SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 27, 1998 Commission file number 1-6682
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Hasbro, Inc.
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(Name of Registrant)
Rhode Island 05-0155090
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1027 Newport Avenue, Pawtucket, Rhode Island 02861
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(Address of Principal Executive Offices)
(401) 431-8697
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock American Stock Exchange
Preference Share Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes[X] or No[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant computed by reference to the price at which the stock was sold on
March 19, 1999 was $5,076,732,539.
The number of shares of Common Stock outstanding as of March 19, 1999 was
195,889,550.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for its 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
Report.
Selected information contained in registrant's Annual Report to
Shareholders for the fiscal year ended December 27, 1998, is included as
Exhibit 13, and incorporated by reference into Parts I and II of this Report.
PART I
ITEM 1. BUSINESS
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(a) General Development of Business
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Except as expressly indicated or unless the context otherwise requires, as
used herein, the "Company" means Hasbro, Inc., a Rhode Island corporation
organized on January 8, 1926, and its subsidiaries.
The Company is a worldwide leader in the design, manufacture and marketing
of toys, games, interactive software, puzzles and infant products. Included
in its offerings are games, including traditional board and card, hand-held
electronic and interactive CD-ROM, and puzzles, preschool, boys' action and
girls' toys, dolls, plush products and infant products. The Company also
licenses various trademarks, characters and other property rights for use in
connection with the sale by others of noncompeting toys and non-toy products.
Both internationally and in the U.S., its PLAYSKOOL, KENNER, TONKA, GALOOB,
ODDZON, LARAMI, MILTON BRADLEY, PARKER BROTHERS, TIGER and HASBRO INTERACTIVE
products provide children and families with what the Company believes to be
the highest quality and most recognizable toys and games in the world.
(b) Description of Business Products
--------------------------------
The Company's products are categorized for marketing purposes as follows:
<PAGE>
(i) Toys and Games
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Boys' toys are offered in a wide range of products, many of which are tied
to entertainment properties, including STAR WARS and BATMAN action figures
and accessories. The Company also offers such classic properties as G.I. JOE,
ACTION MAN, STARTING LINE-UP, TRANSFORMERS action figures, the TONKA line of
trucks, vehicles including the WINNER'S CIRCLE line of die cast vehicle
assortments and the NERF line of soft action play equipment. In 1999, the
Company will be launching a comprehensive range of action figures and
accessories using characters associated with Lucasfilms' STAR WARS: EPISODE
1: THE PHANTOM MENACE as well as the G.I. JOE CLASSIC COLLECTION, celebrating
the 35th birthday of this great American hero, ANIMORPHS TRANSFORMERS, a line
of NASCAR MICRO MACHINES and an extensive line of POKEMON toys and
collectibles.
Hasbro's girls toys include TV promoted large dolls, such as 1998's number
one selling MCDONALDLAND HAPPY MEAL GIRL, the MY LITTLE PONY line of small
dolls as well as the classic RAGGEDY ANN and RAGGEDY ANDY rag dolls. In 1999
the company will be introducing new large dolls, launching a line of products
designed to help celebrate the 50th anniversary of the CLASSIC PEANUTS
license, expanding the girls POKEMON product line, as well as expanding the
POUND PUPPIES and SPICE GIRLS lines.
The preschool business is a portfolio of three key brands: PLAYSKOOL,
BARNEY and TELETUBBIES. The PLAYSKOOL line includes such well-known products
as MR. POTATO HEAD, SIT 'N SPIN, GLOWORM, as well as a successful line of
infant toys and toddler role-play products. The BARNEY brand includes a
complete line of preschool toys such as PLAY ALONG BARNEY and the BARNEY SONG
MAGIC BANJO, featuring that adorable purple dinosaur and his friends. The new
PBS television show, TELETUBBIES, inspired a line of products featuring the
lovable quartet of TINKY WINKY, DIPSY, LALA and PO. Included on a list of
many new products being introduced during 1999 are the PLAYSKOOL KICK START
GYM, SING 'N STRUM BARNEY and TELETUBBIES TUMMY SURPRISE plush dolls.
Creative Play items for both girls and boys include such classic lines as
PLAY-DOH, EASY-BAKE OVEN, both of which enjoyed record years in 1998,
TINKERTOYS construction toys and LITE-BRITE and SPIROGRAPH design toys.
During 1999, the Company will be offering new PLAY-DOH playsets, licensed
refill bake sets for the EASY-BAKE OVEN, including KELLOGS POP TARTS SNACK
STIX, which allow children to bake fruity flavored cookie sticks, as well as
a STAR WARS PICTURE REFILL for LITE-BRITE. Internationally the Company will
continue to expand and develop the creative play business with the GET SET
and ART ATTACK product lines.
The LARAMI line of toys features a comprehensive range of water products,
including the SUPER SOAKER line, celebrating its tenth anniversary in 1999.
<PAGE>
The ODDZON range includes the KOOSH and VORTEX brands of sports and
activity products, the RUBIK'S brand of logic puzzles plus the CAP CANDY
brand of interactive candy and the SOUND BITES brand of electronic
interactive candy - which allows one to hear sounds inside one's head while
eating candy. New for 1999 in the ODDZON line will be the MARK MCGUIRE VORTEX
power bat, LOOP DARTS, a `soft' dart-board game and several interactive candy
additions, including new M&M MARS licensed candy dispensers and a SOUND BITES
radio where consumers can listen to their favorite radio station in their
head.
The Company markets its games and puzzles under several well known brands.
MILTON BRADLEY maintains a line of board, strategy and word games, skill and
action games, hand-held electronic games and travel games with a diversified
line of more than 200 games and puzzles for children and adults. The
Company's staple items include BATTLESHIP, THE GAME OF LIFE, SCRABBLE, CHUTES
AND LADDERS, CANDY LAND, TROUBLE, MOUSETRAP, OPERATION, HUNGRY HUNGRY HIPPOS,
CONNECT FOUR, TWISTER and BIG BEN puzzles. The Company also provides games
and puzzles for the entire family, including such games as YAHTZEE,
PARCHEESI, AGGRAVATION, JENGA and SCATTERGORIES and PUZZ 3-D, a series of
three dimensional jigsaw puzzles. Items added within the MILTON BRADLEY brand
for 1999 include SONNY THE SEAL ring toss game, BALLZERKO, an electronic
hand-held pinball maze game, and an anniversary edition of CANDY LAND.
Under the PARKER BROTHERS brand, the Company markets a full line of games
for families, children and adults. Its classic line of family board games
includes MONOPOLY, CLUE, SORRY!, RISK, BOGGLE, OUIJA and TRIVIAL PURSUIT,
some of which have been in the Parker Brothers' line for more than 50 years.
The Company also markets traditional card games such as MILLE BORNES, ROOK
and RACK-O, games for adults such as OUTBURST and CATCH PHRASE, a line of
PLAYSKOOL games for children, as well as a line of puzzles. New under the
PARKER BROTHERS brand in 1999 will be millennium editions of MONOPOLY and
TRIVIAL PURSUIT, an updated version of A QUESTION OF SCRUPLES and BOP IT
EXTREME, a new version of the popular electronic twist-pull game.
The HASBRO INTERACTIVE line began with CD-ROM games based on the Company's
traditional games and brands, including MONOPOLY, RISK, SORRY!, BATTLESHIP
and, for younger children, a series of TONKA titles, including TONKA
CONSTRUCTION and TONKA GARAGE and CD-ROM playsets which hook onto computer
keyboards and combine traditional play with computer games. The line now
includes action games from ATARI and simulation games from MICROPROSE and
licensed properties such as FROGGER, WHEEL OF FORTUNE and JEOPARDY, many of
which are also marketed for use on video console systems such as NINTENDO and
the SONY PLAYSTATION. In 1999, among other more traditional family and
children's CD-ROM games, HASBRO INTERACTIVE will be launching a line of EM@IL
GAMES in which two players communicate their moves via e-mail and an EASY-
BAKE OVEN and a CLUE JR. CD-ROM playset.
<PAGE>
TIGER products are among the most popular hand held electronic games and
innovation keys its line for 1999. Fueled by the stunning success of FURBY in
1998, TIGER will be offering a complete line of extensions within this
category. Included will be FURBY BUDDIES, which are low cost bean bag plush
toys and the FURBY HAPPY MEAL toys, which will be available both as premiums
at MCDONALDS and as products for sale at retail. TIGER has also freshened its
lines with brands like SPORTS FEEL GAMES, WCW PRO POWER games, which feature
sculpted action figures of real wrestlers with a dot matrix video game built
in, and a line of NASCAR-themed racing electronic games. Other strong
licenses which will continue to grow as part of TIGER'S 1999 offerings
include a comprehensive line of STAR WARS: EPISODE 1 electronic games, WINNIE
THE POOH electronic learning aids, POKEMON, TELETUBBIES, and, oriented
towards adults, products based on television game shows including WHEEL OF
FORTUNE, JEOPARDY, CONCENTRATION and THE PRICE IS RIGHT. Also being
introduced in 1999 are E YO, TIGER'S introduction into the yo-yo category,
and a table top tennis game that allows players to compete by playing table
tennis with a special light as the "ball".
In addition to the United States, the Company operates in more than 25
countries which sell a representative range of the global brands and products
marketed in the United States together with some items which are sold only
internationally. To further extend its range of products, the Company has
Hong Kong units which market directly to retailers, both in the United States
and internationally, a line of high quality, low priced toys, games and
related products, primarily on a direct import basis.
In addition, certain products and trademarks are licensed to other
companies for certain countries and markets where the Company does not
otherwise have a presence.
The Company manufactures products in the United States, Mexico, Ireland and
Spain and sources products, largely through a Hong Kong subsidiary working
primarily through unrelated manufacturers in various Far East countries.
Working Capital Requirements
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Production has been financed historically by means of short-term borrowings
which reach peak levels during September through November of each year when
receivables also generally reach peak levels. The revenue pattern of the
Company continues to shift with the second half of the year growing in
significance to its overall business and, within that half, the fourth
quarter becoming more prominent. The Company expects that this trend will
continue. The toy business is also characterized by customer order patterns
which vary from year to year largely because of differences each year in the
degree of consumer acceptance of a product line, product availability,
marketing strategies and inventory policies of retailers and differences in
overall economic conditions. As a result, comparisons of unshipped orders on
<PAGE>
any date with those at the same date in a prior year are not necessarily
indicative of sales for that entire given year. Also, quick response
inventory management practices now being used results in fewer orders being
placed in advance of shipment and more orders, when placed, for immediate
delivery. The Company's unshipped orders at February 28, 1999 and March 1,
1998 were approximately $570,000,000 and $155,000,000, respectively. Also, it
is a general industry practice that orders are subject to amendment or
cancellation by customers prior to shipment. The backlog at any date in a
given year can be affected by programs the Company may employ to induce its
customers to place orders and accept shipments early in the year. This method
is a general industry practice. The programs the Company is employing to
promote sales in 1999 are not substantially different from those employed in
1998.
As part of the traditional marketing strategies of the toy industry, many
sales made early in the year are not due for payment until the fourth quarter
or early in the first quarter of the subsequent year, thus making it
necessary for the Company to borrow significant amounts pending these
collections. During the year, the Company relies on internally generated
funds and short-term borrowing arrangements, including commercial paper, to
finance its working capital needs. Currently, the Company has available to it
unsecured lines of credit, which it believes are adequate, of approximately
$1,000,000,000 including a $350,000,000 long-term and a $150,000,000 short-
term revolving credit agreement with a group of banks which is also used as a
back-up to commercial paper issued by the Company.
Royalties, Research and Development
-----------------------------------
The Company's business is based to a substantial extent on the continuing
development of new products and the redesigning of existing items for
continuing market acceptance. In 1998, 1997 and 1996, approximately
$184,962,000, $154,710,000 and $152,487,000, respectively, were incurred on
activities relating to the development, design and engineering of new
products and their packaging (including items brought to the Company by
independent designers) and to the improvement or modification of ongoing
products. Much of this work is performed by the Company's staff of designers,
artists, model makers and engineers.
In addition to its own staff, the Company deals with a number of
independent toy designers for whose designs and ideas the Company competes
with other toy manufacturers. Rights to such designs and ideas, when acquired
by the Company, are usually exclusive under agreements requiring the Company
to pay the designer a royalty on the Company's net sales of the item. These
designer royalty agreements in some cases provide for advance royalties and
minimum guarantees.
<PAGE>
The Company also produces a number of toys under trademarks and copyrights
utilizing the names or likenesses of familiar movie, television and comic
strip characters, for whose rights the Company competes with other toy
manufacturers. Licensing fees are generally paid as a royalty on the
Company's net sales of the item. Licenses for the use of characters are
generally exclusive for specific products or product lines in specified
territories. In many instances, advance royalties and minimum guarantees are
required by character license agreements. Under terms of currently existing
agreements, in certain circumstances the Company may be required to pay an
aggregate of up to $660,000,000 in guaranteed or minimum royalties between
1998 and 2007. Of this amount, in excess of $110,000,000 has been paid and is
included in the $145,066,000 of prepaid royalties which are a component of
prepaid expenses and other current assets on the balance sheet. Of the
remaining amount, Hasbro may be required to pay approximately $250,000,000,
$120,000,000 and $120,000,000 in 1999, 2002 and 2005, respectively. Such
payments are related to royalties which are expected to be incurred on
anticipated revenues in the years 1999 through 2007.
Marketing and Sales
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The Company's products are sold nationally and internationally to a broad
spectrum of customers including wholesalers, distributors, chain stores,
discount stores, mail order houses, catalog stores, department stores and
other retailers, large and small. The Company and its subsidiaries employ
their own sales forces which account for nearly all of the sales of their
products. Remaining sales are generated by independent distributors who sell
the Company's products principally in areas of the world where the Company
does not otherwise maintain a presence. The Company maintains showrooms in
New York and selected other major cities world-wide as well as at most of its
subsidiary locations. Although the Company has more than 2,000 customers in
the United States and Canada, most of which are wholesalers, distributors or
large chain stores, there has been significant consolidation at the retail
level over the last several years. In other countries, the Company has in
excess of 20,000 customers, many of which are individual retail stores.
During 1998, sales to the Company's two largest customers, Wal-Mart Stores,
Inc. and Toys `R Us, Inc., represented 18% and 17%, respectively, of
consolidated net revenues.
The Company advertises many of its toy and game products extensively on
television. The Company generally advertises selected items in its product
groups in a manner designed to promote the sale of other specific items in
those product groups. Each year, the Company introduces its new products in
New York City at the time of the American International Toy Fair in February.
It also introduces some of its products to major customers during the prior
year.
<PAGE>
In 1998, the Company spent approximately $440,692,000 in advertising,
promotion and marketing programs compared to $411,574,000 in 1997 and
$418,003,000 in 1996.
Manufacturing and Importing
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As a result of the global integration and profit enhancement program
announced in December 1997, the Company manufactures its products in four
principal facilities, East Longmeadow, Massachusetts, Waterford, Ireland,
Tijuana, Mexico and Valencia, Spain. Most of its products are manufactured
from basic raw materials such as plastic and cardboard, although certain
products also make use of electronics components. All of these materials are
readily available but may be subject to significant fluctuations in price.
The Company's manufacturing process includes injection molding, blow molding,
metal stamping, spray painting, printing, box making and assembly. The
Company purchases certain components and accessories used in its toys and
games and some finished items from United States manufacturers as well as
from manufacturers in the Far East, which is the largest manufacturing center
of toys in the world, and other countries. The 1996 implementation of the
General Agreement on Tariffs and Trade reduced or eliminated customs duties
on many products imported by the Company. The Company believes that the
manufacturing capacity of its facilities and the supply of components,
accessories and completed products which it purchases from unaffiliated
manufacturers is adequate to meet the foreseeable demand for the products
which it markets. The Company's reliance on external sources of manufacturing
can be shifted, over a period of time, to alternative sources of supply for
products it sells, should such changes be necessary.
However, if the Company is prevented from obtaining products from a
substantial number of its current Far East suppliers due to political, labor
or other factors beyond its control, the Company's operations would be
disrupted while alternative sources of product were secured. The imposition
of trade sanctions by the United States or the European Union against a class
of products imported by the Company from, or the loss of "most favored
nation" trading status by, the People's Republic of China could significantly
increase the cost of the Company's products imported into the United States
or Europe from China.
The Company makes its own tools and fixtures but purchases dies and molds
principally from independent United States and international sources. Several
of the Company's North American production departments operate on a two-shift
basis and its molding departments operate on a continuous basis through most
of the year.
<PAGE>
Competition
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The Company's business is highly competitive and it competes with several
large and many small United States and international manufacturers. The
Company is a worldwide leader in the design, manufacture and marketing of
toys and games.
Employees
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The Company employs approximately 10,000 persons worldwide, approximately
6,000 of whom are located in the United States.
Trademarks, Copyrights and Patents
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The Company's products are protected, for the most part and in as many
countries as practical, by registered trademarks, copyrights and patents to
the extent that such protection is available and meaningful. The loss of such
rights concerning any particular product would not have a material adverse
effect on the Company's business, although the loss of such protection for a
number of significant items might have such an effect.
Government Regulation
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The Company's toy products sold in the United States are subject to the
provisions of the Consumer Product Safety Act (the "CPSA"), The Federal
Hazardous Substances Act (the "FHSA") and the regulations promulgated
thereunder. The CPSA empowers the Consumer Product Safety Commission (the
"CPSC") to take action against hazards presented by consumer products,
including the formulation and implementation of regulations and uniform
safety standards. The CPSC has the authority to seek to declare a product "a
banned hazardous substance" under the CPSA and to ban it from commerce. The
CPSC can file an action to seize and condemn an "imminently hazardous
consumer product" under the CPSA and may also order equitable remedies such
as recall, replacement, repair or refund for the product. The FHSA provides
for the repurchase by the manufacturer of articles which are banned. Similar
laws exist in some states and cities within the United States and in Canada,
Australia and Europe. The Company maintains laboratories which have testing
and other procedures intended to maintain compliance with the CPSA and FHSA.
Notwithstanding the foregoing, there can be no assurance that all of the
Company's products are or will be hazard free. Any material product recall
could have an effect on the Company, depending on the product, and could
affect sales of other products.
During 1998, the CPSC released the results of a study of a chemical,
diisononyl phthalate ("DINP") used to soften some plastic toys and children's
products. The study concluded that few if any children are at risk from DINP
<PAGE>
because the amount that they ingest does not even come close to a harmful
level. Therefore, the CPSC staff did not recommend a ban on these products.
However, the CPSC indicated that the study identified several areas of
uncertainty where additional scientific research is needed. As a precaution
while more scientific work is done, the CPSC staff requested the industry to
remove DINP from soft rattles and teethers. Approximately 90% of
manufacturers, including the Company, indicated to the CPSC that they have or
will remove DINP from the soft rattles and teethers by early 1999. Canada and
certain European countries have requested or required similar removal of DINP
from products meant to be mouthed by children. The Company does not believe
such removal will materially affect the Company.
The Children's Television Act of 1990 and the rules promulgated thereunder
by the United States Federal Communications Commission as well as the laws of
certain countries place certain limitations on television commercials during
children's programming.
The Company maintains programs to comply with various United States
federal, state, local and international requirements relating to the
environment, plant safety and other matters.
Toys "R" Us Litigation
----------------------
On September 25, 1997, an administrative law judge ("ALJ") of the Federal
Trade Commission (the "Commission") issued an Initial Decision against Toys
"R" Us, finding that Toys "R" Us had engaged in unfair business practices in
violation of Section 5 of the Federal Trade Commission Act. In particular,
the ALJ found that Toys "R" Us entered into vertical agreements with, and
facilitated horizontal agreements among, various toy manufacturers, including
the Company, to restrict the supply of certain toys to warehouse club
retailers. Although the Company voluntarily produced documents and witnesses
in the action, the Company was not named a defendant by the Commission in the
action. The ALJ's decision was affirmed by the Commission on October 14,
1998.
In the wake of the ALJ's decision, numerous antitrust actions were filed
naming Toys "R" Us, the Company, and certain other toy manufacturers as
defendants. All of these actions generally allege that Toys "R" Us
orchestrated an illegal conspiracy with various toy manufacturers to
improperly cut-off supplies of popular toys to the warehouse clubs and other
low margin retailers that compete with Toys "R" Us. The Company was named as
a defendant in twenty-seven private antitrust class actions in federal courts
in California, Illinois, Maryland, New Jersey, New York, Pennsylvania and
Vermont, all of which purport to represent nationwide classes of customers.
These actions allege, among other things, violations of the Sherman and
Clayton Acts. In addition, on October 2, 1997, the Attorney General of the
State of New York ("NYAG") filed an action against Toys "R" Us, the Company,
<PAGE>
and several other toy manufacturers alleging violations of federal and state
antitrust law, on behalf of all persons in the State of New York who
purchased toy products from retailers from 1989 to the present. The NYAG
complaint was amended to add as plaintiffs attorneys general from an
additional forty-three states, the District of Columbia and the Commonwealth
of Puerto Rico.
On February 11, 1998, the Judicial Panel on Multi-District Litigation
consolidated and transferred, for all pretrial proceedings, the NYAG action
and all of the pending private actions in the federal courts. The
consolidated cases are titled In Re Toys "R" Us Antitrust Litigation, MDL-
1211 and are pending in the Federal District Court in the Eastern District of
New York.
In addition, the Company was named as a defendant, along with Toys "R" Us
and certain other toy manufacturers, in an action titled Struthers v. Toys
"R" Us et al., No. H198813-6, filed in the Superior Court for the State of
California, Alameda County, alleging violations of state antitrust laws. On
February 9, 1998, the Superior Court ordered the Struthers case to be
coordinated with three pending state court actions previously filed against
Toys "R" Us in California. All of the California litigations were stayed to
encourage the parties to pursue settlement discussions and negotiations in
good faith. These discussions were coordinated with a mediation ordered in a
case titled Wilson v. Toys "R" Us, Case No. CV96-574, pending in Tuscaloosa
County Circuit Court in Alabama. The Company is not a party to the Alabama
case.
All of the foregoing complaints seek injunctive relief, unspecified treble
damages, expenses or costs and attorneys fees. The Company has not responded
to the complaints in any of these actions.
On December 9, 1998, Hasbro entered into a Settlement Agreement and Release
with the State Attorneys General and the Private Plaintiffs with respect to
all of the pending state and federal actions. The parties are currently in
the process of presenting the Settlement to the District Court for
preliminary approval. Following this process, the Company anticipates that
notice of the Settlement will be sent to potential class members, and
thereafter the Settlement will be presented to the Court for final approval.
No dates for these hearings have been scheduled.
Forward-Looking Information
---------------------------
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. Forward-looking statements are inherently
subject to risks and uncertainties, many of which are known by, or self-
<PAGE>
evident to, the investing public. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes that a variety
of factors could cause its actual results and experience to differ materially
from the anticipated results or other expectations expressed in its forward-
looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of Hasbro's business include
the following:
1) The Company's dependence on its timely development and introduction of
new products and the acceptance, in a competitive product environment, by
both the customer and consumer, of new and continuing products;
2) The impact of competition on revenue, margins and other aspects of the
Company's business;
3) Economic conditions and currency fluctuations in the various markets
in which the Company operates throughout the world, including the effect of
currency fluctuations on reportable income;
4) The inventory policies of retailers, including the continuing trend of
increased concentration of Hasbro's revenues in the second half and fourth
quarter of the year, together with the increased reliance by retailers on
quick response inventory management practices, which increases the risk of
the Company's underproduction of popular items, overproduction of less
popular items and failure to achieve tight and compressed shipping schedules;
5) The impact of Year 2000 issues, including the Company's incurring
higher than expected costs to achieve, or not achieving, Year 2000 readiness
with respect to its systems, or its customers, vendors or service providers
failing to achieve such readiness; unanticipated technical malfunctions or
difficulties which would arise during the validation process or otherwise;
the inherent risk that assurances, warranties, and specifications provided by
third parties with respect to the Company's systems, or such third party's
Year 2000 readiness, may prove to be inaccurate, despite the Company's review
process; the continued availability of qualified persons to carry out the
remaining anticipated phases; the risk that governments may not be Year 2000
ready, which could affect the commercial sector in trade, finance and other
areas, notwithstanding private sector Year 2000 readiness; whether, despite a
comprehensive review, the Company has successfully identified all Year 2000
issues and risks; and the risk that proposed actions and contingency plans of
the Company and third parties with respect to Year 2000 issues may conflict
or themselves give rise to additional issues;
6) The risk that anticipated benefits of acquisitions and the Company's
global integration and profit enhancement program may not occur or be delayed
or reduced in their realization; and
<PAGE>
7) Other risks and uncertainties as are or may be detailed from time to
time in Hasbro's public announcements and filings with the Securities and
Exchange Commission.
(c) Financial Information About International and United States
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Operations and Export Sales
---------------------------
The information required by this item is included in note 16 of Notes to
Consolidated Financial Statements in Exhibit 13 to this Report and is
incorporated herein by reference.
ITEM 2. PROPERTIES
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Lease
Square Type of Expiration
Location Use Feet Possession Dates
- - -------- --- ------ ---------- ----------
Rhode Island
- - ------------
Pawtucket Administrative, Sales
& Marketing Offices &
Product Development 343,000 Owned --
Pawtucket Executive Office 23,000 Owned --
East Providence Administrative Office 120,000 Leased 1999
California
- - ----------
Ontario Warehouse 432,000 Leased 2002
Napa Office & Warehouse 400,000 Leased 2013
South San Francisco Office 69,000 Owned --
Alameda Product Development 38,400 Leased 2002
Illinois
- - --------
Vernon Hills Office & Warehouse 21,000 Leased 2002
Massachusetts
- - -------------
East Longmeadow Office, Manufacturing
& Warehouse 1,147,500 Owned --
East Longmeadow Warehouse 500,000 Leased 2000
Beverly Office 100,000 Owned --
Maryland
- - --------
Hunt Valley Product Development 29,900 Leased 2003
<PAGE>
New Jersey
- - ----------
Northvale Warehouse 75,000 Leased 2002
Mt. Laurel Office 11,000 Leased 1999
New York
- - --------
New York Office & Showroom 70,300 Leased 2011
New York Offices & Showrooms 32,300 Leased 1999
New York Office & Showroom 17,200 Leased 2006
Ohio
- - ----
Bedford Heights Office and warehouse 187,100 Leased 2000
Cincinnati Office 174,000 Leased 2007
Cincinnati Warehouse 31,800 Leased 2008
Texas
- - -----
El Paso Warehouse 1,000,000 Leased 2008
Australia
- - ---------
Lidcombe Office & Warehouse 161,400 Leased 2002
Eastwood Office 16,900 Leased 2001
Argentina
- - ---------
Buenos Aires Office and Warehouse 54,000 Leased 2000
Austria
- - -------
Vienna Office 4,000 Leased 1999
Belgium
- - -------
Brussels Office & Showroom 20,700 Leased 1999
Canada
- - ------
Montreal Office, Warehouse
& Showroom 133,900 Leased 2001
Mississauga Sales Office & Showroom 16,300 Leased 2004
Montreal Warehouse 88,100 Leased 2001
<PAGE>
Chile
- - -----
Santiago Warehouse 23,800 Leased 2000
Santiago Office 3,500 Leased 2000
Denmark
- - -------
Glostrup Office 9,200 Leased 1999
England
- - -------
Uxbridge Office & Showroom 94,500 Leased 2013
Gloucestershire Office 28,700 Leased 1999
France
- - ------
Le Bourget du Lac Office & Warehouse 108,300 Owned --
Savoie Technolac Office 33,500 Owned --
Creutzwald Warehouse 217,200 Owned --
Creutzwald Warehouse 30,700 Leased 1999
Gresy Warehouse 24,500 Leased 1999
Germany
- - -------
Dietzenbach Office 39,400 Leased 1999
Soest Office & Warehouse 164,200 Owned --
Boner Office & Warehouse 111,300 Owned --
Greece
- - ------
Athens Office & Warehouse 25,100 Leased 2007
Hong Kong
- - ---------
Kowloon Offices 20,000 Leased 1999
Kowloon Offices 73,400 Leased 2000
New Territories Office & Warehouse 17,800 Leased 1999
Kowloon Warehouses 11,300 Leased 2000
New Territories Warehouse 11,500 Leased 2000
Hungary
- - -------
Budapest Office 6,300 Leased 1999
Ireland
- - -------
Waterford Office, Manufacturing
& Warehouse 244,400 Owned --
<PAGE>
Italy
- - -----
Milan Office & Showroom 12,100 Leased 2002
Malaysia
- - -------
Selangor
Darul Ehsan Office 4,900 Leased 2000
Mexico
- - ------
Tijuana Office, Manufacturing
& Warehouse 143,800 Leased 1999
Tijuana Manufacturing &
Warehouse 205,000 Leased 1999
Tijuana Warehouse 48,600 Leased 1999
Tijuana Warehouse 46,900 Leased 1999
Periferico Office 16,100 Leased 2001
Venados Warehouses 118,100 Leased 1999
The Netherlands
- - ---------------
Ter Apel Office & Warehouse 139,300 Owned --
Ter Apel Warehouse 79,400 Leased 1999
Utrecht Office 17,000 Leased 2003
New Zealand
- - -----------
Auckland Office & Warehouse 110,900 Leased 2005
Norway
- - ------
Asker Office 5,900 Leased 1999
Peru
- - ----
Lima Warehouse 32,400 Leased 1999
Lima Office 11,000 Leased 1999
Poland
- - ------
Warsaw Office & Warehouse 14,300 Leased 2000
Portugal
- - --------
Estoril-Lisboa Office 2,900 Leased 2003
<PAGE>
Singapore
- - ---------
Singapore Office & Warehouse 9,300 Leased 2000
Spain
- - -----
Valencia Office, Manufacturing
& Warehouse 115,100 Leased 1999
Valencia Office 27,600 Leased 2011
Valencia Manufacturing
& Warehouse 201,900 Leased 2011
Valencia Warehouse 48,100 Leased 1999
Valencia Warehouse 161,700 Leased 2002
Sweden
- - ------
Vosby Office 7,400 Leased 1999
Switzerland
- - -----------
Berikon Office & Warehouse 25,000 Leased 1999
Delemont Office 9,200 Leased 2004
Taiwan
- - ------
TPE County Warehouse 14,400 Leased 1999
Wales
- - -----
Newport Warehouse 72,000 Leased 2003
Newport Warehouse 198,000 Owned --
In addition to the above listed facilities, the Company either owns or
leases various other properties approximating 450,000 square feet which are
utilized in its operations. The Company also either owns or leases an
aggregate of approximately 2,100,000 square feet not currently being utilized
in its operations, approximately 1,300,000 of which results from the
Company's global integration and profit enhancement program implemented
during 1998. Most of these properties are being leased, subleased or offered
for sublease or sale.
The foregoing properties consist, in general, of brick, cinder block or
concrete block buildings which the Company believes are in good condition and
well maintained.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is party to certain legal proceedings, substantially involving
routine litigation incidental to the Company's business, none of which,
individually or in the aggregate, is deemed to be material to the financial
condition of the Company. For a description of the "Toys `R' Us litigation",
see Item 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
The following persons are the executive officers of the Company and its
subsidiaries and divisions. Such executive officers are elected annually. The
position and office listed below are the principal position(s) and office(s)
held by such person with the Company, subsidiary or divisions employing such
person. The persons listed below generally also serve as officers and
directors of the Company's various subsidiaries at the request and
convenience of the Company.
Period
Serving in
Current
Name Age Position and Office Held Position
- - ---- --- ------------------------ ----------
Alan G. Hassenfeld (1) 50 Chairman of the Board and
Chief Executive Officer Since 1999
Herbert M. Baum (2) 62 President and Chief
Operating Officer Since 1999
Harold P. Gordon (3) 61 Vice Chairman Since 1995
John T. O'Neill 54 Executive Vice President and
Chief Financial Officer Since 1989
Alfred J. Verrecchia (4) 56 Executive Vice President,
Global Operations and
Development Since 1999
Virginia H. Kent (5) 44 Senior Vice President and
Sector Head, Toys Since 1999
E. David Wilson (6) 61 Senior Vice President and
Sector Head, Games Since 1999
<PAGE>
George B. Volanakis (7) 51 Senior Vice President and
Sector Head, International
Businesses Since 1999
Richard B. Holt 57 Senior Vice President and
Controller Since 1992
Cynthia S. Reed (8) 43 Senior Vice President and
General Counsel Since 1995
Douglas J. Schwinn (9) 48 Senior Vice President and
Chief Information Officer Since 1999
Martin R. Trueb (10) 47 Senior Vice President and
Treasurer Since 1997
Phillip H. Waldoks (11) 46 Senior Vice President -
Corporate Legal Affairs
and Secretary Since 1995
(1) Prior thereto, Chairman of the Board, President and Chief Executive
Officer.
(2) Prior thereto, President and Chief Executive Officer, Quaker State
Corporation.
(3) Prior thereto, Partner, Stikeman, Elliott (law firm).
(4) Prior thereto, Executive Vice President and President, Global
Operations from 1996 to 1999; prior thereto, Chief Operating Officer,
Domestic Toy Operations.
(5) Prior thereto, President, Brands and Product Development from 1996
to 1999; prior thereto, General Manager, Girls/Boys/Nerf.
(6) Prior thereto, President, Hasbro Americas from 1996 to 1999; prior
thereto, President, Hasbro Games Group, from 1995 to 1996; prior
thereto, President, Milton Bradley.
(7) Prior thereto, President, European Sales and Marketing from 1998 to
1999; prior thereto, President and Chief Executive Officer, The Ertl
Company, Inc.
(8) Prior thereto, Vice President - Legal.
<PAGE>
(9) Prior thereto, Senior Vice President and Chief Information Officer,
OfficeMax, Inc., from 1997 to 1999; prior thereto, Senior Vice
President, Information Services and Chief Information Officer,
FoxMeyer Drug Company from 1995 to 1997; prior thereto, Vice
President, Software Development, FoxMeyer Drug Company.
(10) Prior thereto, Assistant Treasurer, Amway Corporation, from 1995
to 1997; prior thereto, Director, International Treasury,
RJR Nabisco, Inc.
(11) Prior thereto, Senior Vice President - Corporate Legal Affairs.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
On October 30, 1998, the Company issued an aggregate of 6,000,000 warrants
to purchase 6,000,000 shares of common stock, par value $.50 per share, of
the Company, at an exercise price of $23.3333 per share(as adjusted for the
three-for-two stock split paid in the form of a 50% stock dividend on March
15, 1999), subject to anti-dilution adjustment in certain events, to
Lucasfilm Ltd. and its subsidiary Lucas Licensing Ltd., in connection with,
and as partial consideration for, the acquisition of certain long-term
rights. The warrants were issued without registration under the Securities
Act of 1933 (the "Act") on the basis of Section 4(2) of the Act in reliance
upon the representations of each warrant holder that it is an accredited
investor, as defined in Rule 501 of Regulation D under the Act, and that it
is acquiring the warrants for investment purposes only and not with a view
to, or for resale in connection with, any "distribution" thereof for purposes
of the Act. The warrants are not exercisable prior to the theatrical release
in the United States of Star Wars: Episode 1: The Phantom Menace, which is
expected to take place on May 19, 1999, except that exercisability would be
accelerated on a change in control of the Company. The warrants would remain
exercisable, with respect to 3,600,000 warrants until October 30, 2009 and
with respect to 2,400,000 warrants until October 30, 2010.
The remainder of the information required by this item is included in
Market for the Registrant's Common Equity and Related Stockholder Matters in
Exhibit 13 to this Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this item is included in Selected Financial
Data in Exhibit 13 to this Report and is incorporated herein by reference.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The information required by this item is included in Management's Review in
Exhibit 13 to this Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is included in Financial Statements
and Supplementary Data in Exhibit 13 to this Report and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
ITEMS 10, 11, 12 and 13.
The information required by these items is included in registrant's
definitive proxy statement for the 1999 Annual Meeting of Shareholders and is
incorporated herein by reference, except that the sections under the headings
(a) "Comparison of Five Year Cumulative Total Shareholder Return Among
Hasbro, S&P 500 and Russell 1000 Consumer Discretionary Economic Sector" and
accompanying material and (b) "Report of the Compensation and Stock Option
Committee of the Board of Directors" in the definitive proxy statement shall
not be deemed "filed" with the Securities and Exchange Commission or subject
to Section 18 of the Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements, Financial Statement Schedules and Exhibits
----------------------------------------------------------------
(1) Financial Statements
--------------------
Included in PART II of this report:
Independent Auditors' Report
<PAGE>
Consolidated Balance Sheets at December 27, 1998 and
December 28, 1997
Consolidated Statements of Earnings for the Three Fiscal
Years Ended in December 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the
Three Fiscal Years Ended in December 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Three
Fiscal Years Ended in December 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
-----------------------------
Included in PART IV of this Report:
Report of Independent Certified Public Accountants
on Financial Statement Schedule
For the Three Fiscal Years Ended in December 1998, 1997
and 1996:
Schedule II - Valuation and Qualifying Accounts and
Reserves
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown
in the financial statements or notes thereto. Columns omitted from schedules
filed have been omitted because the information is not applicable.
(3) Exhibits
--------
The Company will furnish to any shareholder, upon written request, any
exhibit listed below upon payment by such shareholder to the Company of the
Company's reasonable expenses in furnishing such exhibit.
Exhibit
- - -------
3. Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit (c)(2) to the
Company's Current Report on Form 8-K, dated July 15,
1993, File No. 1-6682.)
(b) Amended and Restated Bylaws of the Company. (Incorporated by
reference to Exhibit (3) to the Company's Current Report on
Form 8-K, dated February 16, 1996, File No. 1-6682.)
<PAGE>
4. Instruments defining the rights of security holders, including
indentures.
(a) Indenture, dated as of July 17, 1998, by and between the
Company and Citibank, N.A. as Trustee. (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated July 14, 1998, File No. 1-6682.)
10. Material Contracts
(a) Lease between Hasbro Canada Inc. (formerly named Hasbro
Industries (Canada) Ltd.) and Central Toy Manufacturing Co.
("Central Toy"), dated December 23, 1976. (Incorporated by
reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-14, File No. 2-92550.)
(b) Lease between Hasbro Canada Inc. and Central Toy, together
with an Addendum thereto, each dated as of May 1, 1987.
(Incorporated by reference to Exhibit 10(f) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(c) Addendum to lease, dated March 5, 1998, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(c)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
(d) Toy License Agreement between Lucas Licensing Ltd. and the
Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(e) First Amendment to Toy License Agreement between Lucas
Licensing Ltd. and the Company, dated as of September 25, 1998.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.)
(f) Agreement of Strategic Relationship between Lucasfilm Ltd. and
the Company dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(g) First Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of September 25, 1998.
(h) Warrant, dated October 14, 1997 between the Company and
Lucas Licensing Ltd.
<PAGE>
(i) Warrant, dated October 14, 1997 between the Company and
Lucasfilm Ltd.
(j) Warrant, dated October 30, 1998 between the Company and
Lucas Licensing Ltd.
(k) Warrant, dated October 30, 1998 between the Company and
Lucasfilm Ltd.
(l) Asset Purchase Agreement dated as of February 8, 1998,
together with Amendment thereto dated as of March 31, 1998,
by and among the Company, Tiger Electronics Ltd. (formerly
named HIAC X Corp. and a wholly-owned subsidiary of the
Company), Tiger Electronics, Inc. and certain affiliates
thereof and Owen Randall Rissman and the Rissman Family 1997
Trust. (Incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K, dated April 1, 1998,
File No. 1-6682.)
Executive Compensation Plans and Arrangements
(m) Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, File No. 2-78018.)
(n) Amendment No. 1 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 28, 1986, File No. 1-6682.)
(o) Amendment No. 2 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(p) Amendment No. 3 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 25, 1988, File No. 1-6682.)
(q) Amendment No. 4 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(s) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(r) Form of Non Qualified Stock Option Agreement under the
Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10(q) to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 25, 1988,
File No. 1-6682.)
<PAGE>
(s) Non Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement on
Form S-14, File No. 2-92550.)
(t) Amendment No. 1 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1986, File No. 1-6682.)
(u) Amendment No. 2 to Non Qualified Stock Option Plan.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1987 Annual Meeting of
Shareholders, File No. 1-6682.)
(v) Amendment No. 3 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(w) Form of Stock Option Agreement (For Employees) under the Non
Qualified Stock Option Plan. (Incorporated by reference to
Exhibit 10(t) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1992, File No.
