of
Administration of Florida. Both Messrs. Kagan and Golub disclaim
beneficial ownership of such shares.

(6) Includes 233,500, 85,000, 28,125, 9,000, 9,000, 9,000, 9,000, 40,000,
5,000, 45,500, 15,000 and 28,500 shares that are subject to options
granted pursuant to registered option plans of the Company and held by
Messrs. Grey, Pearce, Baughman, Gellman, Handel, Thaler, Danis,
Canning, Leffall, Lyden, Golub and Malmos, respectively, also includes
606,581 shares subject to options held by all Executive Officers and
Directors as a group, all of which options so included are presently
exercisable.

(7) Does not include Restricted Shares which have not yet vested and will
not vest within 60 days after March 31, 1996.

(8) Includes 25,100 Shares which vested in October 1995.

(9) Includes 160,337 shares issuable upon the conversion of Convertible
Subordinated Notes held by Madison Dearborn Partners IV. John A.
Canning, Jr., a Director of the Company, is a partner in Madison
Dearborn Partners IV.

DESCRIPTION OF PRINCIPAL INDEBTEDNESS

LONG-TERM DEBT

The Company's long term debt consists of Senior Subordinated Notes in the
aggregate principal amount as of December 31, 1995 of $126,500,000. The
Senior Subordinated Notes contain a number of affirmative and negative
covenants. These covenants, among other things: (a) place limitations on
Restricted Payments (as defined); (b) prohibit, with certain exceptions,
placing restrictions or encumbrances on the ability of any subsidiary to pay
dividends or make certain other distributions on its capital stock, or pay
indebtedness owed to the Company or another Subsidiary, make loans, advances
or capital contributions to the Company or another subsidiary or sell, lease
or transfer property or assets to the Company or another subsidiary; (c)
place limitations on the incurrence of additional Indebtedness and Liens (as
defined) and the issuance of Disqualified Capital Stock (as defined); (d)
prohibit the incurrence of indebtedness that is both subordinated in right of
payment to Senior Indebtedness (as defined) and senior in right of payment to
the Senior Subordinated Notes; (e) limit certain transactions with Affiliates
(as defined); (f) impose conditions with respect to Asset Dispositions (as
defined); and (g) limit the sale or issuance of capital stock of any
subsidiary.

OTHER OUTSTANDING INDEBTEDNESS

The Company has issued $16,034,000 of Convertible Notes to two investment
groups affiliated with First Chicago Bank and Director John A. Canning, Jr.,
respectively. The Convertible Notes were originally issued as Series "A"
Convertible Exchangeable Preferred Stock in the amount of $13,500,000, but
were converted to debt after issuance at the Company's option; during 1994
and 1995 additional Convertible Notes were issued in lieu of interest
payments. The Convertible Notes have an annual interest obligation of 7%
payable on June 30 and December 31. The Convertible Notes are convertible
into common stock at $10 per share and are to be repaid in four equal annual
installments commencing in 1998.

SHORT-TERM DEBT

The Credit Facilities, in an aggregate amount of $290,000,000, consist of
three separate three-year revolving credit facilities and a five-year
receivables securitization facility. Borrowings under the Credit Facilities
were used to refinance outstanding indebtedness under the prior credit
facilities in the United States and certain foreign subsidiaries and to fund
the Company's working capital requirements.

o Receivables Securitization Facility. Tyco Industries, Inc. and Tyco
Manufacturing Corp. sell and transfer all of their eligible accounts
receivable, up to a maximum of $200,000,000, to two specially-created Funding
Corporations in exchange for proceeds from borrowings under a commercial
paper facility. Early termination or reduction of the maximum facility
commitment is subject to payment of an unpaid premium fee. There is also a
yearly clean down provision requiring the outstanding principal balance to be
paid to zero for five days. The interest rate is the market rate for the
lender's commercial paper plus 1.55%. If the Company meets certain tangible
net worth and minimum debt service coverage ratio targets as of December 31,
1996, the interest rate will decrease by one quarter of one percent. The
assets of the two Funding Corporations, consisting of its accounts
receivables, contracts and collections, are all pledged as security for their
borrowings.

o Revolving Credit Facility. The Revolving Credit Facilities consist of
up to $35,000,000 for certain domestic entities (of which up to $10,000,000
may be used for letters of credit), $20,000,000 for Tyco Toys (Canada), Inc.
and $35,000,000 for the Company's subsidiaries in the United Kingdom.
Borrowing under the Revolving Credit Facilities is permissible up to 60
percent of eligible inventory (as defined), and up to 80 percent of eligible
accounts receivable in the Canadian and UK agreements, subject to the maximum
commitment under each of the facilities. There is also a yearly clean down
provision requiring the outstanding balance of borrowings to be paid down to
zero for 30 days. The Company determines the interest rates on revolving
credit advances at its

option, based on various indices, including LIBOR or bankers' acceptance
rates plus two and three-quarters percent. If the Company meets certain
tangible net worth and minimum debt service charge ratio targets as of
December 31, 1996, the interest rate will decreased by one quarter of one
percent.

o Guarantees. The Revolving Credit Facilities are guaranteed by certain
foreign and domestic subsidiaries as identified in the Credit Agreements.

o Security. The Revolving Credit Facilities are secured by a lien on
substantially all inventory, property and assets of the Company and various
domestic subsidiaries, plus the receivables of the Canadian and UK
subsidiaries, and includes pledges on the stock of Loan Parties (as defined)
which are domestic subsidiaries.

o Payment. Advances against the Revolving Credit Facilities are payable
upon the third anniversary of the closing date (February 22, 1998) unless
earlier terminated in full by the Company or upon the occurrence of an event
of default that is continuing. Early termination of the Revolving Credit
Facility is subject to payment of a termination fee. There is also a yearly
clean down provision requiring the outstanding principal balance of the
inventory loans to be paid to zero for thirty days.

The Credit Facilities contain certain affirmative and negative covenants
including, but not limited to: (1) the maintenance of financial covenants
concerning net worth, fixed charge coverage and net income; (2) restrictions
on the incurrence of additional indebtedness or other obligations and the
acquisition of other entities, whether by asset purchase, merger or
otherwise; (3) restrictions on the payment of dividends on capital stock and
other Restricted Payments (as defined); (4) limitations on the guarantee of
debt incurred by certain of its subsidiaries up to a maximum of $70,000,000;
(5) limitations on the making of certain investments, (6) limitations on the
ability to merge, consolidate or acquire the assets of another company or the
ability to sell, transfer the assets or property of the Company or its
subsidiaries; and (7) limitations on the ability to create or permit liens to
exist on the property. Events of default includes, but are not limited to,
payment defaults, cross defaults to other indebtedness, covenant defaults,
material breaches of representations or warranties, change of control,
bankruptcy and similar events.

DESCRIPTION OF THE SERIES C PREFERRED STOCK

The summary contained herein of the terms of the Series C Preferred Stock
does not purport to be complete and is subject to and qualified in its
entirety by reference to all of the provisions of the Company's Restated
Certificate of Incorporation and form of Certificate of Designations, Rights,
Preferences and Limitations relating to the Series C Preferred Stock (the
"Certificate of Designations"), a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.

The Board of Directors of the Company has adopted resolutions authorizing
the issuance of up to shares of Series C Preferred Stock out of the
Company's authorized and unissued Preferred Stock. Each Depositary Share
represents beneficial Ownership of one-twentieth of a share of Series C
Preferred Stock and entitles the owner to such proportion of all the rights,
preferences and privileges of the Series C Preferred Stock represented
thereby. See "Description of Depositary Shares."

DIVIDENDS

The owners of Depositary Shares (each of which represents one-twentieth of
a share of Series C Preferred Stock) are entitled to receive, when and as
dividends on the Series C Preferred Stock are declared by the Board of
Directors out of funds legally available therefor, cash dividends from the
issue date of the Series C Preferred Stock, accruing at the rate per share of
$ per annum (equivalent to % per annum) or $ per quarter for each of the
Depositary Shares (equivalent to $ per annum or $ per quarter for each of the
shares of Series C Preferred Stock), payable quarterly in arrears on , ,
and of each year, commencing , 1996, or, if any such date is not a
business day, the next succeeding business day; provided, however, that with
respect to any dividend period during which a redemption occurs, the Company
may, at its option, declare accrued dividends to, and pay such dividends on,
the date fixed for redemption, in which case such dividends would be payable
in cash to the holders of Series C Preferred Stock as of the record date for
such dividend payment and would not be included in the calculation of the
Call Price related to the Series C Preferred Stock as set forth below. The
first dividend period will be from the date of initial issuance of the Series
C Preferred Stock to but excluding , 1996, and the first dividend will be
payable on , 1996. Dividends will cease to accrue in respect of the Series C
Preferred Stock on the Mandatory Conversion Date or on the date of their
earlier conversion or redemption.

Dividends will be payable to holders of record as they appear on the stock
register of the Company on such record dates, not less than 15 nor more than
60 days preceding the payment date thereof, as shall be fixed by the Board of
Directors. Dividends for any period less than a full quarterly dividend
period will be computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed in any period less than one
month.

There are limitations on the extent to which the Company may pay dividends
on the Series C Preferred Stock. See "Description of Other Capital Stock --
Dividend Restrictions".

Dividends may be returns of capital for tax purposes and therefore not
eligible for the corporate dividends-received deduction. See "Certain Federal
Income Tax Considerations -- Absence of Earnings and Profits."

Dividends will accrue whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends are declared.
Accrued but unpaid dividends on the Series C Preferred Stock will accumulate
as of the dividend payment date on which they first become payable, but no
interest will accrue on accumulated but unpaid dividends on the Series C
Preferred Stock.

The Series C Preferred Stock will rank on a parity, both as to payment of
dividends and distribution of assets upon liquidation, with the Company's
Series B Preferred Stock and any future preferred stock issued by the Company
that by its terms ranks pari passu with the Series C Preferred Stock.

As long as any shares of Series C Preferred Stock are outstanding, no
dividends (other than dividends payable in shares of, or warrants, rights or
options exercisable for or convertible into shares of, Common Stock or any
other capital stock of the Company ranking junior to the Series C Preferred
Stock as to the payment of dividends and the distribution of assets upon
liquidation ("Junior Stock") and cash in lieu of

fractional shares in connection with any such dividend) will be paid or
declared in cash or otherwise, nor will any other distribution be made (other
than a distribution payable in Junior Stock and cash in lieu of fractional
shares in connection with any such distribution), on any Junior Stock unless
(i) full dividends on Preferred Stock (including the Series C Preferred
Stock) that do not constitute Junior Stock ("Parity Preferred Stock") have
been paid, or declared and set aside for payment, for all dividend periods
terminating at or before the date of such Junior Stock dividend or
distribution payment to the extent such dividends are cumulative; (ii)
dividends in full for the current quarterly dividend period have been paid,
or declared and set aside for payment, on all Parity Preferred Stock to the
extent such dividends are cumulative; (iii) the Company has paid or set aside
all amounts, if any, then or theretofore required to be paid or set aside for
all purchase, retirement and sinking funds, if any, for any Parity Preferred
Stock; and (iv) the Company is not in default on any of its obligations to
redeem any Parity Preferred Stock.

In addition, as long as any shares of Series C Preferred Stock are
outstanding, no shares of any Junior Stock may be purchased, redeemed, or
otherwise acquired by the Company or any of its subsidiaries (except in
connection with a reclassification or exchange of any Junior Stock through
the issuance of other Junior Stock (and cash in lieu of fractional shares in
connection therewith) or the purchase, redemption or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares in
connection therewith)), nor may any funds be set aside or made available for
any sinking fund for the purchase or redemption of any Junior Stock unless:
(i) full dividends on Parity Preferred Stock have been paid, or declared and
set aside for payment, for all dividend periods terminating at or before the
date of such purchase or redemption to the extent such dividends are
cumulative; (ii) dividends in full for the current quarterly dividend period
have been paid, or declared and set aside for payment, on all Parity
Preferred Stock to the extent such dividends are cumulative; (iii) the
Company has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement, and sinking
funds, if any, for any Parity Preferred Stock; and (iv) the Company is not in
default on any of its obligations to redeem any Parity Preferred Stock.

Subject to the provisions described above, such dividends or other
distributions (payable in cash, property or Junior Stock) as may be
determined by the Board of Directors may be declared and paid on the shares
of any Junior Stock from time to time and Junior Stock may be purchased,
redeemed or otherwise acquired by the Company or any of its subsidiaries from
time to time. In the event of the declaration and payment of any such
dividends or other distributions, the holders of such Junior Stock will be
entitled, to the exclusion of holders of any Parity Preferred Stock, to share
therein according to their respective interests.

As long as any shares of Series C Preferred Stock are outstanding,
dividends or other distributions may not be declared or paid on any Parity
Preferred Stock (other than dividends or other distributions payable in
Junior Stock and cash in lieu of fractional shares in connection therewith),
and the Company may not purchase, redeem or otherwise acquire any Parity
Preferred Stock (except with any Junior Stock and cash in lieu of fractional
shares in connection therewith), unless either: (a)(i) full dividends on
Parity Preferred Stock have been paid, or declared and set aside for payment,
for all dividend periods terminating at or before the date of such Parity
Preferred Stock dividend, distribution, purchase, redemption or other
acquisition payment to the extent such dividends are cumulative; (ii)
dividends in full for the current quarterly dividend period have been paid,
or declared and set aside for payment, on all Parity Preferred Stock to the
extent such dividends are cumulative; (iii) the Company has paid or set aside
all amounts, if any, then or theretofore required to be paid or set aside for
all purchase, retirement and sinking funds, if any, for any Parity Preferred
Stock; and (iv) the Company is not in default on any of its obligations to
redeem any Parity Preferred Stock; or (b) with respect to the payment of
dividends only, any such dividends will be declared and paid pro rata so that
the amounts of any dividends declared and paid per share of Series C
Preferred Stock and each other share of Parity Preferred Stock will in all
cases bear to each other the same ratio that accrued dividends (including any
accumulation with respect to unpaid dividends for prior dividend periods, if
such dividends are cumulative) per share of Series C Preferred Stock and such
other shares of Parity Preferred Stock bear to each other.

MANDATORY CONVERSION OF THE SERIES C PREFERRED STOCK

On the Mandatory Conversion Date, each outstanding Depositary Share will
automatically convert into (i) 1.111 shares of Common Stock (equivalent to
22.22 shares for each share of Series C Preferred

Stock) (the "Mandatory Conversion Rate") and (ii) the right to receive cash
in an amount equal to all accrued and unpaid dividends on such Series C
Preferred Stock (other than previously declared dividends payable to a holder
of record as of a prior date) to the Mandatory Conversion Date, whether or
not declared, out of funds legally available for the payment of dividends,
subject to (x) the right of the Company to redeem the Series C Preferred
Stock on or after the First Call Date, and before the Mandatory Conversion
Date (as described below) and (y) the conversion of the Series C Preferred
Stock to Common Stock at the option of the holder at any time before the
Mandatory Conversion Date, as described below. The Mandatory Conversion Rate
is subject to adjustment as described below. Dividends will cease to accrue
on the Mandatory Conversion Date in respect of the Series C Preferred Stock
then outstanding.

Because the price of the Common Stock is subject to market fluctuations,
the per share value of the Common Stock that may be received by holders of
Series C Preferred Stock (and thereby Depositary Shares) upon mandatory
conversion may be more or less than the amount paid for the Series C
Preferred Stock (and thereby each Depositary Share) offered hereby.

OPTIONAL REDEMPTION OF THE SERIES C PREFERRED STOCK

The shares of Series C Preferred Stock are not redeemable prior to the
First Call Date. At any time and from time to time on or after that date
until immediately before the Mandatory Conversion Date, the Company will have
the right to redeem in whole or in part, the outstanding Series C Preferred
Stock. Upon any such redemption, the holder of the Series C Preferred Stock
shall receive in exchange for each share of Series C Preferred Stock, unless
previously redeemed or converted, the greater of (i) the number of shares of
Common Stock equal to the quotient of (a) the applicable Call Price (as
described below) in effect on the redemption date, divided by (b) the Current
Market Price of the Common Stock, determined as of the trading day
immediately preceding the Notice Date (as defined below) and (ii) shares
of Common Stock for each share of Series C Preferred Stock (equivalent to
0. of a share of Common Stock for each Depositary Share) (the "Optional
Rate"). The Optional Rate is subject to adjustment as described below.
Dividends will cease to accrue on the Series C Preferred Stock on the date
fixed for their redemption.

The Call Price for each share of Series C Preferred Stock is (i)(a) $ (the
equivalent of $ per Depositary Share) on and after the First Call Date, to
and including , 1999; (b) $ (the equivalent of $ per Depositary Share) on and
after , 1999, to and including , 1999; (c) $ (the equivalent of $ per
Depositary Share) on and after , 1999, to and including , 2000; (d) $ (the
equivalent of $ per Depositary Share) on and after , 2000, to and including ,
2000; and (e) $ (being the price to the public of a Series C Preferred Stock
appearing on the cover page of this Prospectus) (the equivalent of $ per
Depositary Share) on and after , 2000, to and including , 2000; and (ii) all
accrued and unpaid dividends thereon to but not including the date fixed for
redemption (other than previously declared dividends payable to a holder of
record as of a prior date).

The "Current Market Price" per share of the Common Stock on any date of
determination means the lesser of (i) the average of the closing sale prices
of the Common Stock as reported on the NYSE Composite Tape of the 15
consecutive trading days ending on and including such date of determination
or (ii) the closing sale price of the Common Stock as reported on the NYSE
Composite Tape for such date of determination; provided, however, that with
respect to any redemption of shares of Series C Preferred Stock, if any event
resulting in an adjustment of the Mandatory Conversion Rate occurs during the
period beginning on the first day of such 15-day period and ending on the
applicable redemption date, the Current Market Price as determined pursuant
to the foregoing will be appropriately adjusted to reflect the occurrence of
such event. The "Notice Date" with respect to any notice given by the Company
in connection with a redemption of the Series C Preferred Stock means the
date on which first occurs either the public announcement of such redemption
or the commencement of mailing of such notice to the holders of Series C
Preferred Stock.