1-6682.)
(x) 1992 Stock Incentive Plan. (Incorporated by reference to
Appendix A to the Company's definitive proxy statement for
its 1992 Annual Meeting of Shareholders, File No. 1-6682.)
(y) Form of Stock Option Agreement under the 1992 Stock Incentive
Plan, the Stock Incentive Performance Plan and the Employee
Non-Qualified Stock Plan. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 27, 1992, File No. 1-6682.)
(z) Hasbro, Inc. Stock Incentive Performance Plan. (Incorporated
by reference to Appendix A to the Company's definitive proxy
statement for its 1995 Annual Meeting of Shareholders, File
No. 1-6682.)
(aa) Employee Non-Qualified Stock Plan. (Incorporated by reference
to Exhibit 10(dd) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 29, 1996, File No. 1-6682.)
<PAGE>
(bb) Form of Stock Option Agreement (For Participants in the Long
Term Incentive Program) under the 1992 Stock Incentive Plan
and the Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 27, 1992, File
No. 1-6682.)
(cc) Form of Employment Agreement between the Company and eleven
officers of the Company. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1989, File No. 1-6682.)
(dd) Hasbro, Inc. Retirement Plan for Directors. (Incorporated
by reference to Exhibit 10(x) to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 30,
1990, File No. 1-6682.)
(ee) Form of Director's Indemnification Agreement. (Incorporated
by reference to Appendix B to the Company's definitive proxy
statement for its 1988 Annual Meeting of Shareholders, File
No. 1-6682.)
(ff) Hasbro, Inc. Deferred Compensation Plan for Non-Employee
Directors.(Incorporated by reference to Exhibit 10(cc) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1993, File No. 1-6682.)
(gg) Hasbro, Inc. Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(hh) Form of Stock Option Agreement for Non-Employee Directors
under the Hasbro, Inc. Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 1994, File No. 1-6682.)
(ii) Hasbro, Inc. Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix B to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(jj) Hasbro, Inc. Amended and Restated Nonqualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the Period
Ended March 29, 1998, File No. 1-6682.)
<PAGE>
(kk) Employment Agreement, dated as of January 1, 1996, between
the Company and Harold P. Gordon. (Incorporated by reference
to Exhibit 10(aa) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1995, File No. 1-6682.)
(ll) Severance And Settlement Agreement And Release, dated as of
December 20, 1995, and addendum thereto, between the Company
and Dan D. Owen. (Incorporated by reference to Exhibit 10(bb)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1995, File No. 1-6682.)
(mm) Amendment, effective as of January 1, 1997 to Severance and
Settlement Agreement and Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(cc)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 29, 1996, File No. 1-6682.)
(nn) Amendment, dated February 20, 1998, to Severance
And Settlement Agreement And Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(ff)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
(oo) Letter agreements, dated January 30, 1998, between the Company
and George R. Ditomassi, Jr. (Incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 28, 1997, File No. 1-6682.)
(pp) Consulting Agreement, dated January 31, 1998, between the
Company and George R. Ditomassi, Jr. (Incorporated by
reference to Exhibit 10(hh) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 28, 1997, File
No. 1-6682.)
(qq) Letter dated January 26, 1998 from the Company to George B.
Volanakis. (Incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 1997, File No. 1-6682.)
(rr) Employment Agreement dated as of January 5, 1999, between the
Company and Herbert M. Baum.
(ss) Letter agreement, dated March 23, 1999, between the Company
and Adam Klein.
11. Statement re computation of per share earnings
12. Statement re computation of ratios
<PAGE>
13. Selected information contained in Annual Report to Shareholders
22. Subsidiaries of the registrant
24. Consents of experts and counsel
(a) Consent of KPMG LLP
27. Financial data schedule
The Company agrees to furnish the Securities and Exchange Commission, upon
request, a copy of each agreement with respect to long-term debt of the
Company, the authorized principal amount of which does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K dated February 4, 1999 was filed to
announce the Company's results for the quarter and year ended
December 27, 1998. Consolidated statements of earnings (without
notes) for the quarter and year ended December 27, 1998 and
December 28, 1997 and consolidated condensed balance sheets
(without notes) as of said dates were also filed.
(c) Exhibits
--------
See (a)(3) above
(d) Financial Statement Schedules
-----------------------------
See (a)(2) above
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Hasbro, Inc.:
Under date of February 3, 1999, we reported on the consolidated
balance sheets of Hasbro, Inc. and subsidiaries as of December 27, 1998 and
December 28, 1997 and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the fiscal years in the
three-year period ended December 27, 1998, as contained in the 1998 annual
report to shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-
K for the year 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule listed in Item 14 (a)(2). This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
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.
/s/ KPMG LLP
Providence, Rhode Island
February 3, 1999
<PAGE>
HASBRO, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Fiscal Years Ended in December
(Thousands of Dollars)
Provision
Balance at Charged to Write-Offs Balance
Beginning of Costs and Other And at End of
Year Expenses Additions Other (a) Year
------------ ---------- ------------ ----------- ---------
Valuation
accounts
deducted
from assets
to which
they apply -
for doubtful
accounts
receivable:
1998 $51,700 13,057 2,832 (3,189) $64,400
====== ====== ====== ====== ======
1997 $46,600 9,229 - (4,129) $51,700
====== ====== ====== ====== ======
1996 $48,800 5,834 - (8,034) $46,600
====== ====== ====== ====== ======
(a) Includes write-offs, recoveries of previous write-offs and
translation adjustments.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HASBRO, INC. (Registrant)
By: /s/ Alan G. Hassenfeld Date: March 26, 1999
------------------------- ---------------
Alan G. Hassenfeld
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Alan G. Hassenfeld
- - ---------------------------- Chairman of the Board, March 26, 1999
Alan G. Hassenfeld Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ John T. O'Neill
- - ---------------------------- Executive Vice President March 26, 1999
John T. O'Neill and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Alan R. Batkin
- - ---------------------------- Director March 26, 1999
Alan R. Batkin
/s/ Herbert M. Baum
- - ---------------------------- Director March 26, 1999
Herbert M. Baum
<PAGE>
/s/ Harold P. Gordon
- - ---------------------------- Director March 26, 1999
Harold P. Gordon
/s/ Alex Grass
- - ---------------------------- Director March 26, 1999
Alex Grass
/s/ Sylvia K. Hassenfeld
- - ---------------------------- Director March 9, 1999
Sylvia K. Hassenfeld
/s/ Marie-Josee Kravis
- - ---------------------------- Director March 26, 1999
Marie-Josee Kravis
/s/ Claudine B. Malone
- - ---------------------------- Director March 26, 1999
Claudine B. Malone
/s/ Morris W. Offit
- - ---------------------------- Director March 4, 1999
Morris W. Offit
/s/ Norma T. Pace
- - ---------------------------- Director March 26, 1999
Norma T. Pace
/s/ E. John Rosenwald, Jr.
- - ---------------------------- Director March 26, 1999
E. John Rosenwald, Jr.
/s/ Carl Spielvogel
- - ---------------------------- Director March 26, 1999
Carl Spielvogel
<PAGE>
/s/ Preston Robert Tisch
- - ---------------------------- Director March 26, 1999
Preston Robert Tisch
/s/ Paul Wolfowitz
- - ---------------------------- Director March 26, 1999
Paul Wolfowitz
/s/ Alfred J. Verrecchia
- - ---------------------------- Director March 26, 1999
Alfred J. Verrecchia
<PAGE>
HASBRO, INC.
Annual Report on Form 10-K
for the Year Ended December 27, 1998
Exhibit Index
Exhibit
- - -------
3. Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit (c)(2) to the
Company's Current Report on Form 8-K, dated July 15,
1993, File No. 1-6682.)
(b) Amended and Restated Bylaws of the Company. (Incorporated by
reference to Exhibit (3) to the Company's Current Report on
Form 8-K, dated February 16, 1996, File No. 1-6682.)
4. Instruments defining the rights of security holders, including
indentures.
(a) Indenture, dated as of July 17, 1998, by and between the
Company and Citibank, N.A. as Trustee. (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated July 14, 1998, File No. 1-6682.)
10. Material Contracts
(a) Lease between Hasbro Canada Inc. (formerly named Hasbro
Industries (Canada) Ltd.) and Central Toy Manufacturing Co.
("Central Toy"), dated December 23, 1976. (Incorporated by
reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-14, File No. 2-92550.)
(b) Lease between Hasbro Canada Inc. and Central Toy, together
with an Addendum thereto, each dated as of May 1, 1987.
(Incorporated by reference to Exhibit 10(f) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(c) Addendum to lease, dated March 5, 1998, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(c)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
<PAGE>
(d) Toy License Agreement between Lucas Licensing Ltd. And the
Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(e) First Amendment to Toy License Agreement between Lucas
Licensing Ltd. and the Company, dated as of September 25, 1998.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.)
(f) Agreement of Strategic Relationship between Lucasfilm Ltd. and
the Company dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)
(g) First Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of September 25, 1998.
(h) Warrant, dated October 14, 1997 between the Company and
Lucas Licensing Ltd.
(i) Warrant, dated October 14, 1997 between the Company and
Lucasfilm Ltd.
(j) Warrant, dated October 30, 1998 between the Company and
Lucas Licensing Ltd.
(k) Warrant, dated October 30, 1998 between the Company and
Lucasfilm Ltd.
(l) Asset Purchase Agreement dated as of February 8, 1998,
together with Amendment thereto dated as of March 31, 1998,
by and among the Company, Tiger Electronics Ltd. (formerly
named HIAC X Corp. and a wholly-owned subsidiary of the
Company), Tiger Electronics, Inc. and certain affiliates
thereof and Owen Randall Rissman and the Rissman Family 1997
Trust. (Incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K, dated April 1, 1998,
File No. 1-6682.)
Executive Compensation Plans and Arrangements
(m) Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8, File No. 2-78018.)
<PAGE>
(n) Amendment No. 1 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 28, 1986, File No. 1-6682.)
(o) Amendment No. 2 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 27, 1987, File No. 1-6682.)
(p) Amendment No. 3 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 25, 1988, File No. 1-6682.)
(q) Amendment No. 4 to Employee Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10(s) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
(r) Form of Non Qualified Stock Option Agreement under the
Employee Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10(q) to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 25, 1988,
File No. 1-6682.)
(s) Non Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement on
Form S-14, File No. 2-92550.)
(t) Amendment No. 1 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1986, File No. 1-6682.)
(u) Amendment No. 2 to Non Qualified Stock Option Plan.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1987 Annual Meeting of
Shareholders, File No. 1-6682.)
(v) Amendment No. 3 to Non Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, File No. 1-6682.)
<PAGE>
(w) Form of Stock Option Agreement (For Employees) under the Non
Qualified Stock Option Plan. (Incorporated by reference to
Exhibit 10(t) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1992, File No.
1-6682.)
(x) 1992 Stock Incentive Plan. (Incorporated by reference to
Appendix A to the Company's definitive proxy statement for
its 1992 Annual Meeting of Shareholders, File No. 1-6682.)
(y) Form of Stock Option Agreement under the 1992 Stock Incentive
Plan, the Stock Incentive Performance Plan and the Employee
Non-Qualified Stock Plan. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 27, 1992, File No. 1-6682.)
(z) Hasbro, Inc. Stock Incentive Performance Plan. (Incorporated
by reference to Appendix A to the Company's definitive proxy
statement for its 1995 Annual Meeting of Shareholders, File
No. 1-6682.)
(aa) Employee Non-Qualified Stock Plan. (Incorporated by reference
to Exhibit 10(dd) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 29, 1996, File No. 1-6682.)
(bb) Form of Stock Option Agreement (For Participants in the Long
Term Incentive Program) under the 1992 Stock Incentive Plan
and the Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 27, 1992, File
No. 1-6682.)
(cc) Form of Employment Agreement between the Company and eleven
officers of the Company. (Incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1989, File No. 1-6682.)
(dd) Hasbro, Inc. Retirement Plan for Directors. (Incorporated
by reference to Exhibit 10(x) to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 30,
1990, File No. 1-6682.)
(ee) Form of Director's Indemnification Agreement. (Incorporated
by reference to Appendix B to the Company's definitive proxy
statement for its 1988 Annual Meeting of Shareholders, File
No. 1-6682.)
<PAGE>
(ff) Hasbro, Inc. Deferred Compensation Plan for Non-Employee
Directors.(Incorporated by reference to Exhibit 10(cc) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1993, File No. 1-6682.)
(gg) Hasbro, Inc. Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix A to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(hh) Form of Stock Option Agreement for Non-Employee Directors
under the Hasbro, Inc. Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 1994, File No. 1-6682.)
(ii) Hasbro, Inc. Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix B to the Company's
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
(jj) Hasbro, Inc. Amended and Restated Nonqualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the Period
Ended March 29, 1998, File No. 1-6682.)
(kk) Employment Agreement, dated as of January 1, 1996, between
the Company and Harold P. Gordon. (Incorporated by reference
to Exhibit 10(aa) to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1995, File No. 1-6682.)
(ll) Severance And Settlement Agreement And Release, dated as of
December 20, 1995, and addendum thereto, between the Company
and Dan D. Owen. (Incorporated by reference to Exhibit 10(bb)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1995, File No. 1-6682.)
(mm) Amendment, effective as of January 1, 1997 to Severance and
Settlement Agreement and Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(cc)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 29, 1996, File No. 1-6682.)
(nn) Amendment, dated February 20, 1998, to Severance
And Settlement Agreement And Release between the Company and
Dan D. Owen. (Incorporated by reference to Exhibit 10(ff)
to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
<PAGE>
(oo) Letter agreements, dated January 30, 1998, between the Company
and George R. Ditomassi, Jr. (Incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 28, 1997, File No. 1-6682.)
(pp) Consulting Agreement, dated January 31, 1998, between the
Company and George R. Ditomassi, Jr. (Incorporated by
reference to Exhibit 10(hh) to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 28, 1997, File
No. 1-6682.)
(qq) Letter dated January 26, 1998 from the Company to George B.
Volanakis. (Incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 1997, File No. 1-6682.)
(rr) Employment Agreement dated as of January 5, 1999, between the
Company and Herbert M. Baum.
(ss) Letter agreement, dated March 23, 1999, between the Company
and Adam Klein.
11. Statement re computation of per share earnings
12. Statement re computation of ratios
13. Selected information contained in Annual Report to Shareholders
22. Subsidiaries of the registrant
24. Consents of experts and counsel
(a) Consent of KPMG LLP
27. Financial data schedule
<PAGE>
Exhibit 10(d)
[Information below, marked with [**], has been omitted pursuant to a
request for confidential treatment. A complete copy of this document has
been supplied to the Securities and Exchange Commission under separate
cover. Approximately 44 pages (including schedules) have been omitted
pursuant to the request for confidential treatment.]
TOY LICENSE AGREEMENT BETWEEN LUCAS LICENSING LTD. AND HASBRO
DATED AS OF OCTOBER 14, 1997
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TOY LICENSE AGREEMENT
TABLE OF CONTENTS
1. GRANT OF LICENSE ........................................................1
2. TERM AND TERRITORY.......................................................2
3. RESTRICTIONS.............................................................4
4. OBLIGATIONS OF LICENSEE..................................................8
5. LICENSOR APPROVALS.......................................................9
6. [**]....................................................................11
7. ADVANCE.................................................................11
8. ROYALTIES AND OTHER CONSIDERATION.......................................12
9. STATEMENTS AND PAYMENTS.................................................14
10. TAXES...................................................................16
11. RECORDS AND AUDITS......................................................16
12. COPYRIGHT AND TRADEMARK NOTICES.........................................17
13. OWNERSHIP...............................................................18
14. PROMOTIONAL VALUE, TRADEMARK RIGHTS AND GOODWILL........................20
15. APPROVAL OF MANUFACTURERS...............................................21
16. CONFIDENTIALITY.........................................................22
17. PRODUCT SAMPLES.........................................................23
18. INTENTIONALLY DELETED...................................................24
19. REPRESENTATIONS AND WARRANTIES..........................................24
20. INDEMNITIES.............................................................25
21. INSURANCE...............................................................27
22. EXPIRATION AND TERMINATION..............................................28
23. RESERVED RIGHTS.........................................................31
24. DEFINITIONS.............................................................31
25. GENERAL.................................................................39
i
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SCHEDULE I - PERMITTED LICENSEE AFFILIATES
SCHEDULE II - LICENSED PRODUCTS
SCHEDULE III- ADVANCES AND MINIMUM SALES LEVELS
SCHEDULE IV - EXCLUDED DISTRIBUTION CHANNELS
SCHEDULE V - LICENSOR TRADEMARKS
SCHEDULE VI - EXCLUDED COUNTRIES
SCHEDULE VII - [**]
SCHEDULE VIII - MARKET CATEGORIES
SCHEDULE IX - GIFT MARKET DEFINITION
EXHIBIT A - TRADEMARK LICENSE AGREEMENT
EXHIBIT B - APPROVAL OF SUBLICENSEE AGREEMENT
EXHIBIT C - STANDARD APPROVAL FORM
EXHIBIT D - ROYALTY REPORT FORM
EXHIBIT E - THIRD PARTY COPYRIGHT ASSIGNMENT
EXHIBIT F - APPROVAL OF MANUFACTURER AGREEMENT
ii
<PG$PCN>
TOY LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is made and entered into as of October
14, 1997, between Lucas Licensing Ltd., a California corporation ("Licensor"),
on the one hand located at P. O. Box 2009, San Rafael, CA 94912, and Hasbro,
Inc., a Rhode Island corporation, located at 1027 Newport Ave., Pawtucket, R.I.
02862-1059, Hasbro International, Inc. a Delaware Corporation, located at 1027
Newport Ave., Pawtucket, R.I. 02862-1059, and all Permitted Licensee Affiliates
(jointly and severally "Licensee" or "Hasbro") on the other hand.
WHEREAS:
A. Licensor is a California corporation engaged in the licensing of
entertainment intellectual properties related to the "Pictures" (as hereinafter
defined);
B. Licensor owns or controls rights in respect of the Licensed Property
(as hereinafter defined);
C. Licensee is engaged in the manufacture, distribution and sale of
consumer products in the form of toys including, without limitation, toys based
on entertainment intellectual properties licensed from third parties; and
D. Licensee wishes to be licensed to use the Licensed Property for the
manufacture, distribution and sale of Licensed Products in the Territory and
Licensor has agreed to license rights in the Licensed Property to Licensee,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. GRANT OF LICENSE.
Subject to the terms and conditions of this Agreement, and in
consideration for all of Licensee's warranties, representations and
obligations hereunder, including, without limitation, Licensee's agreement
to pay and actual payment to Licensor of the Royalties and Advances,
Licensor grants to Licensee a non-transferable, non-assignable (except as
otherwise specified in Subparagraph 25.1 hereinbelow) license during the
Term and throughout the Territory:
1.1. to develop, design, manufacture, distribute, advertise, publicize,
market and sell the Licensed Products set forth in Schedule II attached
hereto, for sale to retail Customers through all channels of wholesale and
retail distribution permitted hereunder; and
1.2. to reproduce the Licensed Property and to use the Licensor Trademarks
on and in connection with the Licensed Products and containers, packaging,
display and promotional material and in Consumer Marketing for the
Licensed Products as provided in this Agreement. Concurrently with its
execution of this Agreement, Licensee shall execute a Trademark License
Agreement with Licensor on Licensor's then-current form for such
<PG$PCN>
agreements (the "Trademark License Agreement"), a current copy of which
form is attached hereto and by this reference incorporated herein as
Exhibit A.
Licensor shall in a timely manner make available to Licensee such
materials as may be available for use in exercising Licensee's rights
hereunder, subject to the confidentiality provisions of Subparagraph 16.1
hereinbelow.
2. TERM AND TERRITORY.
2.1. Term.
(a) Unless earlier terminated as provided in this Agreement,
including, without limitation, pursuant to this Subparagraph 2.1,
the term of Licensee's rights pursuant to this Agreement (the
"Term") shall consist of the time period commencing as of the date
hereof (subject to Subparagraph 25.15 hereinbelow) and ending on the
later of: (i) the final day of the third Calendar Year following the
Calendar Year in which the initial general theatrical release in the
United States (the "U.S. Release Date") of Episode III occurs; and
(ii) December 31, 2007 (such later day constituting the "Expiration
Date").
(b) Notwithstanding anything to the contrary contained herein or
otherwise, the Term shall terminate as set forth below:
(i) if the U.S. Release Date of Episode I does not occur on or
before June 30, 2004 (the "Episode I Outside Date"), then the
Term shall terminate as of the Episode I Outside Date;
(ii) if the U.S. Release Date of Episode I occurs on or before
the Episode I Outside Date, but the U.S. Release Date of
Episode II does not occur prior to the date which is five (5)
years following the U.S. Release Date of Episode I (the
"Episode II Outside Date"), then the Term shall terminate as
of the later of the Episode II Outside Date and December 31,
2007; or
(iii) if the U.S. Release Date for Episode I occurs on or
before the Episode I Outside Date and the U.S. Release Date of
Episode II occurs on or before the Episode II Outside Date,
but the U.S. Release Date of Episode III does not occur on or
before the date which is five (5) years after the U.S. Release
Date of Episode II (the "Episode III Outside Date"), then the
Term shall terminate as of the later of the Episode III
Outside Date and December 31, 2007.
2.2. Territory. The territory of Licensee's rights hereunder (the
"Territory") consists of the following applicable locations for the
following applicable Licensed Products:
2
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- - --------------------------------------------------------------------------------
Licensed Product Territory
- - --------------------------------------------------------------------------------
Standard Toys (excluding Novelty Candy, Enumerated countries and groupings
Coloring Toys, Mechanical Design Toys of countries set forth in Column A
and Craft Kits); of Schedule III attached hereto
(each such enumerated country or
Non-Standard Board Games; and grouping of countries a
"Sub-Territory" herein) and all
Electronics/Hand-Held ("E/H") other countries that currently
exist or which may hereafter exist
during the Term (other than the
specific excluded countries listed
in Schedule VI);
- - --------------------------------------------------------------------------------
All Games and Puzzles ("G/P") (other United States and Canada
than Non-Standard Board Games); Novelty
Candy; Coloring Toys; Mechanical Design
Toys; and Craft Kits
- - --------------------------------------------------------------------------------
Licensee's exercise of the rights granted under this Agreement in any
country in the Territory that is not part of a Sub-Territory hereunder
(each such country a "ROW Country") shall not entail any payment of
Advances under Paragraph 7 of this Agreement, but shall entail payment of
Royalties under Paragraph 8 of this Agreement. Notwithstanding the
foregoing, the sole activity of manufacturing a Licensed Product outside
of the applicable Territory hereunder may take place in a country outside
of the Territory if the terms and conditions of Paragraph 15 hereinbelow
have been first satisfied and so long as no Licensed Product manufactured
in such country is distributed by Licensee (or with Licensee's express or
implied authority) from such country for the "sale" thereof (as defined in
Subparagraph 8.2 hereinbelow) to a Customer outside of the Territory.
Subject to Paragraph 23 hereinbelow, if Licensor elects to license to any
third party the right to manufacture, distribute and sell during the Term
of this Agreement any Licensed Product in any country outside of the
Territory, then Licensor shall notify Licensee of such election in
writing. Licensee shall thereafter have thirty (30) days from the date of
such notice to negotiate and enter into a written agreement regarding such
license which agreement shall incorporate all of the terms and conditions
of this Agreement except for Paragraph 7 (Advance) and Paragraph 4
(Minimum Sales Levels) hereinbelow; provided, however, that neither
Licensee nor Licensor shall be obligated to enter into an agreement with
respect to such license. For purposes of this Agreement, a country shall
be deemed to include all territories and possessions thereof.
3
<PG$PCN>
3. RESTRICTIONS.
3.1. Distribution.
(a) General. Licensee shall not have the right:
(i) to distribute or sell (or authorize any entity to
distribute or sell) any Licensed Product other than to a "bona
fide and recognized" (as such term is commonly understood in
the U.S. toy industry) third party wholesale entity for
distribution directly to a Retail Entity, or directly to a
bona fide and recognized third party Retail Entity (whether
such third party Retail Entity is a third party "traditional
retail store" (as that term is commonly understood in the U.S.
toy industry), a third party direct-to-consumer paper-printed
catalog company or direct mail company, a third party Internet
Retail Entity or, subject to Subparagraph 3.1(c) hereinbelow,
a third party Electronic Retailer). In particular, but not by
way of limitation, Licensee shall not distribute any Licensed
Product through any channel, method or outlet of distribution
denoted as an Excluded Distribution Channel on Schedule IV
attached hereto;
(ii) to distribute or sell (or authorize any entity to
distribute or sell) any Licensed Product to any party if
Licensee knows, or in the exercise of its reasonable good
faith business judgment should know, that such distribution or
sale will result in the distribution for sale or resale of any
Licensed Product outside of the Territory;
(iii) to conduct or authorize any entity to conduct Consumer
Marketing disseminated outside of the Territory for any
Licensed Product; or
(iv) except with Licensor's prior written approval, to
distribute or sell any Licensed Product to any Closeout Store
in any country prior to the date eighteen (18) months after
the initial "sale" (as such term is defined in Subparagraph
8.2 hereinbelow) of such Licensed Product to a Customer in
such country.
(b) Licensor Channels. Notwithstanding the rights licensed to
Licensee hereunder, Licensor shall also have the right to distribute
and/or sell any Licensed Product purchased from Licensee, any
Licensee Affiliate or Sublicensee through any Licensor Channel and,
in this connection, Licensor shall purchase or require to be
purchased from Licensee, a Licensee Affiliate or a Sublicensee any
Licensed Product for which Licensee has exclusive rights hereunder
and which is to be sold through a Licensor Channel, provided,
Licensee shall manufacture and supply to Licensor or to Licensor's
designee those numbers of such Licensed Product as Licensor shall
request for the applicable Licensor Channel, and Licensee shall sell
such Licensed Product to Licensor or to Licensor's designee at the
lowest price and on the most favorable terms given by Licensee, a
Licensee Affiliate or a
4
<PG$PCN>
Sublicensee to a Customer for the same or comparable quantities of
such Licensed Product being sold and delivered on comparable terms
and conditions, whether or not such Licensed Product is Account
Specific Merchandise, F.O.B. Product or otherwise. Notwithstanding
the foregoing, in the case of Account Specific Merchandise, the
foregoing obligation shall be subject to Licensee having received
the consent of the person for whom such Account Specific Merchandise
was created.
(c) Internet/Electronic Retailers. Licensee shall not have the right
to manufacture, distribute and/or sell (or authorize any entity to
manufacture, distribute or sell) any Licensed Product:
(i) through the Internet (except for the transmission,
reception, recordation or display of information relating to a
purchase order placed by a person to whom Licensee is
permitted to sell under Subparagraph 3.1(a)(i) and except if
such distribution or sale is through a bona fide and
recognized third party Internet Retail Entity pursuant to
Subparagraph 3.1[a][i] hereinabove, or through a Licensor
Channel as permitted pursuant to Subparagraph 3.1[b]
hereinabove) without Licensor's prior written approval in each
instance; or
(ii) through any Electronic Retailer except that, at
Licensor's request, Licensee is hereby licensed to supply to
Licensor or to Licensor's designee such specific Licensed
Products to such specific Electronic Retailer(s) as Licensor
may approve in advance in writing.
3.2. Exclusivity. The rights licensed to Licensee hereunder shall be
exclusive for Standard Toys (except for the Standard Toys defined as
Plush, Craft Kits and Novelty Candy, for which Licensee's rights hereunder
shall be non-exclusive), for G/P and for E/H, except as otherwise set
forth in Schedule II.
3.3. Sublicenses.
(a) Approval of Sublicensee Agreement. Licensee shall have no right
to sublicense to any entity (including to a distributor or to a
Licensee Affiliate that is not a Permitted Licensee Affiliate) any
right licensed to it hereunder (other than the right to manufacture
any Licensed Product, which shall be subject to Paragraph 15
hereinbelow) or transfer or dispose of any Licensed Property to any
distributor, including to a Licensee Affiliate that is not a
Permitted Licensee Affiliate or to any other third party unless and
until: (i) Licensor has provided Licensee with its prior written
approval of the proposed sublicensee and the terms and conditions of
any and all agreements between Licensee and such proposed
sublicensee (and any modifications thereof, whether oral or written)
for such sublicense (collectively the "Sublicense Agreement"); (ii)
such sublicensee shall have executed an Approval of Sublicensee
Agreement with Licensor in substantially the form of Licensor's
then-current form for such agreement, as such form may be revised by
Licensor in its
5
<PG$PCN>
reasonable discretion from time to time (any such sublicensee and
all affiliated and related entities of such Sublicensee approved by
Licensor for which an Approval of Sublicensee Agreement is fully
executed, a "Sublicensee" herein); (iii) such Sublicensee shall
agree in the Sublicense Agreement to be fully bound at all times by
the terms and conditions of the following paragraphs and
subparagraphs of this Agreement adjusted as appropriate: 3.1, 3.4,
3.5, 3.7, 3.8, 11.1, 11.2, 12, 13.2-13.8, 14, 16, 17, 19.1(c),
19.1(d) and 19.1(e); (iv) such Sublicensee shall execute a Trademark
License Agreement with Licensor; and (v) such Sublicensee shall
further agree in such Approval of Sublicensee Agreement that
Licensor shall be a third party beneficiary thereof. A copy of
Licensor's current form for Approval of Sublicensee Agreement is
attached hereto as Exhibit B. The sublicense by Licensee of any
rights licensed to Licensee hereunder shall in no manner whatsoever
affect or otherwise diminish or relieve any of Licensee's
obligations hereunder, and Licensee shall execute, and shall ensure
that each prospective Sublicensee executes, the Approval of
Sublicensee Agreement. The failure by a Sublicensee to adhere to the
terms of the Approval of Sublicensee Agreement or the Sublicensee
Agreement shall not be imputed to Licensee unless such Sublicensee
is a controlled affiliate of Licensee or Licensee fails to comply
with its obligations under Subparagraph 3.3(b) hereinbelow.
(b) Enforcement of Sublicense Agreement. Licensee agrees to include
and strictly enforce in each Sublicense Agreement all of the terms
and conditions of this Agreement relevant to the sublicense to
Sublicensee of any right licensed to Licensee hereunder. Licensee
shall advise Licensor of any material breach thereof by a
Sublicensee and of any corrective action taken by Licensee or by
such Sublicensee as well as the results thereof. Licensee shall use
its best efforts to cause such Sublicensee to cure such breach and,
at the written request of Licensor following such breach, Licensee
shall terminate such Sublicense Agreement, subject to the same cure
provisions as are applicable to Licensee in Subparagraph 22.2(a)
hereinbelow. Licensee hereby appoints Licensor its attorney-in-fact
solely for the purpose of sending a notice of termination, subject
to the immediately preceding sentence, in order to terminate such
Sublicense Agreement or any specific rights thereunder, which
appointment is irrevocable and coupled with an interest; provided,
however, that Licensor will indemnify and hold harmless Licensee for
damages resulting from knowingly making a material misstatement in
connection with the exercise of such power of attorney.
3.4. (a) No Rights to Products Other Than Licensed Products. Other than
the products, goods and articles defined in Schedule II as "Licensed
Products," all products, goods, items, devices and articles of any
kind based on or incorporating the Licensed Property are expressly
excluded from the rights licensed to Licensee pursuant to this
Agreement and are expressly reserved to Licensor. For the avoidance
of doubt, Licensee acknowledges and agrees that Micro Toys and
"Model Kits" (as hereinafter defined) do not constitute Licensed
Products and are expressly excluded from this Agreement. The term
"Model Kits," as used in this Agreement, means [**].
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(b) No Joint or Cross Distributing, Promoting or Selling. No
Licensed Product shall be jointly or cross distributed, marketed,
promoted or sold with any product or service (other than another
Licensed Product manufactured hereunder) without Licensor's prior
written consent in each instance.
3.5. Other Products. Licensee acknowledges and agrees that the fact that a
Licensed Product is capable (whether or not by means of any electronic
media or through the use of any electronic feature, mechanical feature,
sound effect, light feature, mechanism or otherwise) of interacting with
another product, good, item, device or article that is not a Licensed
Product (the "Other Product") does not render such Other Product a
Licensed Product hereunder or confer to Licensee any rights hereunder with
respect to the use of the Licensed Property in conjunction with such Other
Product.
3.6. Licensor Third Party Obligations. Notwithstanding anything to the
contrary contained in this Agreement or otherwise, but without limitation
of Licensor's other rights and remedies:
(a) Licensee acknowledges that Licensor may have heretofore executed
agreements with third parties which may encompass rights with
respect to some or all of the Licensed Products and/or which may
grant to such third parties the right to dispose of, distribute and
sell Licensed Products during their respective sell-off periods,
which sell-off periods may occur during the Term, and that such
sell-off rights shall not violate the terms of this Agreement; in
this connection, Licensor agrees to disclose the identity of such
third parties, the Licensed Products covered and the dates of their
respective sell-off periods; provided, however, that the inadvertent
failure by Licensor to disclose such information shall not
constitute a breach hereunder, and such disclosure shall be subject
to any applicable confidentiality restrictions; and
(b) Licensor shall have the unrestricted right, prior to the
expiration or termination of the Term to provide for the disposition
of any or all of the rights licensed to Licensee hereunder,
including, without limitation, entering into agreements with any
third party(ies) which provide for the right for such third
party(ies) to design, manufacture and/or distribute Licensed
Products anywhere in the Territory, provided, that such agreement(s)
shall not authorize the shipment of Licensed Products to customers
on a date that would allow such Licensed Products to be sold to end
users at retail prior to the expiration or termination of the Term.
3.7. No Similar Products or Dumping of Licensed Products. Licensee
recognizes and acknowledges that the Licensed Property, and all elements
thereof, and the goodwill associated with the same are material and
substantial business assets of Licensor. In that connection, Licensee
agrees that, during the Term and throughout the Territory, Licensee:
(a) will not Dump any Licensed Product in any country of the
Territory during the Term and during any Sell-Off Period, subject to
applicable law;
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(b) will not manufacture, distribute or sell any merchandise or
authorize the manufacture, distribution or sale of any merchandise
bearing any artwork or other representation which is confusingly
similar to or which disparages the Licensed Property (or any element
thereof); and
(c) shall use its best efforts to sell Licensed Products at a price
which, in its reasonable, good faith business judgment, represents
the best attainable price from its Customers.
3.8. No Sales Prior to January 1, 1999. Notwithstanding anything to the
contrary contained in this Agreement (other than Subparagraph 25.17):
(a) with respect to all Licensed Products set forth on Schedule II
other than E/H, Licensee shall not sell or distribute, or authorize
the sale or distribution of, any Licensed Product (other than E/H)
manufactured hereunder to a retail or wholesale entity for such
entity's receipt anywhere in the Territory prior to January 1, 1999,
except as the parties may otherwise mutually agree; and
(b) with respect to all Licensed Products set forth on Schedule II
and defined as E/H, Licensee shall not manufacture, distribute,
market, promote or sell or authorize the manufacture, distribution,
marketing, promotion or sale of such Licensed Product prior to
January 1, 1999, except as the parties may otherwise mutually agree.
3.9. Gift Market Other than with respect to a Gift Market Product sold in
the Gift Market, Licensor shall not license to any third party the right
to sell through any Excluded Distribution Channel any Licensed Product
that is exclusively licensed to Licensee hereunder without Licensee's
prior written consent.
4. OBLIGATIONS OF LICENSEE.
4.1. [**].
4.2. Minimum Sales Levels. Licensee shall exercise reasonable commercial
efforts to ensure that Net Sales during each time period for which a
Marketing Plan is due hereunder will be equal to or exceed the Sales
Projections set forth in such Marketing Plan as approved by Licensor for
such time period including the Net Sales outlined in Column D of Schedule
III for Calendar Years 1999 and 2000 (the "Minimum Sales Levels");
provided, however, the parties agree that such Sales Projections are
predicated upon the assumption that Episode I will have a U.S. Release
Date between May 1 and June 30, 1999, and if the U.S. Release Date occurs
after June 30, 1999, then the parties agree to adjust such Sales
Projections in good faith.
4.3. [**].
4.4. [**].
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4.5. [**].
4.6. [**].
4.7. [**].
5. LICENSOR APPROVALS.
5.1. Creative Materials. Licensor will have the right to approve in the
good faith exercise of its discretion the following material, in
accordance with the procedures set forth in Subparagraph 5.2 hereinbelow:
(a) the Licensed Products, including, but not limited to, the
initial concepts, design documents, scripts, copy, alpha version,
beta version, unpainted sculpts, painted sculpts, prototypes and
manufacturing samples;
(b) any (i) Artwork and Film Clips and (ii) all other audio and/or
visual materials (including, without limitation, artwork,
photographs, images and designs) incorporating any part of the
Licensed Property, including, without limitation, initial concepts,
preliminary designs and final artwork intended for any uses
hereunder (the "Designs"); and
(c) any and all cartons, containers, packaging, instructions, tags,
labeling and wrapping material for the Licensed Products and any and
all Consumer Marketing, publicity, promotional and similar materials
for the Licensed Products (including, by way of illustration, but
not limitation, catalogs, trade advertisements, flyers, sales
sheets, labels, package inserts and display materials) which are
used in connection with the Licensed Products and which make use of
any of the Licensed Property, as well as any trade or other Consumer
Marketing or similar announcements intended to advise potential
customers of the rights acquired by Licensee under this Agreement,
whether or not such materials make use of the Licensed Property
(collectively the "Consumer Marketing Materials").
All materials submitted in a language other than English will be accompanied by
a complete and accurate English translation. Licensee shall ensure that all
Licensed Products, in their finished goods form, shall in all material respects
reflect and be accurate representations of the prototypes for the Licensed
Products as approved by Licensor, and Licensee's failure to do so shall be
deemed to be a material breach of this Agreement, provided that Licensee shall
be entitled to cure such breach as provided in Subparagraph 22.2(a) hereinbelow.
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5.2. Approval Procedure.
(a) In General.
(i) [**].
(ii) Creative Materials: Licensee will submit to Licensor,
along with Licensor's Standard Approval Form attached hereto
as Exhibit C, the Licensed Products, the Designs, Consumer
Marketing Materials and Copyright Materials for Licensor's
approval, subject to Subparagraph 25.10 hereinbelow, prior to
manufacture, printing, production, duplication, distribution,
sale or other use by Licensee thereof and each and every
modification thereto. If Licensor requires alterations prior
to an approval, then such alterations shall be made at
Licensee's sole cost and shall be submitted to Licensor for
further written approval in accordance with this Subparagraph
5.2. Licensee agrees to strictly adhere to all of Licensor's
product approval procedures, and to comply with Licensor's
style and legal guides provided to Licensee's representative,
and use best efforts to cause all parties with whom Licensee
contracts relative to the Licensed Products to do so, and,
where necessary, to incorporate changes in compliance
therewith. Any modification of any Licensed Product, Design,
Consumer Marketing Material and/or Copyright Material must be
re-submitted in advance for Licensor's written approval as if
it were a new Licensed Product, Design, Consumer Marketing
Material and/or Copyright Material. Licensee agrees not to
change the Licensed Product, Design, Consumer Marketing
Material or Copyright Material, as the case may be, without
first submitting to Licensor samples showing such proposed
changes and obtaining Licensor's written approval of such
samples.
(b) Licensor's Approvals. Any product, good or article not approved
in writing by Licensor prior to the manufacture thereof [**] shall
not be a Licensed Product and Licensee shall have no right to
manufacture, market, distribute, sell or exercise any other right
licensed to it hereunder with respect to such product, good or
article in such Sub-Territory. Licensor's approval of any Copyright
Materials in accordance with this Subparagraph 5.2 with respect to a
specific Licensed Product shall not be deemed to be approval for the
use of any part of such Copyright Materials with respect to another
Licensed Product.
(c) Third Party Sourcing. Licensee shall not have the right to use
any artwork or other creative material incorporating elements of the
Licensed Property used in connection with the products, goods or
articles of third parties (including, without limitation, books,
comics and trading cards), without first advising Licensor in
writing of the third party which had used such artwork and without
first obtaining Licensor's written approval thereof in accordance
with this Paragraph 5.