If fewer than all outstanding shares of Series C Preferred Stock are to be
called for redemption, Series C Preferred Stock to be called will be selected
by the Company, from outstanding Series C

Preferred Stock not previously called, by lot or pro rata (as nearly as may
be possible) or by any other method determined by the Board of Directors in
its sole discretion to be equitable.

The Company will provide notice of any redemption of Series C Preferred
Stock to holders of record of shares of Series C Preferred Stock to be called
for redemption not less than 15 nor more than 60 days before the date fixed
for redemption. Accordingly, the earliest Notice Date for any call for
redemption of Series C Preferred Stock will be , 1999. Any such notice will
be provided by mail, sent to the holders of record of Series C Preferred
Stock to be called at each such holder's address as it appears on the stock
register of the Company, first class postage prepaid; provided, however, that
failure to give such notice or any defect therein will not affect the
validity of the proceeding for redemption of any Series C Preferred Stock to
be redeemed except as to the holder to whom the Company has failed to give
such notice or whose notice was defective. On and after the redemption date,
all rights of the holders of Series C Preferred Stock called for redemption
will terminate except the right to receive the Call Price (unless the Company
defaults on the payment of the Call Price). A public announcement of any call
for redemption will be made by the Company before, or at the time, of the
mailing of such notice of redemption.

Each holder of Series C Preferred Stock called for redemption must
surrender the certificates evidencing such shares of Series C Preferred Stock
to the Company at the place designated in the notice of redemption and will
thereupon be entitled to receive certificates for shares of Common Stock
equal to the Call Price, divided by the Current Market Price of the Common
Stock and cash for any fractional share amount.

CONVERSION AT THE OPTION OF THE HOLDER

Shares of Series C Preferred Stock are convertible, in whole or in part,
at the option of the holder thereof, at any time before the Mandatory
Conversion Date, unless previously redeemed, into shares of Common Stock at
the Optional Rate (a rate of shares of Common Stock for each share of Series
C Preferred Stock (equivalent to 0. of a share of Common Stock for each
Depositary Share)), which is equivalent to a Conversion Price of $ per
share of Series C Preferred Stock and $ per Depositary Share. The
Optional Rate is subject to adjustment as described below. The right to
convert shares of Series C Preferred Stock called for redemption will
terminate immediately before the close of business on any redemption date
with respect to such shares.

Conversion of Series C Preferred Stock at the option of the holder may be
effected by delivering certificates evidencing such Series C Preferred Stock
together with written notice of conversion and a proper assignment of such
certificates to the Company or in blank (and, if applicable, cash payment of
an amount equal to the dividend attributable to the current quarterly
dividend period payable on such shares), to the office of the transfer agent
for the Series C Preferred Stock or to any other office or agency maintained
by the Company for that purpose and otherwise in accordance with conversion
procedures established by the Company. Each optional conversion will be
deemed to have been effected immediately before the close of business on the
date on which the foregoing requirements have been satisfied. The conversion
will be at the Optional Rate in effect at such time and on such date.

Holders of Series C Preferred Stock at the close of business on a record
date for any payment of declared dividends will be entitled to receive the
dividend payable on such Series C Preferred Stock on the corresponding
dividend payment date notwithstanding the optional conversion of such Series
C Preferred Stock following such record date and before such dividend payment
date. However, shares of Series C Preferred Stock surrendered for conversion
after the close of business on a record date for any payment of declared
dividends and before the opening of business on the corresponding dividend
payment date must be accompanied by payment in cash of an amount equal to the
dividend attributable to the current quarterly dividend period payable on
such date (unless such shares of Series C Preferred Stock are subject to
redemption on a redemption date between such record date and such dividend
payment date). A holder of shares of Series C Preferred Stock called for
redemption on the First Call Date or any other dividend payment date will
receive the dividend on such Series C Preferred Stock payable on that date
and will be able to convert such Series C Preferred Stock after the record
date for such dividend without paying an amount equal to such dividend to the
Company upon conversion. Upon

any optional conversion of shares of Series C Preferred Stock the Company
will make no payment of or allowance for previously declared dividends or
distributions on the shares of Common Stock issued upon such conversion.

The Depositary Shares are subject to conversion and redemption upon the
same terms and conditions (including those as to notice to the owners of
Depositary Shares and as to selection of Depositary Shares to be called if
fewer than all Depositary Shares are to be called) as the Series C Preferred
Stock held by the Depositary, adjusted to reflect the fact that 20 Depositary
Shares are the equivalent of one share of Series C Preferred Stock. See
"Description of Depositary Shares -- Redemption or Conversion of Depositary
Shares."

HIGHER DIVIDEND YIELD AND LESS EQUITY APPRECIATION THAN COMMON STOCK

Dividends will accrue on the Depositary Shares at a higher rate than the
rate at which dividends and cash distributions are currently paid on the
Common Stock. The opportunity for equity appreciation afforded by an
investment in the Depositary Shares (and the Series C Preferred Stock) is
less than that afforded by an investment in the Common Stock because the
Conversion Price relating to a Depository Share is % of the price to the
public of a Depositary Share and the Company may, at its option, redeem the
Depositary Shares (and thereby shares of the Series C Preferred Stock) at any
time on or after the First Call Date, and before the Mandatory Conversion
Date, and although not obligated to do so, may do so, if, among other
circumstances, the Current Market Price of the Common Stock exceeds the Call
Price of a Depositary Share. In such event, a holder of a Depository Share
will receive less than 1.111 shares of Common Stock, but in no event less
than 0. of a share of Common Stock. A holder may also surrender for
conversion any Depositary Share called for redemption up to the close of
business on the redemption date, and a holder that so elects to convert will
receive 0. of a share of Common Stock for each Depositary Share
(equivalent to shares of Common Stock for each share of Series C Preferred
Stock). The per share value of Common Stock received by holders of Depositary
Shares may be more or less than the per share amount paid for the Depositary
Shares offered hereby, due to market fluctuations in the price of the Common
Stock.

As a result of these provisions, holders of Series C Preferred Stock would
be expected to realize no equity appreciation if the Current Market Price of
the Common Stock is equal to or less than the Conversion Price and less than
all of such appreciation if the Current Market Price of the Common Stock is
above the Conversion Price. Holders of Series C Preferred Stock will realize
less than the entire decline in equity value (but an increasingly greater
percentage of the total decline as the Current Market Price of the Common
Stock decreases) if the Current Market Price of the Common Stock is less than
$ , which is equivalent to 90% of the price to the public of a Depositary
Share shown on the cover page of this Prospectus.

CONVERSION ADJUSTMENTS

The Mandatory Conversion Rate and the Optional Rate are each subject to
adjustment as appropriate in certain circumstances, including if the Company
(i) pays a stock dividend or makes a distribution with respect to its Common
Stock in shares of Common Stock; (ii) subdivides or splits its outstanding
Common Stock; (iii) combines its outstanding Common Stock into a smaller
number of shares; (iv) issues any shares of Common Stock by reclassification
of its shares of Common Stock; (v) issues certain rights or warrants to all
holders of its Common Stock; or (vi) pays a dividend or distributes to all
holders of its Common Stock evidences of its indebtedness, cash or other
assets (including capital stock of the Company but excluding (a) any
Permitted Cash Dividends (as defined below) or (b) distributions and
dividends referred to in clause (i) above). In addition, the Company will be
entitled (but will not be required) to make upward adjustments in the
Mandatory Conversion Rate, the Optional Rate and the Call Price as the
Company, in its discretion, determines to be advisable, in order that any
stock dividend, subdivision of shares, distribution of rights to purchase
stock or securities, or distribution of securities convertible into or
exchangeable for stock (or any transaction which could be treated as any of
the foregoing transactions under Section 305 of the Internal Revenue Code of
1986, as amended) hereafter made by the Company to its shareholders will not
be taxable. "Permitted Cash Dividends"

mean, with respect to any consecutive 12-month period, all cash dividends and
cash distributions on the Common Stock (other than cash dividends and cash
distributions for which a prior adjustment to the Mandatory Conversion Rate
and the Optional Rate was previously made) not in excess of, on a per share
of outstanding Common Stock basis, 10% of the average of the closing share
price of the Common Stock as reported on the NYSE Composite Tape over such
period. All adjustments to the Mandatory Conversion Rate, the Optional Rate
and the Call Price will be calculated to the nearest 1/100 th of a share of
Common Stock. No adjustment in the Mandatory Conversion Rate or the Optional
Rate will be required unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that any
adjustments which, by reason of the foregoing, are not required to be made
will be carried forward and taken into account in any subsequent adjustment.
All adjustments will be made successively.

Whenever the Mandatory Conversion Rate, the Optional Rate and the Call
Price are adjusted as provided in the preceding paragraph, the Company will
file with the transfer agent for the Series C Preferred Stock a certificate
with respect to such adjustment, make a prompt public announcement thereof
and mail notice to holders of the Series C Preferred Stock providing
specified information with respect to such adjustment. At least 10 business
days before taking any action that would result in adjustment to the
Mandatory Conversion Rate, the Optional Rate or the Call Price, the Company
will notify each record holder of Series C Preferred Stock concerning such
proposed action.

ADJUSTMENTS FOR CERTAIN TRANSACTIONS

Unless sooner redeemed or converted, in case of any reclassification of
the Common Stock, any consolidation of the Company with, or merger of the
Company into, any other entity, any merger of any entity into the Company
(other than a merger that does not result in a reclassification, conversion,
exchange or cancellation of the outstanding shares of Common Stock), any sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or other property (a "Transaction"), then each share of
Series C Preferred Stock will, after consummation of such Transaction, be
entitled to be converted (i) on the Mandatory Conversion Date into the kind
and amount of securities, cash or other property receivable upon consummation
of such Transaction by a holder of the number of shares of Common Stock into
which such Series C Preferred Stock would have been converted if the
conversion on the Mandatory Conversion Date had occurred immediately before
the date of consummation of such Transaction, plus the right to receive cash
in an amount equal to all accrued and unpaid dividends on such Series C
Preferred Stock (other than previously declared dividends payable to a holder
of record as of a prior date), (ii) upon redemption by the Company on any
redemption date in exchange for the kind and amount of securities, cash or
other property receivable upon consummation of such Transaction by a holder
of the number of shares of Common Stock that would have been issuable at the
Call Price in effect on such redemption date upon a redemption of such Series
C Preferred Stock immediately before consummation of such Transaction
(assuming that, if the Notice Date for such redemption is not before such
Transaction, the Notice Date had been the date of such Transaction; and
assuming in each case that such holder of shares of Common Stock failed to
exercise rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon consummation of such transaction
(provided that, if the kind or amount of securities, cash or other property
receivable upon consummation of such transaction is not the same for each
non-electing share, then the kind and amount of securities, cash or other
property receivable upon consummation of such transaction for each
non-electing share will be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares)) or (iii) at the option of
the holder, into the kind and amount of securities, cash or other property
receivable upon consummation of such Transaction by a holder of the number of
shares of Common Stock into which such Series C Preferred Stock might have
been converted immediately before consummation of such Transaction. The kind
and amount of securities into or for which the Series C Preferred Stock will
be convertible or redeemable after consummation of such Transaction will be
subject to adjustment as described above under the caption "Conversion
Adjustments" following the date of consummation of such Transaction.

FRACTIONAL SHARES

No fractional shares of Common Stock will be issued upon redemption or
conversion of Series C Preferred Stock. In lieu of any fractional share
otherwise issuable in respect of the aggregate number of shares of Series C
Preferred Stock of any holder that are redeemed or converted, such holder
will be entitled to receive an amount in cash equal to the same fraction of
the Current Market Price of the Common Stock, determined as of the Notice
Date, in the case of redemption by the Company, or the trading day
immediately preceding (i) the Mandatory Conversion Date, in the case of a
mandatory conversion, or (ii) the effective date of conversion, in the case
of an optional conversion by a holder.

RIGHTS AGREEMENT

Reference is made to the section "Description of Other Capital Stock --
Preferred Stock Rights Plan" for a description of the Company's Rights
Agreement. Shares of Common Stock issued upon conversion of the Series C
Preferred Stock will be entitled to receive Rights in accordance with the
terms and conditions of the Rights Agreement. The method of calculation of
the Current Market Price of the Common Stock does not take into account any
separate value of the Rights, except to the extent any such value may be
reflected in the Current Market Price.

LIQUIDATION RIGHTS

In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, and subject to the rights of holders of any other
series of Preferred Stock, the holders of outstanding Series C Preferred
Stock are entitled to receive an amount equal to the per share price to the
public of the Series C Preferred Stock shown on the cover page of this
Prospectus (20 times the price to the public for each Depositary Share shown
on the cover page of this Prospectus), plus accrued and unpaid dividends
thereon, out of the assets of the Company available for distribution to
shareholders, before any distribution of assets is made to holders of Common
Stock or any other Junior Stock upon liquidation, dissolution or winding up.

If upon any voluntary or involuntary liquidation, dissolution, or winding
up of the Company, the assets of the Company are insufficient to permit the
payment of the full preferential amounts payable with respect to the Series C
Preferred Stock and all other series of Parity Preferred Stock, the holders
of Series C Preferred Stock and of all other series of Parity Preferred Stock
will share ratably in any distribution of assets of the Company in proportion
to the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of Series C Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Company. A
Transaction will not be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Company.

VOTING RIGHTS

The holders of Series C Preferred Stock will have the right with the
holders of Common Stock to vote in the election of directors and upon each
other matter coming before any meeting of the holders of Common Stock on the
basis of 20 votes for each share of Series C Preferred Stock held (one vote
for each Depositary Share). The holders of Series C Preferred Stock and the
holders of Common Stock will vote together as one class on such matters
except as otherwise provided by law or by the Company's Restated Certificate
of Incorporation.

In the event that the equivalent of six quarterly dividends payable on the
Series C Preferred Stock shall be in arrears, the number of directors of the
Company will be increased by two and the holders of the Series C Preferred
Stock shall have the exclusive right, voting separately and as a class, with
each share of Series C Preferred Stock entitled to 20 votes (equivalent to
one vote per depositary share), to elect the two additional directors (the
"Series C Directors"). Such right shall continue until all dividends in
arrears and dividends in full for the current quarterly period have been paid
or declared and set apart for payment. The term of office of any director
elected by the holders of the Series C Preferred Stock will

terminate on the earlier of (i) the next annual meeting of shareholders at
which a successor has been elected and qualified or (ii) the termination of
the right of holders of the Series C Preferred Stock to elect Series C
Directors.

The Company will not, without the approval of the holders of at least 66
2/3 percent of the Series C Preferred Stock then outstanding: (i) amend,
alter, or repeal any of the provisions of the Restated Certificate of
Incorporation or By-Laws of the Company so as to affect adversely the powers,
preferences or rights of the holders of the Series C Preferred Stock then
outstanding or reduce the minimum time for any required notice to which the
holders of the Series C Preferred Stock then outstanding may be entitled (an
amendment of the Restated Certificate of Incorporation to authorize or
create, or to increase the authorized amount of, Common Stock or other Junior
Stock or any stock of any class ranking on a parity with the Series C
Preferred Stock being deemed not to affect adversely the powers, preferences
or rights of the holders of the Series C Preferred Stock); (ii) authorize or
create, or increase the authorized amount of, any stock of any class, or any
security convertible into capital stock of any class, ranking prior to the
Series C Preferred Stock either as to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of the
Company; (iii) merge or consolidate with or into any other corporation,
unless each holder of Series C Preferred Stock immediately preceding such
merger or consolidation receives or continues to hold in the resulting
corporation the same number of shares, with substantially the same rights and
preferences, as correspond to the Series C Preferred Stock so held as
contemplated above under "Adjustment for Certain Transactions"; or (iv)
voluntarily dissolve, liquidate or wind up the affairs of the Company.

The Company will not, without the approval of the holders of at least a
majority of the shares of Series C Preferred Stock then outstanding create,
or increase the authorized number of shares of, any other class or classes of
Parity Preferred Stock, or create any stock or other security convertible
into or exchangeable for or evidencing the right to purchase any Parity
Preferred Stock, or increase the authorized number of shares of any such
other class or amount of such other stock or security.

Notwithstanding the provisions summarized in the preceding two paragraphs,
no such approval described therein of the holders of the Series C Preferred
Stock will be required if, at or before the time when such amendment,
alteration or repeal is to take effect or when the authorization, creation,
increase or issuance of any such prior or parity stock or convertible
security is to be made, or when such consolidation or merger is to take
effect, as the case may be, provision is made for the redemption of all
Series C Preferred Stock at the time outstanding in accordance with the
Certificate of Designations.

TRANSFER AGENT AND REGISTRAR

Midlantic Bank, N.A. will act as transfer agent and registrar for, and
paying agent for the payment of dividends on, the Series C Preferred Stock.

LISTING

Application will be made to list the Depositary Shares on the NYSE under
the trading symbol "TTIPR."

MISCELLANEOUS

Upon issuance, the Series C Preferred Stock will be fully paid and
nonassessable. Holders of Series C Preferred Stock have no preemptive rights.
The Company will at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion
or redemption of Series C Preferred Stock, such number of shares of Common
Stock as will from time to time be issuable upon the conversion or redemption
of all the Series C Preferred Stock then outstanding. The Series C Preferred
Stock redeemed for, or converted into Common Stock of the Company or
otherwise reacquired by the Company will resume the status of authorized and
unissued shares of Preferred Stock, undesignated as to series, and will be
available for subsequent issuance.

DESCRIPTION OF DEPOSITARY SHARES

The summary contained herein of the terms of the shares of Depositary
Shares does not purport to be complete and is subject to and qualified in its
entirety by reference to all of the provisions of the Deposit Agreement and
the Depositary Receipts copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.