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5.3. Pre-Existing Approvals: Licensor hereby acknowledges and affirms the
written approvals given by it pursuant to the Prior Agreement (as
hereinafter defined) in respect of any Copyright Materials prepared by
Licensee and any Licensed Products manufactured pursuant to any of the
"Prior Agreements" (as hereinafter defined) as well as (a) Licensee's
right to use such Copyright Materials hereunder through September 30,
1998, and (b) Licensee's right to manufacture, distribute and sell any
such Licensed Product during the Term and pursuant to the terms and
conditions of this Agreement, including, without limitation, the Marketing
Plans approved hereunder. The "Prior Agreements" means the following
agreements: (i) agreement between Licensor and Hasbro, Inc., dated as of
May 1, 1993, as amended (the "Toy Agreement"); (ii) agreement between
Licensor and Hasbro, Inc., dated as of October 26, 1994, as amended (the
"Games Agreement"); and (iii) agreement between Licensor and Hasbro, Inc.,
dated as of October 26, 1994, as amended (the "Puzzle Agreement").
6. [**].
6.1. [**].
6.2. [**].
6.3. [**].
7. ADVANCE.
7.1. Advance. Licensee agrees to pay to Licensor, an advance of Four
Hundred Fifty Million Dollars ($450,000,000), payable in the following
amounts at the following times:
(a) One Hundred Million Dollars ($100,000,000) thereof, payable on
the initial shipment of any Licensed Product incorporating elements
of Episode I that is sold to a Customer hereunder;
(b) One Hundred Fifty Million Dollars ($150,000,000) thereof,
contingent upon the occurrence of the initial general theatrical
release in the United States of Episode I and payable on the U.S.
Release Date of Episode I;
(c) One Hundred Million Dollars ($100,000,000) thereof, contingent
upon the occurrence of the initial general theatrical release in the
United States of Episode II and payable on the U.S. Release Date of
Episode II; and
(d) One Hundred Million Dollars ($100,000,000) thereof, contingent
upon the occurrence of the initial general theatrical release in the
United States of Episode III and payable on the U.S. Release Date of
Episode III.
In the event that the U.S. Release Date of Episode I does not occur on or
before the Episode I Outside Date, then any portion of the Advance payment
made pursuant to Subparagraph 7.1(a) hereinabove that has not been
recouped by Licensee from Royalties
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earned on or before the Episode I Outside Date shall be refunded to
Licensee within thirty (30) days following the Episode I Outside Date.
[**].
7.2. [**].
8. ROYALTIES AND OTHER CONSIDERATION.
8.1. Royalty Percentage. Licensee will pay to Licensor sums ("Royalties")
equal to the following applicable percentage of Net Sales ("Royalty
Percentage") for Net Sales of each unit of a Licensed Product:
(a) Basic Figures: With respect to Net Sales of each unit of Basic
Figures: [**] of cumulative Net Sales of all Basic Figures
throughout the Territory, subject to the provisions of Subparagraph
8.1(c) hereinbelow.
(b) Other Licensed Products: With respect to Net Sales of each unit
of Other Licensed Products, [**] of cumulative Net Sales of all
Other Licensed Products throughout the Territory, subject to the
provisions of Subparagraph 8.1(c) hereinbelow.
(c) [**]
(iv) Royalty Adjustment. Licensor shall consider any request
made by Licensee to reduce Royalty Percentages set forth in
Subparagraphs 8.1(a)-(c) hereinabove for a specific Licensed
Product solely for the reason that Licensee is required to pay
a royalty to a third party inventor or holder of patent rights
or manufacturing process rights in connection with such
Licensed Product.
8.2. Net Sales. Subject to Subparagraph 8.8 hereinbelow, "Net Sales" shall
be equal to [**].
8.3. Special Circumstances. Notwithstanding anything to the contrary
contained in this Agreement, (i) to the extent that Licensee is prohibited
by reason of a law in any country of the Territory from remitting to
Licensor the full amount of Royalties payable to Licensor with respect to
a Licensed Product, then the parties shall discuss in good faith an
equitable treatment of the situation and the advisability of distributing
such Licensed Product in such country and it shall be in Licensor's
discretion to approve or disapprove such distribution of such Licensed
Product in such country; and (ii) the parties acknowledge that Licensee
may sell Licensed Products on a consignment basis (such as in Taiwan) or
make demonstrator sales of Licensed Products (such as in France), and the
parties agree to consider in good faith the treatment of returns in
connection with such sales. Licensor acknowledges that in situations where
local law or regulations in a particular country prohibit the payment of a
royalty to an affiliated company (such as in Italy and Greece), Licensor
agrees to enter into an agreement directly with such affiliated company in
order to permit Licensor to receive the applicable Royalties due to
Licensor
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hereunder. Such agreement will not otherwise alter or diminish any of
Licensor's rights and entitlements or any of Licensee's obligations in
accordance with this Agreement.
8.4. F.O.B. or Ex Works. Notwithstanding anything to the contrary
contained herein or otherwise, with respect to the "sale" (as defined in
Subparagraph 8.2 hereinabove) of a Licensed Product on a F.O.B., Ex Works
or similar basis, the applicable Royalty for such Licensed Product shall
be as follows:
(a) In those cases where the Licensed Product is specifically
designed as and is intended to be sold as an F.O.B. Product, is sold
directly to retailers on an F.O.B. basis and is not sold by Licensee
other than on an F.O.B. basis then the applicable Royalty for such
Licensed Product shall be [**] (such Royalty hereinafter the "F.O.B.
Royalty").
(b) In those cases where the Licensed Product is offered for sale in
a country on other than an F.O.B. basis and the same Licensed
Product is also offered for sale in the same country on an F.O.B.
basis, then the applicable Royalty for such Licensed Product sold on
an F.O.B. basis shall be [**].
8.5. Episode I Bonus. On the U.S. Release Date of Episode I, Licensee
shall pay to Licensor a non-recoupable bonus equal to Five Million Seven
Hundred Thousand Dollars ($5,700,000).
8.6. Bundling Royalty. Licensee shall not have the right to distribute,
market or sell (or authorize a third party to distribute, market or sell)
any Licensed Product with any other product, good or article (other than
another Licensed Product) in a single package at a single price
("Bundling") without Licensor's prior written approval of: (a) whether or
not such Bundling may occur; (b) the terms and conditions of such
Bundling; and (c) Licensor's Royalty in such instance.
8.7. [**].
8.8. Value-Added Taxes. Calculation of Net Sales shall not include any
sales, use, Value Added Tax ("VAT"), excise, local privilege or any other
tax. Licensee shall not pass along to Licensor and Licensor shall not bear
any VAT or any other tax charges incurred with respect to a Licensed
Product.
8.9. No Waiver. Acceptance of any sums by Licensor by way of Advances,
Royalties or otherwise shall not prevent Licensor at any time from
disputing or demanding particulars with reference to the amounts due nor
shall such acceptance constitute Licensor's waiver of any breach by
Licensee of any terms hereof.
8.10. No Carryover. If the parties agree to an extension of the Term and
if, on the expiration of the Term, any Advance shall not have been
recouped by the applicable Royalties paid to Licensor, then the shortfall
will not be carried forward to any extension of the Term.
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8.11. Warrant. Concurrently with the execution of this Agreement, Licensee
shall grant to Licensor a warrant (the "Warrant") for the purchase of up
to four million three hundred thousand (4,300,000) fully paid and
non-assessable shares of the common stock of Licensee following exercise
of the Warrant at a per share exercise price equal to twenty-eight dollars
($28), subject to adjustment as provided in the Warrant.
9. STATEMENTS AND PAYMENTS.
9.1. Payment Terms. Licensee will wire transfer (as immediately available
funds) to Licensor all sums due to it hereunder for Licensor's receipt
thereof within [**] days following the end of each calendar month based on
the Net Sales by Licensee and any Licensee Affiliates of Licensed Products
in such Calendar Month. Net Sales generated by a Sublicensee which is not
a Licensee Affiliate shall be reported to Licensor in respect of the
calendar month in which such Net Sales are paid or reported to Licensee or
any Licensee Affiliate, whichever first occurs. All payments will be in
United States currency. Late payments will accrue interest charges from
the due date through the date of payment at an interest rate equal to [**]
and shall be payable upon demand.
9.2. Remittance of Funds. All compensation amounts stated in this
Agreement, including without limitation, Advances and Royalties accrued
and/or payable to Licensor pursuant to this Agreement shall be computed,
accrued, paid and remitted to Licensor as follows, and Licensee shall bear
all costs (including, without limitation, all transactional and transfer
costs, points and fees), as follows:
(a) All Royalties due and payable to Licensor hereunder shall be
converted from the local currency of the source country to U.S.
Dollars based upon the exchange rates as follows: (i) with respect
to subsidiaries and affiliates of Licensor, the conversion rate
shall be set by Citibank London as of the 20th day of the month
following the close of each calendar month, subject to local
holidays and week-ends and further subject to Licensee ensuring that
Citibank London will make such conversion rates available to
Licensor upon reasonable request, and (ii) with respect to other
parties, the exchange rate shall be the rate of exchange published
in The Wall Street Journal for such local currency which is in
effect on the date payment is due to Licensor or, if payment to
Licensor is late, then the rate of exchange published in The Wall
Street Journal on the date payment is due or the date of actual
payment, whichever rate yields the higher amount of U.S. Dollars.
(b) Subject to Subparagraphs 8.3 and 9.3, hereinbelow, it shall be
Licensee's sole responsibility and expense to obtain the approval of
any governmental authorities to take whatever steps that may be
required and to comply in all respects with all applicable laws and
regulations in order to remit funds to Licensor.
9.3. Blocked Funds. If the payment of funds in any country is blocked from
export out of such country ("Blocked Funds"), such payment either may be
held by Licensee or a Sublicensee, or, at the election of Licensor,
deposited in an interest-bearing escrow
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banking or other interest-bearing escrow account in Licensee's name on
behalf of Licensor in the blocking country (if permitted by local law) or
may be removed from such country and paid to Licensor, subject to whatever
restrictions, limitations and/or taxes may be imposed by the government of
such country upon such Blocked Funds. In the event of any such blockage,
Licensor and Licensee shall cooperate in seeking an equitable solution. If
no such solution is attained, Licensor may require Licensee to, or
Licensee may voluntarily, suspend marketing and sales of Licensed Products
in such blocked country, and this Agreement shall be deemed amended
accordingly.
9.4. Payment Reports. Within [**] days after the close of each Calendar
Month, Licensee will prepare and deliver to Licensor one or more Royalty
report forms, each in the form attached hereto as Exhibit D, as such form
shall be modified by Licensor from time to time, together with all other
information required by Licensor hereunder (the "Royalty Report Form"). A
Royalty Report Form will be due on a calendar monthly basis whether or not
Royalties are payable to Licensor hereunder.
9.5. Report Information.
(a) Licensee shall furnish to Licensor, concurrently with the
delivery of the Royalty Report Form pursuant to Subparagraph 9.4
hereinabove, a full and complete statement, duly certified by an
officer of Licensee to be true and accurate, providing at least the
following information: [**].
(b) Each and every item of financial information required to be
submitted by Licensee pursuant to Subparagraphs 9.5(a)(i) through
9.5(a)(ix) hereinabove shall be broken down into the following
categories: the Calendar Month to which the statement applies;
cumulative from the inception of the Calendar Year to which such
statement applies; and cumulative from and after the date of this
Agreement to the close of the Calendar Month to which such statement
applies; and such information shall be aggregated as follows: [**].
(c) All amounts to be reported pursuant to Subparagraph 9.5(a) above
shall be first stated in the local currency in which the pertinent
Net Sales occurred. If several currencies are involved in any
reporting category, that category shall be broken down by each such
currency. Next to each local currency amount shall be set forth the
equivalent amount stated in U.S. Dollars, and the rate of exchange
required to be used hereunder in making the conversion calculation.
(d) Each such statement and Royalty Report Form shall be provided by
Licensee, at its sole expense, to Licensor in ASCII format or any
other electronic media format as Licensor may reasonably request.
(e) Upon Licensor's reasonable written request, Licensee shall make
available to Licensor such relevant data and information which
Licensor shall reasonably require to substantiate any Royalty Report
Form submitted to Licensor, the proper exercise of the rights
licensed to Licensee hereunder and/or the operation and
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performance of Licensor's duties and obligations hereunder. Such
data and information shall be included within the definition of
"Licensee's Records" set forth in Subparagraph 11.1 hereinbelow and
shall include, [**].
10. TAXES.
Except as provided in the remainder of this Paragraph 10, no withholding
taxes of any kind may be deducted from any Royalties or gross amounts
derived with respect to the sale of a Licensed Product. If and only to the
extent that Royalties hereunder are remitted directly to Licensor from a
country having a tax withholding requirement, then Licensee is authorized
by Licensor to deduct and to withhold from Royalties generated from such
country any withholding tax imposed by such country at the local statutory
rate or lower income tax convention rate, if applicable; provided,
however, that the Royalties due to Licensor with respect to the "sale" (as
defined in Subparagraph 8.2 hereinabove) of any particular Licensed
Product may not be reduced by withholding taxes from more than one
country, that such tax payments made by Licensee on behalf of Licensor may
not reduce the amounts payable and paid to Licensor under this Agreement
by more than the applicable withholding taxes of the relevant country and,
that Licensee shall promptly provide Licensor with notification of and
official receipts for all tax payments made on Licensor's behalf pursuant
to this Agreement. If, within forty-five (45) days after each payment is
made hereunder Licensor has not received either: (a) an authenticated
withholding tax certificate (stamped by the appropriate tax authority); or
(b) written evidence by Licensee (in form reasonably satisfactory to
Licensor) that Licensee has filed an application to receive a withholding
tax certificate from such tax authority, then Licensee shall immediately
pay to Licensor an amount equal to the amount previously withheld by
Licensee from such payment, divided by 1 minus the applicable withholding
tax rate, (e.g., if the tax withheld was $15, and the withholding tax rate
was 15%, then Licensee shall remit to Licensor $15 divided by 85%, or
$17.65).
11. RECORDS AND AUDITS.
11.1. Licensee's Records. During the Term and for not less than seven (7)
years following the transactions to be recorded, but in the event of a
pending audit conducted by Licensor hereunder of any of Licensee's Records
for a period ending not earlier than the date on which such audit is
finally resolved with respect to the Licensee's Records subject to such
audit, Licensee will maintain complete and accurate records of all
transactions relating to this Agreement and/or Licensee's rights and/or
obligations hereunder including, but not limited to, the data and
information described in Subparagraphs 9.5(a)-(e) hereinabove
(collectively "Licensee Records") and Licensee will contractually obligate
all Sublicensees and Manufacturers to maintain complete and accurate
records of all transactions relating to this Agreement, the Sublicense
Agreement or the Manufacturing Agreement, and/or the rights or obligations
of any Sublicensees and/or Manufacturer, as the case may be, including,
but not limited to, the data and information described in Subparagraph
9.5(e) hereinabove. No information pertinent to Licensee's rights and
obligations under or performance in connection with third party agreements
shall be
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considered Licensee Records, except and to the extent that such third
party agreements relate to Licensed Products and/or Licensee's obligations
hereunder.
11.2. Audits. Licensor or any independent certified public accountant
selected by Licensor may from time to time, but not more frequently than
one time per Calendar Year, upon reasonable notice and during normal
business hours, inspect (a) with respect to audits conducted in the United
States, at Licensee's main headquarters located in the United States any
and all Licensee Records maintained by Licensee in the United States and
such audit samples from other countries as may be reasonably requested by
Licensor and (b) with respect to audits outside of the United States,
wherever such records are kept outside of the United States. If, upon
performing such audit, it is determined that Licensee has underpaid
Licensor, Licensee will immediately make full payment under Paragraph 8
hereinabove. If the amount of underpayment exceeds the greater of [**] of
the payments due Licensor in the period being audited and [**], Licensee
will bear all direct, reasonable out-of-pocket expenses and costs related
to such audit in addition to its obligation to make full payment under
Paragraph 8 hereinabove. All underpayments and late payments will be
subject to interest charges, at the rate specified for late payments in
Subparagraph 9.1 hereinabove, calculated from the due date to the actual
payment date. The obligation to maintain records and to grant Licensor and
Licensor's representatives access to such records shall survive the
expiration or earlier termination of this Agreement. All non-public
information elicited by Licensor pursuant to Subparagraph 9.5(e) and
through audits pursuant to this Subparagraph 11.2 shall be subject to
Paragraph 16.1 hereinbelow as Confidential Information of Licensee.
12. COPYRIGHT AND TRADEMARK NOTICES.
12.1. Copyright and Trademark Notices. Licensee will place the following
notice on each unit of a Licensed Product and on all Consumer Marketing,
promotional material, packaging and any other material using the Licensed
Property:
TM or (R) (if verified in writing by Licensor) & (C) (______) LUCAS.
In English or local language: All Rights Reserved. Used under
Authorization)
( ) First year of Publication.
If this notice cannot be used due to space limitations, Licensor will
supply an alternative notice upon request. Licensee agrees that trademarks
arising from the Licensed Property will only be displayed in a form and
manner approved by Licensor. Licensor reserves the right to require
changes in the required notice if Licensor in its reasonable judgment
deems changes required by applicable law. [**]
12.2. First Use. Licensee agrees to provide Licensor with the date of
first use of each Licensed Product pursuant to this Agreement in each
country of the Territory, together with documentation evidencing the first
sale or shipment of such Licensed Product. In addition, Licensee shall
submit to Licensor at the beginning of each selling season, a
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statement on Licensor's standard form describing the Licensed Products
that are being offered for sale.
13. OWNERSHIP.
13.1. Ownership of Copyright Materials. Licensor represents and warrants
that it has the right to grant the license granted to Licensee in this
Agreement. Licensee acknowledges and agrees that, as between Licensor and
Licensee, the Licensed Property is owned solely and exclusively by
Licensor. Further, Licensee acknowledges and agrees that if and to the
extent that any Licensed Products, Designs, Consumer Marketing Materials,
Production Materials or other works are based on, derived from or
incorporate the Licensed Property or any part thereof (all of the
foregoing to such extent being individually and collectively the
"Copyright Materials"), such Copyright Materials will immediately from the
inception of creation become the property of Licensor and be owned solely
and exclusively by Licensor. Licensor's ownership rights under this
Subparagraph 13.1 will include any and all copyrights and any other
intellectual property rights in the Licensed Property and in any Copyright
Materials. Licensor acknowledges and agrees that, as between Licensor and
Licensee, Licensee is the owner of all tangible rights in and to any
intellectual property created by or on behalf of Licensee that does not
constitute any Copyright Material, any physical inventory of Licensed
Products and, subject to Subparagraph 13.2 hereinbelow, in all Production
Materials.
13.2. Ownership of Production Materials. In addition to Licensor's other
rights and remedies hereunder, if the Agreement, in whole or in part, is
terminated prior to the expiration of the Term then, at Licensor's sole
option exercisable within thirty (30) days following such expiration or
termination by written notice to Licensee, Licensor shall have the right:
(a) to cause Licensee to destroy and to cause any and/or all Licensee
Affiliates and/or Sublicensees to destroy any or all Production Materials,
[**]. "Production Materials" shall be defined as any and all physical
materials incorporating any element of the Licensed Property, tangible
tools, molds and printing plates used in the development or production of
the Licensed Products created pursuant to this Agreement which reproduce
any aspect of the Licensed Property, whether or not developed by or on
behalf of Licensee, a Licensee Affiliate, a Sublicensee, a Manufacturer or
a third party. Subject to the foregoing, Licensee also agrees that upon
Licensor's request, Licensee shall provide to Licensor satisfactory
evidence of the destruction of any or all Production Materials[**], and
that Licensor shall have the right at any time to enter the premises where
the Licensed Products (or their components) are stored or manufactured (to
the extent such premises are owned or controlled by Licensee or Licensee
Affiliate) to take inventory or witness the destruction of [**] any
Production Materials. Licensee shall not have any obligation to destroy or
cause the destruction of [**] any Production Materials that can be used by
Licensee without infringing or otherwise violating any of Licensor's
rights.
13.3. Assignment of Ownership.
(a) Assignment by Licensee. Licensee acknowledges that the
copyrights and all other proprietary rights in and to the Licensed
Property are exclusively owned
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by and reserved to Licensor. Licensee shall neither acquire nor
assert copyright ownership or any other proprietary right in the
Licensed Property or in any derivation, adaptation, variation or
name thereof. Without limiting the foregoing, Licensee hereby
assigns, and shall contractually obligate all entities with whom it
contracts relative to the creation, design or manufacture of a
Licensed Product or Copyright Material to assign to Licensor, all
right, title and interest which Licensee or any such other entity
may have in the Licensed Property or any Copyright Material
heretofore or hereafter created by Licensee, such other entity or by
any employee of Licensee or such other entity including, without
limitation, any copyrights and any other intellectual property
rights therein and the goodwill associated therewith. All such new
materials shall be included in the definition of "Licensed Property"
under this Agreement. Licensee acknowledges that said assignment
includes, without limitation, the right on Licensor's part to
license such materials outside the Territory during the Term and
anywhere thereafter, subject to the terms of this Agreement.
(b) Employment for Hire. Licensee acknowledges that the Licensed
Property is owned solely and exclusively by Licensor. All Copyright
Materials created or developed by any employee of Licensee shall be
prepared by such employee as an employee for hire of Licensee under
Licensee's sole supervision, responsibility and monetary obligation
and shall be on a "work for hire" basis within the meaning of the
U.S. Copyright Act of 1978, as amended. Licensee has caused or shall
cause such Copyright Materials to be "works made for hire" (as that
term is understood in the U.S. Copyright Law) within the scope of
such employee's employment for Licensee, and such Copyright
Materials, and the results and proceeds of such employee's services
are freely assignable by Licensee hereunder.
(c) Assignment of Third Parties. Prior to and as a condition of
retaining any third party who is not an employee of Licensee to
assist with or contribute to the development or creation of any
Copyright Materials, or any part thereof, Licensee, at its sole
expense, will obtain from such third party a complete, executed
written assignment of all right, title and interest in such
Copyright Materials substantially in the form attached hereto as
Exhibit E.
13.4. Further Assurances. During and after the Term, at Licensor's
request, Licensee will assist and cooperate, and will cause all of its
employees and contractors to assist and cooperate, with Licensor in all
reasonable respects, including, without limitation, by executing documents
(including the form attached hereto as Exhibit E), by giving testimony,
executing documents and taking such further acts reasonably requested by
Licensor to acquire, transfer, maintain, perfect and enforce copyright,
trademark, trade secret, contract rights and other legal protection for
the Licensed Property, any Copyright Materials and/or Licensor's interest,
if any, in Production Materials. Further, if Licensee fails to comply with
any of the obligations set forth above within ten (10) business days of
Licensor's request, Licensee hereby appoints the officers of Licensor as
its attorney-in-fact (which appointment is irrevocable and coupled with an
interest) to execute documents on behalf of Licensee and its employees and
contractors for this limited purpose; provided,
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however, that Licensor will indemnify and hold harmless Licensee for
damages resulting from Licensor's knowingly making a material misstatement
in connection with its exercise of such power of attorney. Licensee shall
not make any representations or do any act which may be taken to indicate
that it has any right, title or interest in or to the ownership or use of
the Licensed Property except under the terms of this Agreement. Nothing
contained in this Agreement shall give Licensee any right, title or
interest in or to the Licensed Property except for the rights licensed
hereunder, subject to the terms and conditions hereof.
13.5. Moral Rights. Licensee hereby, on behalf of itself, its employees
and its contractors, irrevocably transfers and assigns to Licensor, and
waives and agrees never to assert, any and all "Moral Rights" (defined
hereinbelow) Licensee or its or their respective employees or its
contractors may have in or with respect to the Licensed Property and/or
any Copyright Materials.
13.6. Quality Assurance. Licensee shall ensure that the form, quality and
standard of all materials used in the connection with the Licensed
Products conforms to that of the samples approved by Licensor pursuant to
this Agreement and complies with all good manufacturing practices relevant
to the Licensed Products including methods of storage and with all laws
and regulations relevant to the Licensed Products including any relevant
regulations concerning the manufacture, sale or promotion or labeling or
marking of such Licensed Products. Any modifications by or on behalf of
Licensee to the Licensed Products previously approved above shall be
submitted to Licensor for written approval as if the same were new and
without approval.
13.7. Right To Inspect. Licensee shall allow Licensor and/or its duly
authorized representative the right to inspect samples of the Licensed
Products at any time and on reasonable notice, and shall afford Licensor
every reasonable assistance and allow or use reasonable efforts to procure
them access to any premises of Licensee or other premises where the
Licensed Products are being created or held on behalf of Licensee, for so
long as any use is made of the Licensed Property.
13.8. [**].
14. PROMOTIONAL VALUE, TRADEMARK RIGHTS AND GOODWILL.
14.1. Promotional Value. Licensee acknowledges that Licensor is entering
into the Agreement not only in consideration of the Royalties to be paid,
but also for the promotional value to be secured by Licensor for the
Pictures as a result of the manufacture, sale and distribution by Licensee
of Licensed Products and the Consumer Marketing and promotion of the
Licensed Products.
14.2. Trademark License Agreement. Licensee will execute the Trademark
License Agreement attached hereto as Exhibit A, and Licensee's use of
Licensor Trademarks will be subject to the terms and conditions of the
Trademark License Agreement.
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14.3. Goodwill. Licensee recognizes the great value of the goodwill
associated with the Licensed Property and acknowledges that such goodwill
exclusively belongs to Licensor and that the Licensed Property has
acquired a secondary meaning in the mind of the public. Further, any and
all goodwill arising from use of the Licensed Property by Licensee, a
Licensee Affiliate, a Sublicensee and/or a Manufacturer pursuant to this
Agreement will inure to Licensor's sole benefit.
14.4. Registrations. Except with the written approval of Licensor,
Licensee will not register or attempt in any country to register
copyrights in, or register as a trademark, service mark, design patent or
industrial design, or business designation, any of the Licensed Property,
Licensor Trademarks or derivations or adaptations thereof, or any word,
symbol or design which is so similar thereto as to suggest association
with or sponsorship by Licensor or by any Licensor-Related Entities.
15. APPROVAL OF MANUFACTURERS.
15.1. Approval of Manufacturer Agreement. Licensee shall have no right to
sublicense the right to manufacture any Licensed Product hereunder to any
entity (including to a Licensee Affiliate that is not a Permitted Licensee
Affiliate or any other third party) unless and until: (a) Licensor has
provided Licensee with its prior written approval of the proposed
manufacturer and the terms and conditions of any and all agreements
between Licensee and any proposed manufacturer (and any modifications
thereof), whether oral or written, for and/or to the extent relating to
the manufacture of Licensed Products (individually and collectively, the
"Manufacturing Agreement"); (b) such manufacturer shall have executed an
Approval of Manufacturer Agreement with Licensor in substantially the form
of Licensor's then-current form for such agreement, as such form may be
revised by Licensor in its reasonable discretion from time to time (any
such manufacturer approved by Licensor for which an Approval of
Manufacturer Agreement is fully executed, a "Manufacturer"); (c) such
Manufacturer shall agree in the Manufacturing Agreement to be fully bound
at all times by the following subparagraphs of this Agreement adjusted as
appropriate: 3.7(b), 3.8, 11.1, 12, 13.2, 13.3, 13.4, 13.5, 13.6, 13.7,
13.8, 14, 15, 16 and 19.1(e); (d) such Manufacturer shall execute a
Trademark License Agreement with Licensor; and (e) such manufacturer shall
further agree in such Manufacturing Agreement that Licensor shall be a
third party beneficiary thereof. A copy of Licensor's current form of
Approval of Manufacturer Agreement is attached hereto as Exhibit F. The
manufacturer of Licensed Products by any third party shall in no manner
whatsoever affect Licensee's obligations hereunder and Licensee shall
execute, and ensure that each prospective Manufacturer executes, the
Approval of Manufacturer Agreement. The failure by a Manufacturer to
adhere to the terms of the Approval of Manufacturer Agreement or the
Manufacturer Agreement shall not be imputed to Licensee unless such
Manufacturer is a controlled affiliate of Licensee or Licensee fails to
comply with its obligations under Subparagraph 15.2 hereinbelow.
15.2. Enforcement of Manufacturing Agreement. Licensee agrees to include
and strictly enforce in each Manufacturing Agreement all of the terms and
conditions of this Agreement relevant to the manufacture of the Licensed
Products. Licensee shall advise
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Licensor of any material breach thereof by a Manufacturer and of any
corrective action taken by Licensee or by such Manufacturer, as well as
the results thereof. Licensee shall use its best efforts to cause such
Licensee to cure such breach and, at the written request of Licensor
following such breach, Licensee shall terminate such Manufacturing
Agreement, subject to the same cure provisions as are applicable to
Licensee in Subparagraph 22.2(a) hereinbelow. Licensee hereby appoints
Licensor its attorney-in-fact solely for the purpose of sending a notice
of termination, subject to the immediately preceding sentence, in order to
terminate such Manufacturing Agreement or any specific rights thereunder,
which appointment is irrevocable and coupled with an interest; provided,
however, that Licensor will indemnify and hold harmless Licensee for
damages resulting from knowingly making a material misstatement in
connection with the exercise of such power of attorney.
16. CONFIDENTIALITY.
16.1. Confidential Information. The parties hereto agree that the material
terms and conditions contained in this Agreement and/or in any other
agreement between Licensor and Licensee related to the Licensed Products
are confidential ("Confidential Information"). In addition to Confidential
Information, the parties agree that any and all information and material
concerning or pertaining to the following are confidential and proprietary
to Licensor (collectively, "Special Confidential Information"): (i) any
script, concept, schedule of Licensor or of any Licensor-Related Entity
(including, without limitation, any pre-production, production or
post-production schedule or release schedule for any Prequel or for any
derivative work thereof) and (ii) any Copyright Material and/or any
Production Material (including without limitation, any artwork, design or
prototype created for any Licensed Product to the extent incorporating any
element of the Licensed Property). The parties hereto acknowledge that all
elements of any Marketing Plan constitute Confidential Information of
Licensee and shall be treated as such hereunder. Notwithstanding the
foregoing, the parties acknowledge that certain elements of any Marketing
Plan may be shared by Licensor with certain persons or categories of
persons but not others and Licensor and Licensee shall mutually agree as
to the elements of such Marketing Plan that may be shared with certain
persons and the identity of such persons.
Without the prior written consent of the party disclosing Confidential
Information or Special Confidential Information (the "Disclosing Party"),
the recipient of any Confidential Information or Special Confidential
Information (the "Recipient") shall not use, copy, or disclose, or
authorize or permit the use, copy or disclosure of, any Confidential
Information or Special Confidential Information; provided, that
Confidential Information may be disclosed to the Recipient's employees,
directors, officers and shareholders, attorneys, financial advisors,
auditors, agents and/or accountants acting in such capacities, and then
only if such disclosure is solely for the purpose of effectuating the
terms and conditions of this Agreement, and such individuals or entities
shall be informed by the Recipient of the confidentiality of such
Confidential Information and shall be directed by the Recipient in writing
to treat such Confidential Information confidentially and to restrict the
use of such Confidential Information to said purpose. In addition to the
foregoing, Licensee will not disclose any Special Confidential Information
to any third party for any
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purpose (including the exercise of its rights or performance of its
obligations hereunder) unless Licensor otherwise agrees and such third
party has executed a written confidentiality agreement in form and
substance acceptable to Licensor, which confidentiality agreement shall
restrict the use of any Special Confidential Information to the minimal
extent necessary to effectuate the terms and conditions of this Agreement
as they apply to such third party and requires such third party to use its
best efforts to maintain all Special Confidential Information in the
strictest confidence.
Licensee further agrees and acknowledges that Licensor's sole purpose in
disclosing Special Confidential Information to Licensee or allowing
Licensee access to Special Confidential Information is for the sole
purpose of aiding Licensee in performing its obligations hereunder.
Licensee shall receive and hold all Special Confidential Information in
the strictest confidence and Licensee acknowledges, represents, warrants
and agrees to use its best efforts to protect the confidentiality of all
Special Confidential Information.
Licensee's obligations pursuant to Subparagraph 16.1 shall not apply to
any Confidential Information or Special Confidential Information which:
(A) is or becomes publicly available or part of public domain through no
fault of the Recipient or of its employees; (B) is authorized in writing
by Licensor to become publicly known; (C) is received from a third party
authorized by Licensor to receive such information without restriction and
without breach of this Agreement; or (D) is the minimum amount required to
be publicly disclosed in order to comply with any applicable law,
regulation, stock exchange rule, subpoena, or valid order of a court of
competent jurisdiction.
16.2. Publicity or Announcements. Subject to subparagraph 16.1(D)
hereinabove, without limitation of the foregoing and notwithstanding
anything to the contrary contained in this Agreement or otherwise, no
announcements, press releases, or publicity about the existence of or any
terms of this agreement, the relationship of the parties or about the
rights relating to the Licensed Products to be exercised hereunder shall
be made or authorized to be made by Licensor, any Licensor-Related Entity,
Licensee or any Licensee Affiliate without the prior written approval of
Licensor and Licensee in each instance.
16.3. Rights of Publicity. Except as expressly set forth herein, Licensee
acquires no right to use and will not use without Licensor's prior written
approval the characters, artwork, designs, trade names, copyrighted
materials, trademarks or service marks of Licensor or any Licensor-Related
Entities in any Consumer Marketing, publicity or promotion, to express or
imply any endorsement by Licensor or any Licensor-Related Entities of
Licensee's services or products, or in any other manner except as
expressly authorized in this Agreement. The foregoing provision shall
survive expiration or termination of this Agreement.
17. PRODUCT SAMPLES.
17.1. General. Upon commercial release of each version of a Licensed
Product SKU (including each language version or modified version) by or
for Licensee, Licensee will furnish to Licensor at no cost the following
items: [**].
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If Licensor requests a reasonable number of additional items, Licensee
will supply to Licensor such samples at Licensee's direct out-of-pocket
cost of manufacture.
18. INTENTIONALLY DELETED.
19. REPRESENTATIONS AND WARRANTIES.
19.1. Licensee. Licensee represents and warrants that:
(a) Hasbro, Inc. has the full power and authority to enter into this
Agreement on behalf of Licensee and all Permitted Licensee
Affiliates and that Licensee including all Permitted Licensee
Affiliates have the full power and authority to perform all of
Licensee's material obligations pursuant to this Agreement;
(b) it is and shall remain throughout the term a corporation in good
standing in the jurisdiction of its incorporation;
(c) it will not harm or misuse the Licensed Property or bring the
Licensed Property into disrepute;
(d) except as specifically provided in this Agreement, it will not
create any expenses chargeable to Licensor without the prior written
approval of Licensor;
(e) it will comply in all material respects with all laws and
regulations relating or pertaining to the manufacture, production,
distribution, sale, Consumer Marketing and use of the Licensed
Property, the Licensed Products and Copyright Materials, and will
maintain the highest quality and standards of Licensee as of the
date of this Agreement;
(f) unless the parties have otherwise agreed pursuant to a mutually
approved Marketing Plan with respect to a particular Sub-Territory,
it will diligently and continuously at all times throughout the Term
market and distribute the Licensed Products in each country
throughout the Territory;
(g) each and every Permitted Licensee Affiliate set forth in
Schedule I meets the definition of a Licensee Affiliate in
Subparagraph 24.69 hereinbelow; and
(h) this Agreement has been duly authorized, executed and delivered
by Licensee and constitutes the legal, valid and binding obligation
of Licensee, enforceable against Licensee in accordance with its
terms, subject to Subparagraph 8.3 hereinabove.
19.2 Licensor. Licensor represents and warrants that:
(a) Licensor has the full power and authority to enter into this
Agreement and to perform all of Licensor's material obligations
pursuant to this Agreement;
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(b) this Agreement has been duly authorized, executed and delivered
by Licensor and constitutes the legal, valid and binding obligation
of Licensor, enforceable against Licensor in accordance with its
terms; and
(c) [**].
20. INDEMNITIES.
20.1. By Licensor. Subject to Subparagraph 20.3 hereinbelow, Licensor
shall indemnify and hold harmless Licensee from any and all loss,
liability, damage, cost or expense (including reasonable counsel fees and
costs, whether or not in connection with litigation) to the extent arising
out of any claims or suits brought or made against Licensee by reason of
any breach or alleged breach by Licensor of any warranty, covenant or
obligation contained in this Agreement. Licensee shall provide Licensor
with prompt written notice, cooperation and assistance relative to any
such claim or suit. Licensor shall have the option to undertake and
conduct the defense of any suit so brought, provided that Licensor
regularly consults with Licensee regarding such defense. Licensor will not
enter into any settlement of any claims or suits without the prior written
consent of Licensee, which consent shall not be unreasonably withheld. If
Licensor undertakes such defense and Licensee nevertheless retains its own
counsel to monitor such defense, Licensee shall be solely responsible for
the fees and any other expenses related to such counsel. Licensee shall
not, however, be entitled to recover for lost profits. This agreement to
indemnify shall survive the expiration or earlier termination of this
Agreement.
20.2. By Licensee. Except for Licensor's obligations under Subparagraph
20.1 above, Licensee shall indemnify and hold harmless Licensor and all
"Licensor-Related Entities" (as hereinafter defined) from any and all
loss, liability, damage, cost or expense (including reasonable counsel
fees and costs, whether or not in connection with litigation) to the
extent arising out of any claims or suits brought or made against Licensor
or any Licensor-Related Entities arising out of or in connection with:
(a) any activities of Licensee related to this Agreement or to any
of the matters herein contained;
(b) any alleged defects or inherent dangers in the Licensed
Products;
(c) any breach or alleged breach by Licensee of any warranty,
covenant or obligation contained in this Agreement;
(d) any infringement or violation of any copyrights, patents,
trademarks, trade secrets or other intellectual property or
proprietary rights of any third party in connection with the
Licensed Products, Copyright Materials or Production Materials
except with respect to the Licensed Property (excluding any material
added or changed by or on behalf of Licensee);
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(e) libel, slander, or other forms of defamation except with respect
to the Licensed Property (excluding any material added or changed by
or on behalf of Licensee);
(f) plagiarism, piracy or unfair competition resulting from the
alleged unauthorized use of titles, formats, ideas, characters,
plots, performers, or other material except with respect to the
Licensed Property (excluding any material added or changed by or on
behalf of Licensee); and/or
(g) breach of contract, implied in fact or in law, resulting from
the alleged submission, acquisition or use of program, musical or
literary material used by Licensee.
Licensor shall provide Licensee with prompt written notice, cooperation
and assistance relative to any such claim or suit. Licensee shall have the
option to undertake and conduct the defense of any suit so brought,
provided, that Licensee regularly consults with Licensor regarding such
defense. Licensee will not enter into any settlement of any claims or
suits without the prior written approval of Licensor, which consent shall
not be unreasonably withheld. If Licensee undertakes such defense and
Licensor nevertheless retains its own counsel to monitor such defense,
Licensor shall be solely responsible for the fees and any other expenses
related to such counsel. This agreement to indemnify shall survive the
expiration or earlier termination of this Agreement.
20.3. [**].
20.4. Notification. Licensee and Licensor agree to give each other prompt
written notice of any claim or suit which may arise under the indemnity
provisions set forth above. Without limiting the foregoing, Licensee
agrees to give Licensor written notice of any product liability claim made
with respect to any Licensed Product within seven (7) days of Licensee's
receipt of notice thereof.
20.5. Intellectual Property Protections. At Licensor's request, Licensee
shall assist Licensor, to the extent reasonably necessary, in protecting
any of Licensor's rights to the Licensed Property. Licensor may commence
or prosecute any claims or suits in its own name or (with the approval of
Licensee, which approval will not be unreasonably withheld) in the name of
Licensee or may join Licensee as a party thereto. With respect to any
apparent infringement of the Licensed Property by any third party,
Licensor and Licensee will discuss the appropriate enforcement steps and
which steps are taken shall be determined by Licensor in its reasonable
discretion. If Licensor and Licensee both agree to participate in pursuing
any protection or enforcement action, then Licensor and Licensee shall
share equally all out-of-pocket costs and expenses related to any such
action (including, without limitation, attorneys' fees and costs).