GENERAL

Each Depositary Share represents one-twentieth of a share of Series C
Preferred Stock deposited under the Deposit Agreement, dated as of , (the
"Deposit Agreement") among the Company, Midlantic Bank, N.A., as Depositary
(the "Depositary"), and all holders from time to time of depositary receipts
issued thereunder (the "Depositary Receipts"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Series C Preferred Stock
represented by such Depositary Share, to all the rights and preferences of
the Series C Preferred Stock represented thereby (including dividend, voting,
redemption, conversion and liquidation rights) and subject, proportionately,
to all of the limitations of the Series C Preferred Stock represented
thereby, contained in the Certificate of Designations summarized under
"Description of the Series C Preferred Stock."

The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement. Immediately following the issuance and
delivery of the Series C Preferred Stock by the Depositary to the
Underwriters as contemplated herein, the Underwriters will deposit the Series
C Preferred Stock with the Depositary, which will then issue the Depositary
Shares to the Underwriters. The Company intends to make application to the
Depositary Trust Company for acceptance of all or a portion of the Depositary
Receipts for its book-entry settlement system.

Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, issue temporary Depositary Receipts substantially identical
to (and entitling the holders thereof to all the rights pertaining to) the
definitive Depositary Receipts but not in definitive form. Definitive
Depositary Receipts will be prepared thereafter and will be exchangeable for
temporary Depositary Receipts at the Depositary's expense.

DIVIDENDS AND OTHER DISTRIBUTIONS

The Depositary will distribute all cash distributions and other
distributions received in respect of the Series C Preferred Stock to the
record holders of Depositary Shares in proportion to the number of such
Depositary Shares owned by such holders.

In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval
of the Company, sell such property and distribute the net proceeds from such
sale to such holders.

RECORD DATE

Whenever (i) any cash dividend or other cash distribution becomes payable,
any distribution other than cash is made, or any rights, preferences or
privileges are at any time offered with respect to the Series C Preferred
Stock, or (ii) the Depositary receives notice of any meeting at which holders
of Series C Preferred Stock are entitled to vote or of which holders of
Series C Preferred Stock are entitled to notice or any solicitation of
consents in respect of the Series C Preferred Stock, or any call or
conversion of any Series C Preferred Stock, or if at any time the Depositary
and the Company otherwise deem it appropriate, the Depositary will in each
such instance fix a record date (which shall be the same date as the record
date for the Series C Preferred Stock) for the determination of the holders
of Depositary Receipts who are entitled to (a) receive such dividend,
distribution, rights, preferences or privileges or the net proceeds of the
sale thereof, (b) receive notice of, and give instructions for the exercise
of voting rights at, any such meeting or (c) receive notice of any such call
or conversion, subject to the provisions of the Deposit Agreement.

WITHDRAWAL OF SERIES C PREFERRED STOCK

Upon surrender of the Depositary Receipts at the corporate trust office of
the Depositary (unless the related Depositary Shares have been previously
called for redemption), the holder of the Depositary Shares evidenced thereby
is entitled to delivery at such office to or upon his order of the number of
whole shares of Series C Preferred Stock and any money or other property
represented by such Depositary Shares. Holders of Depositary Shares will be
entitled to receive whole shares of Series C Preferred Stock on the basis of
one share of Series C Preferred Stock for each 20 Depositary Shares, but
holders of such whole shares of Series C Preferred Stock will not thereafter
be entitled to receive Depositary Shares in exchange therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number
of whole shares Series C Preferred Stock to be withdrawn, the Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing
such excess number of Depositary Shares.

REDEMPTION OR CONVERSION OF DEPOSITARY SHARES

As described under "Description of the Series C Preferred Stock --
Mandatory Conversion of Series C Preferred Stock," " -- Optional Redemption
of Series C Preferred Stock" and " -- Conversion at the Option of the
Holder," the Series C Preferred Stock is subject to automatic conversion into
shares of Common Stock on the Mandatory Conversion Date, the Company's right
to redeem the Series C Preferred Stock for Common Stock at any time on or
after the First Call Date and before the Mandatory Conversion Date and the
holder's right to convert the Series C Preferred Stock into Common Stock at
its option. The Depositary Shares are subject to redemption or conversion
upon the same terms and conditions (including as to notice to the owners of
Depositary Shares and as to selection of Depositary Shares to be called if
fewer than all of the outstanding Depositary Shares are to be called) as the
Series C Preferred Stock held by the Depositary using the Common Stock
received by the Depositary, except that the number of shares of Common Stock
received upon conversion of each Depositary Share will be equal to
one-twentieth of the number of shares of Common Stock received upon
conversion of each of the Series C Preferred Stock. To the extent that
Depositary Shares are converted into shares of Common Stock and all such
shares of Common Stock cannot be distributed to the record holders of
Depositary Receipts without creating fractional interests in such shares, the
Company will cause the Depositary to distribute cash to holders in lieu of
fractional shares as provided above under "Description of the Series C
Preferred Stock Fractional Shares." The amount distributed in the foregoing
case will be reduced by any amount required to be withheld by the Company or
the Depositary on account of taxes or otherwise required pursuant to law,
regulation or court process.

VOTING OF SERIES C PREFERRED STOCK

Upon receipt of notice of any meeting at which holders of Series C
Preferred Stock are entitled to vote, the Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Shares relating to Series C Preferred Stock. Each record holder of
such Depositary Shares on the record date (which will be the same date as the
record date of the Series C Preferred Stock) will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the amount
of shares of Series C Preferred Stock represented by such holder's Depositary
Shares. The Depositary will use best efforts, insofar as practicable, to vote
the amount of shares of Series C Preferred Stock represented by such
Depositary Shares in accordance with such instructions and the Company will
agree to take all reasonable action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting Series C Preferred Stock to the extent it does not
receive specific instructions from the holders of Depositary Shares
representing Series C Preferred Stock.

Each Depositary Share shall entitle the holder to instruct the Depositary
to cast one-twentieth of a share of Series C Preferred Stock share vote on
each matter submitted to a vote of the stockholders of the Company. See
"Description of the Series C Preferred Stock --Voting Rights."

AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT

The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment which
materially and adversely alters the rights of the holders of Depositary
Shares (or, which relates to or affects rights to receive dividends or
distributions, or voting or redemption rights) will not be effective unless
such amendment has been approved by the holders of at least two-thirds of the
Depositary Shares then outstanding. In no event may any amendment impair the
right of any holder of Depositary Receipts, subject to the conditions
specified in the Deposit Agreement, upon such surrender of the Depositary
Receipts evidencing such Depositary Shares, to receive shares of Series C
Preferred Stock or upon conversion of the Series C Preferred Stock
represented by the Depositary Receipts, to receive shares of Common Stock,
and in each case any money or other property represented thereby, except in
order to comply with mandatory provisions of applicable law.

The Deposit Agreement may be terminated by the Company or the Depositary
only if (i) all outstanding Depositary Shares have been redeemed or
converted, (ii) there has been a final distribution in respect of the Series
C Preferred Stock in connection with any liquidation, dissolution or winding
up of the Company and such distribution has been distributed to the holders
of Depositary Receipts or (iii) upon consent of holders of Depositary
Receipts representing not less than two-thirds of the Depositary Shares then
outstanding.

Whenever the Deposit Agreement has been terminated pursuant to clause
(iii) of the preceding paragraph the Depositary will mail notice of such
termination to the record holders of all Depositary Receipts then outstanding
at least 30 days prior to the date fixed in such notice for such termination.
The Depositary may likewise terminate the Deposit Agreement if at any time 90
days shall have expired after the Depositary shall have delivered to the
Company a written notice of its election to resign and a successor depositary
shall not have been appointed and accepted its appointment. If any Depositary
Receipts remain outstanding after the date of termination, the Depositary
thereafter will discontinue the transfer of Depositary Receipts, will suspend
the distribution of dividends to the holders thereof, and will not give any
further notices (other than notices of such termination) or perform any
further acts under the Deposit Agreement except as provided below and except
that the Depositary will continue to (i) collect dividends on the Series C
Preferred Stock and any other distributions with respect thereto and (ii)
deliver the Series C Preferred Stock together with such dividends and
distributions and the net proceeds of any sales of rights, preferences,
privileges or other property, without liability for interest thereon, in
exchange for Depositary Receipts surrendered. At any time after the
expiration of three years from the date of termination, the Depositary may
sell the Series C Preferred Stock then held by it at public or private sales,
at such place or places and upon such terms as it deems proper and may
thereafter hold the net proceeds of any such sale, together with any money
and other property then held by it, without liability or interest thereon,
for the pro rata benefit of the holders of Depositary Receipts which have not
been surrendered. The Company does not intend to terminate the Deposit
Agreement or to permit the resignation of the Depositary without appointing a
successor depositary. In the event the Deposit Agreement is terminated, the
Company will use all reasonable efforts to have the Series C Preferred Stock
listed on the NYSE.

CHARGES OF DEPOSITARY

The Company will pay all transfer and other governmental charges arising
solely from the existence of the depositary arrangements. The Company will
pay charges of the Depositary in connection with the initial deposit of the
Series C Preferred Stock and any redemption of such Series C Preferred Stock.
Holders of Depositary Receipts will pay transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts. The Depositary may refuse to
effect any transfer of a Depositary Receipt or any withdrawal of Series C
Preferred Stock evidenced thereby until all such taxes and charges with
respect to such Depositary Receipt or such Series C Preferred Stock are paid
by the holder thereof.

MISCELLANEOUS

The Depositary will forward to holders of Series C Preferred Stock all
reports and communications from the Company which are delivered to the
Depositary and which the Company is required to furnish to the holders of
Series C Preferred Stock.

Neither the Depositary nor the Company will be liable if it is prevented
or delayed by law or any circumstances beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and the Company and the Depositary will
not be obligated to prosecute or defend any legal proceeding in respect of
any Depositary Shares or Series C Preferred Stock unless satisfactory
indemnity is furnished. They may rely on written advice of counsel or
accountants, or information provided by persons presenting Series C Preferred
Stock for deposit, holders of Depositary Shares or other persons believed to
be competent and on documents believed to be genuine.

RESIGNATION AND REMOVAL OF DEPOSITARY

The Depositary may resign at any time by delivering to the Company notice
of its election to do so, and the Company may at any time remove the
Depositary. Any such resignation or removal of the Depositary will take
effect upon the appointment of a successor Depositary, which successor
Depositary must be appointed within 90 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and
surplus of at least $50,000,000.

DESCRIPTION OF OTHER CAPITAL STOCK

The authorized capital stock of the Company consists of 75,000,000 shares
of Common Stock, par value $0.01 per share of which 34,826,668 shares were
outstanding as of June 7, 1996, and 1,000,000 shares of Preferred Stock, par
value $0.10 per share, of which 53,631 shares of the Company's Series B
Preferred Stock were outstanding as of such date.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders. The holders of shares of
Common Stock are not entitled to cumulate their votes in elections for
directors, which means that holders of more than half the outstanding shares
of Common Stock can elect all of the directors of the Company standing for
election.

The holders of shares of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors in
its discretion from any assets legally available therefor, after payment of
dividends required to be paid on outstanding shares of Preferred Stock, if
any. In the event of the dissolution of the Company, whether voluntary or
involuntary, after distribution to the holders of Preferred Stock of amounts
to which they may be preferentially entitled, the holders of Common Stock are
entitled to share ratably in the assets of the Company legally available for
distribution to its stockholders. The holders of Common Stock have no
preemptive, subscription, conversion or redemption rights and are not subject
to further calls or assessments, or rights of redemption by the Company. The
Common Stock currently outstanding is validly issued, fully paid and
nonassessable.

PREFERRED STOCK

The Board of Directors has the authority by resolution to issue up to
1,000,000 shares of Preferred Stock in one or more series and to fix the
number of shares constituting any such series, the voting powers,
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption (including
sinking fund provisions), redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any series, without any
further vote or action by the stockholders. In 1994, the Board of Directors
of the Company adopted a Certificate of Designation authorizing the issuance
of the shares of Series B Preferred Stock. Upon the consummation of this
offering, the Company will issue Depository Shares, each one representing
one-twentieth of a share of Series C Preferred Stock. Upon the consummation
of this offering, the issuance of the Series C Preferred Stock pursuant
thereto, there will remain shares of Preferred Stock authorized and available
for issuance by the Company, the terms of which may be fixed by the Board of
Directors in its sole discretion.

SERIES B VOTING CONVERTIBLE EXCHANGEABLE PREFERRED STOCK

As of the date of this Prospectus, the Company has 53,631 shares of Series
B Preferred Stock, issued and outstanding. All of the outstanding shares of
Series B Preferred Stock are held by an investment group controlled by
Corporate Partners, L.P. A wholly owned subsidiary of Lazard Freres & Co. LLC
is the general partner of Corporate Advisors, L.P. The Series B Preferred
Stock has an annual dividend yield of six percent which through April 15,
1996 had been paid quarterly by the issuance of additional shares of Series B
Preferred Stock; thereafter, such dividend payments are required to be made
in cash. The Series B Preferred Stock has a liquidation value of $1,050 per
share and is convertible, at the option of the holder, into shares of Common
Stock of the Company at a conversion price of $10.00 per share, subject to
certain adjustments as set forth in the Certificate of Designation for the
Series B Preferred Stock. Commencing in 1999, the shares of Series B Preferred
Stock are convertible into Common Stock for designated periods at the then
market price but not less than $5 per share. Holders of the Series B Preferred
Stock are entitled to vote (on an as-converted basis) with the holders of the
Common Stock as a single class on all matters which the common stockholders may
vote.

The Company has the option, at any time, to exchange the Series B
Preferred Stock for 6% Convertible Subordinated Notes. The Company also may
redeem the Series B Preferred Stock at any time after April 15, 1997 for an
amount equal to 105.25% of the liquidation value which reduces annually to
100% of the liquidation value in 2004. On April 15, 2004, the Company is
required to redeem all outstanding shares of the Series B Preferred Stock and
the redemption price shall be paid, at the Company's option, in cash or in
shares of Common Stock.

Pursuant to the terms of an agreement among the Company and the holders of
the Series B Preferred Stock, until the Series B Preferred Stock is
converted, the holders thereof are entitled to nominate two members to the
Company's Board of Directors. The holders of the Series B Preferred Stock
have nominated and the stockholders of the Company have elected, as directors
of the Company, Jonathan Kagan and David B. Golub, both Managing Director of
Corporate Advisors, L.P. Such agreement places limitations on the incurrence
of additional Indebtedness and Liens (as defined) and the ability to issue
Disqualified Capital Stock (as defined) without the consent of a majority of
holders of the Series B Preferred Stock. Pursuant to the terms of a
registration agreement among the Company and the holders of the Series B
Preferred Stock, the Company has granted the holders thereof certain demand
and incidental registration rights with respect to the Series B Preferred
Stock, any Common Stock issued upon conversion of such preferred stock or any
notes issued in exchange for such preferred stock.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Under the Company's Restated Certificate of Incorporation, as of June 7,
1996, there were 39,982,842 unissued shares of Common Stock and 946,369
shares of unissued Preferred Stock. These additional shares may be utilized
for a variety of proper corporate purposes, including future public offerings
to raise additional capital or facilitate corporate acquisitions. The Company
does not currently have any plans to issue additional shares of Common Stock
or Preferred Stock (other than shares of Common Stock to be issued upon the
exercise of options granted to certain officers and employees of the Company
and Common Stock reserved for issuance upon the exercise of certain
outstanding warrants).

One of the effects of the existence of unissued and unreserved Common
Stock and undesignated Preferred Stock may be to enable the Board of
Directors to issue shares to persons friendly to current management which
could render more difficult or discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of the Company's management. The Board of
Directors can issue the Preferred Stock without stockholder approval, with
voting and conversion rights which could adversely affect the voting stock of
the common stockholders.

In addition, certain other charter provisions, which are described below,
may have the effect, alone or in combination with each other or with the
existence of authorized but unissued stock, of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.

DIVIDEND RESTRICTIONS

The terms of the Company's Senior Subordinated Notes, Convertible Notes,
Credit Facilities and Series B Preferred Stock restrict the Company from paying
dividends on its capital stock.

Pursuant to the Indenture relating to the Senior Subordinated Notes (the
"Indenture") dated as of August 15, 1992 among the Company, certain of its
subsidiaries and NationsBank of Virginia, N.A., neither the Company nor any
of its subsidiaries is permitted to pay dividends if, after giving effect to
any such payment (a) a default or event of default under the Indenture shall
have occurred and be continuing, (b) the Company would not be able to incur
$1 of additional indebtedness under the tests set forth in the Indenture that
permit the incurrence of additional indebtedness (these tests require, among
other matters, that the Company maintains a level of cash flow to cover fixed
charges), or (c) the aggregate amount of all dividend payouts, combined with
other restricted payments under the Indenture, would exceed the sum of: (i)
50% of the aggregate cumulative consolidated net income (minus 100% of any
cumulative net loss) for periods commencing April 1, 1992; (ii) 100% of the
net proceeds from the sale of Qualified Capital Stock, which defined term
would include the Series C Preferred Stock; and (iii) $20 million.

The Purchase Agreement relating to the Convertible Notes (the "Purchase
Agreement") dated July 18, 1991 among the Company, First Chicago Investment
Corporation and Madison Dearborn Partners VII provides that, without the
consent of a majority in principal amount of such notes, the Company may not
pay any cash dividends on its capital stock. The Company expects it will
receive the necessary consent to permit payment of dividends on the Series C
Preferred Stock, provided it is not in default in the payment of principal or
interest.

The Credit Agreement ("Credit Agreement") dated as of February 22, 1995
among the Company, certain of its subsidiaries, the lenders and GECC as
Agent, permit the payment of dividends so long as (i) no default or event of
default has occurred or is continuing thereunder; (ii) the tangible net worth
(as defined) of the Company for its immediately preceding fiscal year is at
least $118 million and (iii) the amount of the dividend payment, when
combined with certain other permitted payments which cannot exceed $500,000
per year, do not exceed 15% of the net income of the Company for such fiscal
year. The Company expects it will receive the necessary consent to permit
payment of dividends on the Series C Preferred Stock provided it is not in
default in the payment of principal or interest.

The dividend restrictions set forth in the Stock Purchase Agreement dated
as of April 15, 1994 between the Company, Corporate Partners, L.P., Corporate
Offshore Partners, L.P., the State Board of Administration of Florida and
Corporate Advisors, L.P. (the "Stock Purchase Agreement") pursuant to which
the Company issued $50 million of Series B Preferred Stock are similar in
nature to those contained in the Indenture. Under the Stock Purchase
Agreement, no dividend payment may be made on shares of capital stock of the
Company ranking junior to the Series B Preferred Stock as to the payment of
dividends and the distribution of assets upon liquidation without the consent
of the holders of a majority of shares of Series B Preferred Stock if, after
giving effect thereto (i) a Restriction Event (as defined in the Company's
Certificate of Designations for the Series B Preferred Stock) shall have
occurred and is continuing; (ii) the Company would not be able to incur $1 of
additional indebtedness under the tests set forth in the Stock Purchase
Agreement that permit the incurrence of additional indebtedness provided that
the Company meets certain Consolidated Fixed Charge Coverage Ratios set forth
in Section 6(k) of the Stock Purchase Agreement or (iii) the aggregate amount
expended for all Restricted Payments (as defined) since March 31, 1994
exceeds the sum of (A) 50% of the aggregate cumulative Consolidated Net
Income (minus 100% of any cumulative net loss) for periods commencing on
January 1, 1994 and (B) 100% of the aggregate Net Proceeds from the sale of
Qualified Capital Stock (as defined). The Series B Preferred Stock ranks on a
parity, both as to payment of dividends and distribution of assets upon
liquidation, with the Series C Preferred Stock.

The foregoing descriptions of certain provisions of the Indenture, the
Purchase Agreement, the Credit Agreement and the Stock Purchase Agreement are
brief summaries of technical provisions of such instruments that contain
several defined terms. For a complete description of such restrictions,
investors are urged to review the instruments in question, all of which are
incorporated by reference into this Prospectus.

CERTAIN SPECIAL CHARTER PROVISIONS

Stockholder Action by Written Consent. Under Delaware law, unless the
Certificate of Incorporation specifies otherwise, any action that might be
taken by stockholders at an annual or special meeting

may be taken instead without a meeting and without notice to or a vote of
other stockholders if a consent in writing is signed by holders of
outstanding stock having voting power that would be sufficient to take such
action at a meeting at which all outstanding shares were present and voted.
The Restated Certificate of Incorporation of the Company provides that no
action shall be taken by stockholders by written consent and accordingly
specifically provides that the statutory rule shall not apply to actions by
stockholders by the Company. As a result, notice to and voting by all the
stockholders will be required prior to stockholder action on any matter.

Size of Board of Directors, Staggered Board and Filling of Vacancies on
the Board of Directors. The Restated Certificate of Incorporation of the
Company provides that the number of directors shall be not fewer than 6 nor
more than 13, as shall be determined by resolution of the Board of Directors
from time to time, except that such maximum number may be increased by the
Board of Directors in fixing the rights and preferences of additional series
of Preferred Stock.

The Restated Certificate of Incorporation also provides that the members
of the Board of Directors of the Company will be classified into three
classes, with the term of each class to run for three years and expire at
successive annual meetings of stockholders. Thus, it would take a minimum of
two annual meetings of stockholders to change the majority of the Board of
Directors. Vacancies on the Board of Directors that may occur between annual
meetings may be filled only by the Board of Directors. In addition, this
provision specifies that any director elected to fill a vacancy on the Board
will serve for the balance of the term of the replaced director.

Calling of Meetings of Stockholders, Notice of Director Nominees and Other
Stockholder Proposals. The Restated Certificate of Incorporation of the
Company provides that special meetings of stockholders may be called only by
the Board of Directors and that at each meeting of stockholders only such
business may be conducted as is (a) specified in the written notice of
meeting given by or at the direction of the Board, (b) brought before the
meeting by the Board or by the Chairman of the Meeting or (c) specified in a
written notice given by or on behalf of a stockholder of record, in the case of
an annual meeting, not less than 10 days prior to the date which is one year
following the notice of the prior year's annual meeting, and in the case of a
special meeting, not more than 10 days after the date of the notice of such
meeting given by or at the direction of the Board. Any such notice is required
to include specified information concerning the stockholder and each such item
of business and, in the case of a nomination for director, each such nominee.

The Restated Certificate of Incorporation requires approval by the holders
of two thirds of the voting power of the outstanding voting stock of the
Company entitled to vote in elections of directors, voting together as a
single class, of any amendment to the Certificate of Incorporation with
respect to stockholder action by written consent, the size and classification
of the Board, the filling of vacancies on the Board, the calling of meetings
of stockholders and the nomination by stockholders of directors and other
stockholder proposals, unless such amendment is approved by a majority of the
Continuing Directors (as defined) in which event any such amendment shall
require approval by the affirmative vote of not less than a majority in
voting power of the outstanding voting stock of the Company entitled to vote
in the election of directors.

Voting Requirement for Certain Business Combination Transactions. In
general, the Restated Certificate of Incorporation of the Company provides
that the affirmative vote of the holders of a majority in combined voting
power of the outstanding shares of capital stock of the Company entitled to
vote thereon shall be required to approve the dissolution of the Company, any
merger, consolidation or similar business combination transaction involving
the Company and the sale, lease or exchange of all or substantially all of
its assets. However, the Company's Certificate of Incorporation requires the
affirmative vote of holders of 80% in combined voting power of the
outstanding Common Stock and Preferred Stock of the Company entitled to vote
generally in the election of directors, voting together as a single class, to
approve certain Significant Transactions (as defined), unless the transaction
is approved in the manner otherwise required by law and by the Certificate of
Incorporation and is also approved by a majority of the Continuing Directors
(as defined), or certain minimum price, form of consideration and procedural
requirements are met. This 80% voting requirement would apply only in the
event a Significant Transaction were proposed by an Interested Stockholder
(as defined) and the procedures specified below were not complied with.

The voting requirements outlined above will not apply, however, if: (i)
immediately prior to the time the Business Combination is consummated, the
Company beneficially owned a majority of each class of the outstanding equity
securities of the Interested Stockholder; (ii) the Significant Transaction
was approved by not less than a majority of the Continuing Directors; or
(iii) the consideration to be received by the holders of each class of the
Company's outstanding Voting Stock, as defined, in the Significant
Transaction (1) is at least equal to the greater of (a) the highest per share
price (including any brokerage commission, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for any shares of such
class (i) within the two-year period immediately prior to the first public
announcement of the proposal of the Significant Transaction or (ii) in the
transaction in which it became an Interested Stockholder, and (b) the fair
market value per share of such class, on the date such Interested Stockholder
became such or such proposed Significant Transaction was first publicly
announced, whichever is higher, (2) is in cash or in the same form of
consideration as the Interested Stockholder paid to acquire the largest
number of shares of such class of Voting Stock previously acquired by it, and
(3) after the date the Interested Stockholder became such there was no
specified change in the Company's dividend policy and certain other
conditions are satisfied.

An "Interested Stockholder" generally is defined under the Restated
Certificate of Incorporation of the Company as the Beneficial Owner (as
defined) of 20% or more of the outstanding shares of stock of the Company
entitled to vote generally in the election of directors. "Beneficial
Ownership" is defined in accordance with the definition of beneficial
ownership under Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on December 20, 1985, and
includes all shares of Voting Stock as to which the Interested Stockholder in
question has sole or shared voting or investment power. However, for purposes
of the Restated Certificate of Incorporation, an Interested Stockholder is
also deemed to own beneficially shares of Voting Stock owned, directly or
indirectly, by any "Affiliate" or "Associate" (each as defined in the
Restated Certificate of Incorporation) of the Interested Stockholder, as well
as (i) shares which it or any such Affiliate or Associate has a right to
acquire or the right to vote, (ii) shares issuable upon the exercise of
options, warrants or rights, or upon conversion of convertible securities,
held by the Interested Stockholder or its Affiliates or Associates and (iii)
shares beneficially owned by any other person with whom the Interested
Stockholder or any of such stockholder's Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of shares of Voting Stock of the Company.

A "Significant Transaction" subject to the provision includes: (i) a
merger or consolidation involving the Company or any of its subsidiaries and
an Interested Stockholder; (ii) a sale, lease exchange, mortgage, pledge,
transfer or other disposition of assets, securities or commitments of the
Company or any of its subsidiaries having a fair market value (as defined) of
$5,000,000 or more to an Interested Stockholder; (iii) an issuance, transfer
or sale (in one transaction or a series of transactions) of securities of the
Company or any of its subsidiaries to an Interested Stockholder for
consideration aggregating $5,000,000 or more; (iv) the adoption of any plan
or proposal for the liquidation, dissolution or winding up of the Company, if
as of the record date for the determination of stockholders entitled to vote
with respect thereto any person is an Interested Stockholder; and (v) a
reclassification of securities (including any reverse stock split) or
recapitalization of the Company or any merger or consolidation of the Company
with or into any of its subsidiaries or any other transaction,
in any case having the effect, directly or indirectly, of increasing the
percentage interest of an Interested Stockholder or any Affiliate or Associate
thereof, in any class of equity securities or securities convertible into equity
securities of the Company or any subsidiary. A "Continuing Director" is defined
as one serving as a director as of December 20, 1985, or one elected to the
Board of Directors after December 20, 1985 upon the recommendation of a majority
of the Continuing Directors, voting separately and as a subclass of directors on
such recommendation. The Restated Certificate of Incorporation provides for
payment of expenses incurred by Continuing Directors in connection with the
exercise of their authority with respect to Significant Transactions.

The Restated Certificate of Incorporation of the Company provides that
this provision may not be repealed or amended in any respect unless such
action is approved by the affirmative vote of the holders of not less than
80% in voting power of outstanding voting stock of the Company entitled to
vote in the election of directors, voting together as a single class, unless
such amendment is approved by a majority

of the Continuing Directors (as defined) in which event such amendment shall
require approval by the affirmative vote of not less than a majority in
voting power of the outstanding voting stock of the Company entitled to vote
in the election of directors, voting together as a single class.

PREFERRED STOCK RIGHTS PLAN

On September 8, 1988, the Board of Directors of the Company announced a
dividend distribution of one Right for each outstanding share of the
Company's Common Stock to stockholders of record at the close of business on
September 7, 1988. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-thousandth of a share (a "Unit") of
Series A Junior Preferred Stock, $.10 par value per share (the "Preferred
Stock"), at a Purchase Price of $50 per Unit, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and Manufacturers Hanover Trust
Company, as Rights Agent.

Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates
will be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 20% or more of the outstanding
shares of Common Stock (the "Stock Acquisition Date"), (ii) 10 business days
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 20% or more of such
outstanding shares of Common Stock or (iii) 10 business days after the Board
of Directors of the Company determines any person, alone or together with its
affiliates and associates, has become the Beneficial Owner of an amount of
Common Stock which the Board of Directors determines to be substantial (which
amount shall in no event be less than 15% of the shares of Common Stock
outstanding) and the Board of Directors, after reasonable inquiry and
investigation, including consultation with such persons as such directors
shall deem appropriate, shall determine that (a) such beneficial ownership by
such person is intended to cause the Company to repurchase the Common Stock
beneficially owned by such person or to cause pressure on the Company to take
action or enter into a transaction or series of transactions intended to
provide such person with short-term financial gain under circumstances where
the Board of Directors determines that the best long-term interests of the
Company and its stockholders would not be served by taking such action or
entering into such transactions or series of transactions at that time or (b)
such beneficial ownership is causing or reasonably likely to cause a material
adverse impact (including, but not limited to, impairment of relationships
with customers or impairment of the Company's ability to maintain Its
competitive position) on the business or prospects of the Company (any such
person being referred to herein and in the Rights Agreement as an "Adverse
Person").

Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued after
September 7, 1988 will contain a notation incorporating the Rights Agreement
by reference and (iii) the surrender for transfer of any certificates for
Common Stock outstanding will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.

The Rights are not exercisable until the Distribution Date and will expire
at the close of business on September 7, 1998, unless earlier redeemed by the
Company as described below.

As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined
by the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.

In the event that (i) a Person becomes the beneficial owner of 20% or more
of the then outstanding shares of Common Stock (except pursuant to an offer
for all outstanding shares of Common Stock which the Board of Directors
determines to be fair to and otherwise in the best interests of the Company
and its stockholders) or (ii) the Board of Directors determines that a person
is an Adverse Person, each holder of a Right will thereafter have the right
to receive, upon exercise, Common Stock (or, in certain

circumstances, cash, property or other securities of the Company) having a
value equal to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of any of the events set forth in
this paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by an Acquiring
Person or Adverse Person will be null and void. However, Rights are not
exercisable following the occurrence of either of the events set forth above
until such time as the Rights are no longer redeemable by the Company as set
forth below.

For example, at an exercise price of $50 per Right, each Right not owned
by an Acquiring Person or by an Adverse Person (or by certain related
parties) following an event set forth in the preceding paragraph would
entitle its holder to purchase $100 worth of Common Stock (or other
consideration, as noted above) for $50. Assuming that the Common Stock had a
per share value of $14.25 at such time, the holder of each valid Right would
be entitled to purchase 7 shares of Common Stock for $50.

In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the Company is not the surviving corporation (other than a merger
which follows an offer described in the second preceding paragraph), or (ii)
more than 50% of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the exercise price of the Right. The events set forth in this paragraph
and in the second preceding paragraph are referred to as the "Triggering
Events."

The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Preferred Stock, (ii) if holders of the Preferred Stock are granted
certain rights or warrants to subscribe for Preferred Stock or convertible
securities at less than the current market price of the Preferred Stock, or
(iii) upon the distribution to holders of the Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.

In general, at any time until ten business days following the Stock
Acquisition Date, the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors). The Company may
not redeem the Rights if the Board of Directors has previously declared a
person to be an Adverse Person. After the redemption period has expired, the
Company's right of redemption may be reinstated if an Acquiring Person
reduces his beneficial ownership to 10% or less of the outstanding shares of
Common Stock in a transaction or series of transactions not involving the
Company. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.01 redemption price.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that
the Rights become exercisable for Common Stock (or other consideration) of
the Company or for common stock of the acquiring company as set forth above.

Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. After
the Distribution Date, the provisions of the Rights Agreement may be

amended by the Board in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights, or to shorten or
lengthen any time period under the Rights Agreement; provided, however, that
no amendment to adjust the time period governing redemption shall be made at
such time as the Rights are not redeemable.

TRANSFER AGENT

Midlantic Bank, N.A. is the Transfer Agent and Registrar for the Common
Stock.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Baer Marks & Upham LLP, counsel to the Company, the
following discussion sets forth the material United States federal income tax
consequences expected to apply to a holder with respect to the purchase,
ownership and disposition of the Depositary Shares and the shares of Series C
Preferred Stock represented thereby. This discussion is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
final, temporary and proposed United States Treasury regulations promulgated
thereunder, and the administrative and judicial interpretations thereof, all
as in effect as of the date of this Prospectus. The consequences to any
particular holder may differ from those described below by reason of that
holder's particular circumstances. This summary does not address the
considerations that may be applicable to particular classes of holders,
including financial institutions, broker-dealers, tax-exempt organizations,
banks, insurance companies and persons who are not citizens or residents of
the United States, or who, as to the United States, are foreign corporations,
foreign partnerships or foreign estates or trusts. In addition, this summary
is limited to persons that will hold the Depositary Shares or any shares of
Series C Preferred Stock or Common Stock received in exchange therefor as
"capital assets" within the meaning of Section 1221 of the Code. The Company
has not and will not seek a ruling from the Internal Revenue Service (the
"IRS") with respect to any tax matters relating to the Depositary Shares or
the shares of Series C Preferred Stock represented thereby. Stock having
terms substantially similar to the terms of the Series C Preferred Stock has
not been the subject of any regulation, ruling or judicial decision currently
in effect, and there can be no assurance that the IRS will adopt the
positions set forth below.

The following discussion does not constitute, and should not be considered
as, legal or tax advice to prospective holders. Each potential holder should
consult with its own tax adviser before determining whether to purchase the
Depositary Shares including the effects of applicable state, local, foreign
or other tax laws and possible changes in the tax laws.

DEPOSITARY SHARES

Holders of the Depositary Shares will be treated for United States federal
income tax purposes as owners of the shares of Series C Preferred Stock
represented by the Depositary Shares. Accordingly, the tax treatment of the
owners of the Depositary Shares will be the same as the tax treatment of the
owners of the Series C Preferred Stock as described below. Thus, upon the
withdrawal of shares of Series C Preferred Stock in exchange for Depositary
Shares as provided in the Depositary Agreement, (i) no gain or loss will be
realized by an exchanging holder, (ii) the tax basis of each share of Series
C Preferred Stock to an exchanging holder will be the same as the aggregate
tax basis of the Depositary Shares exchanged therefor, and (iii) the holding
period for shares of Series C Preferred Stock in the hands of an exchanging
holder will include the period during which such holder held Depositary
Shares exchanged therefor.

Hereinafter, references in this "Certain Federal Income Tax
Considerations" section to holders of the Series C Preferred Stock will mean
both holders of shares of Series C Preferred Stock and holders of Depositary
Shares representing shares of Series C Preferred Stock, and references to
shares of Series C Preferred Stock will mean both shares of Series C
Preferred Stock and Depositary Shares.