Reimbursement payments required pursuant to this Subparagraph 20.5 from
one party to the other not paid within thirty (30) days following receipt
of invoices for such payments will accrue interest charges from the due
date through the date of payment at an interest rate equal to three
percent (3%) over the prime lending rate set by the Bank of America
N.T.S.A., or the
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maximum legal rate, if such maximum legal rate is lower, and shall be
payable upon demand. In the event any monies are recovered from any such
action which are in excess of the costs and expenses of such action, then
such monetary recoveries shall be shared equally between Licensor and
Licensee. If Licensor declines to participate in or otherwise pursue any
enforcement, Licensee may take steps to do so, provided that Licensee
first obtains Licensor's prior written approval. Licensee in such
circumstances agrees to provide current reports regarding the status of
any action or negotiations concerning such alleged infringing activity,
and shall proceed in consultation with Licensor and Licensor's counsel.
Licensee's choice of counsel in any such proceeding shall be subject to
Licensor's prior reasonable written approval. Licensee shall not settle or
compromise any claim without Licensor's prior written approval, such
approval not to be unreasonably withheld. Should Licensee recover any sums
from the alleged infringer, it shall be entitled to retain the proceeds of
any such actions to the extent of Licensee's reasonable out-of-pocket
expenses for the proceeding, and the remainder will be shared equally
between Licensee and Licensor.
21. INSURANCE.
21.1. Insurance. Licensee will, throughout the Term and for a period no
less than three (3) years following the expiration or termination of this
Agreement, maintain insurance in the amounts, for the purposes set forth
in and in accordance with this Paragraph 21, covering any and all claims
brought anywhere in the world relating to the Licensed Products, as
follows:
(a) Product Liability and Advertising Injury Liability. Licensee
will carry Product Liability and Advertising Injury Liability
Insurance obtained from a reputable carrier with a Best's rating of
"A" or better, naming Licensor, George W. Lucas, Jr. and all
Licensor-Related Entities as additional insureds, and covering any
and all claims, demands and causes of action for personal injury or
property damage arising out of or purporting to arise out of any
defects in or failure to perform by any Licensed Product or arising
out of or purporting to arise out of any advertising and/or any
physical or intangible material used in connection therewith in a
minimum amount of [**] combined single limit for each occurrence for
personal injury and property damage.
(b) [**]
21.2. Notification. Each policy shall provide for prompt written notice
(not to exceed thirty [30] days) to Licensor from the insurer by
registered mail, return receipt requested, in the event of any material
modification, cancellation or termination of the policy referred to in
Subparagraph 21.1(a) hereinabove. Licensee will furnish to Licensor within
thirty (30) business days after the date of execution of this Agreement a
Certificate of Insurance naming Licensor, George W. Lucas, Jr., and all
Licensor-Related Entities as additional insureds on said policy.
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21.3. Compliance. Licensee's compliance with this Paragraph 21 in no way
affects Licensee's indemnity obligations, except to the extent that
Licensee's insurance company actually pays Licensor amounts which Licensee
would otherwise be obligated to pay Licensor.
22. EXPIRATION AND TERMINATION.
22.1. Term. This Agreement will continue in full force and effect during
the Term, unless terminated earlier in accordance with the provisions of
this Agreement, except with respect to those matters which by the terms of
this Agreement or by their nature survive termination or expiration.
22.2. Events of Termination. Without prejudice to any other right or
remedy available to Licensor, Licensor will have the right to terminate
this Agreement immediately upon written notice to Licensee:
(a) if Licensee breaches any of the material terms of this Agreement
and, if such breach is curable, and is not corrected within
twenty-five (25) days after Licensor sends Licensee written notice
thereof (or, in the event of a curable breach which cannot be
corrected within twenty-five [25] days, if Licensee fails to
commence such correction within twenty-five [25] days and thereafter
diligently prosecutes it to completion);
(b) if Licensee becomes insolvent or generally fails to pay, or
admits in writing its inability to pay its debts as they become due,
or makes any assignment for the benefit of creditors, or files a
petition in bankruptcy, or is adjudged bankrupt, or is placed in the
hands of a receiver, or if the equivalent of any such proceedings or
acts occurs, though known by some other name or term;
(c) if Licensee becomes the subject of a voluntary or involuntary
petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation or composition for the benefit
of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing; or
(d) if Licensee attacks the title of Licensor in and to any Licensed
Property (including, without limitation, any copyright or trademark
pertaining thereto) or Licensee attacks the validity of any license
granted hereunder.
22.3. Effect of Expiration or Termination.
(a) Cessation and Delivery. Upon the expiration or earlier
termination of this Agreement, subject to Subparagraph 22.3(c)
hereinbelow:
(i) Licensee shall:
(A) immediately cease and cause the cessation of all of
its activities hereunder respecting the Licensed
Property including,
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without limitation, the design, development,
manufacture, sale, Consumer Marketing, and distribution
of Licensed Products and, within thirty (30) days after
such expiration or termination, send Licensor a complete
inventory report of Licensed Products; and
(B) subject to the provisions of Subparagraph 13.2
hereinabove, at Licensor's election, [**]:
(1) [**]
(2) furnish Licensor with a sworn certificate of
destruction, signed by an officer of Licensee.
Without limitation of its rights and remedies,
Licensor shall have the right to enter the
premises where the Licensed Products are located
(to the extent such premises are controlled by
Licensee or a Licensee Affiliate) to verify
inventory of Production Materials, [**].
Licensee shall have no further right to exercise any of the
rights licensed hereunder or otherwise acquired in relation to
this Agreement. Licensee agrees that its failure to stop in
all respects the manufacture, sale and/or distribution upon
the termination of this Agreement will result in immediate
irreparable damage to Licensor for which there is not adequate
remedy at law, and in the event of such failure by Licensee,
Licensor shall be entitled to seek injunctive relief in
addition to its other rights and remedies in such event.
Licensor shall be entitled to recover from Licensee, in
addition to any other remedies in the event of material
default, reasonable attorneys' fees, costs and expenses,
including collection agency fees incurred by Licensor in the
enforcement of any provision hereof. Licensor's exercise of
any of the foregoing remedies shall not operate as a waiver of
any other rights or remedies which Licensor may have.
(ii) Licensee shall immediately cancel or terminate all
contracts, orders and requests for the manufacture, sale,
distribution or supply of any goods or services which involve
or may lead to any use, application or exploitation of the any
Licensed Product or the rights herein licensed or any part
thereof.
(b) Reversion of Rights. Upon the expiration or earlier termination
of this Agreement, subject to Subparagraph 22.3(c) hereinbelow, all
rights licensed to Licensee hereunder will immediately revert to
Licensor, Licensor may exploit such license rights itself or grant
such rights to any third party.
(c) Limited Sell-Off Rights. Licensee shall have the non-exclusive
right, for a period of ninety (90) days after expiration or earlier
termination of this Agreement (the "Sell-Off Period") to dispose of
its inventory of Licensed Products "in hand"
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or "in process" (as such terms are commonly understood in the U.S.
toy industry), which Licensed Products are manufactured during the
Term pursuant to orders actually received by Licensee from its
retail Customers prior to the close of the Sell-Off Period (the
"Final Orders"); provided, however, that:
(i) this Agreement has not been terminated for breach or any
other reason set forth in Subparagraph 22.2 hereinabove;
(ii) Licensee shall not manufacture (or authorize or permit
the manufacture of) Licensed Products after the expiration of
the Term;
(iii) Licensee shall not distribute or sell (or authorize or
permit the distribution or sale of) Licensed Products after
the expiration of the Sell-Off Period;
(iv) Licensee shall only distribute and sell Licensed Products
in amounts necessary to fulfill such Final Orders;
[**]
(d) Return of Confidential Information. Upon termination or
expiration of this Agreement, the Recipient of Confidential
Information will immediately return all Confidential Information
within such Recipient's possession or control and Licensee will
immediately return all Special Confidential Information received
from Licensor that is in Licensee's possession or control, and an
officer of Licensee or Licensor, as the appropriate party may be,
will certify to the other party in writing that such Recipient has
done so.
(e) Payments. Upon termination of this Agreement or upon expiration
of the Sell-Off Period, all monies owed Licensor will become
immediately due and payable by Licensee to Licensor.
22.4. No Damages for Termination. Licensor will not be liable to Licensee
for damages of any kind, including incidental or consequential damages, on
account of the expiration or termination of this Agreement in accordance
with the terms and conditions of this Agreement. Licensee waives any right
it may have to receive any compensation or reparations on account of
expiration or termination of this Agreement by Licensor in accordance with
the terms and conditions of this Agreement, other than as expressly
provided in this Agreement. Without limiting the generality of this
Subparagraph 22.4, Licensor will not be liable to Licensee, on account of
such termination or expiration, for reimbursement or damages for the loss
of goodwill, prospective profits or anticipated income, or on account of
any expenditures, investments, leases or commitments made by either party
or for any other reason whatsoever based upon or growing out of such
termination or expiration.
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23. RESERVED RIGHTS.
23.1. Licensor's Retained Rights. Notwithstanding anything to the contrary
contained in this Agreement or otherwise, Licensor retains all rights not
expressly licensed to Licensee pursuant to this Agreement, including,
without limitation, the right to manufacture, distribute and sell Gift
Market Product through the Gift Market [**].
23.2. Reversion of Rights. Notwithstanding anything to the contrary
contained in this Agreement or otherwise, the parties understand and agree
that
(a) if Licensee fails to manufacture, distribute and sell any of the
following applicable Licensed Products in any Sub-Territory on or before
December 31 of the Calendar Year in which the initial theatrical release
of Episode I within such Sub-Territory occurs, then all rights licensed to
Licensee hereunder with respect to such applicable Standard Toys in such
Sub-Territories shall terminate and shall immediately revert to Licensor:
Molding Compound Toys, Coloring Toys, Mechanical Design Toys, Craft Kits
or Novelty Candy; and
(b) if Licensee fails to manufacture, distribute and sell the following
Licensed Products in any Sub-Territory on or before the later of December
31, 2001 and the end of the second Calendar Year following the initial
theatrical release of Episode I in such Sub-Territory, then all rights
licensed to Licensee hereunder with respect to such applicable Licensed
Products pursuant to this Agreement for such Sub-Territory shall terminate
and shall immediately revert to Licensor: electronic organizers, personal
digital assistants and electronic diaries.
24. DEFINITIONS.
24.1. [**].
24.2. [**].
24.3. "Advance" has the meaning set forth in Subaragraph 7.1 hereinabove.
24.4. [**].
24.5. [**].
24.6. [**].
24.7. [**].
24.8. "Basic Figures" means [**].
24.9. "Audio Board Games" has the meaning set forth in Schedule II
hereinbelow.
24.10. "Blocked Funds" has the meaning set forth in Subparagraph 9.3
hereinabove.
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24.11. "Board Games" has the meaning set forth in Schedule II hereinbelow.
24.12. "Bundling" has the meaning set forth in Subparagraph 8.6
hereinabove.
24.13. "Calendar Month" means Licensee's fiscal month. Licensee's fiscal
month alternates between four (4) and five (5) week periods,
beginning on a Monday and ending on a Sunday, within Licensee's
fifty-two (52) or fifty-three (53) week Calendar Year.
24.14. "Calendar Quarter" means any of the following applicable
consecutive successive three (3) month period during a Calendar
Year: January 1 through and including March 31, April 1 through and
including June 30; July 1 through and including September 30; and
October 1 through and including December 31.
24.15. "Calendar Year" means the time period from the first Monday
following the last Sunday of the previous Calendar Year and
including the last Sunday of the Calendar Year, except with respect
to 1998 for which "Calendar Year" means the time period from
September 28, 1998 through and including December 27, 1998.
24.16. "Card Games" has the meaning set forth in Schedule II hereinbelow.
24.17. "Carrying Cases" has the meaning set forth in Schedule II
hereinbelow.
24.18. "Chain" means a group of twenty (20) or more retail store outlets.
24.19. "Classic Trilogy" has the meaning set forth in Subparagraph
24.68(a)(i) hereinbelow.
24.20. "Closeout Stores" means retailers that offer for sale a majority of
their inventory initially on a so-called "closeout" basis (as such
term is customarily understood in the U.S. toy industry).
24.21. [**].
24.22. "Confidential Information" has the meaning set forth in
Subparagraph 16.1 hereinabove.
24.23. "Consumer Marketing" means the solicitation and/or commercial
enticement for the sale of any product, good or article by means of
television, radio, print, outdoor, Internet, sweepstakes,
free-goods offers, cross-promotions with third parties (e.g.
PepsiCo) or other promotions directed to consumers, retailer
in-store display materials, point-of-purchase signage, roto print
advertisements, public relations efforts, or by any other means,
whether now or hereafter known, devised, invented or developed.
24.24. "Consumer Marketing Materials" has the meaning set forth in
Subparagraph 5.1(c) hereinabove.
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24.25. [**].
24.26. "Copyright Materials" has the meaning set forth in Subparagraph
13.1 hereinabove.
24.27. [**].
24.28. "Creative Play Toys" has the meaning set forth in Schedule II
hereinbelow.
24.29. [**].
24.30. "Customer" means an entity that is not a Licensee, a Licensee
Affiliate (including any Permitted Licensee Affiliate) or a
Sublicensee.
24.31. [**].
24.32. "Designs" has the meaning set forth in Subparagraph 5.1(b)
hereinabove.
24.33. "Disclosing Party" has the meaning set forth in Subparagraph 16.1
hereinabove.
24.34. "Dolls" has the meaning set forth in Schedule II hereinbelow.
24.35. "Dump" means to distribute a Licensed Product in a manner which
disparages the Licensed Property, materially diminishes the value of
Licensor's goodwill, trademark or tradename rights pursuant to any
applicable laws in the relevant country of the Territory [**].
24.36. "Electronic Retailers," means retailers that market and sell
products to consumers primarily through electronic media, including,
without limitation, by means of television (such as, without
limitation, QVC, HSN) or Internet.
24.37. [**].
24.38. [**].
24.39. [**].
24.40. "Electronic Target Games" has the meaning set forth in Schedule II
hereinbelow.
24.41. "Electronic Novelty Toys" has the meaning set forth in Schedule II
hereinbelow.
24.42. "Electronics/Hand-Held" or "E/H" has the meaning set forth in
Schedule II hereinbelow.
24.43. "Episode I" has the meaning set forth in Subparagraph 24.68(a)(ii)
hereinbelow.
24.44. "Episode II" has the meaning set forth in Subparagraph 24.68(a)(ii)
hereinbelow.
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24.45. "Episode III" has the meaning set forth in Subparagraph
24.68(a)(ii) hereinbelow.
24.46. "Episode I Outside Date" has the meaning set forth in Subparagraph
2.1(b)(i) hereinabove.
24.47. "Episode II Outside Date" has the meaning set forth in Subparagraph
2.1(b)(ii) hereinabove.
24.48. "Episode III Outside Date" has the meaning set forth in
Subparagraph 2.1(b)(iii) hereinabove.
24.49. [**].
24.50. "Event Window" means a minimum four (4) week period associated with
the theatrical release of a Picture, the video release of a Picture,
the Christmas Holiday, or other key promotional event.
24.51. "Excluded Distribution Channels" has the meaning set forth in
Schedule IV hereinbelow.
24.52. "Final Orders" has the meaning set forth in Subparagraph 22.3(c)
hereinabove.
24.53. [**].
24.54. "F.O.B. Royalty" has the meaning set forth in Subparagraph 8.4(a)
hereinabove.
24.55. "Games and Puzzles" or "G/P" has the meaning set forth in Schedule
II hereinbelow.
24.56. "Games Agreement" has the meaning set forth in Subparagraph 5.3
hereinabove.
24.57. "Gift Market" has the meaning set forth in Schedule IX hereinbelow.
24.58. "Gift Market Product" means the following: [**]
24.59. [**].
24.60. "Hand-Held Games" has the meaning set forth in Schedule II
hereinbelow.
24.61. [**].
24.62. [**].
24.63. [**].
24.64. [**].
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24.65. "Internet" means the computer-generated, computer-mediated or
computer-assisted transmission, reception, recordation or display
arising from any network or other connection of instruments or
devices now or hereafter known, devised, invented or developed
capable of transmission, reception, recordation and/or display (such
instruments or devices to include, without limitation, computers,
laptops, cellular or PCS telephones, pagers, PDAs, wireless
transmitters or receivers, modems, radios, televisions, satellite
receivers, cable networks, smart cards and set-top boxes).
24.66. [**].
24.67. "Licensed Products" means those products, goods and articles,
within the enumerated categories set forth in Schedule II attached
hereto, and which are based on or incorporating elements of the
Licensed Property.
24.68. "Licensed Property" means, subject to the terms, conditions and
restrictions contained in Licensor's or any Licensor Related
Entity's agreements with persons, firms or entities rendering
services or granting rights,
(a) the original titles, designs, character names and likenesses,
dialogue, music and sound effects, words, symbols, logographics and
the footage, photographs, artwork, visual representations of the
props, costumes, sets, special effects and any other original
creative elements which appear in, have become directly associated
with, and as are depicted in, the following motion pictures:
(i) those certain previously released theatrical motion
pictures (and the special editions thereof released
theatrically in 1997) entitled "STAR WARS: EPISODE IV - A NEW
HOPE," "STAR WARS: EPISODE V - THE EMPIRE STRIKES BACK" and
"STAR WARS: EPISODE VI - RETURN OF THE JEDI" (the "Classic
Trilogy"); and/or
(ii) each of the first three succeeding prequel theatrical
motion pictures to the Classic Trilogy tentatively entitled
"Episode I," "Episode II" and "Episode III," respectively
(each such prequel theatrical motion picture a "Prequel"
herein).
(Classic Trilogy and the Prequels are jointly, severally and
collectively referred to as the "Picture[s]");
(b) such original titles, designs, character names and likenesses,
dialogue, music and sound effects, words, symbols, logographics,
photographs, artwork, visual representation of the props, costumes,
sets, special effects, and any other original creative elements
which do not exist in the Pictures but which are embodied in games,
novels, comics, videogames, television programs or series (whether
live action or animated) based on and derived from the Pictures, to
the
35
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extent of Licensor's right to grant the rights licensed to Licensee
pursuant to Paragraph 1 hereinabove (collectively "Spin-Off
Properties"); and
(c) such original trademarks, tradenames, servicemarks and
servicenames owned by Licensor and arising out of and which have
become directly associated with the Pictures or Spin-Off Properties,
to the extent of Licensor's rights in each applicable country of the
Territory under such country's applicable trademark laws, including,
but not limited to, those specified in Schedule V (the "Licensor
Trademarks").
24.69. "Licensee Affiliate" means any entity that is directly or
indirectly controlled by, under common control with or that
controls Licensee (including, without limitation, any Permitted
Licensee Affiliate). For purposes of this definition of "Licensee
Affiliate," an entity will control another entity, or be deemed to
control another entity, if such entity: (a) has the ability to
elect a majority of the directors, trustees (or other managers) of
such other entity; (b) is a general partner or joint venturer of
such other entity; (c) directly or indirectly holds (or has power to
vote) twenty percent (20%) or more of the economic interests of such
other entity; or (d) directly or indirectly holds (or has power to
vote) five percent (5%) or more of the voting equity interests of
such other entity.
24.70. "Licensee's Records" has the meaning set forth in Subparagraphs
9.5(e) and 11.1 hereinabove.
24.71. "Licensor Channel" means [**].
24.72. INTENTIONALLY OMITTED.
24.73. "Licensor Trademarks" has the meaning set forth in Subparagraph
24.63(c) hereinabove.
24.74. "Licensor-Related Entities" means George W. Lucas, Jr. and all of
Licensor's present and future affiliated, related and/or subsidiary
entities, including, without limitation, Lucasfilm Ltd., LucasArts
Entertainment Company, Lucas Digital Ltd. and/or Lucas Learning Ltd.
and their respective divisions, subsidiaries, directors, employees,
officers, successors, assigns, agents and joint venturers.
24.75. "Manufacturer" has the meaning set forth in Subparagraph 15.1
hereinabove.
24.76. "Manufacturing Agreement" has the meaning set forth in Subparagraph
15.1 hereinabove.
24.77. [**].
24.78. [**].
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24.79. "Micro Toys" means the following: "Intermediate Vehicles," "Micro
Vehicles," "Micro Playsets," and "Micro Figures" (as such terms are
defined hereinbelow) [**].
24.80. [**].
24.81. "Minimum Sales Levels" has the meaning set forth in Subparagraph
4.2 hereinabove.
24.82. "Model Kits" has the meaning set forth in Subparagraph 3.4(a)
hereinabove.
24.83. [**].
24.84. "Moral Rights" means any rights to claim authorship of a work, to
object to or prevent the modification of a work, or to withdraw from
circulation or control the publication or distribution of a work,
and any similar right, existing under the law of any country in the
world or under any treaty.
24.85. "Net Sales" has the meaning set forth in Subparagraph 8.2
hereinabove.
24.86. "Non-Standard Board Games" means "Board Games," "Video Board Games"
and "Audio Board Games" (as such terms are defined in Schedule II
hereinbelow) [**].
24.87. "Novelty Candy" has the meaning set forth in Schedule II
hereinbelow.
24.88. "Other Licensed Products" means all Licensed Products other than
Basic Figures.
24.89. "Other Product" has the meaning set forth in Subparagraph 3.5
hereinabove.
24.90. "Permitted Licensee Affiliates" means those Licensee Affiliates set
forth in Schedule I and such additional Licensee Affiliates as
Licensor shall approve, if at all, in writing.
24.91. "Pictures" has the meaning set forth in Subparagraph 24.68(a)
hereinabove.
24.92. [**].
24.93. "Plush" has the meaning set forth in Schedule II hereinbelow.
24.94. [**].
24.95. [**].
24.96. "Prequel" has the meaning set forth in Subparagraph 24.68(a)(ii)
hereinabove.
24.97. "Prior Agreements" has the meaning set forth in Subparagraph 5.3
hereinabove.
24.98. [**].
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24.99. "Production Materials" has the meaning set forth in Subparagraph
13.2 hereinabove.
24.100. "Puzzles" has the meaning set forth in Schedule II hereinbelow.
24.101. "Puzzle Agreement" has the meaning set forth in Subparagraph 5.3
hereinabove.
24.102. [**].
24.103. "Recipient" has the meaning set forth in Subparagraph 16.1
hereinabove.
24.104. "Retail Entity" means a Customer which is ordinarily in the
business of selling goods and products directly to a public
(non-business) consumer.
24.105. "Role-Playing Toys" has the meaning set forth in Schedule II
hereinbelow.
24.106. "Royalties" means the applicable "Royalty Percentage" of "Net
Sales," as such terms are defined and set forth in Subparagraphs 8.1
and 8.2 hereinabove.
24.107. "Royalty Percentage" has the meaning set forth in Subparagraph 8.1
hereinabove.
24.108. "Royalty Report Form" has the meaning set forth in Subparagraph
9.4 hereinabove.
24.109. [**].
24.110. "Sell-Off Period" has the meaning set forth in Subparagraph
22.3(c) hereinabove.
24.111. [**].
24.112. [**].
24.113. [**].
24.114. "Special Confidential Information" has the meaning set forth in
Subparagraph 16.1 hereinabove.
24.115. "Spin-Off Properties" has the meaning set forth in Subparagraph
24.68(b) hereinabove.
24.116. [**].
24.117. "Standard Playsets" has the meaning set forth in Schedule II
hereinbelow.
24.118. "Standard Vehicles" has the meaning set forth in Schedule II
hereinbelow.
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24.119. "Standard Figures" has the meaning set forth in Schedule II
hereinbelow.
24.120. "Standard Toys" has the meaning set forth in Schedule II
hereinbelow.
24.121. "Sublicense Agreement" has the meaning set forth in Subparagraph
3.3 hereinabove.
24.122. "Sublicensee" has the meaning set forth in Subparagraph 3.3
hereinabove.
24.123. [**].
24.124. "Sub-Territory" has the meaning set forth Subparagraph 2.2
hereinabove.
24.125. [**].
24.126. [**].
24.127. "Term" has the meaning set forth in Subparagraph 2.1 hereinabove.
24.128. "Territory" has the meaning set forth in Subparagraph 2.2
hereinabove.
24.129. "Toy Agreement" has the meaning set forth in Subparagraph 5.3
hereinabove.
24.130. "Trademark License Agreement" has the meaning set forth in
Subparagraph 1.2 hereinabove.
24.131. [**].
24.132. "U.S. Release Date" has the meaning set forth in Subparagraph 2.1
hereinabove.
24.133. "Video Board Games" has the meaning set forth in Schedule II
hereinbelow.
24.134. "VAT" has the meaning set forth in Subparagraph 8.8 hereinabove.
24.135. "Warrant" has the meaning set forth in Subparagraph 8.11
hereunder.
24.136. "Water Toys" has the meaning set forth in Schedule II hereinbelow.
24.137. [**].
25. GENERAL.
25.1. Assignment. Subject to the other terms and conditions of this
Subparagraph 25.1, this Agreement will bind and inure to the benefit of
each party and to their respective successors and permitted assigns.
Except as expressly permitted herein, Licensee shall not voluntarily or by
operation of law assign, sub-license, transfer, encumber or otherwise
dispose of all or part of any right or privilege licensed to Licensee in
this Agreement,
39
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including to a Licensee Affiliate, without Licensor's prior written
approval, provided that the Licensee may assign its rights to any Licensee
Affiliate so long as the Licensee directly or indirectly holds more than
fifty percent (50%) of the equity economic and voting interests of such
Licensee Affiliate. For purposes of this Subparagraph 25.1, any change in
control of Licensee, whether through merger, acquisition, reorganization,
liquidation, foreclosure, involuntary sale in bankruptcy, or the purchase
of substantially all of Licensee's assets or otherwise, shall be deemed a
purported assignment subject to Licensor's prior written approval. A
"Change of Control" of Licensee shall have the meaning specified in the
Warrant. Any attempted assignment, sublicense, transfer, encumbrance or
other disposal without such approval will be null and void and constitute
a material default and material breach of this Agreement.
25.2. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the federal laws of the United States and the
laws of the State of California applicable to agreements entered into, and
to be performed entirely, within California between California residents
(and excluding the United Nations Convention on Contracts for the
International Sale of Goods) without regard to choice of law provisions
and regardless of the place or places of its actual execution or
performance. Any suit, action or proceeding between or among any of the
parties hereto arising out of or related to this Agreement will be brought
solely in the federal or state courts in the Northern District of
California, and Licensee hereby submits to the personal jurisdiction
thereof and agrees to such courts as the appropriate venue.
Notwithstanding the foregoing, Licensee agrees that, for purposes of
collecting monies due pursuant to this Agreement, Licensee, at Licensor's
election, may be subject to whatever local laws and courts have
jurisdiction in any country of the Territory over Licensee. Process in any
action or proceeding referenced to in this Subparagraph 25.2 may be served
on Licensee at the address for notices set forth in Subparagraph 25.5
hereinbelow.
25.3. Attorneys' Fees. In the event of any legal proceeding between the
parties arising out of or related to this Agreement, the prevailing party
shall be entitled to recover, in addition to any other relief awarded or
granted, its costs and expenses (whether or not in connection with
litigation and including, without limitation, reasonable attorneys' fees
and costs) incurred in connection with any such proceeding.
25.4. Equitable Relief. Licensee recognizes and acknowledges that a breach
by Licensee of any covenants, agreements or undertakings made or assumed
by it will cause Licensor irreparable damage, which cannot be readily
remedied in damages in an action at law, and may, in addition thereto,
constitute an infringement of Licensor's intellectual property and other
rights in the Licensed Property, thereby entitling Licensor to equitable
remedies (including, without limitation, injunctive relief), costs
(including, without limitation, whether or not in connection with
litigation) and reasonable attorney's fees. For purposes of this
Subparagraph 25.4, Licensee acknowledges that (by way of example and not
limitation) infringement of Licensor's intellectual property rights
include any use of the Licensed Property by Licensee other than those
licensed under this Agreement, failure to obtain approvals required under
this Agreement, use or release of any Licensed Product or
40
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Confidential Information in violation of this Agreement, and failure to
secure permissions and transfers of rights from third parties as required
pursuant to this Agreement.
25.5. Notices. Any notice to be given or served under this Agreement shall
be in writing and shall be delivered to the parties addressed as set forth
below, or to such other address as either party shall notify the other
party of in writing, as follows: personally or sent by cable, telegram or
telemessage or by facsimile, telex, telecopy or other print out
communication mechanism or by first class, prepaid, registered or
certified mail (if available) post (air mail if posted to another country)
to the party to be served at the address set forth below in this
Subparagraph 25.5 or to such other address as either party may from time
to time notify in writing to the other. Such notice shall be deemed to
have been served: (a) immediately in the case of personal delivery; (b) in
the case of a cable, telegram or telemessage, on the first business day
after the receipt by the relevant service of the order therefor; (c) in
the case of facsimile, telex, telecopy or other print out mechanism, on
the expiration of four (4) hours from the time of transmission subject in
the case of telex or facsimile to proof by the sender that he/she holds an
acknowledgment (whether in mechanical form other otherwise) confirming its
receipt at its destination and subject in the case of facsimile or other
print out transmission in the absence of a written acknowledgment to the
original notice being sent by post or by personal delivery in accordance
with this Subparagraph 25.5 not later than the next business day after
such transmission; and (d) in the case of postal delivery, on the second
business day following the date of posting (the fifth business day if
posted to another country) or on acknowledgment of receipt if earlier.
If to Licensor:
For notices to Licensor: P. O. Box 2009, San Rafael, CA 94912,
Attention: Vice President; with a copy to: General Counsel.
For all approvals by Licensor pursuant to Paragraph 5 above: P. O.
Box 2009, San Rafael, CA 94912, Attention: Approvals Coordinator
For all other approvals by Licensor including, without limitation,
pursuant to Paragraph 4 above: P.O. Box 2009, San Rafael, CA 94912,
Attention: Vice President
For statements and payments to Licensor: P. O. Box 2009, San Rafael,
CA 94912, Attention: Cashier
For wire transfers: pursuant to Licensor's written wire transfer
instructions
For deliveries requiring Licensor's street address: 5858 Lucas
Valley Road, Nicasio, CA 94946
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If to Licensee:
Hasbro, Inc.
1027 Newport Avenue
Pawtucket, RI 02862
Attention: General Counsel
Fax: 401-727-5089
and
Hasbro, Inc.
615 Elsinore Place
Cincinnati, OH 45202
Attention: Vice President-Law
Fax: 513-579-4757
25.6. No Waiver. No action taken by either party pursuant to this
Agreement, and no waiver by either party, whether express or implied, of
any provision or right in this Agreement or any breach thereof, and no
failure of either party to exercise or enforce any of its rights under
this Agreement, will constitute a continuing waiver with respect to such
provision or right or as a breach or waiver or any other provision or
right, whether or not similar.
25.7. Independent Contractors. The parties to this Agreement are and shall
remain independent contractors. There is no relationship of partnership,
employer, employee, principal, agent, joint venture, employment, franchise
or agency between the parties. Except as expressly provided in this
Agreement, neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written
approval and shall not represent that it has such right.
25.8. Nonexclusive Remedy. The exercise by either party of any remedy
under this Agreement will be without prejudice to its other remedies under
this Agreement or otherwise.
25.9. Severability. This Agreement is severable. If any provision of this
Agreement is found invalid or unenforceable in any jurisdiction, that
provision, as to that jurisdiction, will be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or
unenforceable the other remaining provisions of this Agreement, which
other remaining provisions will not be affected and shall remain in force,
to the maximum extent permissible.
25.10. Approvals. Except as otherwise expressly stated herein, any and all
Licensor approvals pursuant to this Agreement may be given or withheld in
Licensor's reasonable discretion. Failure by Licensor to give written
approval within fourteen (14) days from the date of a submission to
Licensor will be deemed disapproval; provided, however, if Licensee
thereafter notifies Licensor in writing that it has not received approval,
and
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Licensor does not respond within forty-eight (48) hours of receipt of such
notice, the submission will be deemed approved as if in writing hereunder.
A delivery to or an approval made by an authorized representative of
Hasbro, Inc. or Hasbro International, Inc. shall be deemed to constitute a
delivery to and an approval, as the case may be, made by Hasbro, Inc. or
Hasbro International, and all Permitted Licensee Affiliates. A delivery to
or an approval made by an authorized representative of Lucas Licensing
Ltd. shall be deemed to constitute a delivery to or an approval, as the
case may be, made by Licensor.
25.11. Headings, Captions and Names. The name of this Agreement, and all
headings and captions herein contained, are for reference and convenience
only and do not define, limit or expand the scope or intent of any
provision hereof and shall not be relied upon in or in connection with the
construction or interpretation of this Agreement. The words "herein,"
"hereunder," "hereof" and similar terms refer to this entire Agreement and
shall not be limited to the specific paragraphs or subparagraphs in which
they are used.
25.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by telefacsimile transmission, each copy of which shall
be deemed an original and all of which, when taken together, shall
constitute one and the same instrument, but this Agreement shall not be
binding upon the parties until it has been signed by both parties. The
parties hereto agree that facsimile signatures on a copy of this Agreement
shall be effective and enforceable as if they were original signatures.
25.13. Further Instruments. Except as otherwise expressly provided in this
Agreement, each party shall furnish to the other (and shall deliver and
cause to be executed, acknowledged and delivered to the other) any further
instruments, which such other party may reasonably require or deem
necessary from time to time to evidence, establish, protect, enforce,
defend or secure to such other party any or all of its rights hereunder or
to more effectuate or carry out the purposes, provisions or intent of this
Agreement.
25.14. Governmental Approval. Licensor and Licensee shall (i) as promptly
as practicable, make all necessary filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (ii)
use all commercially reasonable efforts to obtain the early termination of
the waiting period under such Act. Licensor and Licensee agree to
cooperate with each other in the preparation of the filings referred to in
the preceding sentence and shall each bear fifty percent (50%) of the
out-of-pocket filing fees required in connection with such filings.
25.15. Conditioned Effectiveness of License. Notwithstanding anything in
this Agreement to the contrary, this Agreement will not be deemed
effective until the expiration or early termination of the waiting period
applicable to the transactions contemplated hereby under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Upon
such expiration or early termination, this Agreement will be deemed
effective, without any further action of Licensor or Licensee.
25.16. Lucasfilm Ltd. Guarantee. Lucasfilm Ltd. hereby agrees to guarantee
the performance of Licensor's obligations under this Agreement.
43
<PG$PCN>
25.17. Force Majeure. In the event that China's loss of most favored
nations trade status renders performance impossible or commercially
impracticable and such impossibility or impracticability of performance
can reasonably be expected to continue for at least ninety (90) days, then
the parties shall discuss in good faith appropriate action to take in
light of such circumstances.
44
<PG$PCN>
25.18. Entire Agreement. This Agreement (including all Exhibits and
Schedules attached hereto, which Exhibits and Schedules are incorporated
herein by this reference), constitutes the complete and entire agreement
between the parties with respect to the subject matter hereof, superseding
and replacing the Prior Agreements and any and all prior agreements,
negotiations, communications, and understandings (both written and oral)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties.
Notwithstanding the foregoing, the right to manufacture, distribute,
market and sell Licensed Products under the terms of the Prior Agreements
shall survive the execution and delivery of this Agreement, the "Royalty"
set forth and defined in the Prior Agreements shall be applicable to the
"Licensed Products" (set forth and defined in the Prior Agreements) in the
"Territories" (set forth and defined in the Prior Agreements) for Net
Sales occurring up to and including December 31, 1998 and, without
limitation, the parties agree that Licensee shall no longer have the right
to the "Sell-Off Period" (set forth and defined in the Prior Agreements).
LUCAS LICENSING LTD. ("Licensor") HASBRO, INC.
By: /s/ GORDON RADLEY By: /s/ HAROLD P. GORDON
-------------------------------- -----------------------------------
Title: President Title: Vice Chairman
------------------------------ --------------------------------
And
HASBRO INTERNATIONAL, INC. on behalf
of itself and all Permitted Licensee
Affiliates
By: /s/ HAROLD P. GORDON
-----------------------------------
Title: Vice Chairman
--------------------------------
(jointly and severally "Licensee")
LUCASFILM LTD.
(solely with respect to the
obligation contained in
Subparagraph 25.16
of the foregoing agreement)
By: /s/ GORDON RADLEY
---------------------------------
Title: President
------------------------------
45
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Toy License Agreement Between Lucas Licesning Ltd. and Hasbro dated as of
October 14, 1997
Schedule I - PERMITTED LICENSEE AFFILIATES
BYS Toys (Hong Kong) Limited
Claster Television, Inc.
Connector Set L.P.
Funskool (India) Ltd.
Groupe Hasbro France S.A.
Guangzhou Palmyra Bai-Yun-Shan Toys Limited
Hasbro Argentina S.A.
Hasbro Asia - Pacific Marketing Ltd.
Hasbro Australia Limited
Hasbro Aust Pty Ltd.
Hasbro B.V.
Hasbro Canada Inc.
Hasbro Chile LTDA
Hasbro Customer Services Limited
Hasbro de Mexico, S.A.de C.V.
Hasbro Deutschland GmbH
Hasbro Far East LTD
Hasbro Far East Services Limited
Hasbro Far East Venture Ltd.
Hasbro Finland OY
Hasbro Foreign Sales Corp.
Hasbro Hellas S.A.
Hasbro Hong Kong Limited
Hasbro Importatacao e Exportacao de Jogos e Brinquedos, Lda
Hasbro Industries (UK) Limited
Hasbro Interactive, Inc.
Hasbro Interactive Limited
Hasbro International Trading, Inc.
Hasbro International, Inc.
Hasbro Ireland Limited
Hasbro Israel Ltd.
Hasbro Italy S.r.l.
Hasbro Japan K.K.
Hasbro Latin America, Inc.
Hasbro Latin America Investments, Inc.
Hasbro Magyarorszag Kft
Hasbro Managerial Services, Inc.
Hasbro Mexicana S.A. de C.V.
Hasbro New Zealand Limited
Hasbro Norway AS
Hasbro Osterreich Ges.m.b.H.
Hasbro Peru S.A.
Hasbro Poland Sp.Zo.o.
SI-1
<PG$PCN>
Toy License Agreement Between Lucas Licesning Ltd. and Hasbro dated as of
October 14, 1997
Hasbro Promotions and Direct, Inc.
Hasbro Sales Inc./Les ventes Hasbro Inc.
Hasbro Scandinavia AS
Hasbro Schweiz AG
Hasbro Servicios S.A. de C.V.
Hasbro Singapore Pte Ltd.
Hasbro Sweden AB
Hasbro Toy (Malaysia) Sdn Bhd
Hasbro U.K. Limited
HIAC V Corp.
HIAC VI Corp.
HIAC VIII Corp.
HIAC IX Corp.
HMS Juguetes S.A. de C.V.
Inter-Toy Equiutim Araclari Sanayl Ve Ticaret A.S.
ISIX, Inc.
Juguetrenes S.A. de C.V.
K=NEX France S.N.C.
K=NEX G.m.b.H.
K=NEX International U.K.
K=NEX International, L.P.
Larami Far East Limited
Larami Limited
MB Espana, S.A.
MB International B.V.
MB Internacional Brinquedos, Ltda.
MB Nederland B.V.
Milton Bradley Company (Georgia)
Milton Bradley Limited
Milton Bradley Storage Limited
NanHai County Yongnan Toy Manufacturing Company Limited
OddzOn/Cap Toys Far East Limited
OddzOn/Cap Toys Far East Services Limited
OddzOn/Cap Toys, Inc.
Palmyra Holdings Pte Ltd.
Palmyra (Hong Kong) Limited
Playskool Realty, Inc.
PromoToys S.r.l.
S.A. Hasbro N.V.
3D Licensing Limited
Toltoys (Australia) Pty Ltd.
Tonka International, Inc.
Tonka Manufacturing, Inc.
Tonka (UK) Ltd.
Wrebbit Inc.
SI-2
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Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule II - LICENSED PRODUCTS
The term "Licensed Products" as used in, and subject to the terms and conditions
of the Agreement, means: (A) "STANDARD TOYS," (B) "GAMES AND PUZZLES" AND (C)
"ELECTRONICS/HAND HELD" (as such terms are defined hereinbelow).
(A) STANDARD TOYS: The term "Standard Toys," as used in the Agreement, means the
following: "Standard Figures," "Standard Vehicles," "Standard Playsets,"
"Role-Playing Toys," "Dolls," "Plush," "Water Toys," "Carrying Cases," "Creative
Play Toys," and "Novelty Candy" (as such terms are defined hereinbelow).