DIVIDENDS

Dividends paid on shares of Series C Preferred Stock will be taxable as
ordinary income to the extent paid out of the Company's current or
accumulated earnings and profits (as defined for United States

federal income tax purposes). Dividends received by corporations out of such
earnings and profits will generally qualify for the 70 percent
dividends-received deduction, so long as the holder has held its shares of
Series C Preferred Stock for a sufficient time (generally more than 45 days)
and certain other conditions are met. The 70 percent dividends-received
deduction may be reduced for holders who borrow funds directly attributable
to the purchase of its shares. Where the dividends-received deduction is
available, a portion of the amount deducted may have to be included by a
corporation in computing its possible liability for alternative minimum tax.
In addition, recently-proposed legislation includes two provisions that, if
enacted, would materially affect corporations that rely on the
dividends-received deduction. The proposed legislation would (1) reduce the
70 percent dividends-received deduction to 50 percent, and (2) eliminate the
dividends-received deduction for a particular dividend if the corporate
taxpayer's holding period for dividend-paying stock is not satisfied over a
specified period immediately before and immediately after the taxpayer
becomes entitled to receive the dividend. There can be no assurance as to
whether these provisions will be enacted by the United States Congress or, if
enacted, what the effective date would be.

Under certain circumstances, a corporation that receives an "extraordinary
dividend," as defined in Section 1059 of the Code, is required to reduce its
stock basis by the non-taxed portion of such dividend (generally, the portion
claimed as a dividends-received deduction). Quarterly dividends not in
arrears paid to a holder of shares of Series C Preferred Stock generally will
not constitute extraordinary dividends under Section 1059(c) of the Code.
Under a special rule in Section 1059(f) of the Code, any dividend with
respect to "disqualified preferred stock" is treated as an extraordinary
dividend. Although the issue is not free from doubt, it is counsel's opinion
that the shares of Series C Preferred Stock should not constitute
"disqualified preferred stock."

ABSENCE OF EARNINGS AND PROFITS

Because the Company presently has a deficit in accumulated earnings and
profits for United States federal income tax purposes, in general, unless the
Company generates earnings and profits each year in an amount at least equal
to the amount of dividends payable on the shares of Series C Preferred Stock
(and all other stock ranking senior thereto or pari passu therewith), all or
part of the distributions made by the Company on the shares of Series C
Preferred Stock will be treated as returns of capital rather than dividends
eligible for the dividends-received deduction available to corporations. A
return of capital reduces the holder's tax basis in the shares of Series C
Preferred Stock, is taxable as capital gain to the extent it exceeds basis,
and results in additional taxable gain (or reduced taxable loss) upon a sale
or other taxable disposition of the shares of Series C Preferred Stock. No
assurance can be given that the Company will be able to generate sufficient
earnings and profits to prevent all or part of the distributions on the
Series C Preferred Stock from being treated as returns of capital.

RECEIPT OF COMMON STOCK UPON REDEMPTION OR CONVERSION

Gain or loss generally will not be recognized by a holder upon redemption
of shares of Series C Preferred Stock for shares of Common Stock or the
conversion of shares of Series C Preferred Stock into shares of Common Stock
if no cash is received. Dividend income may be recognized, however, to the
extent cash or Common Stock is received in payment of dividends in arrears.
In addition, a holder who receives cash in lieu of a fractional share will be
treated as having received such fractional share and having exchanged it for
cash in a transaction subject to Section 302 of the Code and related
provisions. A holder who receives both Common Stock and cash (other than any
cash in lieu of a fractional share and cash treated as dividend income as a
result of payment of dividends in arrears) upon redemption of Series C
Preferred Stock into shares of Common Stock will not recognize any loss and
will recognize gain (if any) upon such conversion, but not in excess of the
amount of such cash. The measure of such a holder's gain will be the excess
(if any) of the sum of such cash plus the value of the shares of Common Stock
received (other than shares of Common Stock taxed as a dividend upon receipt)
over such holder's adjusted tax basis in the converted Series C Preferred
Stock. Depending on the facts and circumstances, such gain

might be treated in whole or part as a dividend. Any such dividend to a
corporate holder might constitute an "extraordinary dividend" under Section
1059 of the Code, with the result that certain regular dividends received by
such holder might also be treated as "extraordinary." See "-- Dividends" and
"-- Absence of Earnings and Profits."

Generally, a holder's basis in the Common Stock received upon the
redemption or conversion of shares of Series C Preferred Stock (other than
shares of Common Stock taxed as a dividend upon receipt) will equal the
adjusted tax basis of the redeemed or converted Series C Preferred Stock plus
the amount of gain recognized, minus the amount of cash received, and the
holding period of such Common Stock will include the holding period of the
redeemed or converted Series C Preferred Stock. In the event that the receipt
of Common Stock is treated as a taxable dividend, the holder will have a fair
market value basis in such Common Stock and the holding period for such
Common Stock will begin on the day after the date that the Common Stock is
received.

REDEMPTION PREMIUM

Under Section 305 of the Code and Treasury regulations thereunder, if the
redemption price of redeemable preferred stock exceeds its issue price, the
entire amount of such excess may in certain circumstances constitute an
unreasonable redemption premium which will be treated as a constructive
dividend taken into account by the holder each year, generally in the same
manner as original issue discount would be taken into account were the
preferred stock treated as a debt instrument for United States federal income
tax purposes. Any such constructive dividends would be subject to the same
rules applicable to the stated quarterly dividends, as described in the
discussions of "Dividends" and "Absence of Earnings and Profits" above. Such
constructive dividends would also be taken into account for purposes of
applying the extraordinary dividend rules of Code Section 1059 and the amount
or period over which such constructive dividends are taken into account could
in certain circumstances cause some or all of the stated quarterly dividends
to be treated as extraordinary dividends. Although the issue is not free from
doubt, it is counsel's opinion that the holder of Series C Preferred Stock
should not be required to include in income any redemption premium under Code
Section 305.

ADJUSTMENT OF CONVERSION RATE

Certain possible future adjustments (or failures to make adjustments) to
the conversion rate, based on the Company's issuance of certain rights,
warrants, evidences of its indebtedness, securities or other assets to
holders of its Common Stock, which have the effect of increasing the
proportionate interest of a holder of shares of Series C Preferred Stock in
the Company's assets or earnings and profits, may result in constructive
distributions taxable as dividends to such holders (to the extent the Company
has current or accumulated earnings and profits), which may constitute (and
cause other dividends to constitute) "extraordinary dividends" to corporate
holders as described above. See "-- Dividends" and "-- Absence of Earnings
and Profits."

CONVERSION OF SERIES C PREFERRED STOCK AFTER DIVIDEND RECORD DATE

If a holder whose shares of Series C Preferred Stock have not been called
for redemption surrenders such shares for conversion into shares of Common
Stock after a dividend record date but before payment of the dividend, such
holder will be required to pay the Company an amount equal to such dividend
upon conversion. In such circumstances, the holder would likely be required
to treat the dividend payment in accordance with the rules described under
"-- Dividends" and "-- Absence of Earnings and Profits" and would increase
the basis of the Common Stock received by the amount paid to the Company in
connection with the receipt of such dividend.

CALL TREATMENT

It is possible that the IRS might assert that the shares of Series C
Preferred Stock should be recharacterized and treated in a manner different
than that described above. For example, the IRS might assert that the shares
of Series C Preferred Stock should be treated for federal income tax purposes
as if

the purchaser (a) acquired shares of Common Stock and (b) granted to the
Company a call on the shares so acquired in exchange for payments equal to
the excess of the "dividends" paid on the shares of Series C Preferred Stock
over the dividends paid to holders of shares of Common Stock over the period
of time to conversion or redemption. Such position, if successfully asserted
could, among other things, cause a portion of the stated dividends not to be
eligible for the dividends received deduction. Other recharacterizations are
also possible. However, because, among other reasons, the terms of the shares
of Series C Preferred Stock differ in significant respects from those of the
Common Stock, counsel is of the opinion that the shares of Series C Preferred
Stock will have the tax consequences set forth in the preceding sections and
will not be treated as Common Stock and a separate call.

BACKUP WITHHOLDING

Certain noncorporate holders may be subject to backup withholding at a
rate of 31 percent on dividends and certain consideration received upon the
call or conversion of the shares of Series C Preferred Stock. Generally,
backup withholding applies only when the taxpayer fails to furnish or certify
a proper Taxpayer Identification Number or when the taxpayer is notified by
the IRS that the taxpayer has failed to report payments of interest and
dividends properly. Holders should consult their tax advisers regarding their
qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and each of the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation and Lazard Freres & Co. LLC are acting as
representatives (the "Representatives"), the Company has agreed to sell
to the Underwriters, and each of the Underwriters severally has agreed to
purchase from the Company, the number of Depositary Shares set forth opposite
each Underwriter's name.

NUMBER OF DEPOSITARY
UNDERWRITER SHARES
- ------------------------------------------------------- ------------------------

Donaldson, Lufkin & Jenrette Securities Corporation ...
Lazard Freres & Co. LLC ................................

Total ...............................................

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Depositary Shares are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are committed to purchase all of the
Depositary Shares sold pursuant to the Underwriting Agreement if any of the
shares being sold pursuant to the Underwriting Agreement are purchased. Under
certain circumstances the commitments of nondefaulting Underwriters may be
increased.

The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Depositary Shares to the public at the public
offering price set forth on the cover page of the Prospectus and, through the
Representatives, to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable in whole
or in part by the Representatives for 30 days after the date of this Prospectus,
to purchase up to an additional ___________ Depositary Shares (equivalent to
shares of Series C Preferred Stock) at the price to the public set forth on the
cover page of the Prospectus, less the underwriting discount. The
Representatives may exercise this option only to cover over-allotments, if any,
made on the sale of Depositary Shares offered hereby. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same percentage of
such shares as the number of Depositary Shares to be purchased by each
Underwriter shown in the foregoing table bears to the total number of shares
initially offered hereby.

The Company, the executive officers and directors of the Company and
Corporate Advisors, L.P. have agreed, for a period of 90 days after the date
of this Prospectus, to not, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, on behalf of the Underwriters,
directly or indirectly, sell, offer to sell, grant any option for the sale of,
or otherwise dispose of, any shares of its capital stock or securities
convertible into or exchangeable for capital stock of the Company other than to
the Underwriters pursuant to the Underwriting Agreement and subject to certain
exceptions set forth in the Underwriting Agreement.

Prior to this offering, there has been no public market for the Depositary
Shares or the Series C Preferred Stock. The initial public offering price for
the Depositary Receipts was determined by the negotiations among the Company
and the Representatives. Among the factors considered in determining the price
to the public were the market price of the Company's Common Stock, an
assessment of the Company's recent results of operations, market prices of
securities of other companies engaged in activities similar to the Company
and prevailing conditions in the securities market. There can be no assurance
that an active trading market will develop for the Depositary Shares or that
the Depositary Shares will trade in the public market subsequent to the
offering at or above the initial public offering price.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to
contribute to payments that the Underwriters may be required to make in
respect thereof. The Company has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

Donaldson, Lufkin & Jenrette Securities Corporation and its affiliates
have performed various investment banking and commercial banking services for
the Company and its affiliates for which they have received customary
compensation. Corporate Advisors, L.P. is the beneficial owner of 5,563,095
shares of Common Stock. A wholly owned subsidiary of Lazard Freres & Co. LLC
is the general partner of Corporate Advisors, L.P. See "Voting Securities and
Principal Holders."

LEGAL MATTERS

Certain legal matters in connection with this offering will be passed upon
for the Company by Baer Marks & Upham LLP, New York, New York and for the
Underwriters by Dewey Ballantine, New York, New York. Joel M. Handel, a
partner in Baer Marks & Upham LLP, is a Director of the Company. In addition,
Mr. Handel holds options to purchase an aggregate of 9,000 shares of Common
Stock.

EXPERTS

The financial statements and the related financial statement schedules as
of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 included and incorporated by reference in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports, which are included and incorporated by reference
herein, and have been so included and incorporated in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained by mail from the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. In addition, material filed by the Company
also is available for inspection at the offices of the NYSE, 20 Broad Street,
New York, New York 10005. See "Incorporation of Certain Documents by
Reference."

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-3 under the
Securities Act with the Commission in Washington, D.C. with respect to the
securities offered by this Prospectus. This Prospectus does not contain all
the information set forth in or annexed as exhibits to the Registration
Statement. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement and to the financial statements, schedules and exhibits filed as
part hereof or incorporated by reference herein. Copies of the Registration
Statement, together with such financial statements, schedules and exhibits,
may be obtained from the public reference facilities of the Commission at the
addresses listed above, upon payment of the charges prescribed therefor by
the Commission. The Registration Statement can also be reviewed through the
Commission's Electronic Data Gathering and Retrieval System which is publicly
available through the Commission's web site (http://www.sec.gov). Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other documents, each such
statement being qualified in its entirety by such reference. Copies of such
contracts or other documents, to the extent that they are exhibits to this
Registration Statement, may be obtained from the public reference facilities of
the Commission, upon the payment of the charges prescribed therefor by the
Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended on June 11, 1996, and its Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996, each as filed by the
Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Exchange Act, is incorporated herein by reference.

All documents 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 Prospectus and
prior to the termination of this offering, shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents.

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

The Company will provide without charge to each person to whom this
Prospectus is delivered, including any beneficial owner, upon the written or
oral request of such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than the exhibits to such documents).
Requests should be directed to the Company, 6000 Midlantic Drive, Mount
Laurel, New Jersey 08054, Attention: Secretary, telephone number (609)
840-1384.

INDEX TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------

PAGE

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

Independent Auditors' Report ................................................... F-2

Consolidated Balance Sheets
December 31, 1994 and 1995 and March 31, 1996 ................................. F-3

Consolidated Statements of Operations for the Years ended December 31, 1993,
1994 and 1995 and the Three Months ended March 31, 1995 and 1996 ............. F-4

Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1993, 1994 and 1995 and the Three Months ended March 31, 1996 ... F-5

Consolidated Statements of Cash Flows for the Years ended December 31, 1993,
1994 and 1995 and the Three Months ended March 31, 1995 and 1996 ............. F-6

Notes to Consolidated Financial Statements ..................................... F-7 to F-23

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Tyco Toys, Inc.
Mount Laurel, New Jersey

We have audited the accompanying consolidated balance sheets of Tyco Toys,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tyco Toys, Inc. and subsidiaries
as of December 31, 1994 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects, the information set forth therein.

Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 7, 1996 except for note 5, as to which the date is February 15, 1996

F-2

TYCO TOYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, MARCH 31,
---------------------- -----------
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)

ASSETS
Current assets
Cash and cash equivalents (note 1) ......................... $ 30,476 $ 27,604 $ 9,880
Receivables, net (note 3) .................................. 211,400 187,503 108,529
Inventories, net (note 1) .................................. 66,284 56,710 59,757
Prepaid expenses and other current assets .................. 24,389 19,738 17,343
Deferred taxes (note 8) .................................... 17,231 13,008 13,007
---------- ---------- -----------
Total current assets ...................................... 349,780 304,563 208,516
Property and equipment, net (note 1) ........................ 47,240 33,021 33,147
Goodwill, net of accumulated amortization (note 1) ......... 231,292 226,112 224,282
Deferred taxes (note 8) ..................................... 23,732 28,560 34,030
Other assets ................................................ 18,591 22,876 21,985
---------- ---------- -----------
Total assets ............................................. $670,635 $615,132 $521,960
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and acceptances payable (note 5) ..................... $ 77,831 $ 60,923 $ 35,468
Current portion of long-term debt (note 6) ................. 1,165 1,053 942
Accounts payable ........................................... 51,325 45,557 21,493
Accrued expenses and other current liabilities (note 4) ... 95,107 93,179 59,574
---------- ---------- -----------
Total current liabilities ................................. 225,428 200,712 117,477
Long-term debt (note 6) ..................................... 146,851 147,180 147,057
Other liabilities ........................................... 2,124 1,900 2,151
Commitments and contingencies (notes 8, 9 and 10)
Stockholders' equity (notes 5, 6, 7 and 8)
Preferred stock, $.10 par value, $1,050 liquidation value
per share, 1,000,000 shares authorized; 49,055, 52,059 and
52,839 shares issued and outstanding as of December 31,
1994 and 1995 and March 31, 1996, respectively ........... 5 5 5
Common stock, $.01 par value, 75,000,000 shares authorized;
34,893,516, 35,017,158 and 35,017,158 shares issued as of
December 31, 1994 and 1995 and March 31, 1996,
respectively .............................................. 349 350 350
Additional paid-in capital ................................. 343,213 347,033 347,852
Accumulated deficit ........................................ (27,832) (58,261) (69,285)
Treasury stock, at cost .................................... (1,595) (1,676) (1,676)
Cumulative translation adjustment .......................... (17,908) (22,111) (21,971)
---------- ---------- -----------
Total stockholders' equity ................................ 296,232 265,340 255,275
---------- ---------- -----------
Total liabilities and stockholders' equity ............... $670,635 $615,132 $521,960
========== ========== ===========

See accompanying notes to consolidated financial statements.

F-3

TYCO TOYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)

Net sales .................................... $730,179 $753,098 $709,109 $116,060 $ 95,768
Cost of goods sold ........................... 436,641 445,394 416,236 66,957 55,133
----------- ----------- ----------- ---------- -----------
Gross profit ................................. 293,538 307,704 292,873 49,103 40,635
Marketing, advertising and promotion ........ 180,815 172,462 160,779 28,868 24,967
Selling, distribution and administrative
expenses .................................... 134,947 123,622 119,066 27,399 25,047
Restructuring charges (note 2) ............... 28,214 4,700 8,900 -- --
Amortization of goodwill ..................... 6,476 6,285 6,410 1,593 1,607
----------- ----------- ----------- ---------- -----------
Total operating expenses ..................... 350,452 307,069 295,155 57,860 51,621
----------- ----------- ----------- ---------- -----------
Operating income (loss) ...................... (56,914) 635 (2,282) (8,757) (10,986)
Interest expense, net ........................ 23,487 30,913 28,026 5,865 5,276
Foreign currency (gain) loss ................. 3,746 3,138 (250) (1,355) (553)
Other income, net ............................ (807) (1,943) (1,824) (2,974) (21)
----------- ----------- ----------- ---------- -----------
Loss before income taxes ..................... (83,340) (31,473) (28,234) (10,293) (15,688)
Provision (benefit) for income taxes (note 8) (13,400) 1,500 (1,005) (3,624) (5,491)
----------- ----------- ----------- ---------- -----------
Net loss ..................................... (69,940) (32,973) (27,229) (6,669) (10,197)
Preferred stock dividends .................... -- 2,157 3,200 784 827
----------- ----------- ----------- ---------- -----------
Net loss applicable to common shareholders .. $(69,940) $(35,130) $(30,429) $ (7,453) $(11,024)
=========== =========== =========== ========== ===========
Net loss per common share (notes 1, 6 and 7) $ (2.08) $ (1.01) $ (0.87) $ (0.21) $ (0.32)
Weighted average number of common shares
outstanding ................................. 33,595 34,687 34,788 34,757 34,827
Dividends per common share ................... $ 0.075 $ -- $ -- $ -- $ --

See accompanying notes to consolidated financial statements.

F-4

TYCO TOYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

PREFERRED STOCK COMMON STOCK
------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ------------ --------

Balance at December 31, 1992 -- $-- 32,005,344 $320
Exercise of stock options ... -- -- 170,500 1
Exercise of warrants ......... -- -- 2,671,472 27
Foreign currency translation
adjustment .................. -- -- -- --
Common stock dividends ....... -- -- -- --
Tax benefit from exercise of
stock options ............... -- -- -- --
Net loss ..................... -- -- -- --
-------- -------- ------------ --------
Balance at December 31, 1993 -- -- 34,847,316 348
Exercise of stock options ... -- -- 46,200 1
Issuance of preferred stock . 47,619 5 -- --
Preferred stock dividends ... 1,436 -- -- --
Foreign currency translation
adjustment .................. -- -- -- --
Net loss ..................... -- -- -- --
-------- -------- ------------ --------
Balance at December 31, 1994 49,055 5 34,893,516 349
Issuance of restricted stock -- -- 42,342 --
Exercise of stock options ... -- -- 81,300 1
Acquisition of treasury stock -- -- -- --
Preferred stock dividends ... 3,004 -- -- --
Foreign currency translation
adjustment .................. -- -- -- --
Net loss ..................... -- -- -- --
-------- -------- ------------ --------
Balance at December 31, 1995 52,059 5 35,017,158 350
-------- -------- ------------ --------
Preferred stock dividends ... 780 -- -- --
Foreign currency translation
adjustment .................. -- -- -- --
Net loss ..................... -- -- -- --
-------- -------- ------------ --------
Balance at March 31, 1996
(unaudited) ................. 52,839 $ 5 35,017,158 $350
======== ======== ============ ========

(RESTUBBED TABLE CONTINUED FROM ABOVE)

ADDITIONAL RETAINED CUMULATIVE
PAID-IN EARNINGS TREASURY STOCK TRANSLATION
-----------------------
CAPITAL (DEFICIT) SHARES AMOUNT ADJUSTMENT TOTAL
------------ ----------- ----------- ---------- ------------- ----------

Balance at December 31, 1992 $271,417 $ 79,769 (175,590) $(1,595) $(14,670) $335,241
Exercise of stock options ... 611 -- -- -- -- 612
Exercise of warrants ......... 22,017 -- -- -- -- 22,044
Foreign currency translation
adjustment .................. -- -- -- -- (8,431) (8,431)
Common stock dividends ....... -- (2,531) -- -- -- (2,531)
Tax benefit from exercise of
stock options ............... 454 -- -- -- -- 454
Net loss ..................... -- (69,940) -- -- -- (69,940)
------------ ----------- ----------- ---------- ------------- ----------
Balance at December 31, 1993 294,499 7,298 (175,590) (1,595) (23,101) 277,449
Exercise of stock options ... 208 -- -- -- -- 209
Issuance of preferred stock . 46,995 -- -- -- -- 47,000
Preferred stock dividends ... 1,511 (2,157) -- -- -- (646)
Foreign currency translation
adjustment .................. -- -- -- -- 5,193 5,193
Net loss ..................... -- (32,973) -- -- -- (32,973)
------------ ----------- ----------- ---------- ------------- ----------
Balance at December 31, 1994 343,213 (27,832) (175,590) (1,595) (17,908) 296,232
Issuance of restricted stock 338 -- -- -- -- 338
Exercise of stock options ... 328 -- -- -- -- 329
Acquisition of treasury stock -- -- (14,900) (81) -- (81)
Preferred stock dividends ... 3,154 (3,200) -- -- -- (46)
Foreign currency translation
adjustment .................. -- -- -- -- (4,203) (4,203)
Net loss ..................... -- (27,229) -- -- -- (27,229)
------------ ----------- ----------- ---------- ------------- ----------
Balance at December 31, 1995 347,033 (58,261) (190,490) (1,676) (22,111) 265,340
------------ ----------- ----------- ---------- ------------- ----------

Preferred stock dividends ... 819 (827) -- -- -- (8)
Foreign currency translation
adjustment .................. -- -- -- -- 140 140
Net loss ..................... -- (10,197) -- -- -- (10,197)
------------ ----------- ----------- ---------- ------------- ----------
Balance at March 31, 1996
(unaudited) ................. $347,852 $(69,285) (190,490) $(1,676) $(21,971) $255,275
============ =========== =========== ========== ============= ==========

See accompanying notes to consolidated financial statements.

F-5

TYCO TOYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $(69,940) $(32,973) $(27,229) $ (6,669) $(10,197)
Adjustments to reconcile net loss to net cash
provided (utilized) by operating activities:
Restructuring charges ......................... 7,569 -- -- -- --
Depreciation .................................. 24,837 24,566 27,086 5,750 4,809
Amortization .................................. 6,973 7,594 9,935 2,722 2,409
Non-cash interest expense ..................... -- 1,468 1,066 -- --
Deferred income tax provision (benefit) ...... (14,452) 1,161 -- -- --
Increase (decrease) in allowance for bad
debts, returns, markdowns, discounts and
other receivable reserves .................... (5,480) (5,885) 4,943 (19,471) (22,983)
Increase (decrease) in allowance for
obsolescence and other inventory reserves ... 2,974 (3,449) (5,104) 48 (2,542)
Change in assets and liabilities, net of effects
from acquisitions:
Decrease in receivables ........................ 14,723 18,273 17,824 98,941 102,080
(Increase) decrease in inventories ............. 504 37,582 16,040 (9,511) (391)
Decrease in prepaid expenses and other current
assets ........................................ 4,513 3,011 5,381 2,425 2,406
Increase in deferred taxes ..................... -- -- -- (4,310) (5,486)
(Increase) decrease in other assets ............ (1,803) (3,957) (3,503) (1,217) 89
Decrease in accounts payable ................... (3,893) (13,354) (7,121) (15,091) (23,648)
Increase (decrease) in accrued expenses and
other current liabilities ..................... (9,234) (16,420) 1,086 (18,251) (34,128)
Increase (decrease) in other liabilities ...... -- 656 (185) 198 285
----------- ----------- ----------- ---------- -----------
Total adjustments ............................. 27,231 51,246 67,448 42,233 22,900
----------- ----------- ----------- ---------- -----------
Net cash provided (utilized) by operating
activities .................................. (42,709) 18,273 40,219 35,564 12,703
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition of property and equipment ........... 6,319 1,433 1,005 98 --
Capital expenditures ............................ (29,731) (21,158) (15,959) (4,078) (4,960)
Acquisitions and earnout payments ............... (6,343) (855) (1,144) (1,144) --
----------- ----------- ----------- ---------- -----------
Net cash utilized by investing activities ... (29,755) (20,580) (16,098) (5,124) (4,960)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing costs ................................. -- -- (5,694) (4,545) --
Repayment of long-term debt ..................... (10,827) (30,052) (1,700) (201) (137)
Increase in (repayment of) notes payable, net .. 52,022 (10,633) (16,079) (41,946) (25,406)
Proceeds from issuance of preferred stock ...... -- 50,000 -- -- --
Preferred stock issuance costs .................. -- (3,000) -- -- --
Proceeds from issuance of common stock, net .... 22,656 209 329 -- --
Payment of cash dividends on common stock ...... (3,324) -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash provided (utilized) by financing
activities .................................. 60,527 6,524 (23,144) (46,692) (25,543)
----------- ----------- ----------- ---------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ........ (7,208) (5,777) (3,849) (944) 76
----------- ----------- ----------- ---------- -----------
Net Decrease in Cash and Cash Equivalents (19,145) (1,560) (2,872) (17,196) (17,724)
Cash and Cash Equivalents, Beginning of Period . 51,181 32,036 30,476 30,476 27,604
----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....... $ 32,036 $ 30,476 $ 27,604 $ 13,280 $ 9,880
=========== =========== =========== ========== ===========

CASH PAYMENTS DURING PERIOD FOR:
Interest ....................................... $ 21,134 $ 30,863 $ 25,031 $ 9,946 $ 7,985
Taxes .......................................... 5,158 2,843 1,523 150 3,044

See accompanying notes to consolidated financial statements.

F-6

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in joint ventures and
other companies are accounted for on the equity method or cost basis
depending upon the level of the investment and/or the Company's ability to
exercise influence over operating and financial policies.

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity at the
date of purchase of three months or less to be cash equivalents. Short-term
investments included in cash and cash equivalents primarily represent money
market funds at December 31, 1994 and 1995 and are valued at cost, which
approximates market value.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories, net, consist of (in thousands):

DECEMBER 31, MARCH 31,
-------------------- -----------
1994 1995 1996
--------- --------- -----------

Raw materials ........................ $16,655 $15,483 $13,760
Work-in-process ...................... 1,893 1,534 1,641
Finished goods ....................... 60,708 47,561 49,682
Less obsolescence and other reserves 12,972 7,868 5,326
--------- --------- -----------
$66,284 $56,710 $59,757
========= ========= ===========

Advertising

Media costs are charged to operations in the year in which the related
product is released.

F-7

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF ACCOUNTING POLICIES (Continued)
Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
provided on a straight-line basis over estimated useful lives which range
from 10 to 50 years for buildings, 18 months to 10 years for machinery,
equipment and fixtures, the lease term or life of improvements (whichever is
less) for leasehold improvements and the remaining lease term for assets
under capital leases. Property and equipment, net, consists of (in
thousands):

DECEMBER 31,
----------------------
1994 1995
---------- ----------

Property and equipment owned:
Land and buildings, machinery, equipment, and
fixtures ....................................... $116,759 $114,436
Leasehold improvements ........................... 10,767 10,309
Construction in progress ......................... 9,458 8,647
---------- ----------
136,984 133,392
Less accumulated depreciation and amortization ... 91,352 101,801
---------- ----------
Net property and equipment owned ................ 45,632 31,591
---------- ----------
Machinery, equipment, and fixtures under
capitalized leases:
Machinery, equipment, and fixtures ............... 2,959 2,602
Less accumulated amortization .................... 1,351 1,172
---------- ----------
Net property under capitalized leases ........... 1,608 1,430
---------- ----------
$ 47,240 $ 33,021
========== ==========

Goodwill

Costs in excess of net assets acquired are amortized on a straight-line
basis over forty years. Accumulated amortization of goodwill was $22,731,000
and $29,141,000 at December 31, 1994 and 1995, respectively.

Deferred Costs

Patent and trademark costs are deferred and amortized over a period of
eighteen months. Deferred financing costs are amortized over the term of the
related indebtedness.

Carrying Value of Noncurrent Assets

The Company periodically evaluates the carrying value of noncurrent
assets, including goodwill and other intangible assets. The determination of
potential impairment in carrying value is based upon current and anticipated
undiscounted operating income which the Company has determined to approximate
future undiscounted cash flows. Recognition of an impairment occurs when it
is probable that such estimated future operating income will be less than the
current carrying value of the asset being evaluated. Measurement of the
amount of impairment loss, if any, is based upon the difference between the
carrying value of the asset and its estimated fair market value. The Company
must adopt Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS 121), in 1996. Adoption of SFAS 121 is not expected to
have a significant effect on the financial position or results of operations
of the Company.

F-8

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF ACCOUNTING POLICIES (Continued)
Revenue Recognition

Sales are recorded as product is shipped, free on board from point of
shipment. The Company provides for defective returns and other allowances as
a percentage of gross sales, based on historical experience.

Foreign Currency Translation

Assets and liabilities of the Company's foreign subsidiaries are
translated into the U.S. dollar at exchange rates at the balance sheet date.
Income, expenses and cash flows are translated at exchange rates prevailing
during the year. The resulting currency translation adjustments are
accumulated in a separate component of stockholders' equity. The Company
enters into foreign currency forward exchange contracts and options as a
hedge against currency fluctuations. Realized and unrealized foreign currency
transaction gains and losses are included in earnings when incurred, except
for those relating to intercompany transactions of a long-term investment
nature which are accumulated in stockholders' equity. The Company does not
speculate in foreign currencies.

Income Taxes

The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109), which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see note 8).

The Company does not provide deferred federal income taxes on the
undistributed earnings of its foreign subsidiaries since such earnings are
not expected to be remitted to the Company in the foreseeable future. Federal
income taxes are provided currently on that portion of undistributed foreign
earnings required to be included in accordance with the U.S. tax laws.

Net Loss Per Share

Net loss per share is computed by dividing the loss applicable to common
shareholders by the weighted average number of common and common equivalent
shares outstanding during the year. Outstanding options, and the Company's
convertible notes and preferred securities were determined to be
anti-dilutive for the three years ended December 31, 1995 and the three
months ended March 31, 1995 and 1996, and were therefore excluded from the
per share calculations.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.

New Accounting Pronouncements

F-9

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF ACCOUNTING POLICIES (Continued)
Interim Financial Statements (unaudited)

The Company's financial statements for the three month periods ended March
31, 1995 and 1996 are unaudited but, in the opinion of the Company's
management, include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of data. Due to the seasonal
nature of the Company's business, the results of operations for the interim
periods are not necessarily indicative of the results for a full year.

Reclassifications

Certain previously reported amounts have been reclassified to conform to
the 1995 presentation.

(2) RESTRUCTURING AND OTHER SPECIAL CHARGES

During the second quarter of 1995, the Company adopted a restructuring
program focused on reducing the overhead costs of its European, United
Kingdom and Tyco Preschool (formerly Tyco Playtime) units. The restructuring
program is expected to generate annual savings through the combined effect of
job eliminations, facility consolidations and streamlined operations. The
pre-tax restructuring charge of $4,900,000 primarily consisted of
approximately $3,000,000 in termination and other employee benefits;
$1,300,000 of facility consolidation costs and lease termination payments;
and an approximate $300,000 non-cash write-off of assets. The program was
substantially completed by December 31, 1995.

During the fourth quarter of 1995, the Company adopted an additional
restructuring program to further reduce European operating expenses. As part
of the restructuring program, the Company will be closing its manufacturing
facility located in Temse, Belgium and its distribution facility located in
the United Kingdom. The program resulted in a pre-tax charge of $4,000,000
and is expected to generate annual savings primarily from reduced product
costs resulting from the transfer of production to lower cost sources in the
Far East and Portland. Approximately 75 positions will be eliminated as a
result of this restructuring. The program is expected to be substantially
completed by April 1996. The fourth quarter charge consists primarily of
termination benefits which totalled $3,500,000.

As of December 31, 1995, $4,434,000 of the 1995 restructuring charges
(primarily termination benefits) were reflected in accrued expenses.

During 1993, the Company recorded restructuring and other special charges
aggregating $28,214,000, of which $22,238,000 were non-cash in nature. The
restructuring plan was based upon consolidations of Company subsidiaries in
Germany and Australia, the planned sale of the Company's Italian subsidiary,
as well as the integration of the two separate Playtime operations in the
U.S. and Hong Kong. The charges also included severance of $3,721,000 and
facility consolidation costs totalling $2,255,000. The restructuring program
and related cash payments were completed in 1994.

F-10

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) RECEIVABLES, NET

Receivables, net, consist of (in thousands):

DECEMBER 31, MARCH 31,
---------------------- -----------
1994 1995 1996
---------- ---------- -----------

Trade receivables ................................. $251,141 $237,041 $135,640
Other receivables ................................. 11,040 6,186 5,630
Less:
Doubtful accounts ................................ 6,312 6,052 5,430
Returns, markdowns, discounts and other reserves 44,469 49,672 27,311
---------- ---------- -----------
$211,400 $187,503 $108,529
========== ========== ===========

(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of (in thousands):

DECEMBER 31,
--------------------
1994 1995
--------- ---------

Advertising ...................... $24,584 $23,295
Income taxes ..................... 23,586 19,498
Royalties ........................ 13,344 13,825
Compensation ..................... 5,634 7,593
Taxes other than income .......... 4,433 4,362
Interest ......................... 6,861 4,907
Reserves for restructuring costs 460 4,434
Other ............................ 16,205 15,265
--------- ---------
$95,107 $93,179
========= =========

(5) NOTES AND ACCEPTANCES PAYABLE

In February and March 1995, the Company entered into $290,000,000 of new
credit facilities (the New Credit Facilities). The New Credit Facilities
consist of three separate three-year revolving credit facilities with General
Electric Capital Corporation and affiliates in an aggregate amount of
$90,000,000 and a $200,000,000 five-year domestic receivables securitization
facility arranged by General Electric Capital Corporation. Borrowings under
the New Credit Facilities were used to refinance outstanding indebtedness
under the Company's prior principal credit facility (the Prior Facility) and
certain credit facilities of foreign subsidiaries.