[**]
(B) "GAMES AND PUZZLES": The term "Games and Puzzles," as used in the Agreement
means all "Board Games," "Video Board Games," "Audio Board Games," "Card Games"
and "Puzzles":
[**]
(C) "ELECTRONICS/HAND HELD": The term "Electronics/Hand-Held," as used in the
Agreement, means "Hand-Held Games," "Electronic Novelty Toys" and "Electronic
Target Games," but specifically excluding "Youth Electronics" (as such terms are
defined hereinbelow):
[**]
(D) EXCLUSIONS FOR INTERACTIVE PRODUCTS: Notwithstanding anything to the
contrary set forth above in this Schedule II or otherwise, and without
limitation, (a) expressly excluded from "Licensed Products" are: all items of
the kinds described in this Section (D) and [**]
In the event of any inconsistencies or conflict between the terms and conditions
in Sections A, B, or C of this Schedule II and the terms and conditions of
Section D of this Schedule II, the terms and conditions of Section D shall
prevail.
SII-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule III - ADVANCES and MINIMUM SALES LEVELS (U.S. $000's)
[**]
SIII-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule IV -EXCLUDED DISTRIBUTION CHANNELS
[**]
SIV-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule V - LICENSOR TRADEMARKS
The Licensor Trademarks include, to the extent of Licensor's rights
therein in the applicable country of the Territory, all of the
trademarks, characters and other protectible elements as appearing in
the Pictures and the Spin-Off Properties, including, without limitation:
Admiral Akbar
Artoo-Detoo (R2-D2)
AT-AT
A-Wing
Ben (Obi-Wan) Kenobi
Bib Fortuna
Biggs Darklightner
Boba Fett
B=omarr Monk
Bossk (Bounty Hunter)
Chewbacca
Cloud City
Darth Vader
Death Star
Dengar
Dewback
Dr. Evazan
Droid
The Emperor
Emperor Palpatine
Endor
Ewok
Gamorrean Guard
Grad Moff Tarkin
Garindan
Greedo
Han Solo
Hoth
Ishi Tib
Jabba the Hutt
SV-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Jawa
Klaatu
Lak Sivrak
Lando Calrissian
Lobot
Logray
Lord Darth Vader
Luke Skywalker
Malikili
Max Rebo
Millennium Falcon
Mon Mothma
Nien Numb
Oola
Ponda Baba
Pote Snitkin
Princess Leia Organa
Rancor
Ree-Yees
Return of the Jedi
Return of the Jedi Logo
Ronto
Saelt-Marae
See-Threepio (C-3PO)
Shadows of the Empire
Star Wars
Star Wars Logo
Tauntaun
The Empire Strikes Back
The Empire Strikes Back Logo
The Force
TIE Fighter
Tusken
Ugnaught
Wampa
SV-2
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Weequay (Skiff Guard)
Wicket
Xizor
X-Wing
Yak Face
Yoda
Zuckus
SV-3
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule VI - EXCLUDED COUNTRIES
People's Republic of China (other than Hong Kong)
SVI-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
SCHEDULE VII [**]
SVII-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule VIII - MARKET CATEGORIES
[**]
SVIII-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule IX - GIFT MARKET DEFINITION
[**]
SIX-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Exhibit A - TRADEMARK LICENSE AGREEMENT
AGREEMENT dated as of this _____ day of ___________________, _____, between
Lucas Licensing Ltd. ("Licensor") and Hasbro, Inc. and Hasbro International,
Inc. and all "Permitted Licensee Affiliates" (as defined in the License
Agreement) (collectively, "Licensee").
1. TRADEMARKS, PRODUCTS AND LICENSED TERRITORY: Licensor is, as between Licensor
and Licensee, the owner of the trademarks indicated on Schedule A-1 attached
hereto and made a part hereof ("Licensor Trademarks"). Licensor desires that
Licensee be permitted to use the Licensor Trademarks on those goods indicated on
Schedule A-2 attached hereto and made a part hereof ("Licensed Products") in the
country or countries ("Licensed Territory") listed on Schedule A-3 listed on
Schedule III attached hereto and made a part hereof pursuant to the terms and
conditions hereof. The parties acknowledge and agree that the designations of
the Licensed Products and Licensed Territory contained in Schedules A-2 and A-3,
respectively, are not intended to, and shall not, supersede or alter in any
manner the designations used with respect to these matters in any commercial
agreement between the parties related to the subject matter hereof including but
not limited to the Toy License Agreement dated as of October __, 1997 among the
parties hereto (the "License Agreement").
2. LICENSE: Licensor hereby grants to Licensee a license (as provided in the
License Agreement) to use the Licensor Trademarks on and in connection with the
Licensed Products and for the sole purpose to affix the Licensor Trademarks to
or on the Licensed Products and packaging, containers, display materials,
advertising and promotional materials sold, used or distributed in connection
with the Licensed Products. Licensee hereby agrees to limit its use of the
Licensor Trademarks in accordance with the foregoing and according to processes,
specifications and other quality standards established or approved by Licensor
pursuant to the License Agreement for the Licensed Products with respect to
which the Licensor Trademarks are used. Without limiting the generality of the
foregoing, the quality of all such Licensed Products shall be at least as high
as that of similar goods presently sold or distributed by Licensee, and shall be
subject to such approval procedures established by any commercial agreement
between the parties related to the subject matter hereof.
3. TERM: The Term of this Agreement shall be _______________, including any
so-called "sell-off period", to which Licensee is entitled, if at all.
4. LIMITED GRANT: All rights in the Licensor Trademarks other than those
specifically granted herein are reserved to Licensor for its own use and
benefit. Licensee acknowledges that it shall not acquire any rights of
whatsoever nature in the Licensor Trademarks as a result of Licensee's use
thereof, and that all use of the Licensor Trademarks by Licensee shall inure to
the benefit of Licensor.
5. DISPLAY OF TRADEMARKS AND PROPRIETARY NOTICES: Pursuant to the terms and
conditions of the License Agreement: (a) Licensee agrees that the Licensor
Trademarks shall be displayed only in such form and manner as shall be
specifically approved by Licensor; (b) Licensee shall cause to appear on all
material on or in connection with which the Licensor Trademarks are used, such
legends, markings and notices as Licensor may require; (c) Licensee
Ex A-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
agrees that it shall use no markings, legends or notices relating to the
Licensor Trademarks on the Licensed Products and packaging and advertising
therefor other than as approved in advance in writing by Licensor; (d) Licensor
reserves the right to make such changes in the specified notices as Licensor
reasonably deems necessary or desirable to protect Licensor's interests in the
Licensed Trademarks, provided however that such changes shall not be required to
be made on Licensed Products and packaging or advertising therefor which have
already been manufactured or printed in accordance with Licensor's previous
instructions or approval. The foregoing shall not limit Licensor's ability to
reasonably require so-called "running changes" or to otherwise to enforce the
provisions of this Agreement or any other agreement between the parties.
The words "Registered User" and/or the symbol J or 7 shall be used on all
Licensed Products, packaging and advertising manufactured or printed after
Licensor notifies Licensee in writing that such words and symbol are legally
permitted in the specific country or countries in the Licensed Territory within
which the Licensed Products will be distributed.
6. COMPLIANCE WITH QUALITY STANDARDS: If the quality standards set forth herein
are not met, or if said quality standards are not maintained throughout the
period of manufacture of any Licensed Products hereunder, then, upon written
notice from Licensor, Licensee shall immediately discontinue the manufacture and
distribution of such Licensed Products that do not meet said quality standards.
The foregoing shall not limit Licensor's rights or remedies for failure to
maintain such quality standards as provided elsewhere herein or in any other
agreement between the parties hereto.
7. PRODUCTION SAMPLES: In accordance with the terms and conditions of the
License Agreement, Licensee agrees to submit to Licensor and to any other
recipient(s) which Licensor may from time to time designate in writing, on a
regular basis, representative samples of the Licensed Products and of any or all
materials bearing the Trademarks in order Licensor may be assured that the
provisions of this Agreement are being observed. Said samples should be
submitted to Licensor at the address specified by Licensor.
8. GOODWILL OF THE TRADEMARK: Licensee recognizes the great value of the
goodwill associated with the Licensor Trademarks and acknowledges that the
Licensor Trademarks and all rights therein and goodwill pertaining thereto
belong exclusively to Licensor.
9. SIMILAR TRADEMARKS: Licensee shall give Licensor prompt written notice of any
adverse use in the Licensed Territory of a trademark or other designation
similar to the Licensor Trademarks of which Licensee is or becomes aware.
Licensee further agrees that it shall not at any time apply for any registration
of any copyright, trademark or other designation, nor file any document with any
governmental authority, nor take any other action which would affect the
ownership of the Licensor Trademarks.
10. TERMINATION: Upon the expiration or earlier termination of this Agreement,
all rights to use the Licensor Trademarks or any other symbols of goodwill owned
by Licensor relative to the Licensed Products, together with the appurtenant
goodwill thereof shall revert automatically to Licensor, and Licensee shall
immediately discontinue all use of the Licensor Trademarks except as may herein
be provided.
Ex A-2
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
11. ASSIGNMENT UPON TERMINATION: Upon written request by Licensor, or in any
event upon the termination of this Agreement for whatever reason, Licensee shall
execute and deliver to Licensor a document, in form and substance reasonably
satisfactory to Licensor, assigning to Licensor all of Licensee's right, title
and interest, if any, in and to the Licensor Trademarks. In the event Licensee
fails to execute and deliver said document, Licensor shall have the right to
execute same as Licensee's attorney-in-fact, and Licensee does hereby
irrevocably appoint (such appointment being irrevocable and coupled with an
interest) Licensor its true and lawful attorney-in-fact only for the purpose of
executing such document.
12. RECORDATION OF AGREEMENT, REGISTERED USER: Licensor, at its discretion,
shall have the right to record this Agreement at the appropriate Registry or
governmental authority in the Licensed Territory at Licensor's expense, and
Licensee agrees to cooperate as requested by Licensor in arranging such
recordation, or in varying or canceling such recordation in the event of
amendments to, or termination of, this Agreement. Licensee hereby appoints
Licensor as its agent for the purpose of lodging, prosecuting and completing
registered user entries at the appropriate registry in the Territory and at
Licensor's expense, such appointment being irrevocable and coupled with an
interest.
13. GENERAL: The terms and conditions of this Agreement are subject to the terms
and conditions of the License Agreement and in the event of a conflict between
the terms or conditions herein contained and those of the License Agreement, the
latter shall prevail. Approvals hereunder shall be made subject to the terms of
the License Agreement. This Agreement does not constitute either party the agent
of the other or create a partnership or joint venture between the parties except
as provided herein, and Licensee shall have no power to obligate or bind
Licensor in any manner whatsoever. This Agreement shall be governed by the laws
of the State of California applicable to agreements made and fully performed in
California.
IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.
("Licensee") Lucas Licensing Ltd. ("Licensor")
- - ------------------------------------ -----------------------------------
Name: Name:
------------------------------- ------------------------------
Title: Title:
------------------------------ -----------------------------
Ex A-3
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule A-1 to TRADEMARK LICENSE AGREEMENT
LICENSOR TRADEMARKS
The Licensor Trademarks include such original trademarks, tradenames,
servicemarks and servicenames owned by Licensor and arising out of and which
have become directly associated with the "Pictures" or the "Spin-Off Properties"
(as such terms are defined in the License Agreement), to the extent of
Licensor's rights in each applicable country of the Territory under such
country's applicable trademark laws, including, but not limited to:
Admiral Akbar
Artoo-Detoo (R2-D2)
AT-AT
A-Wing
Ben (Obi-Wan) Kenobi
Bib Fortuna
Biggs Darklightner
Boba Fett
B=omarr Monk
Bossk (Bounty Hunter)
Chewbacca
Cloud City
Darth Vader
Death Star
Dengar
Dewback
Dr. Evazan
Droid
The Emperor
Emperor Palpatine
Endor
Ewok
Gamorrean Guard
Grad Moff Tarkin
Garindan
Greedo
Han Solo
Hoth
Ex A-4
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Ishi Tib
Jabba the Hutt
Jawa
Klaatu
Lak Sivrak
Lando Calrissian
Lobot
Logray
Lord Darth Vader
Luke Skywalker
Malikili
Max Rebo
Millennium Falcon
Mon Mothma
Nien Numb
Oola
Ponda Baba
Pote Snitkin
Princess Leia Organa
Rancor
Ree-Yees
Return of the Jedi
Return of the Jedi Logo
Ronto
Saelt-Marae
See-Threepio (C-3PO)
Shadows of the Empire
Star Wars
Star Wars Logo
Tauntaun
The Empire Strikes Back
The Empire Strikes Back Logo
The Force
TIE Fighter
Tusken
Ugnaught
Ex A-5
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Wampa
Weequay (Skiff Guard)
Wicket
Xizor
X-Wing
Yak Face
Yoda
Zuckus
Ex A-6
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule A-2 to TRADEMARK LICENSE AGREEMENT
LICENSED PRODUCTS
Ex A-7
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Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Schedule A-3 to TRADEMARK LICENSE AGREEMENT
LICENSED TERRITORY
Ex A-8
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Exhibit B - APPROVAL OF SUBLICENSEE AGREEMENT
THIS AGREEMENT, dated as of __________________, is made by and among LUCAS
LICENSING LTD., a California corporation, P.O. Box 2009, San Rafael, California
94912, U.S.A. (hereinafter referred to as "Licensor"), (sublicensee company
name), _________________ [address] (hereinafter referred to as "Company") and
Hasbro, Inc., Hasbro International and all "Permitted Licensee Affiliates" (as
defined in the License Agreement) (jointly and severally "Licensee"),
____________________ [address].
WHEREAS: Reference is made to that certain license agreement
between Licensor and Hasbro, Inc., Hasbro International and all "Permitted
Licensee Affiliates" (as defined in the License Agreement) (jointly and
severally "Licensee") (the "License Agreement"), pursuant to which License
Agreement Licensee is licensed the right to distribute and sell, subject to the
terms and conditions of the License Agreement, certain products, goods or
articles governed thereby (the "Licensed Products") based on the "Licensed
Property" (as defined therein); and
WHEREAS: Company and Licensee have entered into an agreement
dated ____, (the "Sublicense Agreement"), whereby Licensee has sublicensed to
Sublicensee the right to distribute and/or sell certain Licensed Products based
on or incorporating the Licensed Property in the country or countries set forth
therein (the "Territory") and for a term set forth in the Sublicense Agreement;
NOW, THEREFORE, for the promises set forth herein by the
parties and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
1. RESPONSIBILITY OF LICENSEE. Subject to the terms and conditions of the
License Agreement, nothing contained in this Agreement or in the Sublicense
Agreement shall in any manner whatsoever affect or otherwise diminish or relieve
Licensee of any of its obligations under the License Agreement.
2. SUBLICENSE AGREEMENT: In order to induce Licensor to execute this Agreement,
Licensee and Company hereby represent and agree that, subject to the approval of
Licensor, Company has executed the Sublicense Agreement. A copy of such
Sublicense Agreement is attached hereto as Attachment B-1 and is incorporated
herein by this reference. Without limitation of Licensor's rights, if Company
breaches a material term of the Sublicensee Agreement, and, as a result of such
breach, Licensee is in material breach of the License Agreement, subject to the
provisions of Subparagraph 22.2(a) of the License Agreement, then,
notwithstanding anything to the contrary contained in the Sublicense Agreement,
Licensor shall have the right, pursuant to the License Agreement to send to
Company a notice of termination ("Termination Notice") in the name of Licensee
and the Sublicense Agreement shall be deemed terminated as of the date Company
receives such Termination Notice.
3. APPROVAL BY LICENSOR: Subject to the terms and conditions hereof, Licensor
hereby approves Company to act for Licensee as a sublicensee of the rights and
obligations of Licensee solely with respect to the sale and distribution of
Licensed Products governed by the Sublicense Agreement. It is expressly
understood and agreed that the rights sublicensed
Ex B-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
hereunder do not include the right to manufacture of Licensed Products for which
Company must, with Licensor's prior written approval, execute an Approval of
Manufacturer Agreement in accordance with the terms and conditions of the
License Agreement
4. ACKNOWLEDGMENT OF LICENSE AGREEMENT: Company hereby represents that Company
has reviewed and is familiar with all of the provisions of the License Agreement
identified in Subparagraph 8.3 of the License Agreement as being relevant to
Company's activities hereunder, and Company agrees that in performing under this
Agreement, Company shall perform, be bound by and comply with each and all of
such terms and conditions of the License Agreement as they apply to Company.
Without limitation of Licensor's rights and remedies, in the event of a breach
or threatened breach by Licensee of any term or condition of the License
Agreement and/or in the event of a breach or threatened breach by Company of any
term or condition of the Sublicense Agreement that would result in a breach of
Licensee's obligations pursuant to the License Agreement, Licensor shall be
entitled to seek legal and/or equitable relief by way of injunction or otherwise
against Licensee and/or against Company, at the discretion of Licensor, to
restrain, enjoin and/or prevent any such breach or threatened breach.
5. OBLIGATIONS OF COMPANY: Company hereby agrees that in exercising the rights
authorized herein:
(a) Company shall only distribute and/or sell a Licensed Product pursuant to the
Sublicense Agreement in accordance with the instructions of Licensee;
(b) Except as provided in Subparagraph 10(a) herein below, Company shall not
assign or license, in any manner whatsoever, the rights granted to Company
herein or delegate any of its obligations under the Sublicense Agreement or
under this Agreement to any party;
(c) Company shall execute a Trademark License Agreement with Licensor, or with
any entity designated by Licensor, with respect to the Licensed Products in a
form substantially identical to the Trademark License Agreement executed by
Licensee with respect to the Licensed Products; and
(d) Without limitation of Licensor's rights hereunder, Company shall upon
execution of the Sublicense Agreement and of this Agreement assume all of
Licensee's obligations with respect to rights sublicensed in the Sublicense
Agreement for the Licensed Products governed thereby.
6. EFFECT OF EXPIRATION OR TERMINATION: Without limitation, upon the expiration
or earlier termination of the Sublicense Agreement, Company shall comply with
and be bound by the terms and conditions as are imposed upon Licensee pursuant
to subparagraph 22.3 of the License Agreement and (a) immediately cease all
activities authorized hereunder respecting the Licensed Products including,
without limitation, the distribution and sale of Licensed Products and, within
thirty (30) days after such expiration or termination, Company shall send
Licensor and Licensee a complete inventory report of all Licensed Products
within its possession or control; and (b) at Licensor's election, [**] furnish
Licensor with a sworn certificate of destruction of such Production Materials,
signed by an officer of Company. Upon the expiration or termination of the
Sublicense Agreement, including a sell-off period thereunder, if any, except as
otherwise expressly
Ex B-2
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
provided herein, Company shall have no further right to exercise the rights
sublicensed hereunder or otherwise acquired in relation to this Agreement or the
Sublicense Agreement.
7. COMPANY RECORDS AND AUDITS:
(a) Company will maintain complete and accurate records during and for five (5)
years after the termination or expiration of the Sublicense Agreement, related
to this Agreement and/or the rights sublicensed pursuant to the Sublicense
Agreement. The obligation to maintain records and to grant Licensor and
Licensor's representatives access to such records shall survive the expiration
or earlier termination of this Agreement.
(b) An independent certified public accountant selected by Licensor may, upon
reasonable notice and during normal business hours, inspect any and all records
of Company related to the exercise of Company's rights under this Agreement
and/or the Sublicense Agreement, including without limitation its payment
obligations. If, upon performing such audit, it is determined that Company owes
Licensor monies, Company will immediately make full payment thereof. If the
amount of such payment exceeds [**], Company will bear all out-of-pocket
expenses and costs of such audit in addition to its obligation to make full
payment. All underpayments and late payments will accrue interest charges from
the due date through the date of payment at an interest rate equal to [**], and
shall be payable upon demand.
8. LICENSOR AS THIRD PARTY BENEFICIARY. In addition to Licensor's other rights
and remedies pursuant to the License Agreement and to this Agreement, Licensor
is a third party beneficiary of the obligations of Company under any and all
agreements, whether oral or written, between Company and Licensee respecting the
Licensed Products, including, without limitation, the Sublicense Agreement, and
Licensor shall have the right at any time to enforce such obligations related to
the Licensed Property and to exercise any of Licensee's rights and remedies
directly against Company as if Licensor were a direct party thereto if Licensee
fails to enforce such obligations or to exercise any such rights or remedies
within twenty-five (25) days following Licensee's receipt of Licensor's written
request therefor.
9. CONFIDENTIALITY.
(a) Confidential Information. Company acknowledges and agrees that the terms and
conditions contained in this Agreement, the Sublicense Agreement and/or any
other agreement between or among any or all of the parties are confidential, as
well as any and all information and material concerning or pertaining to: (i)
any script, concept, marketing plan, schedule of Licensor or of any
Licensor-Related Entity (including, without limitation, any pre-production,
production or post-production schedule or release schedule for any "Prequel" [as
defined in the License Agreement] or for any derivative work thereof); (ii) any
project, product, good or article pertaining to the Licensed Property; (iii) any
term or condition of any agreement between Licensor and any individual or entity
relating to any Licensed Product (including, without limitation, any talent
agreement); and (iv) any "Copyright Material" (as such term is defined in the
License Agreement) are confidential and proprietary to Licensor (individually
and collectively the "Confidential Information"). Company further acknowledges
and agrees that, except as otherwise expressly provided in this Subparagraph
10(a), Company shall not use, copy, or disclose, or authorize or permit the use,
copy or disclosure of, any Confidential Information in whole or in
Ex B-3
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
part in any manner or to any person, firm, enterprise, organization, corporation
or entity unless authorized in advance in writing by Licensor. Company shall
receive and hold, and shall contractually obligate and cause all entities with
whom it contracts relative to the Licensed Products to maintain, all
Confidential Information in the strictest confidence and Company acknowledges,
represents, warrants and agrees to use its best efforts to protect the
confidentiality of all Confidential Information. Furthermore, Company will not
disclose any Confidential Information to any third party for any purpose
(including the exercise of its rights or performance of its obligations) unless
Licensor otherwise agrees in writing and such third party has executed a written
confidentiality agreement in form and substance acceptable to Licensor, which
confidentiality agreement, inter alia, shall restrict the use of any
Confidential Information to the minimal extent necessary to effectuate the terms
and conditions of this Agreement as they apply to such third party and requires
such third party to use its best efforts to maintain all Confidential
Information in the strictest confidence. Company's obligations pursuant to this
Subparagraph 9(a) shall not apply to any Confidential Information which: is
authorized in writing by Licensor to become publicly known; is rightfully
received from a third party authorized by Licensor to receive such information
without restriction and without breach of this Agreement; or is the minimum
necessary to comply with any law, regulation, stock exchange rule or valid order
of a court of competent jurisdiction.
(b) Publicity or Announcements. Without limitation of the foregoing, except to
the minimum extent necessary to comply with any law, regulation or stock
exchange rule, no announcements, press releases, or publicity about the
existence or any terms of this Agreement, the relationship of the parties or
about the rights relating to the Licensed Products to be exercised hereunder
shall be made by Company without the prior written approval of Licensor in each
instance.
(c) Rights of Publicity. Except as expressly set forth herein, Company acquires
no rights to use and will not use without Licensor's prior written approval the
characters, artwork, designs, trade names, copyrighted materials, trademarks or
service marks of Licensor in any advertising, publicity or promotion, to express
or imply any endorsement by Licensor of Company's services or products, or in
any other manner except as expressly authorized in this Agreement. The foregoing
provision shall survive expiration or termination of this Agreement.
10. GENERAL.
(a) Assignment. This Agreement will bind and inure to the benefit of each party
and to their respective successors and assigns. Company shall not voluntarily or
by operation of law assign, sub-license, transfer, encumber or otherwise dispose
of all or part of any right or privilege granted to Company in this Agreement,
without Licensor's prior written approval. For purposes of this Paragraph, any
change in control of Company, whether through merger, acquisition,
reorganization, liquidation, foreclosure, involuntary sale in bankruptcy, or the
purchase of substantially all of Company's assets or otherwise, shall be deemed
a purported assignment subject to Licensor's prior written approval. Any
attempted assignment, sublicense, transfer, encumbrance or other disposal
without such approval will be null and void and constitute a material default
and material breach of this Agreement.
Ex B-4
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
(b) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the federal laws of the United States and the laws
of the State of California applicable to agreements executed, and to be
performed entirely, within California between California residents (and
excluding the United Nations Convention on Contracts for the International Sale
of Goods) without regard to choice of provisions and regardless of the place or
places of its actual execution and performance. Any suit, action or proceeding
between or among the parties hereto arising out of or related to this Agreement
will be brought solely in the federal or state courts in the Northern District
of California, and Company hereby submits to the personal jurisdiction thereof
and agrees to such courts as the appropriate venue. Notwithstanding the
foregoing, Company agrees that, for purposes of collecting monies due pursuant
to this Agreement, Company, at Licensor's election, may be subject to whatever
local laws and courts have jurisdiction in any country of the Territory over
Company.
(c) Attorneys' Fees. In the event of any legal proceeding between or among any
of the parties hereto arising out of or related to this Agreement, the
prevailing party shall be entitled to recover, in addition to any other relief
awarded or granted, its costs and expenses (whether or not in connection with
litigation and including, without limitation, reasonable attorneys' fees and
costs) incurred in connection with any such proceeding.
(d) Equitable Relief. Company recognizes and acknowledges that a breach by
Company of any covenants, agreements or undertakings made or assumed by it
hereunder or under the Sublicense Agreement will cause Licensor irreparable
damage, which cannot be readily remedied in damages in an action at law, and
may, in addition thereto, constitute an infringement of Licensor's intellectual
property and other rights in the Licensed Property, thereby entitling Licensor
to equitable remedies (including, without limitation, injunctive relief),
reasonable costs (including, without limitation, whether or not in connection
with litigation) and reasonable attorney's fees.
(e) Notices. All notices and approvals under this Agreement will be deemed
received when delivered personally, sent by confirmed facsimile transmission or
received through nationally-recognized express courier, to the address shown
below or as may otherwise be specified by either party to the other in
accordance with this Subparagraph 10(e). All such notices to Licensor will be
directed as follows:
For notices to Licensor: P. O. Box 2009, San Rafael, CA 94903,Attention:
Vice President, Licensing, with a courtesy copy to: General Counsel.
For notices to Company: _________________________________
(f) No Waiver. No waiver by either party, whether express or implied, of any
provision of this Agreement or any breach thereof, and no failure of either
party to exercise or enforce any of its rights under this Agreement, will
constitute a continuing waiver with respect to such provision or right or as a
breach or waiver or any other provision or right, whether or not similar.
(g) Severability. This Agreement is severable. If any provision of this
Agreement is found invalid or unenforceable, that provision will be enforced to
the maximum extent permissible, and the other remaining provisions of this
Agreement will not be affected and shall remain in force.
Ex B-5
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
(h) Approvals. Any and all approvals of Licensor permitted, rendered or required
pursuant to this Agreement may be given or withheld by Licensor in the manner
provided in the License Agreement.
(i) Headings Captions and Definitions. The name of this Agreement, and all
headings and captions herein contained are for reference and convenience only
and do not define, limit or expand the scope or intent of any provision hereof
and shall not be relied upon in or in connection with the construction or
interpretation of this Agreement. Except as herein otherwise expressly defined,
all capitalized terms contained in this Agreement shall have the same meaning as
such words have in the License Agreement. The words "herein," "hereunder" and
similar terms refer to this entire Agreement and shall not be limited to the
specific paragraphs or subparagraphs in which they are used.
(j) Counterparts. This Agreement may be executed in one or more counterparts,
and by telefacsimile transmission, each copy of which shall be deemed an
original and all of which, when taken together, shall constitute one and the
same instrument, but this Agreement shall not be binding upon the parties until
it has been signed by all parties hereto. The parties hereto agree that
telecopied signatures hereto shall be effective and enforceable.
(k) Further Instruments: Except as otherwise expressly provided in this
Agreement, each party shall furnish to the others (and shall deliver and cause
to be executed, acknowledged and delivered to the other) any further
instruments, which any such other party may reasonably require or deem necessary
from time to time to evidence, establish, protect, enforce, defend or secure to
such other party any or all of its rights hereunder or to more effectuate or
carry out the purposes, provisions or intent of this Agreement.
(l) Entire Agreement. This Agreement constitutes the complete and entire
agreement by and among all of the parties with respect to the subject matter
hereof, superseding and replacing any and all prior agreements, negotiations,
communications, and understandings (both written and oral) by and among all of
the parties regarding such subject matter. This Agreement may only be modified,
or any rights under it waived, by a written document executed by all parties. By
signing in the spaces provided below, the parties hereto have accepted and
agreed to all of the terms and conditions set forth above.
LUCAS LICENSING LTD. ("Licensor")
By:___________________________________
Its:__________________________________
Ex B-6
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
THE FOREGOING IS ACCEPTED AND AGREED TO:
_________________________ ("Company")
By:___________________________________
Title:________________________________
HASBRO, INC., on behalf of itself and all "Permitted
Licensee Affiliates" (as defined in the License Agreement)
By:___________________________________
Title:________________________________
("Licensee")
Ex B-7
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Attachment B-1 (SUBLICENSE AGREEMENT)
Ex B-8
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Exhibit C - STANDARD APPROVAL FORM
STANDARD APPROVAL FORM
- - --------------------------------------------------------------------------------
Licensed Star Wars Date sent to LHI
Property ____________________________
Licensee ____________________________ Date Received
_________________________________________ Date Called
_________________________________________ Date Returned
_________________________________________ Phone:
_________________________________________ Fax:
Attention: ______________________________
Article Enclosed (one form per item) _________________________________
Checklist
____________ Art |_|
____________ Editorial |_|
____________ Legal |_|
____________ Marketing |_|
____________ Merchandising |_|
Comments (LHI use only) ________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
|_| See attached
___________________________________________________
Merchandising Coordinator, Lucas Licensing Ltd.
Ex C-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Exhibit D - ROYALTY REPORT FORM (To be provided)
Ex D-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Exhibit E - THIRD PARTY COPYRIGHT ASSIGNMENT FORM
Date: ______________________
[Name and Address of artist] (the "Artist") agrees to make for [Licensee]
("Company") the following original artwork, which shall be satisfactory to Lucas
Licensing Ltd. ("LIC"), for the project described below:
LIC is the owner of all worldwide rights in and to the films entitled [specify
films] (collectively the "Films") and is the owner of all rights, including all
copyrights, in and to the works based on or derived from the Films.
Company is a licensee of LIC with respect to use of the Films (and elements
thereof) with respect to ____________, and Company wishes to develop
[description of work] (the "Project").
Artist wishes to have Company commission artwork in connection with the Project.
Artist understands that Company will commission such artwork only on a
work-for-hire basis or on the condition that all rights in and to such artwork
are assigned by Artist to LIC.
1. Assignment: Artist hereby sells, transfers and assigns to LIC, exclusively
and perpetually, all worldwide rights, titles and interest of every kind and
nature in the artwork more particularly described on Schedule II attached hereto
(hereinafter the "Work"), including, but not limited to, (a) all copyrights
herein for the full term of such copyrights, including any periods of extension
or renewal, (b) the right of reproduction in any and all media of the Work, in
whole or in part, including, but not limited to, any characters or figures
depicted or developed therein, (c) the moral rights of authors in the Work in
whole or in part, and (d) all rights of manufacture, merchandising, recordation,
reproduction, display and exhibition of the Work in whole or in part, by any
means now known and/or hereafter devised.
2. Work for Hire: Should Artist be deemed an employee of Company, or any third
party licensee, or should the Work be deemed a work-for-hire, Artist agrees that
the Work was created within the scope of Artist's employment, or that the Work
is considered a work made-for-hire.
3. Assistance by Artist: Artist agrees to assist LIC at no cost or expense to
Artist in obtaining registration and enforcement of copyrights and other rights
of any kind or nature in the Work, or any portion of it, including, but not
being limited to, the execution of further assignments or other documents.
4. Consideration: Artist agrees and acknowledges that Company is not permitted
to commission artwork from third parties unless LIC grants its approval thereto.
Artist further agrees and acknowledges that Artist has executed this Agreement
in consideration of LIC's permission to allow Company to commission Artist to
participate in the Project. Artist agrees and acknowledges that Company (and
LIC) shall be solely responsible for all payment due Artist with respect to the
Work, and that any failure by Company to pay Artist, any breach by Company of
any agreement Company may have with Artist, or any act or omission of Company,
shall not
Ex E-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
effect a revocation of, diminish, limit, or otherwise affect in any manner LIC's
ownership of all rights in and to the Work under this Agreement.
5. Exercise of Rights: The rights granted by this agreement to LIC shall be
exercised by LIC and Company in their sole and exclusive discretion.
6. Artist's Warranty, Indemnity and Acknowledgment: Artist warrants that the
Work is and shall be wholly original, except for any materials provided Artist
by Company, and except for any materials utilized by Artist from the public
domain; that to Artist's knowledge no third party has any right, title or
interest in and to the Work; that Artist has the full right and authority to
make this assignment; that no rights in or to the Work are being retained or
reserved by Artist; that proper releases have been obtained from all persons
whose names or likenesses may be incorporated or used in the Work, unless
specifically excepted at the end of this Agreement; and that use by LIC and
Company of the Work will not infringe or violate the rights of any third party.
Artist agrees to indemnify and hold Company and LIC harmless against any and all
loss, cost, liability and expenses (including reasonable counsel fees) arising
out of any breach of the warranties contained in this agreement.
7. Moral Rights/Rental and Lending Rights: Artist hereby irrevocably transfers
and assigns to LIC, and waives and agrees never to assert, any and all "Moral
Rights" (defined below) in or with respect to the Work and/or the Licensed
Property, even after expiration or termination of this Agreement. "Moral Rights"
means any rights to claim authorship of a work, to object to or prevent the
modification of a work, or to withdraw from circulation or control the
publication or distribution of a work, and any similar right, existing under the
law of any country in the world or under any treaty. If and to the extent
applicable in respect of rights commonly known as moral rights, including but
without limitation, those defined in Sections 77-89 inclusive of the U.K.
Copyright Designs and Patents Act 1988, as amended, Artist hereby waives all
such rights in their entirety and Artist hereby warrants that Artist has
procured or shall procure, so far as the same is permissible, waivers of all
such rights in their entirety from all persons who may have such rights in and
to the Work and/or the Licensed Property, the intent that such waiver shall be
irrevocable and shall extend to Artist and/or Artist's assigns and successors in
title.
8. Company's Indemnity and Acknowledgment: To the best of Company's knowledge,
any contributions and changes Company makes to the Work will not infringe or
violate the rights of any third party. Company hereby indemnifies Artist and
shall hold Artist harmless from any loss, liability, damage, cost or expense
(including reasonable counsel fees), arising out of any claims or suits which
may be brought or made against Artist by reason of the breach by Company of the
warranties or representations made in this agreement.
9. Confidentiality and Acknowledgment of Ownership: Artist agrees to hold in
strictest confidence, and not disclose to any person or organization any
confidential information relating to LIC, Company, or the Films which Artist
obtains by virtue of the access to such information granted to Artist by Company
or LIC. Artist acknowledge that such information is the sole property of LIC,
and is considered to be trade secrets of LIC, and includes any information
relating to works-in-progress, business, trade secrets, scripts, plots, or any
other confidential
Ex E-2
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
matter relating to the artistic creations or business of LIC and/or any of its
affiliated or related entities.
10. Successors and Assigns: This agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors,
agents, administrators and assigns.
11. Governing Law: This agreement shall be construed according to the laws of
the State of California, which courts sitting in Northern California shall have
exclusive jurisdiction.
By: ________________________________
("Artist")
Lucas Licensing Ltd.
By: ________________________________
Its: _______________________________
Ex E-3
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
Exhibit F - APPROVAL OF MANUFACTURER AGREEMENT
THIS AGREEMENT dated as of _______________ by and among LUCAS LICENSING LTD.
("Licensor"), 5858 Lucas Valley Road, Nicasio, California 94946 U.S.A. (mailing
address: P.O. Box 2009, San Rafael, California 94912 U.S.A.),
________________________ ("Company"), located at ______________________, and
Hasbro, Inc., Hasbro International and all "Permitted Licensee Affiliates" (as
defined in the License Agreement) ("Licensee"), located at ____________________.
WHEREAS: Reference is made to that certain license agreement
dated as of ________ (the "License Agreement") between Licensor and
_________________________________________________ Licensee under which Licensee
was granted the right to manufacture and distribute the products, goods and
articles of merchandise specified therein ("Licensed Products") relating to the
certain Licensed Property governed thereby; and
WHEREAS: Company and Licensee have executed an agreement dated
______, ____, (the "Manufacturing Agreement") whereby Company has been engaged
by Licensee to manufacture certain Licensed Products based on or incorporating
the Licensed Property in the country or countries set forth therein (the
"Territory") and for a term as set forth therein (the "term") commencing on
[term Effective Date] and continuing until [term end date];
NOW, THEREFORE, for the promises set forth herein by the
parties and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree, as follows:
1. RESPONSIBILITY OF LICENSEE: Subject to the terms and conditions of the
License Agreement, nothing contained in this Agreement or in the Manufacturing
Agreement shall in any manner whatsoever affect or otherwise diminish or relieve
Licensee of any of its obligations under the License Agreement.
2. MANUFACTURING AGREEMENT: In order to induce Licensor to execute this
Agreement, Licensee and Company hereby represent and agree that, subject to the
approval of Licensor, Company has executed the Manufacturing Agreement. Without
limitation of Licensor's rights, if Company breaches a material term of the
Manufacturing Agreement and, as a result of such breach, Licensee is in material
breach of the License Agreement, subject to the provisions of Subparagraph
22.2(a) of the License Agreement, then, notwithstanding anything to the contrary
contained in the Manufacturing Agreement, Licensor shall have the right,
pursuant to the License Agreement to send to Company a notice of termination
("Termination Notice") in the name of Licensee and the Agreement shall be deemed
terminated as of the date Company receives such Termination Notice.
3. APPROVAL BY LICENSOR: Subject to the terms and conditions hereof, Licensor
hereby approves of Company as a manufacturer of the Licensed Products governed
by the Manufacturing Agreement, for the Term, as such Term shall expire or be
terminated hereunder, and for the Territory.
Ex F-1
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
4. ACKNOWLEDGMENT OF LICENSE AGREEMENT: Company hereby represents that Company
has reviewed and is familiar with all of the provisions of the License Agreement
identified in Subparagraph 15.1 of the License Agreement as being relevant to
Company's activities hereunder, and Company agrees that in performing under this
Agreement, Company shall perform, be bound by and comply with each of such terms
and conditions of the License Agreement as they apply to Company. Without
limitation of Licensor's rights and remedies, in the event of a breach or
threatened breach by Licensee of any term or condition of the License Agreement
and/or in the event of a breach or threatened breach by Company of any term or
condition of the Manufacturing Agreement that would result in a breach of
Licensee's Agreement, Licensor shall be entitled to seek legal and/or equitable
relief by way of injunction or otherwise against Licensee and/or against
Company, at the discretion of Licensor, to restrain, enjoin and/or prevent any
such breach or threatened breach.
5. OBLIGATIONS OF COMPANY: Company hereby agrees that in exercising the rights
authorized herein:
(a) Company shall only manufacture the Licensed Products pursuant to the
Manufacturing Agreement in accordance with the instructions of Licensee;
(b) Company shall not assign or license, in any manner whatsoever, the rights
granted to Company herein or delegate any of its obligations under the
Manufacturing Agreement or under this Agreement, to any party without Licensor's
prior written consent;
(c) Company shall execute a Trademark License Agreement with Licensor, or with
any entity designated by Licensor, with respect to the Licensed Products in a
form substantially identical to the Trademark License Agreement executed by
Licensee with respect to the Licensed Products; and
(d) Without limitation of Licensor's rights hereunder, Company shall upon
execution of the Manufacturing Agreement and this Agreement assume all of
Licensee's obligations with respect to manufacture of the Licensed Products
governed thereby.
6. EFFECT OF EXPIRATION OR TERMINATION: Without limitation, upon the expiration
or earlier termination of the Manufacturing Agreement, Company shall comply with
and be bound by the same terms and conditions as are imposed upon Licensee
pursuant to Subparagraph 22.3 of the License Agreement. Upon the expiration or
termination of the Manufacturing Agreement, except as otherwise expressly
provided herein, Company shall have no further right to exercise the rights
approved hereunder or otherwise acquired pursuant to the Manufacturing
Agreement.
7. COMPANY RECORDS AND AUDITS:
(a) Company will maintain complete and accurate records during and for five (5)
years after the termination or expiration of the Manufacturing Agreement related
to this Agreement and/or the rights granted to Company pursuant to the
Manufacturing Agreement. The obligation to maintain records and to grant
Licensor and Licensor's representatives access to such records shall survive the
expiration or earlier termination of this Agreement.
Ex F-2
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
(b) An independent certified public accountant selected by Licensor may, upon
reasonable notice and during normal business hours, inspect any and all records
of Company related to the exercise of Company's rights under this Agreement
and/or under the Manufacturing Agreement. If, upon performing such audit, it is
determined that Company owes Licensor monies, Company will immediately make full
payment thereof. If the amount of such payment exceeds [**], Company will bear
all expenses and costs of such audit in addition to its obligation to make full
payment. All underpayments and late payments will accrue interest charges from
the due date through the date of payment at an interest rate equal to [**], and
shall be payable upon demand.
8. LICENSOR AS THIRD PARTY BENEFICIARY: In addition to Licensor's other rights
and remedies pursuant to the License Agreement and this Agreement, Licensor is a
third party beneficiary of the obligations of Company under any and all
agreements, whether oral or written, between Company and Licensee respecting the
Licensed Products, including, without limitation, the Manufacturing Agreement,
and Licensor shall have the right at any time to enforce such obligations and to
exercise any of Licensee's rights and remedies directly against Company as if a
direct party thereto if Licensee fails to enforce such obligations or to
exercise any such rights or remedies within twenty-five (25) days following
Licensee's receipt of Licensor's written request therefor.
9. CONFIDENTIALITY:
(a) Confidential Information. Company acknowledges and agrees that the terms and
conditions contained in this Agreement, the Manufacturing Agreement and/or any
other agreement between or among any or all of the parties are confidential, as
well as any and all information and material concerning or pertaining to: (i)
any script, concept, marketing plan, schedule of Licensor or of any
Licensor-Related Entity (including, without limitation, any pre-production,
production or post-production schedule or release schedule for any "Prequel" [as
defined in the License Agreement] or for any derivative work thereof); (ii) any
project, product, good or article pertaining to the Licensed Property; (iii) any
term or condition of any agreement between Licensor and any individual or entity
relating to any Licensed Product (including, without limitation, any talent
agreement); and (iv) any "Copyright Material" (as such term is defined in the
License Agreement) are confidential and proprietary to Licensor (individually
and collectively the "Confidential Information"). Company further acknowledges
and agrees that, except as otherwise expressly provided in this Subparagraph
9(a), Company shall not use, copy, or disclose, or authorize or permit the use,
copy or disclosure of, any Confidential Information in whole or in part in any
manner or to any person, firm, enterprise, organization, corporation or entity
unless authorized in advance in writing by Licensor. Company shall receive and
hold, and shall contractually obligate and cause all entities with whom it
contracts relative to the Licensed Products to maintain, all Confidential
Information in the strictest confidence and Company acknowledges, represents,
warrants and agrees to use its best efforts to protect the confidentiality of
all Confidential Information. Furthermore, Company will not disclose any
Confidential Information to any third party for any purpose (including the
exercise of its rights or performance of its obligations) unless Licensor
otherwise agrees in writing and such third party has executed a written
confidentiality agreement in form and substance acceptable to Licensor, which
confidentiality agreement, inter alia, shall restrict the use of any
Confidential Information to the minimal extent necessary to effectuate the terms
and conditions of this Agreement as they apply to such third party shall require
Ex F-3
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
such third party to use its best efforts to maintain all Confidential
Information in the strictest confidence. Company's obligations pursuant to this
Subparagraph 9(a) shall not apply to any Confidential Information which: is
authorized in writing by Licensor to become publicly known; is rightfully
received from a third party authorized by Licensor to receive such information
without restriction and without breach of this Agreement; or is the minimum
amount necessary to comply with any valid order of a court of competent
jurisdiction.
(b) Publicity or Announcements. Without limitation of the foregoing, except to
the extent necessary to comply with any law, regulation or stock exchange rule,
no announcements, press releases, or publicity about the existence or any terms
of this Agreement, the relationship of the parties or about the rights relating
to the Licensed Products to be exercised hereunder shall be made by Company
without the prior written approval of Licensor in each instance.
(c) Rights of Publicity. Except as expressly set forth herein, Company acquires
no rights to use and will not use without Licensor's prior written approval the
characters, artwork, designs, trade names, copyrighted materials, trademarks or
service marks of Licensor in any Advertising, publicity or promotion, to express
or imply any endorsement by Licensor of Company's services or products, or in
any other manner except as expressly authorized in this Agreement. The foregoing
provision shall survive expiration or termination of this Agreement.
10. GENERAL:
(a) Assignment. This Agreement will bind and inure to the benefit of each party
and to their respective successors and assigns. Company shall not voluntarily or
by operation of law assign, sub-license, transfer, encumber or otherwise dispose
of all or part of any right or privilege granted to Company in this Agreement or
in the Manufacturing Agreement, without Licensor's prior written approval. For
purposes of this Subparagraph 10(a), any change in control of Company, whether
through merger, acquisition, reorganization, liquidation, foreclosure,
involuntary sale in bankruptcy, or the purchase of substantially all of
Company's assets or otherwise, shall be deemed a purported assignment subject to
Licensor's prior written approval. Any attempted assignment, sublicense,
transfer, encumbrance or other disposal without such approval will be null and
void and constitute a material default and material breach of this Agreement.
(b) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the federal laws of the United States and the laws
of the State of California applicable to agreements executed, and to be
performed entirely, within California between California residents (and
excluding the United Nations Convention on Contracts for the International Sale
of Goods) without regard to choice of provisions and regardless of the place or
places of its actual execution and performance. Any suit, action or proceeding
between or among any of the parties hereto arising out of or related to this
Agreement will be brought solely in the federal or state courts in the Northern
District of California, and Company hereby submits to the personal jurisdiction
thereof and agrees to such courts as the appropriate venue. Notwithstanding the
foregoing, Company agrees that, for purposes of collecting monies due pursuant
to this Agreement, Company, at Licensor's election, may be subject to whatever
local laws and courts have jurisdiction in any country of the Territory over
Company.
Ex F-4
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
(c) Attorneys' Fees. In the event of any legal proceeding between or among any
of the parties hereto arising out of or related to this Agreement, the
prevailing party shall be entitled to recover, in addition to any other relief
awarded or granted, its costs and expenses (whether or not in connection with
litigation and including, without limitation, reasonable attorneys' fees and
costs) incurred in connection with any such proceeding.
(d) Equitable Relief. Company recognizes and acknowledges that a breach by
Company of any covenants, agreements or undertakings made or assumed by it
hereunder or under the Manufacturing Agreement will cause Licensor irreparable
damage, which cannot be readily remedied in damages in an action at law, and
may, in addition thereto, constitute an infringement of Licensor's intellectual
property and other rights in the Licensed Property, thereby entitling Licensor
to equitable remedies (including, without limitation, injunctive relief),
reasonable costs (including, without limitation, whether or not in connection
with litigation) and reasonable attorney's fees.
(e) Notices. All notices and approvals under this Agreement will be deemed
received when delivered personally, sent by confirmed facsimile transmission or
received through nationally-recognized express courier, to the address shown
below or as may otherwise be specified by either party to the other in
accordance with this Subparagraph 10(e). All such notices to Licensor will be
directed as follows:
For notices to Licensor: P. O. Box 2009, San Rafael, CA 94903, Attention:
Vice President, Licensing, with a courtesy copy to: General Counsel.
For notices to Company: _________________________________
(f) No Waiver. No waiver by either party, whether express or implied, of any
provision of this Agreement or any breach thereof, and no failure of either
party to exercise or enforce any of its rights under this Agreement, will
constitute a continuing waiver with respect to such provision or right or as a
breach or waiver or any other provision or right, whether or not similar.
(g) Severability. This Agreement is severable. If any provision of this
Agreement is found invalid or unenforceable, that provision will be enforced to
the maximum extent permissible, and the other remaining provisions of this
Agreement will not be affected and shall remain in force.
(h) Approvals. Any and all approvals of Licensor permitted, rendered or required
pursuant to this Agreement may be given or withheld in Licensor's sole
discretion, subject to the terms of the License Agreement.
(i) Headings, Captions, and Definitions. The name of this Agreement, and all
headings and captions herein contained are for reference and convenience only
and do not define, limit or expand the scope or intent of any provision hereof
and shall not be relied upon in or in connection with the construction or
interpretation of this Agreement. Except as herein otherwise expressly defined,
all capitalized terms contained in this Agreement shall have the same meaning as
such words have in the License Agreement. The words "herein," "hereunder" and
similar terms refer to this entire Agreement and shall not be limited to the
specific paragraphs or subparagraphs in which they are used.
Ex F-5
<PG$PCN>
Toy License Agreement Between Lucas Licensing Ltd. and Hasbro dated as of
October 14, 1997
(j) Counterparts. This Agreement may be executed in one or more counterparts,
and by telefacsimile transmission, each copy of which shall be deemed an
original and all of which, when taken together, shall constitute one and the
same instrument, but this Agreement shall not be binding upon the parties until
it has been signed by all parties hereto. The parties hereto agree that
telecopied signatures hereto shall be effective and enforceable.
(k) Further Instruments. Except as otherwise provided in this Agreement, each
party shall furnish to the others (and shall deliver and cause to be executed,
acknowledged and delivered to the other) any further instruments, which any such
other party may reasonably require or deem necessary from time to time to
evidence, establish, protect, enforce, defend or secure to such other party any
or all of its rights hereunder or to more effectuate or carry out the purposes,
provisions or intent of this Agreement.
(l) Entire Agreement. This Agreement constitutes the complete and entire
agreement by and among all of the parties with respect to the subject matter
hereof, superseding and replacing any and all prior agreements, negotiations,
communications, and understandings (both written and oral) by and among all of
the parties regarding such subject matter. This Agreement may only be modified,
or any rights under it waived, by a written document executed by all parties.
By signing in the spaces provided below, the parties hereto have accepted and
agreed to all of the terms and conditions hereof.
AGREED TO AND ACCEPTED:
("Company") LUCAS LICENSING LTD. ("Licensor")
By:________________________________ By:___________________________________
Its:_______________________________ Its:__________________________________
Date:______________________________ Date:_________________________________
HASBRO, INC. on behalf of itself and
all "Permitted Licensee Affiliates" (as
defined in the License Agreement"
("Licensee")
By:________________________________
Its:_______________________________
Date:______________________________
Ex F-6
Exhibit 10(e)
FIRST AMENDMENT TO TOY LICENSE AGREEMENT
[Information below, marked with [**], has been omitted pursuant to a
request for confidential treatment. A complete copy of this document has
been supplied to the Securities and Exchange Commission under separate
cover. Approximately 4 pages (including a schedule) have been omitted
pursuant to the request for confidential treatment.]
Reference is made to the Toy License Agreement made and entered into as of
October 14, 1997 between Lucas Licensing Ltd., a California corporation
("Licensor"), located at P. O. Box 10149, San Rafael, CA 94912, on the one hand,
and Hasbro, Inc., a Rhode Island corporation, located at 1027 Newport Ave.,
Pawtucket, R.I. 02862-1059, Hasbro International, Inc. a Delaware Corporation,
located at 1027 Newport Ave., Pawtucket, R.I. 02862-1059, and all Permitted
Licensee Affiliates (jointly and severally "Licensee" or "Hasbro") on the other
hand (hereinafter the "Toy License Agreement").
For good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the parties hereby agree to amend the Toy License
Agreement as follows:
1. Paragraph 2.2 (Territory) shall be supplemented and amended by adding, in the
left hand column entitled "Licensed Products," the words "Micro Toys;" after the
words "and Craft Kits);".
2. Paragraph 3.2 (Exclusivity) shall be supplemented and amended by adding Micro
Toys to the list of Licensed Products as to which the rights licensed to
Licensee under the Toy License Agreement shall be exclusive.
3. Paragraph 3.4(a) (No Rights to Products Other Than Licensed Products) shall
be amended by deleting the words "Micro Toys and" from line six (6) thereof.
4. Paragraph 3.8 of the Toy License Agreement shall be amended by replacing the
reference to "Subparagraph 25.17" with "Subparagraph 25.18."
5. The Toy License Agreement shall be supplemented and amended by adding the
following as a new Paragraph 3.10:
"3.10 Japan. Licensor shall have absolute approval over the distribution
(including, without limitation, the identity of the distributor) of Micro
Toys in Japan, provided that the parties will endeavor to preserve the
economic benefits to Hasbro as would otherwise arise through Hasbro's
distribution of Micro Toys in Japan."
6. Paragraph 4.3(b)[**] shall be supplemented and amended by [**].
<PG$PCN>
7. The Toy License Agreement shall be further supplemented and amended by
changing Paragraph 4.3(b) to Paragraph 4.3(b)(i) and by adding a new Paragraph
4.3(b)(ii) as follows: [**]
Except as set forth in this Paragraph 7, all specific references in the
Toy License Agreement to Paragraph 4.3(b) are hereby deemed to refer to
Paragraph 4.3(b)(i).
8. Paragraph 4.3(c) shall be supplemented and amended by adding a new
Subparagraph 4.3(d)(iii) as follows: [**]
9. Paragraph 4.3(d) shall be amended by [**]
10. Paragraph 4.3(e) [**] shall be deleted in its entirety. In this connection,
Paragraph 24.64 [**] shall also be deleted in its entirety. Both Paragraphs
4.3(e) and 24.64 shall hereafter be deemed to read "Intentionally Deleted."
11. Paragraph 4.3(f) [**] shall be supplemented and amended [**]:
12. Subparagraph 4.4: [**]
13. Paragraph 5.3 (Pre-Existing Approvals) shall be supplemented and amended by
deleting the word "and" prior to the beginning of clause (iii) and by adding the
following at the end of the paragraph after the words ("Puzzle Agreement"):
"; and (iv) those various license agreements between Licensor and Lewis
Galoob Toys, Inc. now known as Galoob Toys, Inc., on behalf of itself
and/or any or all of its affiliated, related and subsidiary entities
including, without limitation, that certain license agreement dated as of
October 30, 1992, as amended, including by agreements dated as of May 14,
1997 and dated as of July 24, 1997."
14. Paragraph 7.1 shall be deleted in its entirety and the following is deemed
inserted in its place:
"7.1 Advance. Licensee agrees to pay to Licensor an advance of Five
Hundred Ninety Million Dollars ($590,000,000), payable in the following
amounts at the following times:
(a) One Hundred Million Dollars ($100,000,000) thereof,
payable on the initial shipment of any Licensed Product
incorporating elements of Episode I that is sold to a Customer
hereunder:
(b) Two Hundred Fifty Million Dollars ($250,000,000) thereof,
contingent upon the initial general theatrical release in the
United States of Episode I and payable on the U.S. Release
Date of Episode I;
2
<PG$PCN>
(c) One Hundred Twenty Million Dollars ($120,000,000) thereof,
contingent upon the occurrence of the initial general
theatrical release in the United State of Episode II and
payable on the U.S. Release Date of Episode II; and
(d) One Hundred Twenty Million Dollars ($120,000,000) thereof,
contingent upon the occurrence of the initial general
theatrical release in the United States of Episode III and
payable on the U.S. Release Date of Episode III.
In the event that the U.S. Release Date of Episode I does not occur
on or before the Episode I Outside Date, then any portion of the
Advance payment made pursuant to Subparagraph 7.1(a) hereinabove
that has not been recouped by Licensee from Royalties earned on or
before the Episode I Outside Date shall be refunded to Licensee
within thirty (30) days following the Episode I Outside Date. [**]
15. Paragraph 7.2 is deleted in its entirety and the following is deemed
inserted in its place:
[**]
16. Paragraph 8.1 (Royalty Percentage) shall be supplemented and amended by
changing Subparagraph 8.1(c) to Subparagraph 8.1(d) and by adding the following
as a new Subparagraph 8.1(c):
"(c) Micro Toys: With respect to Net Sales of each unit of Micro Toys,
[**] of cumulative Net Sales of all Micro Toys throughout the Territory."
Except as set forth in this Paragraph 16, all references in the Toy License
Agreement to Subparagraph 8.1(c) are hereby deemed to refer to Subparagraph
8.1(d).
17. Paragraph 8.5 (Episode I Bonus) shall be amended to read as follows:
"8.5 Episode I Bonus. On the U.S. Release Date of Episode I, Licensee
shall pay to Licensor a non-recoupable bonus equal to Thirteen Million
Eight Hundred Thousand Dollars ($13,800,000)."
18. Subparagraph 8.6 (Bundling Royalty) is deleted in its entirety and the
following is inserted in its place:
"8.6 Bundling Royalty. Licensee shall not have the right to distribute,
market or sell (or authorize a third party to distribute, market or sell)
any Licensed Product with any other product, good or article (including
another Licensed Product) in a single package at a single price
("Bundling") without Licensor's prior written approval of: (a) whether or
not
3
<PG$PCN>
such Bundling may occur; (b) the terms and conditions of such Bundling;
and (c) Licensor's Royalty in such instance."
19. Paragraph 8.11 (Warrant) shall be supplemented and amended by adding a new
8.11.A., as follows, after the end of the final sentence thereof:
"A. Concurrently upon the closing of either: (i) the merger of Licensee
(or a wholly-owned subsidiary of Licensee ) with Galoob Toys, Inc., a Delaware
corporation ("Galoob") or (ii) the acquisition by Licensee (or a wholly-owned
subsidiary of Licensee) of Fifty Percent (50%) or more of the capital stock of
Galoob or the acquisition of all or substantially all of the assets of Galoob
(the "Galoob Acquisition"), Licensee hereby agrees to issue to Licensor a
warrant in the form attached hereto as Exhibit A (the "Exchange Warrant") for
the purchase of up to Two Million Four Hundred Thousand (2,400,000) fully paid
and non-assessable shares of the common stock of Licensee following exercise of
such warrant at a per share exercise price equal to thirty-five dollars
($35.00), subject to adjustment as provided in the Exchange Warrant, in exchange
for the fully unexercised warrant dated October 14, 1997 between Licensor and
Galoob."
20. Paragraph 9.5(b) (Report Information) shall be supplemented and amended by
deleting the word "and" before clause (iv), changing Sub-Paragraph 9.5(b)(iv) to
9.5(b)(v) and by adding the following as a new Sub-Paragraph 9.5(b)(iv):
"(iv) by Micro Toys in each Sub-Territory (and in each country within such
Sub-Territory, if more than one country exists in a Sub-Territory); and"
21. Paragraph 9.1 (Payment Terms) and 9.4 (Payment Reports) are deemed amended
by deleting the words "[**] days" and inserting instead the words "[**] days".
22. Paragraph 12.1(Copyright and Trademark Notices): The notice set forth in
Paragraph 12.1 is hereby deemed deleted and the following notice is deemed
inserted in its place: "(C) Lucasfilm Ltd. & TM. All Rights Reserved. Used Under
Authorization. (in English or local language)."
23. Paragraph 23.1 (Licensor's Retained Rights) shall be amended by revising the
last sentence thereof to read as follows:
24. Paragraph 24.69 (Licensee Affiliate) shall be supplemented and amended by
adding the words "other than Licensor" after the word "entity " in line one (1)
thereof.
25. Paragraph 24.79 (Micro Toys) shall be amended to read as follows:
"MICRO TOYS means the following: `Intermediate Vehicles,' `Micro
Vehicles,' `Micro Playsets,' and `Micro Figures' (as such terms are
defined hereinbelow) [**]
26. Paragraph 24.88 shall be amended to read as follows:
4
<PG$PCN>
"'Other Licensed Products' means all Licensed Products other than Basic
Figures and Micro Toys."
27. Paragraph 25.18 (Entire Agreement) shall be supplemented and amended by
adding after the word "Royalty" in line 10 the words "and all 'Foreign
Guarantees' (as defined in the Prior Agreements)."
28. Schedule I (Permitted Licensee Affiliates) shall be supplemented and amended
by adding the following entities as "Permitted Licensee Affiliates: Galoob Toys,
Inc., Galco International Toys, N.V. and Galoob Direct, Inc.
29. Schedule II (Licensed Products) shall be amended by deleting the initial
paragraph of such Schedule II (which precedes Clause A thereof) and inserting
the following in its place:
The term "Licensed Products" as used in, and subject to the terms and
conditions of the Agreement, means: (A) "STANDARD TOYS," (B) "GAMES AND
PUZZLES," (C) "ELECTRONICS/HAND HELD" and (D) "MICRO TOYS" (as such terms
are defined hereinbelow or, in the case of Micro Toys, as defined in the
Agreement).
30. Schedule II (Licensed Products) shall be further supplemented and amended by
deleting the word "above" after the words "set forth" in line 2 of Clause D, and
by adding the following at the end of such Schedule II:
"E. MICRO TOYS"
31. Schedule III (Advances and Minimum Sales Levels) shall be supplemented and
amended by adding the schedule [**] attached hereto as Attachment A.
32. The terms and conditions of this first amendment to the Toy License
Agreement (the "First Toy License Amendment") shall become effective
concurrently with the closing of the Galoob Acquisition; provided, however, that
if the closing of the Galoob Acquisition has not occurred on or before March 31,
1999, then this First Toy License Amendment shall automatically terminate and be
of no further force and effect.
33. Notwithstanding anything to the contrary, Licensee shall as promptly as
practicable following the execution of a definitive agreement with respect to
the Galoob Acquisition, make any necessary filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, that are
related to any and all transactions arising out of or connected with the subject
matter of this First Toy License Amendment, including, without limitation the
Galoob Acquisition. As between Licensor and Licensee, Licensee shall be solely
responsible for one hundred percent (100%) of all filing fees required in
connection with all such filings (provided that Licensor shall cooperate and
make such filings as are required to comply with such Act).
5
<PG$PCN>
In all respects other than those specifically enumerated above, the Toy License
Agreement shall remain in full force and effect.
This First Toy License Amendment is entered into as of September 25, 1998.
LUCAS LICENSING LTD. ("Licensor") HASBRO, INC.
By: /s/ HOWARD ROFFMAN By: /s/ ALFRED J. VERRECCHIA
Title: Vice President Title: Executive Vice President and
President - Global Operations
and
HASBRO INTERNATIONAL, INC. on behalf
of itself and all Permitted Licensee
Affiliates
By: /s/ ALFRED J. VERRECCHIA
Title: Executive Vice President and
President - Global Operations
(jointly and severally "Licensee")
6
<PG$PCN>
Attachment A
Schedule I - ADVANCES AND MINIMUM SALES LEVELS (U.S. $000'S)
[**]
7
<PG$PCN>
Exhibit A
[Filed as a separate exhibit.]
8
<PG$PCN>
EXHIBIT 10(f)
AGREEMENT OF STRATEGIC RELATIONSHIP
[Information below, marked with [**], has been omitted pursuant to a request
for confidential treatment. A complete copy of this document has been supplied
to the Securities and Exchange Commission under separate cover.]
This AGREEMENT OF STRATEGIC RELATIONSHIP (the "agreement") is made and entered
into as of October 14, 1997, between Lucasfilm Ltd., a California corporation
("Lucasfilm"), on the one hand, located at P. O. Box 2009, San Rafael, CA 94912
and Hasbro, Inc., a Rhode Island corporation, located at 1027 Newport Avenue,
Pawtucket, RI 02862 ("Hasbro"), on the other hand.
WHEREAS:
A. Lucasfilm is a California corporation engaged in the production of
theatrical motion pictures and the licensing of intellectual property rights
related to such theatrical motion pictures;
B. Lucasfilm owns or controls rights in respect of the Property (as
hereinafter defined);
C. Hasbro is engaged in the manufacture, distribution and sale of consumer
products in the form of toys including, without limitation, toys based on
entertainment intellectual properties licensed from third parties;
D. Lucasfilm and Hasbro have a longstanding relationship with respect to
the licensing of such rights; and
E. Lucasfilm and Hasbro wish to establish a strategic relationship whereby
Hasbro would acquire the opportunity to license certain rights in and to
theatrical motion pictures produced by Lucasfilm for the manufacture,
distribution and sale of Products in the Territory, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. GRANT OF RIGHTS.
Subject to the terms and conditions of this agreement, and in
consideration for all of Hasbro's obligations hereunder, including,
without limitation, Hasbro's agreement to grant to Lucasfilm a warrant as
provided in Paragraph 4 hereinbelow, Lucasfilm grants to Hasbro an
exclusive, non-transferable, non-assignable right of first negotiation
(the "First Negotiation Right") and, as more specifically provided in
Subparagraph 3.3 hereinbelow, right of first refusal (the "First Refusal
Right") during the Term and throughout the Territory to license the
Property as provided in Paragraph 3 hereinbelow:
1.1. to develop, design, manufacture, distribute, advertise, publicize,
market and sell the Products, for sale to retail Customers through all
channels of wholesale and retail distribution permitted hereunder; and
1.2. for reproduction on containers, packaging, display and promotional
material and in Advertising and Advertising Materials for the Products.
The First Negotiation Right and First Refusal Right shall be exercised by
Hasbro in accordance with the terms and conditions contained in this
agreement.
1
<PG$PCN>
Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
2. TERM AND TERRITORY.
2.1. Term. The term of Hasbro's rights pursuant to this agreement with
respect to the First Negotiation Right and First Refusal Right (the
"Term") shall consist of the time period commencing as of the date hereof
and ending on December 31, 2007.
2.2. Territory. The territory of Hasbro's rights hereunder (the
"Territory") consists of the world excluding China.
3. EXERCISE OF FIRST NEGOTIATION RIGHT AND FIRST REFUSAL RIGHT.
The First Negotiation Right and in certain situations First Refusal Right
as to each theatrical motion picture which is an element of the Property
shall be exercisable by Hasbro in accordance with the following procedure:
3.1. If Lucasfilm desires to license the rights referenced in
Subparagraphs 1.1 and 1.2 hereinabove with respect to any theatrical
motion picture which is an element of the Property, then Lucasfilm shall
notify Hasbro in writing. Lucasfilm shall concurrently make available to
Hasbro at Lucasfilm's premises all materials then extant regarding such
motion picture, including script, artwork, casting, to the extent
available.
3.2. Hasbro shall thereafter have thirty (30) days from the date of such
notice (the "First Negotiation Period") to negotiate and enter into a
written agreement (the "Agreement"), which agreement shall incorporate no
less than all of the terms and conditions of that certain license
agreement between Hasbro and Lucas Licensing Ltd. dated as of October 14,
1997 (the "Toy Agreement") with the exception of Royalties (Paragraph 8),
Advance (Paragraph 7), Term (Paragraph 2), [**] (Subparagraph 4.3),
Minimum Sales Levels (Subparagraph 4.2), and the definition of Licensed
Property (Subparagraph 24.68) (collectively the "Excluded Terms");
provided, however, that neither party shall be obligated to conclude an
Agreement with respect to a particular theatrical motion picture which is
an element of the Property. During the First Negotiation Period, the
parties shall negotiate with respect to the Excluded Terms, provided that
the Royalty Percentage shall be no less than ten percent (10%) of Net
Sales and no more than the rates specified in Paragraph 8 of the Toy
Agreement.
3.3. If the parties fail to enter into an Agreement with respect to such
theatrical motion picture during the First Negotiation Period, then
Lucasfilm shall be free to negotiate with and conclude an agreement with
any third party with respect to the rights that are incorporated in the
First Negotiation Right provided, that with respect to those theatrical
motion pictures set forth in Subparagraphs 5.2(a)(i), (ii), (iii), and
(iv) ("First Refusal Pictures"), Lucasfilm shall not conclude an agreement
with a third party with respect to such rights on terms that are less
favorable to Lucasfilm than those terms last offered by Hasbro without
giving notice of such third party offer to Hasbro and providing Hasbro
with a ten (10) day period (the "First Refusal Period") within which to
enter into an Agreement with Lucasfilm on the same terms and conditions
contained in the third party offer (the "First Refusal Right"). If Hasbro
fails to execute such Agreement within such
2
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Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
First Refusal Period with respect to a First Refusal Picture or within the
First Negotiation Period with respect to all other theatrical motion
pictures included within the Property, then Lucasfilm shall be free to
enter into an agreement with such third party with respect to a First
Refusal Picture or with any third party with respect to all other
theatrical motion pictures subject to the First Negotiation Right and such
theatrical motion picture shall be deleted from the definition of the
Property hereunder.
3.4. Lucasfilm makes no representation or warranty that any rights which
otherwise would be subject to the First Negotiation Right and First
Refusal Right as to any theatrical motion picture produced by Lucasfilm
following the date hereof and during the Term will be owned or controlled
by Lucasfilm or that Lucasfilm will retain the right or ability to include
such theatrical motion picture as an element of the Property,
notwithstanding the fact that at any point in time, Lucasfilm may have
owned or controlled such rights. In this connection, Hasbro acknowledges
that Lucasfilm may enter into an arrangement with respect to a particular
theatrical motion picture (other than a grant of a license for the
Products alone for such theatrical motion picture) in which the grant of
such rights to a third party may be necessary in Lucasfilm's sole judgment
in order to finance, produce, distribute or exploit such theatrical motion
picture or any underlying rights relating to such theatrical motion
picture.
4. WARRANT.
Concurrently with the execution of this Agreement, Hasbro shall grant to
Lucasfilm a warrant (the "Warrant") for the purchase of up to 2,600,000
fully paid and non-assessable shares of the common stock of Hasbro
following exercise of the Warrant at a per share exercise price equal to
$28.00, subject to adjustment as provided in the warrant dated as of the
date hereof between Lucasfilm and Hasbro (the "Warrant").
5. DEFINITIONS.
5.1. "Products" means those products, goods and articles, within the
enumerated categories in Schedule II of the Toy Agreement and which are
based on or incorporating elements of the Property.
5.2. "Property" means, subject to the terms, conditions and restrictions
contained in Lucasfilm's or any Lucasfilm Related Entity's agreements with
persons, firms or entities rendering services or granting rights:
(a) the original titles, designs, character names and likenesses,
dialogue, music and sound effects, words, symbols, logographics and
the footage, photographs, artwork, visual representations of the
props, costumes, sets, special effects and any other original
creative elements which appear in, have become directly associated
with, and as are depicted in, any theatrical motion picture produced
by Lucasfilm prior to or during the Term, as to which Lucasfilm owns
and controls the rights hereunder, subject to Section 3.4,
including, but not limited to:
3
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Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
(i) any theatrical motion picture based on or related to the
character "Indiana Jones," including without limitation:
Raiders of the Lost Ark, Indiana Jones and the Temple of Doom,
Indiana Jones and the Last Crusade, and any prequel or sequel
theatrical motion picture based on the "Indiana Jones"
character including the sequel theatrical motion picture
currently in development and tentatively entitled "Indiana
Jones IV" and intended to star Harrison Ford and be directed
by Steven Spielberg;
(ii) the theatrical motion picture entitled "Willow" and any
sequels, prequels or remakes thereof, including, without
limitation, those based upon the "Shadow Wars" book series
written by George Lucas and Chris Claremont;
(iii) any theatrical motion picture based upon the book series
entitled "Lucasfilm's Alien Chronicles" published by Berkeley
Books;
(iv) the theatrical motion pictures entitled "Tucker: The Man
and His Dream" and any sequels, prequels or remakes thereof;
and
(b) such original trademarks, tradenames, servicemarks and
servicenames owned by Lucasfilm and arising out of and which become
directly associated with any theatrical motion picture which is an
element of the Property, to the extent of Lucasfilm's rights in each
applicable country of the Territory under such country's applicable
trademark laws.
Notwithstanding anything set forth above, Property shall not include any
theatrical motion picture based on or related to "Star Wars", including
without limitation:
(A) those certain previously released theatrical motion
pictures (and the special editions thereof released
theatrically in 1997) entitled "STAR WARS: EPISODE IV -
A NEW HOPE," "STAR WARS: EPISODE V - THE EMPIRE STRIKES
BACK" and "STAR WARS: EPISODE VI - RETURN OF THE JEDI"
(the "Classic Trilogy"); and
(B) each of the first three succeeding prequel
theatrical motion pictures to the Classic Trilogy
tentatively entitled "Episode I," "Episode II" and
"Episode III," respectively (each such prequel
theatrical motion picture a "Prequel" herein).
In connection with such exclusion, the parties acknowledge that Hasbro has
entered into the Toy Agreement with Lucas Licensing Ltd., the owner of the
applicable rights related to Star Wars.
6. GENERAL.
4
<PG$PCN>
Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
6.1. Assignment. Subject to the other terms and conditions of this
Subparagraph 6.1, this agreement will bind and inure to the benefit of
each party and to their respective successors and assigns. Hasbro shall
not voluntarily or by operation of law assign, sub-license, transfer,
encumber or otherwise dispose of all or part of any right or privilege
licensed to Hasbro in this agreement, including to a Hasbro Affiliate,
without Lucasfilm's prior written approval to be given or withheld in
Lucasfilm's absolute discretion. For purposes of this Subparagraph 6.1,
any Change in Control of Hasbro (as defined in the Warrant), shall be
deemed a purported assignment subject to Lucasfilm's prior written
approval. Any attempted assignment, sublicense, transfer, encumbrance or
other disposal without such approval will be null and void and constitute
a material default and material breach of this agreement.
6.2. Governing Law. This agreement will be governed by and construed in
accordance with the laws of the federal laws of the United States and the
laws of the State of California applicable to agreements entered into, and
to be performed entirely, within California between California residents
(and excluding the United Nations Convention on Contracts for the
International Sale of Goods) without regard to choice of law provisions
and regardless of the place or places of its actual execution or
performance. Any suit, action or proceeding between or among any of the
parties hereto arising out of or related to this agreement will be brought
solely in the federal or state courts in the Northern District of
California, and Hasbro hereby submits to the personal jurisdiction thereof
and agrees to such courts as the appropriate venue. Notwithstanding the
foregoing, Hasbro agrees that, for purposes of collecting monies due
pursuant to this agreement, Hasbro, at Lucasfilm's election, may be
subject to whatever local laws and courts have jurisdiction in any country
of the Territory over Hasbro. Process in any action or proceeding
referenced to in this Subparagraph 6.2 may be served on Hasbro at the
address for notices set forth in Subparagraph 6.4 hereinbelow.
6.3. Attorneys' Fees. In the event of any legal proceeding between the
parties arising out of or related to this agreement, the prevailing party
shall be entitled to recover, in addition to any other relief awarded or
granted, its costs and expenses (whether or not in connection with
litigation and including, without limitation, attorneys' fees and costs)
incurred in connection with any such proceeding.
6.4. Notices. Any notice to be given or served under this agreement shall
be in writing and shall be delivered to the parties addressed as set forth
below, or to such other address as either party shall notify the other
party of in writing, as follows: personally or sent by cable, telegram or
telemessage or by facsimile, telex, telecopy or other print out
communication mechanism or by first class, prepaid, registered or
certified mail (if available) post (air mail if posted to another country)
to the party to be served at the address set forth below in this
Subparagraph 6.4 or to such other address as either party may from time to
time notify in writing to the other. Such notice shall be deemed to have
been served: (a) immediately in the case of personal delivery; (b) in the
case of a cable, telegram or telemessage, on the first business day after
the receipt by the relevant service of the order therefor; (c) in the case
of facsimile, telex, telecopy or other print out mechanism, on the
expiration of four (4) hours from the time of transmission subject in the
5
<PG$PCN>
Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
case of telex or facsimile to proof by the sender that he/she holds an
acknowledgment (whether in mechanical form other otherwise) confirming its
receipt at its destination and subject in the case of facsimile or other
print out transmission in the absence of an acknowledgment to the original
notice being sent by post or by personal delivery in accordance with this
Subparagraph 6.4 not later than the next business day after such
transmission; and (d) in the case of postal delivery, on the second
business day following the date of posting (the fifth business day if
posted to another country) or on acknowledgment of receipt if earlier.
If to Lucasfilm:
For notices to Lucasfilm: P. O. Box 2009, San Rafael, CA 94912,
Attention: President; with a copy to: General Counsel.
For wire transfers: pursuant to Lucasfilm's written wire
transfer instructions
For deliveries requiring Lucasfilm's street address: 5858 Lucas
Valley Road, Nicasio, CA 94946
If to Hasbro:
Hasbro, Inc.
1027 Newport Avenue
Pawtucket, RI 02862
Attn: General Counsel
6.5. No Waiver. No action taken by either party pursuant to this
agreement, and no waiver by either party, whether express or implied, of
any provision or right in this agreement or any breach thereof, and no
failure of either party to exercise or enforce any of its rights under
this agreement, will constitute a continuing waiver with respect to such
provision or right or as a breach or waiver or any other provision or
right, whether or not similar.
6.6. Independent Contractors. The parties to this agreement are and shall
remain independent contractors. There is no relationship of partnership,
employer, employee, principal, agent, joint venture, employment, franchise
or agency between the parties. Except as expressly provided in this
agreement, neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written
approval and shall not represent that it has such right.
6.7. Nonexclusive Remedy. The exercise by either party of any remedy under
this agreement will be without prejudice to its other remedies under this
agreement or otherwise.
6.8. Severability. This agreement is severable. If any provision of this
agreement is found invalid or unenforceable in any jurisdiction, that
provision, as to that jurisdiction, will be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or
unenforceable the other remaining provisions of this agreement, which
other
6
<PG$PCN>
Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
remaining provisions will not be affected and shall remain in force, to
the maximum extent permissible.
6.9. Headings, Captions and Names. The name of this agreement, and all
headings and captions herein contained, are for reference and convenience
only and do not define, limit or expand the scope or intent of any
provision hereof and shall not be relied upon in or in connection with the
construction or interpretation of this agreement. The words "herein,"
"hereunder," "hereof" and similar terms refer to this entire agreement and
shall not be limited to the specific paragraphs or subparagraphs in which
they are used.
6.10. Capitalized Terms. All capitalized terms contained in this agreement
shall have the same meaning as set forth in the Toy Agreement, except as
otherwise expressly set forth herein.
6.11. Counterparts. This agreement may be executed in one or more
counterparts, and by facsimile, telex, telecopy or other print out
communication mechanism, each copy of which shall be deemed an original
and all of which, when taken together, shall constitute one and the same
instrument, but this agreement shall not be binding upon the parties until
it has been signed by both parties. The parties hereto agree that
facsimile signatures on a copy of this agreement shall be effective and
enforceable as if they were original signatures.
6.12. Further Instruments. Except as otherwise expressly provided in this
agreement, each party shall furnish to the other (and shall deliver and
cause to be executed, acknowledged and delivered to the other) any further
instruments, which such other party may reasonably require or deem
necessary from time to time to evidence, establish, protect, enforce,
defend or secure to such other party any or all of its rights hereunder or
to more effectuate or carry out the purposes, provisions or intent of this
agreement.
6.13. Entire Agreement. This agreement together with the Warrant
constitute the complete and entire agreement between the parties with
respect to the subject matter hereof, superseding and replacing any and
all prior agreements, negotiations, communications, and understandings
(both written and oral) regarding such subject matter. This agreement may
only be modified, or any rights under it waived, by a written document
executed by both parties
7
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Agreement Between Lucasfilm Ltd. and Hasbro, Inc. dated October 14, 1997
LUCASFILM LTD. ("Lucasfilm"), HASBRO, INC. ("Hasbro"),
a California Corporation a Rhode Island corporation
By: /s/ GORDON RADLEY By: /s/ HAROLD P. GORDON
------------------------ ------------------------
Title: President Title: Vice Chairman
--------------------- ---------------------
8
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EXHIBIT 10(g)
FIRST AMENDMENT TO AGREEMENT OF STRATEGIC RELATIONSHIP
Reference is made to the Agreement of Strategic Relationship (the "Strategic
Agreement") made and entered into as of October 14, 1997, between Lucasfilm
Ltd., a California corporation ("Lucasfilm"), located at P.O. Box 2009, San
Rafael, CA 94912, on the one hand, and Hasbro, Inc., a Rhode Island corporation,
located at 1027 Newport Ave., Pawtucket R.I. 02862-1059 ("Hasbro"), on the other
hand.
For good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by the parties, the parties hereby agree to amend the Strategic
Agreement as follows:
1. Paragraph 3.2 of the Strategic Agreement shall be supplemented and amended so
that the definition of the "Toy Agreement" in the Strategic Agreement shall
refer to the Toy Agreement as amended pursuant to that certain First Amendment
to Toy Agreement dated as of September 25, 1998 (the "First Toy License
Amendment").