The revolving credit facilities consist of up to $35,000,000 for certain
domestic entities (of which up to $10,000,000 may be used for letters of
credit), $20,000,000 for Tyco Canada, and $35,000,000 for the Company's
subsidiaries in the United Kingdom (UK). Availability under the domestic
revolving credit is based upon inventory, as defined, and availability under
the foreign revolving credits is based upon an aggregate of eligible accounts
receivable and inventory, as defined. The revolving credit facilities are
secured by a lien on substantially all of the Company's domestic assets and
are also guaranteed by certain foreign subsidiaries. Subject to the maximum
commitment under each of these facilities, borrowings are permitted up to 60%
of eligible inventory and, in the Canadian and UK agreements, up to 80% of
eligible accounts receivable. Interest rates on borrowings are determined at
the option of the borrower based on various indices, including LIBOR or
bankers' acceptance rate, plus 2.5%.

Under the securitization facility, Tyco Industries and Tyco Manufacturing
Corporation sell substantially all of their accounts receivable to Tyco
Funding I Corporation (TFC I) and Tyco Funding II

F-11

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) NOTES AND ACCEPTANCES PAYABLE (Continued)
Corporation (TFC II). These companies are bankruptcy remote subsidiaries of
Tyco Industries and are consolidated in the financial statements of the
Company. TFC I and TFC II purchase the accounts receivable with proceeds from
their borrowings under a commercial paper facility (limited to a maximum of
75% of eligible accounts receivable, as defined) and certain deferred
payments. The interest rate on the facility is the market rate for commercial
paper plus 1.30%. The accounts receivable that are sold are solely the assets
of TFC I or TFC II and are pledged as security for their borrowings. In the
event of liquidation of TFC I or TFC II, the creditors of TFC I or TFC II
would be entitled to satisfy their claims from the assets of TFC I or TFC II
prior to any distribution to Tyco Industries.

At December 31, 1995, total utilization under the New Credit Facilities
was $51,874,000 which included $45,420,000 in borrowings and $6,454,000 in
letters of credit.

Under the terms of the New Credit Facilities, the Company and its
subsidiaries are (1) subject to covenants and conditions relating to the
maintenance of net worth, fixed charge coverage and income; (2) restricted
from incurring additional indebtedness or certain obligations and from
acquiring any other entities, whether by asset purchase, merger or otherwise;
(3) restricted in the ability to pay cash dividends on capital stock subject
to certain limitations; (4) permitted to guarantee additional amounts of debt
incurred by certain of its subsidiaries up to an aggregate of $70,000,000;
and (5) required to annually retire outstanding borrowings for five days
under the receivables facility and 30 days under the revolving credit
facilities. During the fourth quarter of 1995, the Company was not in
compliance with certain financial covenants under the New Credit Facilities
and received waivers from General Electric Capital Corporation and
affiliates. The Company has amended the New Credit Facilities to reflect
revisions to its financial covenants. As a result of the amendment, the
interest rate on the facilities was increased by .25% beginning in 1996.

The Prior Facility between a subsidiary of the Company and a group of
fifteen banks led by NationsBank of North Carolina, N.A. matured on February
24, 1995. The Prior Facility consisted of a $155,000,000 short-term revolving
credit facility and a $55,000,000 term-reducing facility with quarterly
installment payments of $3,400,000 which commenced in September 1993. During
April 1994, the Company prepaid $14,300,000 of the term-reducing facility
with part of the proceeds from the issuance of its preferred stock. The
Company fully repaid its outstanding obligations under the Prior Facility at
maturity. The Prior Facility provided for borrowings at various rates to a
maximum of 3% over the prime rate. At December 31, 1994, total utilization of
the Prior Facility included approximately $53,615,000 of borrowings
($20,300,000 of which represented the term-reducing facility) and $2,516,000
in letters of credit.

At December 31, 1994 and 1995, certain foreign subsidiaries of the Company
have agreements with various banks which provide for credit extensions of
approximately $65,483,000 and $35,764,000, respectively. Short-term
borrowings under these facilities were $24,216,000 and $15,503,000, at
December 31, 1994 and 1995, respectively. Borrowings under these agreements
are subject to a variety of terms and conditions, including collateral
requirements. These subsidiaries also had outstanding letters of credit
aggregating $15,534,000 and $7,826,000 at December 31, 1994 and 1995,
respectively.

F-12

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) LONG-TERM DEBT

Long-term debt consists of (in thousands):

DECEMBER 31,
----------------------
1994 1995
---------- ----------

Subordinated notes ............... $141,468 $142,534
Mortgage ......................... 4,656 4,143
Other ............................ 1,892 1,556
---------- ----------
148,016 148,233
Less amounts due within one year 1,165 1,053
---------- ----------
$146,851 $147,180
========== ==========

Subordinated notes include $126,500,000 of Senior Subordinated Notes and
$16,034,000 of Convertible Subordinated Notes.

The Senior Subordinated Notes mature in 2002 and bear interest at 10.125%
payable on February 15 and August 15. The Notes are redeemable at the option
of the Company in whole or in part after August 15, 1997, at redemption
prices equal to 103.797% of the principal amount reducing annually to 100% by
August 15, 2000. The Senior Subordinated Notes are guaranteed by Tyco
Industries and certain of its subsidiaries.

The Convertible Subordinated Notes, which are to be repaid in four equal
annual payments commencing in 1998, bear interest at 7% payable on June 30
and December 31. The Notes are convertible at a price of $10 per share into
approximately 1,603,000 shares of common stock of the Company at December 31,
1995. During 1994 and 1995, $1,467,691 and $1,066,000 of additional
Convertible Subordinated Notes were issued in lieu of interest payments.

The Company's 7.04% mortgage is secured by land and buildings having a net
book value of approximately $4,457,000 at December 31, 1995. The mortgage is
payable in annual installments of $478,000 and matures in 2004.

Long-term debt is payable subsequent to December 31, 1995 as follows:
1996--$1,053,000; 1997-- $1,096,000; 1998--$4,835,000; 1999--$4,498,000;
2000--$4,491,000; and thereafter--$132,260,000.

(7) STOCKHOLDERS' EQUITY

Stock Option Plans

The Company has four stock option plans: 1985 Tyco Toys Incentive Stock
Option Plan, 1986 Non-Qualified Stock Option Plan, 1986 Non-Qualified Stock
Option Plan 2 and 1992 Non-Qualified Stock Option Plan. A total of 4,520,000
shares of common stock were originally reserved for issuance pursuant to
options to be granted under these stock option plans. At December 31, 1995,
there are 764,505 options available for grant. The plans provide for option
grants at exercise prices not less than the closing market value as listed on
the New York Stock Exchange on the date the option is granted, subject to
adjustment for such changes as stock splits. Transactions involving the plans
are summarized as follows:

F-13

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) STOCKHOLDERS' EQUITY (Continued)

NUMBER OF RANGE OF EXERCISE
SHARES PRICES PER SHARE
------------- -------------------
LOWEST HIGHEST
-------- ---------

Outstanding at December 31, 1992 1,668,080 $ 4.50 $17.00
Granted ......................... 12,000 11.50 12.88
Exercised ....................... (170,500) 4.50 4.50
Cancelled ....................... (58,020) 7.19 15.03
------------- -------- ---------
Outstanding at December 31, 1993 1,451,560 4.50 17.00
------------- -------- ---------
Granted ......................... 991,762 7.38 9.00
Exercised ....................... (46,200) 4.50 4.50
Cancelled ....................... (1,198,094) 7.21 17.00
------------- -------- ---------
Outstanding at December 31, 1994 1,199,028 4.50 17.00
------------- -------- ---------
Granted ......................... 706,009 5.63 7.25
Exercised ....................... (81,300) 4.50 4.50
Cancelled ....................... (162,566) 4.50 9.00
------------- -------- ---------
Outstanding at December 31, 1995
1,661,171 5.63 17.00
============= ======== =========

Options granted prior to 1995 are fully exercisable from the date of
grant. Options granted in 1995 become exerciseable in equal installments on
the first through third anniversaries of the date of grant. Of the options
outstanding, 955,062 were exercisable as of December 31, 1995. In 1994, new
stock options were issued subject to the surrender and cancellation of
certain outstanding stock options.

Long-Term Incentive Plan

During 1995, the Board of Directors and shareholders of the Company
approved the establishment of a new Long-Term Incentive Plan for certain
senior executive managers of the Company. Under the Plan, the Company has the
authority to issue up to 2,000,000 restricted stock units (Restricted Stock
Units). This Plan is designed to supplement the 1992 Non-Qualified Stock
Option Plan of the Company through grants of Restricted Stock Units.
Participants are entitled to receive a prescribed number of shares of Company
stock after seven years of continued employment. A participant's vesting of
Restricted Stock Units can be accelerated if total return to shareholders
exceeds targeted levels. During 1995, the Company granted 759,000 Restricted
Stock Units to senior executive managers of the Company pursuant to the Plan.
The market price of the stock on the date of grant was $5.63. The aggregate
fair market value of the Restricted Stock Units is being amortized to
compensation expense over the restriction period. Total compensation expense
reflected in the Consolidated Statements of Operations for 1995 was $464,000.
During 1995, the Company issued 2,342 shares of Common Stock pursuant to the
Long-Term Incentive Plan.

Preferred Stock

On April 15, 1994, the Company issued $50,000,000 of 6% Series B Voting
Convertible Exchangeable Preferred Stock (Preferred Stock) to an investment
group consisting of Corporate Partners, L.P., Corporate Offshore Partners,
L.P., and the State Board of Administration of Florida, collectively referred
to as the Purchasers. The $47,000,000 of net proceeds after issuance costs
were used to reduce net borrowings of the Company and for general corporate
purposes.

The Preferred Stock has an annual dividend yield of 6% which may be paid
in the form of additional shares of Preferred Stock through April 15, 1996.
Dividends issuable in shares of Preferred Stock in lieu of cash during 1994
and 1995 totalled $2,157,000 and $3,200,000, respectively. The Preferred
Stock has a

F-14

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) STOCKHOLDERS' EQUITY (Continued)
liquidation value of $1,050 per share and is convertible into shares of
common stock of the Company at a conversion price of $10 per share. The
Company has the option, at any time, to exchange the Preferred Stock for 6%
Convertible Subordinated Notes. The Company, at its option, may redeem the
Preferred Stock at any time after April 15, 1997 at an amount equal to
105.25% of the liquidation value which reduces annually to 100% of the
liquidation value in 2004. On April 15, 2004, the Company is required to
redeem all outstanding Preferred Stock. The redemption price shall be paid,
at the Company's option, in cash or in shares of common stock. The Preferred
Stock issued to the Purchasers entitles the holder to vote (on an
as-converted basis) with the common shares as a single class on all matters
on which the Company's common shareholders vote.

The Registration Agreement, dated April 15, 1994, gives the Purchasers
demand and incidental registration rights, as defined, with respect to the
Preferred Stock, common stock issued upon conversion, or notes issued in an
exchange for such Preferred Stock.

Common Stock Dividends

For the year ended December 31, 1993, the Company declared common stock
dividends aggregating $2,531,000. As a result of the dividend restrictions
imposed by its credit facilities, the Company was precluded from paying
dividends for the years ended December 31, 1994 and 1995. The terms of the
Company's Preferred Stock, 10.125% Senior Subordinated Notes and 7%
Convertible Subordinated Notes also have limitations on the payment of cash
dividends.

(8) INCOME TAXES

The Company adopted SFAS 109 as of January 1, 1993. There was no
cumulative effect on the deferred tax balances as a result of adopting this
pronouncement.

In accordance with SFAS 109, deferred income taxes reflect the impact of
temporary differences between values recorded for assets and liabilities for
financial reporting purposes and the values utilized for measurement in
accordance with current tax laws. SFAS 109 requires the Company to record the
net deferred tax benefits of net operating loss and tax credit carryforwards,
if realization is more likely than not.

The components of loss before income taxes consist of (in thousands):

YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
------------ ----------- ----------

Domestic .. $ (42,002) $(14,539) $ (3,337)
Foreign .... (41,338) (16,934) (24,897)
------------ ----------- ----------
$(83,340) $(31,473) $(28,234)
============ =========== ==========

F-15

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) INCOME TAXES (Continued)
The provision (benefit) for income taxes consists of (in thousands):

YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
----------- --------- ---------

Current:
Federal ............................................... $ (2,397) $ -- $ --
State ................................................. 995 -- --
Foreign ............................................... 2,000 339 (1,005)
----------- --------- ---------
598 339 (1,005)
----------- --------- ---------
Deferred:
Federal ............................................... (9,039) (127) (3,038)
State ................................................. (696) (1,327) --
Foreign ............................................... (4,717) 2,615 3,038
----------- --------- ---------
(14,452) 1,161 --
----------- --------- ---------
Tax benefit from the exercise of employee stock options 454 -- --
----------- --------- ---------
$(13,400) $ 1,500 $(1,005)
=========== ========= =========

Income taxes recorded by the Company differ from the amounts computed by
applying the statutory U.S. federal income tax rate to the loss before income
taxes. The following schedule reconciles the income tax benefit at the
statutory rate and the actual income tax provision (benefit) as reflected in
the Consolidated Statements of Operations (in thousands):

YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------

Loss before income taxes ............................ $(83,340) $(31,473) $(28,234)
=========== =========== ===========
Tax benefit at the federal statutory rate .......... (28,336) (10,701) (9,600)
Tax on deemed repatriation of foreign earnings ..... 1,241 3,233 861
State income taxes, net of the federal tax provision
(benefit) .......................................... (1,730) (2,567) --
U.S. benefit for foreign tax credits ................ (1,710) (798) --
Impact of foreign operations ........................ 11,338 9,139 10,498
Limitation on utilization of domestic tax benefits . 4,236 883 271
Deductible shutdown expenses ........................ -- -- (4,438)
Amortization of nondeductible expenses .............. 1,734 1,678 1,716
Other ............................................... (173) 633 (313)
----------- ----------- -----------
$(13,400) $ 1,500 $ (1,005)
=========== =========== ===========

F-16

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) INCOME TAXES (Continued)
The tax effects of the significant temporary differences giving rise to
the Company's deferred tax assets (liabilities) for the years ended December
31, 1993, 1994 and 1995, which the adoption of SFAS 109 has required the
Company to recognize, are as follows (in thousands):

1993 1994 1995
---------- ---------- ----------

Current:
Sales and product allowances $ 4,790 $ 4,240 $ 3,524
Co-operative advertising ... 4,738 4,343 4,320
Receivable reserves ......... 4,230 811 1,071
Obsolescence reserve ........ 3,934 4,451 1,503
State temporary differences -- 3,307 3,195
Other ....................... -- 3,551 2,865
---------- ---------- ----------
17,692 20,703 16,478
Valuation allowance ......... (1,203) (3,472) (3,470)
---------- ---------- ----------
$ 16,489 $ 17,231 $ 13,008
========== ========== ==========
Noncurrent:
Net operating losses ........ $ 48,461 $ 61,134 $ 85,337
State temporary differences 10,411 9,672 11,186
Foreign tax credits ......... 5,269 6,068 7,221
Depreciation ................ (1,885) (1,002) 1,517
Other ....................... 5,983 1,371 2,036
---------- ---------- ----------
68,239 77,243 107,297
Valuation allowance ......... (42,604) (53,511) (78,737)
---------- ---------- ----------
$ 25,635 $ 23,732 $ 28,560
========== ========== ==========

Management believes, considering all available evidence, including the
Company's history of earnings from prior years (after adjustments for
nonrecurring items, restructuring charges, permanent differences, and other
appropriate adjustments) and after considering appropriate tax planning
strategies, it is more likely than not that the Company will generate
sufficient taxable income in the appropriate carryforward periods to realize
the benefit of certain net operating losses and future deductible temporary
differences. The total net deferred tax assets (both current and noncurrent)
have been reduced to the amount management considers realizable by
establishing valuation allowances aggregating $82,207,000. Based on the
weight of available evidence, management has concluded that more likely than
not, its future taxable income will be sufficient to support the current
recognition of total net deferred tax assets of $41,568,000 ($47,037,000 at
March 31, 1996).

The valuation allowances have been established due to management's
analysis indicating that certain tax credit and net operating loss
carryforwards, the use and life of which are limited under the income tax
laws, may expire prior to their full utilization. The valuation allowances
include $16,168,000 related to the preacquisition net operating losses of
Matchbox. Any subsequently recognized benefits related to these net operating
losses will be allocated to reduce goodwill. The net increase of $25,224,000
in the valuation allowance for deferred tax assets in 1995 relates primarily
to foreign net operating loss carryforwards.

As of December 31, 1995, the Company had domestic net operating loss
carryforwards for federal income tax purposes of $76,493,000, exclusive of
the Matchbox net operating loss carryforwards discussed below. These net
operating loss carryforwards are available to reduce future federal taxable
income and expire in the years 2008, 2009 and 2010. The Company's
international subsidiaries have, in the aggregate,

F-17

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) INCOME TAXES (Continued)
approximately $112,143,000 of tax loss carryforwards available at December
31, 1995. These tax losses are available to reduce the originating
subsidiary's future taxable income and have varying expiration dates.

The Company has general business and foreign tax credit carryovers of
$625,000 and $7,101,000, respectively, at December 31, 1995. The Company's
future federal income tax liability can be reduced by the general business
tax credits through the year 2009 and by the foreign tax credits through the
year 2000. These credits expire as follows (in thousands):

YEAR OF EXPIRATION GENERAL BUSINESS FOREIGN
- ------------------ ---------------- ---------

1996 .............. $ -- $ 682
1997 .............. 24 1,338
1998 .............. 47 2,045
1999 .............. 112 1,883
2000 .............. 60 1,153
2001 to 2009 ...... 382 --
---------------- ---------
$625 $7,101
================ =========

The Company also has nonexpiring alternative minimum tax credits totalling
$1,412,000. Additionally, as of the October 2, 1992 acquisition date, the
Matchbox domestic companies have regular and alternative minimum tax net
operating loss carryforwards of approximately $47,500,000 which may expire
during the years 2001 to 2004. These Matchbox loss carryforwards are subject
to an annual limitation and can only be used to offset taxable income of the
Matchbox domestic companies.