2. Paragraph 4 (Warrant) shall be supplemented and amended by adding a new
Paragraph 4.A., as follows, after the end of the final sentence thereof:
"A. Concurrently with the closing of either: (i) the merger of Hasbro (or
a wholly-owned subsidiary of Hasbro) with Galoob Toys, Inc., a Delaware
corporation ("Galoob") or (ii) the acquisition by Hasbro (or a wholly-owned
subsidiary of Hasbro) of Fifty Percent (50%) or more of the capital stock of
Galoob or the acquisition of all or substantially all of the assets of Galoob
(the "Galoob Acquisition"), Hasbro hereby agrees to issue to Lucasfilm a warrant
in the form attached hereto as Exhibit A (the "Exchange Warrant") for the
purchase of up to One Million Six Hundred Thousand (1,600,000) fully paid and
non-assessable shares of the common stock of Hasbro following exercise of such
warrant at a per share exercise price equal to thirty-five dollars ($35.00),
subject to adjustment as provided in the Exchange Warrant, in exchange for the
fully unexercised warrant dated October 14, 1997 issued to Lucasfilm by Galoob."
3. The terms and conditions of this first amendment to the Strategic Agreement
(the "First Strategic Amendment") shall become effective concurrently with the
closing of the Galoob Acquisition; provided, however, that if the closing of the
Galoob Acquisition has not occurred on or before March 31, 1999, then this First
Strategic Amendment shall automatically terminate and be of no further force and
effect.
In all respects other than those specifically enumerated above, the Strategic
Agreement shall remain in full force and effect.
This First Strategic Amendment is entered into as of September 25, 1998.
1
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LUCASFILM LTD. ("Lucasfilm") HASBRO, INC. ("Hasbro"), a Rhode
Island Corporation
By: /s/ HOWARD ROFFMAN By: /s/ ALFRED J. VERRECCHIA
---------------------------- --------------------------------
Title: Vice President Title: Executive Vice President and
------------------------- -----------------------------
President-Global Operations
2
<PG$PCN>
EXHIBIT A
[Filed as a separate exhibit.]
3
<PG$PCN>
EXHBIT 10(h)
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THIS WARRANT.
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED), (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER,
AS PROVIDED HEREIN.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated October 14, 1997
This certifies that for value received:
LUCAS LICENSING LTD.
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from Hasbro, Inc., a Rhode Island corporation (the "Company"), up to
3,900,000 fully paid and nonassessable shares of the Common Stock of the
Company, at the exercise price of twenty-eight dollars ($28.00) per share. The
number of shares purchasable hereunder and the Exercise Price are subject to
adjustment in certain events, all as more fully set forth under Article IV
herein.
ARTICLE I.
DEFINITIONS
"Additional Stock" means any of Common Stock, Convertible Securities
and Options.
"Change in Control" means:
A. The acquisition (or series of related acquisitions) by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the then outstanding shares of Common
Stock (the "Outstanding Common Stock") or (y) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (i) any acquisition (or series of related acquisitions) directly from
the Company or any of its subsidiaries of shares that would constitute, after
issuance, or any acquisition (or series of related acquisitions) consented to by
the Board of Directors of the
<PG$PCN>
Company of outstanding shares constituting, in the aggregate, less than 40% of
the Outstanding Voting Securities, (ii) any acquisition by the Company or any of
its subsidiaries, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries, (iv)
any acquisition by Alan or Sylvia Hassenfeld, members of their respective
immediate families, or heirs of Alan or Sylvia Hassenfeld or of any member of
their respective immediate families, the Sylvia Hassenfeld Trust, the Merrill
Hassenfeld Trust, the Alan Hassenfeld Trust, the Hassenfeld Foundation, any
trust or foundation established by or for the primary benefit of any of the
foregoing, or controlled by one or more of any of the foregoing, or any
affiliates or associates (as such terms are defined in Rule 12b-2 promulgated
under the 1934 Act) of any of the foregoing (such holders described in clauses
(ii) and (iii) and in this clause (iv), the "Permitted Acquirors") or (v) any
acquisition by any corporation with respect to which, following such
acquisition, (a) more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and the Outstanding Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Common Stock and Outstanding Voting Securities, as the case may be,
and (b) less than 40% of such outstanding shares of common stock of such
corporation and of such combined voting power of such outstanding voting
securities is then beneficially owned, directly or indirectly, by an individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934
Act), other than the Permitted Acquirors; or
B. Any event in which individuals who as of the Closing Date constitute
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Closing Date, whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents; or
C. A reorganization, merger or consolidation involving the Company
(whether or not the Company is the surviving entity), in each case, with respect
to which (i) all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such reorganization, merger
or consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership immediately prior to such reorganization, merger or
consolidation, of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be, and (ii) following such reorganization, merger
or consolidation, no individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors,
beneficially owns, directly or indirectly, 40% or more of such outstanding
shares of common stock of such surviving corporation and of such combined voting
power of such outstanding voting securities; or
D. (i) A complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of the
Company (in one transaction or a series of related transactions), other than to
a corporation, with respect to which following such sale or other disposition,
(A) more than 50% of, respectively, the then outstanding shares of common stock
of such corporation and
2
<PG$PCN>
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Common Stock and Outstanding Voting Securities, as the case may be,
and (B) less than 40% of such outstanding shares of common stock of such
corporation and of such combined voting power of the outstanding voting
securities of such corporation is then beneficially owned, directly or
indirectly, by an individual entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors; or
E. The acquisition (or series of related acquisitions) by a Competitor
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the Outstanding Common Stock or (y) the
Outstanding Voting Securities unless such Competitor is approved by Holder as a
passive investor in the Company, such approval not to be unreasonably withheld.
"Charter" means the certificate of incorporation of the Company, as
filed with the Rhode Island Secretary of State.
"Closing Date" means October 14, 1997.
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Exchange Act of 1934 or the
Securities Act.
"Common Stock" means the Company's Common Stock, par value $.50 per
share, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock, and any other capital stock
of the Company of any class or series now or hereafter authorized having the
right to share in distributions either of earnings or assets of the Company
without limit as to amount or percentage.
"Company" means Hasbro, Inc., a Rhode Island corporation, and any
successor corporation.
"Competitor" means a Person or group of Persons (within the meaning of
Section 13(d)(3) or 14(d)(2) of the 1934 Act) engaged as a significant part of
its or their business in the business of producing or distributing any
entertainment properties including, without limitation, motion pictures,
television production, and interactive educational and entertainment products.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for, with
or without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Employee Securities" shall mean all securities of the Company issued
or sold after October 14, 1997 to employees, consultants, officers or directors
of the Company with the approval of, or pursuant to a plan approved by, the
Board of Directors or any duly authorized committee thereof.
"Exercise Period" means the period commencing on the earlier of (i) the
U.S. Release Date of Episode I and (ii) the occurrence of a Change in Control
and terminating at 5:00 p.m. Pacific Time on the eleventh anniversary of the
Closing Date.
3
<PG$PCN>
"Exercise Price" means the exercise price per share of Common Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means with respect to a share of Common Stock at
any date:
(i) If shares of Common Stock are being sold pursuant to a
public offering under an effective registration statement under the Securities
Act which has been declared effective by the Commission and Fair Market Value is
being determined as of the closing of the public offering, the "per share price
to public" specified for such shares in the final prospectus for such public
offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
twenty trading days before such date. The closing price for each day shall be
the last sale price on such date or, if no such sale takes place on such date,
the average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted
to trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a registration described in
clause (i) of this definition, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
Nasdaq Stock Market or, if such shares are not then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Company and reasonably acceptable to the
Holder;
(iv) If no shares of Common Stock are then listed or admitted
to trading on any national exchange or traded on any national market system, if
no closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a registration described in clause (i) of this definition, the fair
value of a share of Common Stock shall be as determined by an investment bank
selected by Company with the approval of the Holder (which approval shall not be
unreasonably withheld or delayed), the costs of such investment banker to be
paid by the Company.
"Fiscal Year" means the fiscal year of the Company.
"Holder" means the person in whose name this Warrant is registered on
the books of the Company maintained for such purpose and any transferee
permitted under the terms of this Warrant of all or a portion of this Warrant.
"Option" means any right, warrant or option to subscribe for or
purchase shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, government entities and authorities and
other organizations, whether or not legal entities.
"Principal Executive Office" means the Company's office at 1027 Newport
Avenue, Pawtucket, Rhode Island 02862 or such other office as designated in
writing to the Holder by the Company.
4
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"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means the person who was previously the Holder and has
exercised all or a portion of this Warrant.
"U.S. Release Date of Episode I" means the initial theatrical release
in the United States of the first prequel theatrical motion picture to the
classic Star Wars trilogy.
"Warrant" means the warrant dated as of Closing Date issued to the
Holder and all warrants issued upon the partial exercise, transfer or division
of or in substitution for any Warrant.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of this Warrant provided that if under the terms hereof there
shall be a change such that the securities purchasable hereunder shall be issued
by an entity other than the Company or there shall be a change in the type or
class of securities purchasable hereunder, then the term shall mean the
securities issued or issuable upon the exercise of the rights granted hereunder.
ARTICLE II.
EXERCISE
2.1. Exercise Right; Manner of Exercise. The purchase rights
represented by this Warrant may be exercised by the Holder, in whole or in part,
at any time and from time to time during the Exercise Period upon (i) surrender
of this Warrant, together with an executed notice of exercise, substantially in
the form of Exhibit "D-1" ("Notice of Exercise") attached hereto, at the
Principal Executive Office, and (ii) payment to the Company of the aggregate
Exercise Price for the number of Warrant Shares specified in the Notice of
Exercise (such aggregate Exercise Price, the "Total Exercise Price"). The Total
Exercise Price shall be paid by check; provided, however, that if the Warrant
Shares are acquired in conjunction with a Registration of such Warrant Shares,
then the Holder may arrange for the aggregate Exercise Price for such Warrant
Shares to be paid to the Company from the proceeds of the sale of such Warrant
Shares pursuant to such Registration. The Person or Person(s) in whose name(s)
any certificate(s) representing the Warrant Shares which are issuable upon
exercise of this Warrant shall be deemed to become the Holder(s) of, and shall
be treated for all purposes as the record holder(s) of, such Warrant Shares, and
such Warrant Shares shall be deemed to have been issued, immediately prior to
the close of business on the date on which this Warrant and Notice of Exercise
are presented and payment made for such Warrant Shares, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within two business days after this Warrant is
exercised. If this Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant Shares which the
Holder is entitled to purchase hereunder. The issuance of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for
5
<PG$PCN>
any issuance tax with respect thereto or any other cost incurred by the Company
in connection with the exercise of this Warrant and the related issuance of
Warrant Shares.
2.2. Conversion of Warrant.
(a) Right to Convert. In addition to, and without limiting,
the other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X= Y (A-B)
----------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this
Warrant or such lesser number of Warrant Shares as may be
selected by the Holder
A= The Fair Market Value of one Warrant Share as of the
Conversion Date
B= The Exercise Price
(b) Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant at the Principal Executive
Office, together with a written statement (the "Conversion Statement")
specifying that the Holder intends to exercise the Conversion Right and
indicating the number of Warrant Shares to be acquired upon exercise of the
Conversion Right. Such conversion shall be effective upon the Company's receipt
of this Warrant, together with the Conversion Statement, or on such later date
as is specified in the Conversion Statement (the "Conversion Date") and, at the
Holder's election, may be made contingent upon the closing of the consummation
of the sale of Common Stock pursuant to a Registration. Certificates for the
Warrant Shares so acquired shall be delivered to the Holder within a reasonable
time, not exceeding two business days after the Conversion Date. If applicable,
the Company shall, upon surrender of this Warrant for cancellation, deliver a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares; provided that the Holder will be responsible for any
transfer taxes in respect of the issuance of Warrant Shares to a Person other
than the Holder.
2.3. Fractional Shares. The Company shall not issue fractional shares
of Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise or conversion, the Company shall
purchase from the Holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated to the nearest
1/100th of a share) by the Fair Market Value of a share of Common Stock on the
date of the Notice of Exercise or the Conversion Date, as applicable. Payment of
such amount shall be made in cash or by check payable to the order of the Holder
at the time of delivery of any certificate or certificates arising upon such
exercise or conversion.
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2.4. Continued Validity. A Shareholder shall be entitled to all rights
which a Holder of this Warrant is entitled pursuant to the provisions of this
Warrant, except rights which by their terms apply only to a Warrant.
ARTICLE III.
TRANSFER, EXCHANGE AND REPLACEMENT
3.1. Maintenance of Registration Books. The Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever, and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. Restrictions on Transfers.
(a) Compliance with Securities Act. The Holder, by acceptance
hereof hereby makes the representations set forth in Exhibit D-2 with respect to
its acquisition of this Warrant and agrees that this Warrant and the Common
Stock to be issued to the Holder upon exercise hereof are being acquired for
investment, solely for the Holder's own account and not as a nominee for any
other Person, and that the Holder will not offer, sell or otherwise dispose of
this Warrant or any such shares of Common Stock except under circumstances which
will not result in a violation of the Securities Act or this Agreement. Unless
registered under the Securities Act, upon exercise of this Warrant (other than
through conversion of the Warrant on or after two years from the date hereof),
the Holder shall confirm in writing, by executing the form attached as Exhibit
"D-2" hereto, that the shares of Common Stock purchased thereby are being
acquired for investment, solely for the Holder's own account and not as a
nominee for any other Person, and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all Warrant Shares
issued upon exercise of this Warrant (unless Registered under the Securities
Act) shall be stamped or imprinted with legends in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
In addition, the Warrant shall be stamped or
imprinted with a legend in substantially the following form:
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED) (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN
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CONNECTION WITH THE SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS,
BUSINESS OR CAPITAL STOCK OF HOLDER, ALL AS PROVIDED HEREIN.
(c) Additional Restriction on Transfer. The Holder shall not
sell, assign or otherwise transfer, pledge or hypothecate all or part of this
Warrant prior to a Change in Control without the prior written consent of the
Company, which consent may be withheld in the Company's sole discretion;
provided that (x) any such sale, assignment or other transfer by the Holder of
the Warrant in its entirety to an entity owned or controlled by the Holder (but
only for so long as it remains so owned or controlled and such entity agrees (i)
to be bound by the terms and conditions of this Warrant pursuant to an agreement
reasonably acceptable to the Company ("Assumption Agreement") and (ii) to
transfer this Warrant back to the Holder if it ceases to be owned or controlled
by the Holder), (y) any such sale, assignment or other transfer by the Holder of
the Warrant in connection with (i) the merger, consolidation or reorganization
of the Holder, (ii) the sale, assignment, transfer or other disposition of all
or substantially all of the Holder's assets or business in one or more related
transactions or (iii) the sale, assignment, transfer or other disposition of all
or substantially all of the Holder's capital stock, provided that any transferee
described in this clause (y) executes an Assumption Agreement, (z) a bona fide
pledge or hypothecation (so long as any sale, assignment or other transfer in
connection with any attempted foreclosure of such a pledge or hypothecation
would require such consent from the Company), and (zz) any transfer to a Person
directly or indirectly controlling the Holder, provided such Person executes an
Assumption Agreement, may be effected without any such consent.
(d) Disposition of Warrant Shares. With respect to any offer,
sale or other disposition of any Warrant Shares issued upon exercise of this
Warrant prior to Registration of such shares, the Shareholder agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of the Shareholder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without Registration under the Securities Act
or qualification under any applicable state securities laws of such Warrant
Shares and indicating whether or not under the Securities Act certificates for
such Warrant Shares to be sold or otherwise disposed of, require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act and any other applicable securities laws,
such opinion to be in form and substance reasonably satisfactory to the Company.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify the
Shareholder that it may sell or otherwise dispose of such Warrant Shares all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this subsection (d) that the opinion of
counsel for the Shareholder is not reasonably satisfactory to the Company, the
Company shall so notify the Shareholder promptly after such determination has
been made and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, such Warrant Shares may be offered, sold or
otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonably
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing the Warrant Shares thus
transferred in accordance with this subsection (d) (except a transfer pursuant
to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act, unless in
the aforesaid reasonably satisfactory opinion of counsel for the Shareholder
such legend is not necessary in order to insure compliance with the Securities
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
(e) Termination of Restrictions. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant (other than those
in Section 3.2(c)) and the shares of Common Stock acquired upon the exercise of
this Warrant shall cease when (i) a registration statement covering the
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applicable securities becomes effective under the Securities Act, (ii) the
Company is presented with an opinion of counsel reasonably satisfactory to the
Company that such restrictions are no longer required in order to insure
compliance with the Securities Act or with a Commission "no-action" letter
stating that future transfers of such securities by the transferor or the
contemplated transferee would be exempt from registration under the Securities
Act, or (iii) such securities may be transferred in accordance with Rule 144(k).
Subject to Section 3.2(c), if applicable, when such restrictions terminate, the
Company shall, or shall instruct its transfer agent to, promptly, and without
expense to the Shareholder issue new securities in the name of the Shareholder
not bearing the legends required under subsection (b) of this Section 3.2.
3.3. Exchange. At the Holder's option, this Warrant may be exchanged
for other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4. Replacement. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(i) in the case of any such loss, theft or destruction, upon delivery of
indemnity reasonably satisfactory to the Company in form and amount or (ii) in
the case of any such mutilation, upon surrender of such Warrant for cancellation
at the Principal Executive Office, the Company, at its expense, shall execute
and deliver, in lieu thereof, a new Warrant.
ARTICLE IV.
ANTIDILUTION PROVISIONS
4.1. Reorganization, Reclassification or Recapitalization of the
Company. In case of (1) a capital reorganization, reclassification or
recapitalization of the Company's capital stock (other than in the cases
referred to in Section 4.2 hereof), (2) the Company's consolidation or merger
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted, by virtue of the merger, into other property,
whether in the form of securities, cash or otherwise, or (3) the sale or
transfer of the Company's property as an entirety or substantially as an
entirety, then, as part of such reorganization, reclassification,
recapitalization, merger, consolidation, sale or transfer, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof (in lieu of or in addition to the number of
shares of Common Stock theretofore deliverable, as appropriate), and without
payment of any additional consideration, the number of shares of stock or other
securities or property to which the holder of the number of shares of Common
Stock which would otherwise have been deliverable upon the exercise of this
Warrant or any portion thereof at the time of such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer
would have been entitled to receive in such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer. This Section 4.1
shall apply to successive reorganizations, reclassifications, recapitalizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant.
4.2. Reclassifications. If the Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the
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purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted.
4.3. Splits and Combinations. If the Company at any time subdivides any
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Exercise Price under this Section 4.3, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by dividing (i) the aggregate Exercise Price payable
for the purchase of all shares issuable upon exercise of this Warrant
immediately prior to such adjustment by (ii) the Exercise Price per share in
effect immediately after such adjustment.
4.4. Dividends and Distributions. If the Company declares a dividend or
other distribution on the Common Stock (other than a cash dividend or
distribution), then, as part of such dividend or distribution, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof, in addition to the number of shares of
Common Stock receivable thereupon and without payment of any additional
consideration, the amount of the dividend or other distribution to which the
holder of the number of shares of Common Stock obtained upon exercise hereof
would have been entitled to receive had the exercise occurred as of the record
date for such dividend or distribution.
4.5. Liquidation; Dissolution. If the Company shall dissolve, liquidate
or wind up its affairs, the Holder shall have the right, but not the obligation,
to exercise this Warrant effective as of the date of such dissolution,
liquidation or winding up. If any such dissolution, liquidation or winding up
results in any cash distribution to the Holder in excess of the aggregate
Exercise Price for the shares of Common Stock for which this Warrant is
exercised, then the Holder may, at its option, exercise this Warrant without
making payment of such aggregate Exercise Price and, in such case, the Company
shall, upon distribution to the Holder, consider such aggregate Exercise Price
to have been paid in full, and in making such settlement to the Holder, shall
deduct an amount equal to such aggregate Exercise Price from the amount payable
to the Holder.
4.6. Antidilution Provisions.
4.6.1. Definitions. For purposes of this Section 4.6 the
following definitions shall apply:
"Common Stock Equivalents" shall mean Convertible Securities
and rights entitling the holder thereof to receive directly, or indirectly,
additional shares of Common Stock without the payment of any consideration by
such holder for such additional shares of Common Stock or Common Stock
Equivalents.
"Common Stock Outstanding" shall mean the aggregate of all
Common Stock outstanding and all Common Stock issuable upon conversion of all
outstanding Convertible Securities and exercise of all Options other than
Employee Securities issued after October 14, 1997, unless such Employee
Securities arise from exercise of Options granted prior to October 14, 1997.
"Current Exercise Price" shall mean the Exercise Price
immediately before the occurrence of any event, which, pursuant to Section 4.6,
causes an adjustment to the Exercise Price.
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4.6.2. Adjustments to Exercise Price. The Exercise Price in
effect from time to time shall be subject to adjustment in certain cases as
follows:
4.6.2.1. Issuance of Securities. Subject to Section
4.6.3, in case the Company shall at any time after October 14, 1997 issue or
sell any Common Stock or Common Stock Equivalent without consideration, or for a
consideration per share less than the Fair Market Value, then, and thereafter
successively upon each such issuance or sale, the Current Exercise Price shall
simultaneously with such issuance or sale be adjusted to an Exercise Price
(calculated to the nearest cent) determined by multiplying the Current Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the number of shares of Common Stock Outstanding on
such date of sale or issuance plus the number of shares of Common Stock which
the aggregate consideration received for the issuance or sale of such additional
shares would purchase at the Fair Market Value and the denominator of which
shall be the number of shares of Common Stock Outstanding immediately after the
issuance or sale.
For the purposes of this subsection 4.6.2.1, the
following provisions shall also be applicable:
4.6.2.1.1. Cash Consideration. In case of the
issuance or sale of additional Common Stock or Common Stock Equivalents for
cash, the consideration received by the Company therefor shall be deemed to be
the amount of cash received by this corporation for such shares (or, if such
shares are offered by the corporation for subscription, the subscription price,
or, if such shares are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price), without
deducting therefrom any compensation or discount paid or allowed to underwriters
or dealers or others performing similar services or for any expenses incurred in
connection therewith.
4.6.2.1.2. Non-Cash Consideration. In case of the
issuance (otherwise than upon conversion or exchange of Convertible Securities)
or sale of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration, a part of which shall be other
than cash, the fair value of such consideration as determined by the board of
directors of the Company in the good faith exercise of its business judgment,
irrespective of the accounting treatment thereof, shall be deemed to be the
value, for purposes of this Section 4.6.2, of the consideration other than cash
received by the Company for such securities.
4.6.2.1.3. Options and Convertible Securities. In
case the Company shall in any manner issue or grant any Options or any
Convertible Securities, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable shall (as of the date of
issue or grant of such Options or, in the case of the issue or sale of
Convertible Securities other than where the same are issuable upon the exercise
of Options, as of the date of such issue or sale) be deemed to be issued and to
be outstanding for the purpose of this Section 4.6.2. and to have been issued
for the sum of the amount (if any) paid for such Options or Convertible
Securities and the minimum amount (if any) payable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities at the
time such Convertible Securities first become convertible or exchangeable;
provided that, subject to the provisions of Section 4.6.2.1.4, no adjustment or
further adjustment of the Exercise Price shall be made upon the actual issuance
of (a) any such Common Stock or Convertible Securities or upon the conversion or
exchange of any such Convertible Securities or the exercise of such Options or
(b) any Common Stock issued or sold pursuant to conversion of any Convertible
Securities or exercise of any Options to the extent outstanding on October 14,
1997.
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4.6.2.1.4. Change in Option Price or Conversion Rate.
If the exercise price provided for in any Option referred to in subsection
4.6.2.1.3, or the rate at which any Convertible Securities referred to in
subsection 4.6.2.1.3 are convertible into or exchangeable for shares of Common
Stock shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the Current Exercise Price in effect at
the time of such event shall forthwith be readjusted to the Exercise Price that
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed exercise price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. If the exercise price provided for in any
such Option referred to in subsection 4.6.2.1.3, or the additional consideration
(if any) payable upon the conversion or exchange of any Convertible Securities
referred to in subsection 4.6.2.1.3, or the rate at which any Convertible
Securities referred to in subsection 4.6.2.1.3 are convertible into or
exchangeable for shares of Common Stock, shall be reduced at any time under or
by reason of provisions with respect thereto designed to protect against
dilution and such reduction would trigger an adjustment under Subsection
4.6.2.1, then in case of the delivery of shares of Common Stock upon the
exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Current Exercise Price then in effect hereunder shall,
upon issuance of such shares of Common Stock, be adjusted to such amount as
would have obtained had such Option or Convertible Security never been issued
and had adjustments been made only upon the issuance of the shares of Common
Stock actually delivered and for the consideration actually received for such
Option or Convertible Security and the Common Stock.
4.6.2.1.5. Termination of Option or Conversion
Rights. In the event of the termination or expiration of any right to purchase
Common Stock under any Option or of any right to convert or exchange Convertible
Securities, the Current Exercise Price shall, upon such termination, be changed
to the Exercise Price that would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued, and the shares of Common Stock issuable thereunder shall no longer be
deemed to be Common Stock Outstanding.
4.6.3. Employee Securities. Notwithstanding anything in this
Article IV to the contrary, the Exercise Price shall not be adjusted by virtue
of the issuance or sale of Employee Securities and no Employee Securities shall
be included in any manner in the computation from time to time of the Exercise
Price under subsection 4.6.2 or in Common Stock Outstanding for purposes of such
computation except that Employee Securities constituting Common Stock arising
from exercise of Options granted prior to October 14, 1997 shall be included in
Common Stock Outstanding.
4.7. Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
4.8. Other Dilutive Events. If any event occurs as to which the other
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant; provided, that no adjustments shall be made in connection with the
issuance of Common Stock upon exercise, conversion or exchange of Options or
Convertible Securities to the extent that adjustment has previously been made
upon issuance of such Options or Convertible Securities and each lowering of the
effective purchase price of Common Stock pursuant to such Option or Convertible
Securities. Upon receipt of such opinion, the
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Company shall promptly mail a copy thereof to the Holder and shall make the
adjustments described therein.
4.9. Certificates and Notices.
(a) Adjustment Certificates. Upon any adjustment of the
Exercise Price and/or the number of shares of Common Stock purchasable upon
exercise of this Warrant, a certificate, signed by (i) the Company's President
or Chief Financial Officer, or (ii) any independent firm of certified public
accountants of recognized national standing the Company selects at its own
expense, setting forth in reasonable detail the events requiring the adjustment
and the method by which such adjustment was calculated, shall be mailed to the
Holder and shall specify the adjusted Exercise Price and the number of shares of
Common Stock purchasable upon exercise of the Warrant after giving effect to the
adjustment.
(b) Extraordinary Corporate Events. If the Company, after the
date hereof, proposes to effect (i) any transaction described in Sections 4.1 or
4.2 hereof, or (ii) a liquidation, dissolution or winding up of the Company
described in Section 4.5 hereof or (iii) any payment of a dividend or
distribution with respect to the Common Stock (other than a cash dividend or
distribution), then, in each such case, the Company shall mail to the Holder a
notice describing such proposed action and specifying the date on which the
Company's books shall close, or a record shall be taken, for determining the
holders of Common Stock entitled to participate in such action, or the date on
which such reorganization, reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to receive securities and/or other
property deliverable upon such action, if any such date is to be fixed. Such
notice shall be mailed to the Holder at least twenty days prior to the record
date for such action in the case of any action described in clause (i) above at
least ten days prior to the record date for such action in the case of any
action described in clause (iii) above, and in the case of any action described
in clause (ii) above, at least twenty days prior to the date on which the action
described is to take place and at least twenty days prior to the record date for
determining holders of Common Stock entitled to receive securities and/or other
property in connection with such action. The failure to give notice required by
this Section 4.9(b) or any defect therein shall be a breach of this Warrant but
shall not affect the legality or validity of the action taken by the Company or
the vote upon any such action. Unless specifically required by this Article IV,
the Exercise Price, the number of shares covered by each Warrant and the number
of Warrants outstanding shall not be subject to adjustment as a result of the
Company being required to give notice pursuant to this Section 4.9(b).
4.10. No Impairment. The Company shall not, by amendment of the Charter
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Article IV and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
4.11. Application. Except as otherwise provide herein, all sections of
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V.
REGISTRATION RIGHTS
5.1. Registration on Form S-3.
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5.1.1. Filing of Registration Statement. The Company shall use
its best efforts to secure effectiveness of, as soon as practicable, and shall
file no later than 10 days after the commencement of the Exercise Period, a
registration statement in form and substance satisfactory to the Holder on Form
S-3 (the "Registration Statement") with the Commission under the Securities Act
to register the issuance of Warrant Shares upon exercise of the Warrant and the
transfer of such Warrant Shares (the Warrant Shares constituting the
"Registrable Securities"); provided however, that in the event the Company fails
to file reports in a timely manner or otherwise fails (due to an action or
inaction of the Company) to be eligible to file a registration statement on Form
S-3, the Company shall file a registration statement on Form S-1.
5.1.2. Registrable Expenses. The Company shall pay all
Registration Expenses (as defined below) in connection with any registration,
qualification or compliance hereunder, and each Holder shall pay all Selling
Expenses (as defined below) and other expenses that are not Registration
Expenses relating to the Registrable Securities resold by such Holder.
"Registration Expenses" shall mean all expenses, except for Selling Expenses,
incurred by the Company in complying with the registration provisions herein
described, including, without limitation, all registration, qualification and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration. "Selling Expenses" shall mean
all selling commissions, underwriting fees and stock transfer taxes applicable
to the Registrable Securities and all fees and disbursements of counsel for any
Holder.
5.1.3. Additional Company Obligations. In the case of any
registration effected by the Company pursuant to these registration provisions,
the Company will use its best efforts to: keep such registration effective until
such date as all of the Registrable Securities have been sold or could
immediately be sold pursuant to Rule 144(k) promulgated by the Commission; (ii)
prepare and file with the Commission such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of the Registrable Securities;
(iii) furnish such number of prospectuses and other documents incident thereto,
including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request; (iv) cause all such Registrable Securities
registered as described herein to be listed on each securities exchange and
quoted on each quotation system on which similar securities issued by the
Company are then listed or quoted; (v) provide a transfer agent and registrar
for all Registrable Securities registered pursuant to the Registration Statement
and a CUSIP number for all such Registrable Securities; (vi) use its best
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its securityholders, to the extent required, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the first month
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and (vii)
file the documents required of the Company and otherwise use its best efforts to
maintain requisite blue sky clearance in (A) all jurisdictions in which any of
the Warrant Shares are originally sold and (B) all other states specified in
writing by a Holder as may reasonably be required to sell such Holder's Warrant
Shares, provided, however, that the Company shall not be required to qualify to
do business, subject itself to taxation, or consent to service of process in any
state in which it is not now so qualified or subject to taxation or has not so
consented.
5.1.4. Conditions and Limitations
(a) Cooperation by Holder. It shall be a condition
precedent to the obligation of the Company to take any action pursuant to this
Article V in respect of the Registrable Securities that the Holder shall furnish
to the Company such information regarding such Registrable Securities and the
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intended method of disposition thereof and such other information as the Company
shall reasonably request and as shall be required in connection with the action
taken by the Company.
(b) Notification Prior to Sale. If any Holder shall
propose to sell any Registrable Securities pursuant to the Registration
Statement, it shall notify the Company of its intent to do so at least three
full business days prior to such sale, and the provision of such notice to the
Company shall be deemed to establish an agreement by such Holder to comply with
the registration provisions contained herein. Such notice shall be deemed to
constitute a representation that any information previously supplied by such
Holder is accurate as of the date of such notice. At any time within such three
business day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided,
however, that in order to exercise this right, the Company must deliver a
certificate in writing to the Holder to the effect that a delay in such sale is
necessary because, in the good faith judgment of the Company, a sale pursuant to
the Registration Statement would require the public disclosure of information
that would not otherwise be required to be disclosed (which disclosure would be
likely, in the good faith judgment of the Company, to be materially harmful to
the Company) or could in other respects constitute a violation of the federal
securities laws. In such an event, the Company shall use its best efforts to
amend the Registration Statement to the extent required to comply with Section
5.1.4 and to take all other actions necessary to allow such sale under the
federal securities laws, and shall notify the Holders promptly after it has
determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to refuse
to permit the Holder to resell any Registrable Securities more than twice in any
twelve-month period, and any individual period during which the Company refuses
to permit the Holder to resell any Registrable Securities shall not exceed sixty
days.
The Company will promptly notify each holder of any Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event or existence of any fact as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they are made, and, as
promptly as is practicable, prepare and furnish to such holder a reasonable
number of copies of any required supplement to or amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances in
which they are made. By acquisition of Registrable Securities, each holder of
such Registrable Securities shall be deemed to have agreed that upon receipt of
any notice from the Company of the happening of any event of the kind described
in the preceding sentence, such holder will promptly discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of any required supplemented or amended prospectus contemplated by this Section.
If so directed by the Company, each holder of Registrable Securities will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, in such holder's possession of the prospectus covering
such Registrable Securities at the time of receipt of such notice. Subject to
the foregoing, when a Holder is entitled to sell and gives notice of its intent
to sell pursuant to the Registration Statement, the Company shall furnish to
such Holder a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they are made.
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5.2. Indemnification and Contribution.
5.2.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
such Holder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any claim by a third party
asserting any untrue statement of a material fact contained in the Registration
Statement or omission of a material fact therefrom necessary to make the
statements therein not misleading, on the effective date thereof, or arise out
of any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will, as incurred, reimburse such Holder
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damages or liability arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or (ii) any
untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
5.2.2. Indemnification by Holder. Each Holder, severally and
not jointly, agrees to indemnify and hold harmless the Company from and against
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any claim by a
third party asserting (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in
preparation of the Registration Statement, provided, however, that no Holder
shall be liable in any such case for any untrue statement included in any
prospectus which statement has been corrected, in writing, by such Holder and
delivered to the Company at least three business days before the sale from which
such loss occurred or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered by the Holder to the
purchaser prior to the pertinent sale or sales by the Holder, and each Holder,
severally and not jointly, will, as incurred, reimburse the Company for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim.
5.2.3. Indemnification Procedures. Promptly after receipt by
any indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an indemnifying person
pursuant to this Section 5.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and the indemnifying
person shall have been notified thereof, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable opinion of counsel for the indemnified person for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that in the case of the immediately preceding proviso the indemnifying
person shall not be responsible for the legal expenses of more than one counsel
for all indemnified persons.
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5.2.4. Contribution in Lieu of Indemnity. If the
indemnification provided for in this Section 5.2 is unavailable to or
insufficient to hold harmless an indemnified party under Section 5.2.1 or 5.2.2
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefit and relative fault of the respective parties as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a Holder on
the other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders agree that it would not be just and equitable if contribution
pursuant to this Section 5.2.4 were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 5.2.4. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 5.2.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5.2.4, no Holder shall
be required to contribute any amount in excess of the net amount received by the
Holder from the sale of the Registrable Securities to which such loss relates.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 5.2.4 to contribute are several in proportion to
their respective sales of Registrable Securities to which such loss relates and
not joint.
5.2.5. Controlling Persons Indemnified. The obligations of the
Company and the Holders under this Section 5.2 shall be in addition to any
liability which the Company and the respective Holders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls or may be deemed to control the Company or any Holder within the
meaning of the Securities Act including, without limitation, the directors and
officers of the Company and the Holder, as the case may be.
5.3. Transfer Of Registration Rights. The right to sell Registrable
Securities pursuant to the Registration Statement described herein will
automatically be assigned to each transferee of the Warrant or Warrant Shares
permitted under the terms of this Warrant. In the event that it is necessary, in
order to permit a Holder to sell Registrable Securities pursuant to the
Registration Statement, to amend the Registration Statement to name such Holder,
such Holder shall upon written notice to the Company, be entitled to have the
Company make such amendment as soon as reasonably practicable.
ARTICLE VI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
6.1. Representations and Warranties. The Company represents and
warrants that as of the date hereof:
(a) Legal Status; Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of Rhode
Island and is qualified or licensed to do business in all other countries,
states and provinces in which the laws thereof require the Company to
17
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qualify and/or be licensed, except where failure to qualify or be licensed would
not have a material adverse effect on the business or assets of the Company
taken as a whole;
(b) Capitalization. The Company's authorized capital stock
consists of: 300,000,000 shares of Common Stock, of which 126,352,563 shares are
issued and outstanding;
(c) Options. Except as described in Exhibit "D-3" hereto there
are no Options, warrants or similar rights to acquire from the Company, or
agreements or other obligations by the Company, absolute or contingent, to issue
or sell Common Stock, whether on conversion or exchange of Convertible
Securities or otherwise;
(d) Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
(e) Authority. The Company has the right and power, and is
duly authorized and empowered, to enter into, execute, deliver and perform its
obligations under this Warrant;
(f) Binding Effect. This Warrant has been duly authorized,
executed and delivered and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii)
general principles of equity;
(g) No Conflict. The execution, delivery and/or performance by
the Company of this Warrant shall not, by the lapse of time, the giving of
notice or otherwise, constitute a violation of any applicable law or a breach of
any provision contained in the Company's Charter or Bylaws or contained in any
agreement, instrument or document to which the Company is a party or by which it
is bound;
(h) Consents. Except as contemplated by Article V and Section
6.2(b), no consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the valid issuance of the Warrant or for the performance of any of the
Company's obligations hereunder, except in connection with listing of the
Warrant Shares on the American Stock Exchange, which listing will be effected in
accordance with the rules and regulations of the American Stock Exchange;
(i) Offering. Neither the Company nor any agent acting on its
behalf has, either directly or indirectly, sold, offered for sale or disposed
of, or attempted or offered to dispose of, this Warrant or any part hereof, or
any similar obligation of the Company, to, or has solicited any offers to buy
any thereof from, any Person or Persons other than the Holder. Neither the
Company nor any agent acting on its behalf will sell or offer for sale or
dispose of, or attempt or offer to dispose of, this Warrant or any part thereof
to, or solicit any offers to buy any warrant of like tenor from, or otherwise
approach or negotiate in respect thereof, with, any Person or Persons so as
thereby to bring the issuance of this Warrant within the provisions of Section 5
of the Securities Act;
(j) Registration. Assuming the accuracy of the Holder's
representations made herein, it is not necessary in connection with the issuance
and sale of this Warrant to the Holder pursuant to this Agreement to Register
this Warrant under the Securities Act; and
6.2. Covenants. The Company covenants that:
(a) Authorized Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant
18
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(for purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all other Options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock shall
be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take
all such action as may be necessary to assure that the Common Stock issuable
upon the exercise of this Warrant may be so issued without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange or automated quotation system upon which any capital stock of the
Company may be listed or quoted, as the case may be, provided that the Holder,
at its sole expense, will take all such action as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection
with its acquisition of securities of the Company. Such action by the Company
may include, but not be limited to, causing such shares to be duly registered or
approved, listed or quoted on relevant domestic securities exchanges or
automated quotation systems; and
(c) Fully Paid Shares. The Company will take all actions
necessary or appropriate to validly and legally issue fully paid and
nonassessable shares of Common Stock upon exercise of this Warrant. All such
shares will be free from all taxes, liens and charges with respect to the
issuance thereof, other than any stock transfer taxes in respect to any transfer
occurring contemporaneously with such issuance.
ARTICLE VII.
MISCELLANEOUS
7.1. Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer and income taxes) and other
governmental charges that may be imposed in respect of, the issuance, sale and
delivery of the Warrant and the Warrant Shares to the Holder.
7.2. Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company or (c) notice of any other proceedings of the
Company.
7.3. Like Tenor. All Warrants shall at all times be substantially
identical except as to the Preamble.
7.4. Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.5. Enforcement Costs. If the Holder, a Shareholder or the Company
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
7.6. Nonwaiver; Cumulative Remedies. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No
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single or partial waiver by the Holder and/or any Shareholder of any provision
of this Warrant or of any breach or default hereunder or of any right or remedy
shall operate as a waiver of any other provision, breach, default right or
remedy or of the same provision, breach, default, right or remedy on a future
occasion. The rights and remedies provided in this Warrant are cumulative and
are in addition to all rights and remedies which the Holder and each Shareholder
may have in law or in equity or by statute or otherwise.