Accumulated net undistributed earnings of the Company's foreign
subsidiaries included in accumulated deficit were $104,437,000 at December
31, 1995. The Company has not recognized a deferred tax liability of
$26,002,000 for the undistributed earnings of its foreign subsidiaries at
December 31, 1995 since the Company currently does not expect these earnings
to be remitted to the U.S. in the foreseeable future. A deferred tax
liability will be recognized when the Company expects that it will recover
the undistributed earnings in a taxable manner, such as through receipt of
dividends, a loan of the unremitted earnings to the Company or one of its
U.S. affiliates, or a sale of a foreign subsidiary's stock.

The Internal Revenue Service has examined the consolidated federal income
tax returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987
through August 31, 1990. The Company reached a settlement that did not
materially affect the results of operations (including realization of net
operating loss carryforwards and tax credit carryforwards), financial
condition or liquidity of the Company.

Additionally, the consolidated federal income tax returns of Tyco Toys,
Inc. for the years ended December 31, 1990 through December 31, 1992 are
presently being examined by the Internal Revenue Service. While the final
outcome of this examination is not determinable at this time, management of
the Company believes that any proposed adjustments, if sustained, will not
materially affect the financial condition, results of operations (including
realization of net operating loss carryforwards) or liquidity of the Company.

(9) LEASE COMMITMENTS

The Company leases facilities and equipment under noncancellable operating
leases with terms of up to ten years. Most leases contain escalation and
renewal clauses and require the Company to pay real estate taxes and utility
charges. Aggregate rental expense for operating leases was $14,836,000,
$14,945,000 and $15,523,000 for the years ended December 31, 1993, 1994 and
1995, respectively.

F-18

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) LEASE COMMITMENTS (Continued)
Future minimum lease commitments aggregating $65,375,000 are payable as
follows: 1996--$13,239,000; 1997--$12,183,000; 1998--$10,100,000;
1999--$6,847,000; 2000--$4,914,000 and thereafter--$18,092,000.

(10) COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company was contingently liable for open letters of credit of
approximately $14,280,000 at December 31, 1995.

Foreign Exchange Risk Management

The primary focus of the Company's foreign exchange risk management
program is to reduce earnings and cash flow volatility due to foreign
exchange rate fluctuations. In accordance with this policy, the Company
enters into foreign currency forward exchange contracts and options as hedges
of inventory purchases and various other intercompany transactions. The
credit risks associated with the Company's foreign currency forward exchange
contracts and options are controlled through the evaluation and monitoring of
the creditworthiness of the counterparties. Although the Company may be
exposed to losses in the event of nonperformance by the counterparties, the
Company does not expect such losses, if any, to be significant.

Guaranteed Royalties

The Company markets its products under a variety of trademarks, some of
which are not owned by the Company and for which the Company pays a royalty.
For the years ended December 31, 1993, 1994 and 1995, the Company incurred
$33,036,000, $33,079,000 and $33,016,000 in royalty expense, respectively.
Certain license agreements require minimum guaranteed royalty payments over
the term of the license. At December 31, 1995, the Company was committed to
pay total minimum guaranteed royalties aggregating $88,204,000 which are
payable as follows: 1996--$14,726,000; 1997--$11,660,000; 1998--$12,067,000;
1999--$12,292,000; 2000--$12,897,000; and thereafter--$24,562,000.

Guaranteed Purchases

In the ordinary course of business, the Company has entered into
guaranteed purchase agreements with certain suppliers to ensure the timely
delivery and availability of product. As of December 31, 1995, the Company
was committed for purchases aggregating $7,701,000 from its suppliers.

LEGAL PROCEEDINGS

Italian Litigation

In 1994, court action was initiated against the Company in Milan, Italy by
a plaintiff who is the former managing director of the Company's Italian
subsidiary; the claims alleged breach of a letter of intent for the sale of
the subsidiary. In May 1996, the Company received a favorable ruling in this
litigation, and the Milan Tribunal assessed damages, certain costs, and
attorney's fees against the plaintiff. In the opinion of the management and
its outside counsel an appeal of this decision, if pursued, is not likely to
have a material adverse impact on the Company's earnings, financial condition
or liquidity.

F-19

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) COMMITMENTS AND CONTINGENCIES (Continued)
U.S. Customs

In 1992, the U.S. Customs Service issued a penalty notice of an assessment
for lost duty in the amount of $1,500,000, penalties for gross negligence of
$5,800,000, and penalties for fraud of $5,600,000. All of the claims arise
from activities of the Company's View-Master subsidiary for periods prior to
its acquisition by the Company in 1989. Management and the Company's outside
counsel are of the opinion that the Company has legal and factual defenses to
the penalty claims made by the U.S. Customs Service, and that the outcome of
the proceedings relating to these claims, which proceedings may be
protracted, are not likely to have a material adverse impact on the earnings,
financial condition or liquidity of the Company.

Environmental Litigation

Tyco Industries, a subsidiary of the Company, is a party to three matters
arising out of waste hauled by a transporter to various sites, including the
GEMS Landfill. In litigation relating directly to remediation of the
landfill, Tyco Industries has signed a Consent Order and Trust Agreement and
made a settlement contribution of an amount not material to Tyco Industries.
In another matter, homeowners near the GEMS Landfill have filed class action
claims against approximately 150 defendants, including Tyco Industries, for
various types of unspecified monetary damages, including punitive damages. In
management's opinion, there are meritorious factual and legal defenses to
these claims. In the third matter, the New Jersey Department of Environmental
Protection is asserting claims for remediation expenses at a different site
in Sewell, New Jersey used as a waste transfer station by the same
transporter involved in the other two matters.

In the opinion of management of the Company and its outside counsel, none
of these three matters is likely to have a material adverse impact on the
earnings, financial condition or liquidity of the Company. In addition, the
Company will receive a contribution from a third party towards certain
expenses in these matters.

Other Litigation

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's earnings, financial condition or liquidity.

(11) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined by the Company using
available market information and appropriate methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The Company believes that the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and other current
liabilities are a reasonable estimate of their fair values at December 31,
1994 and 1995.

F-20

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(11) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:

Long-term debt--The fair value of the Company's publicly-issued debt is
based on the quoted market prices for that debt. Interest rates that are
currently available to the Company for issuance of debt with similar terms
and remaining maturities are used to estimate fair value for debt issues not
quoted on an exchange. The carrying amounts and estimated fair values of
long-term debt are as follows (in thousands):

DECEMBER 31,
--------------------------------------------------
1994 1995
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ------------ ---------- ------------

Publicly-issued . $126,500 $94,400 $126,500 $114,324
Privately-issued 21,516 21,516 21,733 21,733

Investments--It was not practicable to estimate the fair value of
privately-held investments of $6,100,000, and $5,800,000 at December 31, 1994
and 1995, respectively, due to the lack of quoted market prices and the
excessive cost involved in determining such fair value.

Foreign currency forward exchange contracts--The Company had commitments
under foreign currency forward exchange contracts in various foreign
currencies totalling approximately $7,400,000 and $33,141,000 as of December
31, 1994, and 1995, respectively. Based on quoted market rates, the carrying
amounts of these items approximated their fair value at December 31, 1994 and
1995.

The fair value estimates presented herein were based on pertinent
information available to management of the Company as of December 31, 1994
and 1995. Although management is not aware of any factors that would have a
significant adverse effect on the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since those dates and current estimates of fair value may differ
significantly from the amounts presented herein.

(12) BUSINESS SEGMENT INFORMATION

Product Development and Packaging Design Costs

The Company incurred product development and packaging design costs of
approximately $19,062,000, $17,519,000 and $20,740,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.

Major Customer Information

For the years ended December 31, 1993, 1994 and 1995, Toys "R" Us, Inc., a
chain of retail toy stores, accounted for approximately 24%, 27% and 25%,
respectively, of net sales. For the three years ended December 31, 1995,
Wal-Mart Stores, Inc., a chain of discount stores, accounted for
approximately 9%, 10% and 13%, respectively, of net sales. No other customer
accounted for more than 10% of the Company's net sales for these periods.

Product Line Information

The Company is engaged primarily in one segment which is the design,
development, manufacture and distribution of a variety of toy products.

F-21

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) BUSINESS SEGMENT INFORMATION (Continued)
Geographic Information

Information with respect to legal entity net sales, operating income
(loss), and identifiable assets by geographic area for the three years ended
December 31, 1995 is presented as follows (in thousands):

YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
------------ ------------ -----------

Net sales:
North America .......... $ 452,444 $ 464,751 $ 470,045
Far East ............... 303,832 239,208 222,625
Europe and Pacific Rim 231,653 264,736 189,889
------------ ------------ -----------
987,929 968,695 882,559
Intercompany ........... (257,750) (215,597) (173,450)
------------ ------------ -----------
$ 730,179 $ 753,098 $ 709,109
============ ============ ===========
Operating income (loss):
North America .......... $ (55,375) $ (11,240) $ 8,299
Far East ............... 18,270 13,221 10,176
Europe and Pacific Rim (19,218) (1,830) (20,746)
------------ ------------ -----------
(56,323) 151 (2,271)
Intercompany ........... (591) 484 (11)
------------ ------------ -----------
$ (56,914) $ 635 $ (2,282)
============ ============ ===========
Identifiable assets:
North America .......... $ 517,531 $ 525,389 $ 510,547
Far East ............... 123,048 125,449 104,717
Europe and Pacific Rim 216,693 182,994 133,023
------------ ------------ -----------
857,272 833,832 748,287
Intercompany ........... (142,103) (163,197) (133,155)
------------ ------------ -----------
$ 715,169 $ 670,635 $ 615,132
============ ============ ===========

Intercompany Pricing

Intercompany sales are made on a basis intended to reflect the market
value of the products. Sales generated by the Company's operations in the Far
East substantially represent export sales to the Company's subsidiaries and
unaffiliated customers in North America, Europe and the Pacific Rim.

F-22

TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 1995 and 1994 is as follows (in
thousands, except per share data):

QUARTER
-----------------------------------------------------
1995 FIRST SECOND THIRD FOURTH
- -------------------------------------- ---------- ------------- ---------- --------------

Net sales ............................. $116,060 $151,692 $226,285 $ 215,072
Gross profit .......................... 49,103 63,830 95,583 84,357
Net income (loss) ..................... (6,669) (8,835) <F1> 5,546 (17,271) <F2>
Net income (loss) applicable to common
shareholders ......................... (7,453) (9,625) <F1> 4,738 (18,089) <F2>
Net income (loss) per common share ... (0.21) (0.28) <F1> 0.14 (0.52) <F2>

1994 FIRST SECOND THIRD FOURTH
- -------------------------------------- ---------- ---------- ------------- ----------

Net sales ............................. $106,791 $158,454 $241,085 $246,768
Gross profit .......................... 44,221 69,439 97,584 96,460
Net income (loss) ..................... (13,375) 1,207 (8,103) <F3> (12,702)
Net income (loss) applicable to common
shareholders ......................... (13,375) 582 (8,853) <F3> (13,484)
Net income (loss) per common share ... (0.39) 0.02 (0.26) <F3> (0.39)

The calculation of net income (loss) per share is prepared independently
for each of the quarters presented. Therefore, the sum of the quarterly per
share amounts in 1995 and 1994 may not necessarily equal the total for the
years because of certain transactions which occurred during the respective
periods.

[1] Reflects a $4,900,000 restructuring charge representing the
consolidations in the International and Preschool businesses.

[2] Reflects a $4,000,000 restructuring charge primarily related to the
closure of a manufacturing facility in Temse, Belgium.

[3] Reflects a $4,700,000 restructuring charge related to the closure of
Tyco Italy.

(14) RELATED PARTIES

Taiyo Kogyo

The Company owns an 18.5% interest in Taiyo Kogyo Co., Ltd. (Taiyo Kogyo),
the Company's exclusive radio control vehicle manufacturer. No single
manufacturer other than Taiyo Kogyo supplies the Company with more than 10%
of its products.

F-23

No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
securities to which it relates in any jurisdiction to any person to whom it
is unlawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein
is correct as of any time subsequent to the date hereof, or that there has
been no change in the affairs of the Company since the date hereof.

TABLE OF CONTENTS

PAGE
--------

Prospectus Summary ......................... 3
Risk Factors ............................... 10
Use of Proceeds ............................ 14
Price Range of Common Stock ................ 14
Dividend Policy and Dividends .............. 15
Capitalization ............................. 16
Selected Consolidated Financial Data ...... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 19
Business ................................... 28
Management ................................. 37
Voting Securities and Principal Holders ... 40
Description of Principal Indebtedness ..... 42
Description of the Series C Preferred Stock 44
Description of Depositary Shares ........... 52
Description of Other Capital Stock ........ 55
Certain Federal Income Tax Considerations . 62
Underwriting ............................... 66
Legal Matters .............................. 67
Experts .................................... 67
Available Information ...................... 67
Additional Information ..................... 67
Incorporation of Certain Documents by
Reference ................................. 68
Index to Financial Statements .............. F-1

14,000,000 SHARES

TYCO TOYS, INC.

$ DEPOSITARY SHARES
EACH ONE REPRESENTING ONE-TWENTIETH OF A
SHARE OF SERIES C MANDATORILY CONVERTIBLE
REDEEMABLE PREFERRED STOCK

PROSPECTUS
, 1996

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LAZARD FRERES & CO. LLC

PART II

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be borne by the Company in
connection with the securities being registered. All of the amounts, except for
the SEC, NASD and NYSE fees, shown are estimates.

SEC registration fee ................................. $ 32,936
NASD fee ............................................. 10,052
NYSE Listing fees .................................... $ 86,650
Rating Agencies ...................................... $ 45,000
Legal fees and expenses .............................. $ 325,000
Accounting fees and expenses ......................... $ 175,000
Printing and engraving expenses ...................... $ 250,000
Blue sky fees and expenses (including legal fees) ... $ 15,000
Miscellaneous ........................................ $ 60,362
--------------
Total fees and expenses ............................ $1,000,000
==============

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article VIII of the Company's Restated Certificate of Incorporation
provides that the Company shall, to the full extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as amended from time
to time (the "GCL"), indemnify all persons whom it may indemnify pursuant
thereto.

Section 145(a) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise, against
expenses (including, attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful.

Section 145(b) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities set forth above, against
expenses actually and reasonably incurred by such person in connection with
the defense or settlement of such action or suit if he or she acted under
similar standards (as set forth above), except that no indemnification may be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery shall determine that despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the Court of Chancery shall deem proper.

Section 145 of the GCL further provides that to the extent such a person
has been successful in the defense of any action, suit or proceeding referred
to in subsection (a) and (b) or in the defense of any claim, issue or matter
therein, such person shall be indemnified against expenses actually and
reasonably incurred by him or her in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; that the
corporation may purchase and maintain insurance on behalf of such a person
against any liability asserted against such person and incurred by him or her
in any such capacity or arising out of his or her status as such, whether or
not the corporation would have the power to indemnify him or her against such
liabilities under Section 145; and that indemnification provided for by
Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to such person who has ceased to act in any such capacity and
shall inure to the benefit of the heirs, executors and administrators of such
a person.

II-1

Article 12 of the Company's By-laws further provides that the Company's
indemnification policy as set forth above may extend to any person, who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding (as set forth above), by reason of
the fact that he or she is or was an employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee
or agent of another enterprise.

ITEM 16. EXHIBITS.

*1 Form of Underwriting Agreement.
*4.1 Form of Certificate of Designations, Preferences, Rights and Limitations of the Series C
Mandatorily Convertible Redeemable Preferred Stock.
4.2 Revised Form of Deposit Agreement.
*5.1 Opinion of Baer Marks & Upham LLP as to the legality of the securities being registered
hereby.
*8.1 Opinion of Baer Marks & Upham LLP as to tax matters.
*12.1 Computation of Ratio of Earnings to Fixed Charges.
*23.1 Consent of Baer Marks & Upham LLP (included in Exhibits 5.1 and 8.1).
23.2 Consent of Deloitte & Touche LLP, independent auditors of the Company.
*24 Power of Attorney (included on page II-4 of this Registration Statement).
*99.1 Form of Depositary Receipt.

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

* Previously filed

ITEM 17. UNDERTAKINGS.

The Company hereby undertakes:

(1) That, for purposes of determining any liability under the
Securities Act, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act which is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

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

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

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

II-2

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mount Laurel, State of New Jersey, on the 20th day
of June, 1996.

TYCO TOYS, INC.
By: /s/ GARY S. BAUGHMAN
-----------------------------------
Gary S. Baughman
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities
designated.

SIGNATURE TITLE DATE

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

* Chairman of the June 20, 1996
- --------------------------- Board
Richard E. Grey

/s/ GARY S. BAUGHMAN President, Chief June 20, 1996
- --------------------------- Executive Officer
Gary S. Baughman and Director
(Principal Executive
Officer)

/s/ HARRY J. PEARCE Vice Chairman and June 20, 1996
- --------------------------- Chief Financial
Harry J. Pearce Officer (Principal
Financial and
Accounting Officer)

* Director June 20, 1996
- ---------------------------
John A. Canning

* Director June 20, 1996
- ---------------------------
Jerome I. Gellman

* Director June 20, 1996
- ---------------------------
Joel M. Handel

* Director June 20, 1996
- ---------------------------
Timothy J. Danis

* Director June 20, 1996
- ---------------------------
Jonathan Kagan

* Director June 20, 1996
- ---------------------------
David B. Golub

* Director June 20, 1996
- ---------------------------
Arnold Thaler

*By: /s/GARY S. BAUGHMAN
- ---------------------------
Gary S. Baughman
Attorney-in-Fact

II-3

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION PAGE NO.

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

The following exhibits are being filed herewith.

4.2 Revised Form of Deposit Agreement

23.2 Consent of Deloitte & Touche LLP, independent auditors of the Company.