7.7. Notices. Any notice, demand or delivery to be made pursuant to
this Warrant will be sufficiently given or made if sent by certified or
registered mail, postage prepaid, nationally recognized overnight delivery
service or facsimile transmission, addressed to (a) the Holder and the
Shareholders at their last known addresses appearing on the books of the Company
maintained for such purpose or (b) the Company at its Principal Executive
Office. The Holder, the Shareholders and the Company may each designate a
different address by notice to the other pursuant to this Section 7.7. A notice
shall be deemed effective upon receipt.
7.8. Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns. The Company shall, at the time of exercise of
this Warrant, in whole or in part, upon request of the Holder or any Shareholder
but at the Company's expense, acknowledge in writing its continuing obligations
hereunder with respect to rights of the Holder or such Shareholder to which it
shall continue to be entitled after such exercise in accordance with the terms
hereof; provided that the failure of the Holder or any Shareholder to make any
such request shall not affect the continuing obligation of the Company to the
Holder or such Shareholder in respect of such rights.
7.9. Modification; Severability.
(a) If, in any action before any court or agency legally
empowered to enforce any term, any term is found to be unenforceable, then such
term shall be deemed modified to the extent necessary to make it enforceable by
such court or agency.
(b) If any term is not curable as set forth in subsection (a)
above, the unenforceability of such term shall not affect the other provisions
of this Warrant but this Warrant shall be construed as if such unenforceable
term had never been contained herein.
7.10. Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
7.11. Survival of Representations and Warranties. The representations
and warranties of any party in this Warrant shall survive the execution and
delivery of this Warrant and the consummation of the transactions contemplated
hereby, notwithstanding any investigation by the such party or its agents.
7.12. Amendment. This Warrant may not be modified or amended except by
written agreement of the Company, the Holder and the Shareholder(s), if any,
holding a majority of the Warrant Shares.
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7.13. Headings. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
7.14. Meanings. Whenever used in this Warrant, any noun or pronoun
shall be deemed to include both the singular and plural and to cover all
genders; and the words "herein," "hereof" and "hereunder" and words of similar
import shall refer to this instrument as a whole, including any amendments
hereto.
7.15. Governing Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer this October 14, 1997.
LUCAS LICENSING LTD. ("Holder") HASBRO, INC. ("Company")
By: /s/ GORDON RADLEY By: /s/ HAROLD P. GORDON
------------------------ ------------------------
Title: President Title: Vice Chairman
--------------------- ---------------------
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SCHEDULE OF EXHIBITS
EXHIBIT "D-1"-Notice of Exercise (Section 2.1)
EXHIBIT "D-2"-Investment Representation Certificate (Section 3.2(a))
EXHIBIT "D-3"-Assignment Form (Section 3.2(d))
EXHIBIT "D-4"-Schedule of Outstanding Options and Convertible Securities
(Sections 6.1(c))
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EXHIBIT "D-1"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of Hasbro, Inc. and herewith makes payment therefor in the amount of $
______________, all at the price and on the terms and conditions specified in
the within Warrant and requests that a certificate (or _______________
certificates in denominations of _______shares) for the shares of Common Stock
of Hasbro, Inc. hereby purchased be issued in the name of and delivered to
(choose one) (a) the undersigned or (b) [NAME], whose address is and, if such
shares of Common Stock shall not include all the shares of Common Stock issuable
as provided in the within Warrant, that a new Warrant of like tenor for the
number of shares of Common Stock of Hasbro, Inc. not being purchased hereunder
be issued in the name of and delivered to (choose one) (a) the undersigned or
(b) [NAME], whose address is _____________________.
Dated:________________________
NOTICE: The signature to this Notice of Exercise must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatever.
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EXHIBIT "D-2"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: Hasbro, Inc.
Security: Common Stock
Amount:
Date:
(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(b) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act");
(c) The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefor, which exemption depends upon, among other things, the bona fide nature
of the Purchaser's investment intent as expressed herein;
(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and
(e) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein.
The Purchaser represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act or any successor
regulation thereunder.
Date:__________________ PURCHASER:___________________________________
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EXHIBIT "D-3"
OUTSTANDING OPTIONS
ASSIGNMENT FORM
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto ______________, whose address is
______________ all of the rights of the undersigned under the within Warrant,
with respect to shares of Common Stock of Hasbro, Inc. and, if such shares of
Common Stock shall not include all the shares of Common Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Common Stock of Hasbro, Inc. not being transferred hereunder be
issued in the name of and delivered to the undersigned, and does hereby
irrevocably constitute and appoint ______________ attorney to register such
transfer on the books of Hasbro, Inc. maintained for the purpose, with full
power of substitution in the premises.
Dated:__________________ _______________________________________
_______________________________________
By:____________________________________
(Signature of Registered Holder)
Title:_________________________________
NOTICE: The signature to this Assignment must correspond with the name upon the
face of the within Warrant in every particular, without alteration or
enlargement or any change whatever.
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EXHIBIT "D-4"
OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES
(Sections 6.1(c))
1. Options granted under employee and non-employee director stock option
plans for 10,515,835 shares of Common Stock.
2. 6% Convertible Subordinated Notes due 1998 convertible into 7,607,723
shares of Common Stock.
3. Warrants granted to DreamWorks LLC for shares of Common Stock.
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EXHIBIT 10(i)
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THIS WARRANT.
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED), (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER,
AS PROVIDED HEREIN.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated October 14, 1997
This certifies that for value received:
LUCASFILM LTD.
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from Hasbro, Inc., a Rhode Island corporation (the "Company"), up to
2,600,000 fully paid and nonassessable shares of the Common Stock of the
Company, at the exercise price of twenty-eight dollars ($28.00) per share. The
number of shares purchasable hereunder and the Exercise Price are subject to
adjustment in certain events, all as more fully set forth under Article IV
herein.
ARTICLE I.
DEFINITIONS
"Additional Stock" means any of Common Stock, Convertible Securities
and Options.
"Change in Control" means:
A. The acquisition (or series of related acquisitions) by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the then outstanding shares of Common
Stock (the "Outstanding Common Stock") or (y) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (i) any acquisition (or series of related acquisitions) directly from
the Company or any of its subsidiaries of shares that would constitute, after
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issuance, or any acquisition (or series of related acquisitions) consented to by
the Board of Directors of the Company of outstanding shares constituting, in the
aggregate, less than 40% of the Outstanding Voting Securities, (ii) any
acquisition by the Company or any of its subsidiaries, (iii) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its subsidiaries, (iv) any acquisition by Alan or Sylvia
Hassenfeld, members of their respective immediate families, or heirs of Alan or
Sylvia Hassenfeld or of any member of their respective immediate families, the
Sylvia Hassenfeld Trust, the Merrill Hassenfeld Trust, the Alan Hassenfeld
Trust, the Hassenfeld Foundation, any trust or foundation established by or for
the primary benefit of any of the foregoing, or controlled by one or more of any
of the foregoing, or any affiliates or associates (as such terms are defined in
Rule 12b-2 promulgated under the 1934 Act) of any of the foregoing (such holders
described in clauses (ii) and (iii) and in this clause (iv), the "Permitted
Acquirors") or (v) any acquisition by any corporation with respect to which,
following such acquisition, (a) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
the Outstanding Voting Securities immediately prior to such acquisition in
substantially the same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, and (b) less than 40% of such outstanding shares of common
stock of such corporation and of such combined voting power of such outstanding
voting securities is then beneficially owned, directly or indirectly, by an
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the 1934 Act), other than the Permitted Acquirors; or
B. Any event in which individuals who as of the Closing Date constitute
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Closing Date, whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents; or
C. A reorganization, merger or consolidation involving the Company
(whether or not the Company is the surviving entity), in each case, with respect
to which (i) all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such reorganization, merger
or consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership immediately prior to such reorganization, merger or
consolidation, of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be, and (ii) following such reorganization, merger
or consolidation, no individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors,
beneficially owns, directly or indirectly, 40% or more of such outstanding
shares of common stock of such surviving corporation and of such combined voting
power of such outstanding voting securities; or
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D. (i) A complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of the
Company (in one transaction or a series of related transactions), other than to
a corporation, with respect to which following such sale or other disposition,
(A) more than 50% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such sale or other disposition in substantially
the same proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, and (B) less than 40% of such outstanding shares of common
stock of such corporation and of such combined voting power of the outstanding
voting securities of such corporation is then beneficially owned, directly or
indirectly, by an individual entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors; or
E. The acquisition (or series of related acquisitions) by a Competitor
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the Outstanding Common Stock or (y) the
Outstanding Voting Securities unless such Competitor is approved by Holder as a
passive investor in the Company, such approval not to be unreasonably withheld.
"Charter" means the certificate of incorporation of the Company, as
filed with the Rhode Island Secretary of State.
"Closing Date" means October 14, 1997.
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Exchange Act of 1934 or the
Securities Act.
"Common Stock" means the Company's Common Stock, par value $.50 per
share, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock, and any other capital stock
of the Company of any class or series now or hereafter authorized having the
right to share in distributions either of earnings or assets of the Company
without limit as to amount or percentage.
"Company" means Hasbro, Inc., a Rhode Island corporation, and any
successor corporation.
"Competitor" means a Person or group of Persons (within the meaning of
Section 13(d)(3) or 14(d)(2) of the 1934 Act) engaged as a significant part of
its or their business in the business of producing or distributing any
entertainment properties including, without limitation, motion pictures,
television production, and interactive educational and entertainment products.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for, with
or without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Employee Securities" shall mean all securities of the Company issued
or sold after October 14, 1997 to employees, consultants, officers or directors
of the Company with the approval of, or pursuant to a plan approved by, the
Board of Directors or any duly authorized committee thereof.
3
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"Exercise Period" means the period commencing on the earlier of (i) the
U.S. Release Date of Episode I and (ii) the occurrence of a Change in Control
and terminating at 5:00 p.m. Pacific Time on the twelfth anniversary of the
Closing Date.
"Exercise Price" means the exercise price per share of Common Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means with respect to a share of Common Stock at
any date:
(i) If shares of Common Stock are being sold pursuant to a
public offering under an effective registration statement under the Securities
Act which has been declared effective by the Commission and Fair Market Value is
being determined as of the closing of the public offering, the "per share price
to public" specified for such shares in the final prospectus for such public
offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
twenty trading days before such date. The closing price for each day shall be
the last sale price on such date or, if no such sale takes place on such date,
the average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted
to trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a registration described in
clause (i) of this definition, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
Nasdaq Stock Market or, if such shares are not then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Company and reasonably acceptable to the
Holder;
(iv) If no shares of Common Stock are then listed or admitted
to trading on any national exchange or traded on any national market system, if
no closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a registration described in clause (i) of this definition, the fair
value of a share of Common Stock shall be as determined by an investment bank
selected by Company with the approval of the Holder (which approval shall not be
unreasonably withheld or delayed), the costs of such investment banker to be
paid by the Company.
"Fiscal Year" means the fiscal year of the Company.
"Holder" means the person in whose name this Warrant is registered on
the books of the Company maintained for such purpose and any transferee
permitted under the terms of this Warrant of all or a portion of this Warrant.
"Option" means any right, warrant or option to subscribe for or
purchase shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies,
4
<PG$PCN>
trusts, banks, trust companies, land trusts, business trusts, government
entities and authorities and other organizations, whether or not legal entities.
"Principal Executive Office" means the Company's office at 1027 Newport
Avenue, Pawtucket, Rhode Island 02862 or such other office as designated in
writing to the Holder by the Company.
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means the person who was previously the Holder and has
exercised all or a portion of this Warrant.
"U.S. Release Date of Episode I" means the initial theatrical release
in the United States of the first prequel theatrical motion picture to the
classic Star Wars trilogy.
"Warrant" means the warrant dated as of Closing Date issued to the
Holder and all warrants issued upon the partial exercise, transfer or division
of or in substitution for any Warrant.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of this Warrant provided that if under the terms hereof there
shall be a change such that the securities purchasable hereunder shall be issued
by an entity other than the Company or there shall be a change in the type or
class of securities purchasable hereunder, then the term shall mean the
securities issued or issuable upon the exercise of the rights granted hereunder.
ARTICLE II.
EXERCISE
2.1. Exercise Right; Manner of Exercise. The purchase rights
represented by this Warrant may be exercised by the Holder, in whole or in part,
at any time and from time to time during the Exercise Period upon (i) surrender
of this Warrant, together with an executed notice of exercise, substantially in
the form of Exhibit "D-1" ("Notice of Exercise") attached hereto, at the
Principal Executive Office, and (ii) payment to the Company of the aggregate
Exercise Price for the number of Warrant Shares specified in the Notice of
Exercise (such aggregate Exercise Price, the "Total Exercise Price"). The Total
Exercise Price shall be paid by check; provided, however, that if the Warrant
Shares are acquired in conjunction with a Registration of such Warrant Shares,
then the Holder may arrange for the aggregate Exercise Price for such Warrant
Shares to be paid to the Company from the proceeds of the sale of such Warrant
Shares pursuant to such Registration. The Person or Person(s) in whose name(s)
any certificate(s) representing the Warrant Shares which are issuable upon
exercise of this Warrant shall be deemed to become the Holder(s) of, and shall
be treated for all purposes as the record holder(s) of, such Warrant Shares, and
such Warrant Shares shall be deemed to have been issued, immediately prior to
the close of business on the date on which this Warrant and Notice of Exercise
are presented and payment made for such Warrant Shares,
5
<PG$PCN>
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
actually delivered to such Person or Person(s). Certificates for the Warrant
Shares so purchased shall be delivered to the Holder within two business days
after this Warrant is exercised. If this Warrant is exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which the Holder is entitled to purchase hereunder. The issuance
of Warrant Shares upon exercise of this Warrant shall be made without charge to
the Holder for any issuance tax with respect thereto or any other cost incurred
by the Company in connection with the exercise of this Warrant and the related
issuance of Warrant Shares.
2.2. Conversion of Warrant.
(a) Right to Convert. In addition to, and without limiting,
the other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X= Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this
Warrant or such lesser number of Warrant Shares as may be
selected by the Holder
A= The Fair Market Value of one Warrant Share as of the
Conversion Date
B= The Exercise Price
(b) Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant at the Principal Executive
Office, together with a written statement (the "Conversion Statement")
specifying that the Holder intends to exercise the Conversion Right and
indicating the number of Warrant Shares to be acquired upon exercise of the
Conversion Right. Such conversion shall be effective upon the Company's receipt
of this Warrant, together with the Conversion Statement, or on such later date
as is specified in the Conversion Statement (the "Conversion Date") and, at the
Holder's election, may be made contingent upon the closing of the consummation
of the sale of Common Stock pursuant to a Registration. Certificates for the
Warrant Shares so acquired shall be delivered to the Holder within a reasonable
time, not exceeding two business days after the Conversion Date. If applicable,
the Company shall, upon surrender of this Warrant for cancellation, deliver a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares; provided that the Holder will be responsible for any
transfer taxes in respect of the issuance of Warrant Shares to a Person other
than the Holder.
2.3. Fractional Shares. The Company shall not issue fractional shares
of Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder
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<PG$PCN>
would otherwise be entitled to purchase from the Company upon such exercise or
conversion, the Company shall purchase from the Holder such fractional share at
a price equal to an amount calculated by multiplying such fractional share
(calculated to the nearest 1/100th of a share) by the Fair Market Value of a
share of Common Stock on the date of the Notice of Exercise or the Conversion
Date, as applicable. Payment of such amount shall be made in cash or by check
payable to the order of the Holder at the time of delivery of any certificate or
certificates arising upon such exercise or conversion.
2.4. Continued Validity. A Shareholder shall be entitled to all rights
which a Holder of this Warrant is entitled pursuant to the provisions of this
Warrant, except rights which by their terms apply only to a Warrant.
ARTICLE III.
TRANSFER, EXCHANGE AND REPLACEMENT
3.1. Maintenance of Registration Books. The Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever, and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. Restrictions on Transfers.
(a) Compliance with Securities Act. The Holder, by acceptance
hereof hereby makes the representations set forth in Exhibit D-2 with respect to
its acquisition of this Warrant and agrees that this Warrant and the Common
Stock to be issued to the Holder upon exercise hereof are being acquired for
investment, solely for the Holder's own account and not as a nominee for any
other Person, and that the Holder will not offer, sell or otherwise dispose of
this Warrant or any such shares of Common Stock except under circumstances which
will not result in a violation of the Securities Act or this Agreement. Unless
registered under the Securities Act, upon exercise of this Warrant (other than
through conversion of the Warrant on or after two years from the date hereof),
the Holder shall confirm in writing, by executing the form attached as Exhibit
"D-2" hereto, that the shares of Common Stock purchased thereby are being
acquired for investment, solely for the Holder's own account and not as a
nominee for any other Person, and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all Warrant Shares
issued upon exercise of this Warrant (unless Registered under the Securities
Act) shall be stamped or imprinted with legends in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION AND (B) OTHERWISE COMPLYING WITH THE
7
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PROVISIONS OF ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY WAS
ISSUED.
In addition, the Warrant shall be stamped or
imprinted with a legend in substantially the following form:
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED) (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER,
ALL AS PROVIDED HEREIN.
(c) Additional Restriction on Transfer. The Holder shall not
sell, assign or otherwise transfer, pledge or hypothecate all or part of this
Warrant prior to a Change in Control without the prior written consent of the
Company, which consent may be withheld in the Company's sole discretion;
provided that (x) any such sale, assignment or other transfer by the Holder of
the Warrant in its entirety to an entity owned or controlled by the Holder (but
only for so long as it remains so owned or controlled and such entity agrees (i)
to be bound by the terms and conditions of this Warrant pursuant to an agreement
reasonably acceptable to the Company ("Assumption Agreement") and (ii) to
transfer this Warrant back to the Holder if it ceases to be owned or controlled
by the Holder), (y) any such sale, assignment or other transfer by the Holder of
the Warrant in connection with (i) the merger, consolidation or reorganization
of the Holder, (ii) the sale, assignment, transfer or other disposition of all
or substantially all of the Holder's assets or business in one or more related
transactions or (iii) the sale, assignment, transfer or other disposition of all
or substantially all of the Holder's capital stock, provided that any transferee
described in this clause (y) executes an Assumption Agreement, (z) a bona fide
pledge or hypothecation (so long as any sale, assignment or other transfer in
connection with any attempted foreclosure of such a pledge or hypothecation
would require such consent from the Company), and (zz) any transfer to a Person
directly or indirectly controlling the Holder, provided such Person executes an
Assumption Agreement, may be effected without any such consent.
(d) Disposition of Warrant Shares. With respect to any offer,
sale or other disposition of any Warrant Shares issued upon exercise of this
Warrant prior to Registration of such shares, the Shareholder agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of the Shareholder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without Registration under the Securities Act
or qualification under any applicable state securities laws of such Warrant
Shares and indicating whether or not under the Securities Act certificates for
such Warrant Shares to be sold or otherwise disposed of, require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act and any other applicable securities laws,
such opinion to be in form and substance reasonably satisfactory to the Company.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify the
Shareholder that it may sell or otherwise dispose of such Warrant Shares all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this subsection (d) that the opinion of
counsel for the Shareholder is not reasonably satisfactory to the Company, the
Company shall so notify the Shareholder promptly after such determination has
been made and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, such Warrant Shares may be offered, sold or
otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonably
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate
8
<PG$PCN>
representing the Warrant Shares thus transferred in accordance with this
subsection (d) (except a transfer pursuant to Rule 144) shall bear a legend as
to the applicable restrictions on transferability in order to insure compliance
with the Securities Act, unless in the aforesaid reasonably satisfactory opinion
of counsel for the Shareholder such legend is not necessary in order to insure
compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
(e) Termination of Restrictions. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant (other than those
in Section 3.2(c)) and the shares of Common Stock acquired upon the exercise of
this Warrant shall cease when (i) a registration statement covering the
applicable securities becomes effective under the Securities Act, (ii) the
Company is presented with an opinion of counsel reasonably satisfactory to the
Company that such restrictions are no longer required in order to insure
compliance with the Securities Act or with a Commission "no-action" letter
stating that future transfers of such securities by the transferor or the
contemplated transferee would be exempt from registration under the Securities
Act, or (iii) such securities may be transferred in accordance with Rule 144(k).
Subject to Section 3.2(c), if applicable, when such restrictions terminate, the
Company shall, or shall instruct its transfer agent to, promptly, and without
expense to the Shareholder issue new securities in the name of the Shareholder
not bearing the legends required under subsection (b) of this Section 3.2.
3.3. Exchange. At the Holder's option, this Warrant may be exchanged
for other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4. Replacement. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(i) in the case of any such loss, theft or destruction, upon delivery of
indemnity reasonably satisfactory to the Company in form and amount or (ii) in
the case of any such mutilation, upon surrender of such Warrant for cancellation
at the Principal Executive Office, the Company, at its expense, shall execute
and deliver, in lieu thereof, a new Warrant.
ARTICLE IV.
ANTIDILUTION PROVISIONS
4.1. Reorganization, Reclassification or Recapitalization of the
Company. In case of (1) a capital reorganization, reclassification or
recapitalization of the Company's capital stock (other than in the cases
referred to in Section 4.2 hereof), (2) the Company's consolidation or merger
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted, by virtue of the merger, into other property,
whether in the form of securities, cash or otherwise, or (3) the sale or
transfer of the Company's property as an entirety or substantially as an
entirety, then, as part of such reorganization, reclassification,
recapitalization, merger, consolidation, sale or transfer, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof (in lieu of or in addition to the number of
shares of Common Stock theretofore deliverable, as appropriate), and without
payment of any additional consideration, the number of shares of stock or other
securities or property to which the holder of the number of shares of Common
Stock which would otherwise have been deliverable upon the exercise of this
9
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Warrant or any portion thereof at the time of such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer
would have been entitled to receive in such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer. This Section 4.1
shall apply to successive reorganizations, reclassifications, recapitalizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant.
4.2. Reclassifications. If the Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted.
4.3. Splits and Combinations. If the Company at any time subdivides any
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Exercise Price under this Section 4.3, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by dividing (i) the aggregate Exercise Price payable
for the purchase of all shares issuable upon exercise of this Warrant
immediately prior to such adjustment by (ii) the Exercise Price per share in
effect immediately after such adjustment.
4.4. Dividends and Distributions. If the Company declares a dividend or
other distribution on the Common Stock (other than a cash dividend or
distribution), then, as part of such dividend or distribution, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof, in addition to the number of shares of
Common Stock receivable thereupon and without payment of any additional
consideration, the amount of the dividend or other distribution to which the
holder of the number of shares of Common Stock obtained upon exercise hereof
would have been entitled to receive had the exercise occurred as of the record
date for such dividend or distribution.
4.5. Liquidation; Dissolution. If the Company shall dissolve, liquidate
or wind up its affairs, the Holder shall have the right, but not the obligation,
to exercise this Warrant effective as of the date of such dissolution,
liquidation or winding up. If any such dissolution, liquidation or winding up
results in any cash distribution to the Holder in excess of the aggregate
Exercise Price for the shares of Common Stock for which this Warrant is
exercised, then the Holder may, at its option, exercise this Warrant without
making payment of such aggregate Exercise Price and, in such case, the Company
shall, upon distribution to the Holder, consider such aggregate Exercise Price
to have been paid in full, and in making such settlement to the Holder, shall
deduct an amount equal to such aggregate Exercise Price from the amount payable
to the Holder.
4.6. Antidilution Provisions.
4.6.1. Definitions. For purposes of this Section 4.6 the
following definitions shall apply:
"Common Stock Equivalents" shall mean Convertible Securities
and rights entitling the holder thereof to receive directly, or indirectly,
additional shares of Common Stock without the payment of
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any consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.
"Common Stock Outstanding" shall mean the aggregate of all
Common Stock outstanding and all Common Stock issuable upon conversion of all
outstanding Convertible Securities and exercise of all Options other than
Employee Securities issued after October 14, 1997, unless such Employee
Securities arise from exercise of Options granted prior to October 14, 1997.
"Current Exercise Price" shall mean the Exercise Price
immediately before the occurrence of any event, which, pursuant to Section 4.6,
causes an adjustment to the Exercise Price.
4.6.2. Adjustments to Exercise Price. The Exercise Price in
effect from time to time shall be subject to adjustment in certain cases as
follows:
4.6.2.1. Issuance of Securities. Subject to Section
4.6.3, in case the Company shall at any time after October 14, 1997 issue or
sell any Common Stock or Common Stock Equivalent without consideration, or for a
consideration per share less than the Fair Market Value, then, and thereafter
successively upon each such issuance or sale, the Current Exercise Price shall
simultaneously with such issuance or sale be adjusted to an Exercise Price
(calculated to the nearest cent) determined by multiplying the Current Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the number of shares of Common Stock Outstanding on
such date of sale or issuance plus the number of shares of Common Stock which
the aggregate consideration received for the issuance or sale of such additional
shares would purchase at the Fair Market Value and the denominator of which
shall be the number of shares of Common Stock Outstanding immediately after the
issuance or sale.
For the purposes of this subsection 4.6.2.1, the
following provisions shall also be applicable:
4.6.2.1.1. Cash Consideration. In case of the
issuance or sale of additional Common Stock or Common Stock Equivalents for
cash, the consideration received by the Company therefor shall be deemed to be
the amount of cash received by this corporation for such shares (or, if such
shares are offered by the corporation for subscription, the subscription price,
or, if such shares are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price), without
deducting therefrom any compensation or discount paid or allowed to underwriters
or dealers or others performing similar services or for any expenses incurred in
connection therewith.
4.6.2.1.2. Non-Cash Consideration. In case of the
issuance (otherwise than upon conversion or exchange of Convertible Securities)
or sale of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration, a part of which shall be other
than cash, the fair value of such consideration as determined by the board of
directors of the Company in the good faith exercise of its business judgment,
irrespective of the accounting treatment thereof, shall be deemed to be the
value, for purposes of this Section 4.6.2, of the consideration other than cash
received by the Company for such securities.
4.6.2.1.3. Options and Convertible Securities. In
case the Company shall in any manner issue or grant any Options or any
Convertible Securities, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities at the time such Convertible
Securities first become
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convertible or exchangeable shall (as of the date of issue or grant of such
Options or, in the case of the issue or sale of Convertible Securities other
than where the same are issuable upon the exercise of Options, as of the date of
such issue or sale) be deemed to be issued and to be outstanding for the purpose
of this Section 4.6.2. and to have been issued for the sum of the amount (if
any) paid for such Options or Convertible Securities and the minimum amount (if
any) payable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities at the time such Convertible Securities first become
convertible or exchangeable; provided that, subject to the provisions of Section
4.6.2.1.4, no adjustment or further adjustment of the Exercise Price shall be
made upon the actual issuance of (a) any such Common Stock or Convertible
Securities or upon the conversion or exchange of any such Convertible Securities
or the exercise of such Options or (b) any Common Stock issued or sold pursuant
to conversion of any Convertible Securities or exercise of any Options to the
extent outstanding on October 14, 1997.
4.6.2.1.4. Change in Option Price or Conversion Rate.
If the exercise price provided for in any Option referred to in subsection
4.6.2.1.3, or the rate at which any Convertible Securities referred to in
subsection 4.6.2.1.3 are convertible into or exchangeable for shares of Common
Stock shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the Current Exercise Price in effect at
the time of such event shall forthwith be readjusted to the Exercise Price that
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed exercise price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. If the exercise price provided for in any
such Option referred to in subsection 4.6.2.1.3, or the additional consideration
(if any) payable upon the conversion or exchange of any Convertible Securities
referred to in subsection 4.6.2.1.3, or the rate at which any Convertible
Securities referred to in subsection 4.6.2.1.3 are convertible into or
exchangeable for shares of Common Stock, shall be reduced at any time under or
by reason of provisions with respect thereto designed to protect against
dilution and such reduction would trigger an adjustment under Subsection
4.6.2.1, then in case of the delivery of shares of Common Stock upon the
exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Current Exercise Price then in effect hereunder shall,
upon issuance of such shares of Common Stock, be adjusted to such amount as
would have obtained had such Option or Convertible Security never been issued
and had adjustments been made only upon the issuance of the shares of Common
Stock actually delivered and for the consideration actually received for such
Option or Convertible Security and the Common Stock.
4.6.2.1.5. Termination of Option or Conversion
Rights. In the event of the termination or expiration of any right to purchase
Common Stock under any Option or of any right to convert or exchange Convertible
Securities, the Current Exercise Price shall, upon such termination, be changed
to the Exercise Price that would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or termination, never been
issued, and the shares of Common Stock issuable thereunder shall no longer be
deemed to be Common Stock Outstanding.
4.6.3. Employee Securities. Notwithstanding anything in this
Article IV to the contrary, the Exercise Price shall not be adjusted by virtue
of the issuance or sale of Employee Securities and no Employee Securities shall
be included in any manner in the computation from time to time of the Exercise
Price under subsection 4.6.2 or in Common Stock Outstanding for purposes of such
computation except that Employee Securities constituting Common Stock arising
from exercise of Options granted prior to October 14, 1997 shall be included in
Common Stock Outstanding.
4.7. Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
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4.8. Other Dilutive Events. If any event occurs as to which the other
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant; provided, that no adjustments shall be made in connection with the
issuance of Common Stock upon exercise, conversion or exchange of Options or
Convertible Securities to the extent that adjustment has previously been made
upon issuance of such Options or Convertible Securities and each lowering of the
effective purchase price of Common Stock pursuant to such Option or Convertible
Securities. Upon receipt of such opinion, the Company shall promptly mail a copy
thereof to the Holder and shall make the adjustments described therein.
4.9. Certificates and Notices.
(a) Adjustment Certificates. Upon any adjustment of the
Exercise Price and/or the number of shares of Common Stock purchasable upon
exercise of this Warrant, a certificate, signed by (i) the Company's President
or Chief Financial Officer, or (ii) any independent firm of certified public
accountants of recognized national standing the Company selects at its own
expense, setting forth in reasonable detail the events requiring the adjustment
and the method by which such adjustment was calculated, shall be mailed to the
Holder and shall specify the adjusted Exercise Price and the number of shares of
Common Stock purchasable upon exercise of the Warrant after giving effect to the
adjustment.
(b) Extraordinary Corporate Events. If the Company, after the
date hereof, proposes to effect (i) any transaction described in Sections 4.1 or
4.2 hereof, or (ii) a liquidation, dissolution or winding up of the Company
described in Section 4.5 hereof or (iii) any payment of a dividend or
distribution with respect to the Common Stock (other than a cash dividend or
distribution), then, in each such case, the Company shall mail to the Holder a
notice describing such proposed action and specifying the date on which the
Company's books shall close, or a record shall be taken, for determining the
holders of Common Stock entitled to participate in such action, or the date on
which such reorganization, reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to receive securities and/or other
property deliverable upon such action, if any such date is to be fixed. Such
notice shall be mailed to the Holder at least twenty days prior to the record
date for such action in the case of any action described in clause (i) above at
least ten days prior to the record date for such action in the case of any
action described in clause (iii) above, and in the case of any action described
in clause (ii) above, at least twenty days prior to the date on which the action
described is to take place and at least twenty days prior to the record date for
determining holders of Common Stock entitled to receive securities and/or other
property in connection with such action. The failure to give notice required by
this Section 4.9(b) or any defect therein shall be a breach of this Warrant but
shall not affect the legality or validity of the action taken by the Company or
the vote upon any such action. Unless specifically required by this Article IV,
the Exercise Price, the number of shares covered by each Warrant and the number
of Warrants outstanding shall not be subject to adjustment as a result of the
Company being required to give notice pursuant to this Section 4.9(b).
4.10. No Impairment. The Company shall not, by amendment of the Charter
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in
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the carrying out of all the provisions of this Article IV and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Holder against impairment.
4.11. Application. Except as otherwise provide herein, all sections of
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V.
REGISTRATION RIGHTS
5.1. Registration on Form S-3.
5.1.1. Filing of Registration Statement. The Company shall use
its best efforts to secure effectiveness of, as soon as practicable, and shall
file no later than 10 days after the commencement of the Exercise Period, a
registration statement in form and substance satisfactory to the Holder on Form
S-3 (the "Registration Statement") with the Commission under the Securities Act
to register the issuance of Warrant Shares upon exercise of the Warrant and the
transfer of such Warrant Shares (the Warrant Shares constituting the
"Registrable Securities"); provided however, that in the event the Company fails
to file reports in a timely manner or otherwise fails (due to an action or
inaction of the Company) to be eligible to file a registration statement on Form
S-3, the Company shall file a registration statement on Form S-1.
5.1.2. Registrable Expenses. The Company shall pay all
Registration Expenses (as defined below) in connection with any registration,
qualification or compliance hereunder, and each Holder shall pay all Selling
Expenses (as defined below) and other expenses that are not Registration
Expenses relating to the Registrable Securities resold by such Holder.
"Registration Expenses" shall mean all expenses, except for Selling Expenses,
incurred by the Company in complying with the registration provisions herein
described, including, without limitation, all registration, qualification and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration. "Selling Expenses" shall mean
all selling commissions, underwriting fees and stock transfer taxes applicable
to the Registrable Securities and all fees and disbursements of counsel for any
Holder.
5.1.3. Additional Company Obligations. In the case of any
registration effected by the Company pursuant to these registration provisions,
the Company will use its best efforts to: keep such registration effective until
such date as all of the Registrable Securities have been sold or could
immediately be sold pursuant to Rule 144(k) promulgated by the Commission; (ii)
prepare and file with the Commission such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of the Registrable Securities;
(iii) furnish such number of prospectuses and other documents incident thereto,
including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request; (iv) cause all such Registrable Securities
registered as described herein to be listed on each securities exchange and
quoted on each quotation system on which similar securities issued by the
Company are then listed or quoted; (v) provide a transfer agent and registrar
for all Registrable Securities registered pursuant to the Registration Statement
and a CUSIP number for all such Registrable Securities; (vi) use its best
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its securityholders, to the extent required, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the first month
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and (vii)
file the documents required of the Company and otherwise use its best efforts to
maintain requisite blue sky clearance in
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(A) all jurisdictions in which any of the Warrant Shares are originally sold and
(B) all other states specified in writing by a Holder as may reasonably be
required to sell such Holder's Warrant Shares, provided, however, that the
Company shall not be required to qualify to do business, subject itself to
taxation, or consent to service of process in any state in which it is not now
so qualified or subject to taxation or has not so consented.
5.1.4. Conditions and Limitations
(a) Cooperation by Holder. It shall be a condition
precedent to the obligation of the Company to take any action pursuant to this
Article V in respect of the Registrable Securities that the Holder shall furnish
to the Company such information regarding such Registrable Securities and the
intended method of disposition thereof and such other information as the Company
shall reasonably request and as shall be required in connection with the action
taken by the Company.
(b) Notification Prior to Sale. If any Holder shall
propose to sell any Registrable Securities pursuant to the Registration
Statement, it shall notify the Company of its intent to do so at least three
full business days prior to such sale, and the provision of such notice to the
Company shall be deemed to establish an agreement by such Holder to comply with
the registration provisions contained herein. Such notice shall be deemed to
constitute a representation that any information previously supplied by such
Holder is accurate as of the date of such notice. At any time within such three
business day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided,
however, that in order to exercise this right, the Company must deliver a
certificate in writing to the Holder to the effect that a delay in such sale is
necessary because, in the good faith judgment of the Company, a sale pursuant to
the Registration Statement would require the public disclosure of information
that would not otherwise be required to be disclosed (which disclosure would be
likely, in the good faith judgment of the Company, to be materially harmful to
the Company) or could in other respects constitute a violation of the federal
securities laws. In such an event, the Company shall use its best efforts to
amend the Registration Statement to the extent required to comply with Section
5.1.4 and to take all other actions necessary to allow such sale under the
federal securities laws, and shall notify the Holders promptly after it has
determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to refuse
to permit the Holder to resell any Registrable Securities more than twice in any
twelve-month period, and any individual period during which the Company refuses
to permit the Holder to resell any Registrable Securities shall not exceed sixty
days.
The Company will promptly notify each holder of any Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event or existence of any fact as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they are made, and, as
promptly as is practicable, prepare and furnish to such holder a reasonable
number of copies of any required supplement to or amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances in
which they are made. By acquisition of Registrable Securities, each holder of
such Registrable Securities shall be deemed to have agreed that upon receipt of
any notice from the Company of the happening of any event of the kind described
in the preceding sentence, such holder will promptly discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of any required supplemented
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or amended prospectus contemplated by this Section. If so directed by the
Company, each holder of Registrable Securities will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, in such
holder's possession of the prospectus covering such Registrable Securities at
the time of receipt of such notice. Subject to the foregoing, when a Holder is
entitled to sell and gives notice of its intent to sell pursuant to the
Registration Statement, the Company shall furnish to such Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances in which
they are made.
5.2. Indemnification and Contribution.
5.2.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
such Holder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any claim by a third party
asserting any untrue statement of a material fact contained in the Registration
Statement or omission of a material fact therefrom necessary to make the
statements therein not misleading, on the effective date thereof, or arise out
of any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will, as incurred, reimburse such Holder
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damages or liability arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or (ii) any
untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
5.2.2. Indemnification by Holder. Each Holder, severally and
not jointly, agrees to indemnify and hold harmless the Company from and against
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any claim by a
third party asserting (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in
preparation of the Registration Statement, provided, however, that no Holder
shall be liable in any such case for any untrue statement included in any
prospectus which statement has been corrected, in writing, by such Holder and
delivered to the Company at least three business days before the sale from which
such loss occurred or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered by the Holder to the
purchaser prior to the pertinent sale or sales by the Holder, and each Holder,
severally and not jointly, will, as incurred, reimburse the Company for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim.
5.2.3. Indemnification Procedures. Promptly after receipt by
any indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an indemnifying person
pursuant to this Section 5.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and the indemnifying
person shall have been notified thereof, the indemnifying person shall be
entitled to participate
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therein, and, to the extent that it shall wish, to assume the defense thereof,
with counsel reasonably satisfactory to the indemnified person. After notice
from the indemnifying person to such indemnified person of the indemnifying
person's election to assume the defense thereof, the indemnifying person shall
not be liable to such indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the defense thereof;
provided, however, that if there exists or shall exist a conflict of interest
that would make it inappropriate in the reasonable opinion of counsel for the
indemnified person for the same counsel to represent both the indemnified person
and such indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel at the expense of
such indemnifying person; provided, however, that in the case of the immediately
preceding proviso the indemnifying person shall not be responsible for the legal
expenses of more than one counsel for all indemnified persons.
5.2.4. Contribution in Lieu of Indemnity. If the
indemnification provided for in this Section 5.2 is unavailable to or
insufficient to hold harmless an indemnified party under Section 5.2.1 or 5.2.2
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefit and relative fault of the respective parties as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a Holder on
the other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders agree that it would not be just and equitable if contribution
pursuant to this Section 5.2.4 were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 5.2.4. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 5.2.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5.2.4, no Holder shall
be required to contribute any amount in excess of the net amount received by the
Holder from the sale of the Registrable Securities to which such loss relates.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 5.2.4 to contribute are several in proportion to
their respective sales of Registrable Securities to which such loss relates and
not joint.
5.2.5. Controlling Persons Indemnified. The obligations of the
Company and the Holders under this Section 5.2 shall be in addition to any
liability which the Company and the respective Holders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls or may be deemed to control the Company or any Holder within the
meaning of the Securities Act including, without limitation, the directors and
officers of the Company and the Holder, as the case may be.
5.3. Transfer Of Registration Rights. The right to sell Registrable
Securities pursuant to the Registration Statement described herein will
automatically be assigned to each transferee of the Warrant or Warrant Shares
permitted under the terms of this Warrant. In the event that it is necessary, in
order to permit a Holder to sell Registrable Securities pursuant to the
Registration Statement, to amend the
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Registration Statement to name such Holder, such Holder shall upon written
notice to the Company, be entitled to have the Company make such amendment as
soon as reasonably practicable.
ARTICLE VI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
6.1. Representations and Warranties. The Company represents and
warrants that as of the date hereof:
(a) Legal Status; Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of Rhode
Island and is qualified or licensed to do business in all other countries,
states and provinces in which the laws thereof require the Company to qualify
and/or be licensed, except where failure to qualify or be licensed would not
have a material adverse effect on the business or assets of the Company taken as
a whole;
(b) Capitalization. The Company's authorized capital stock
consists of: 300,000,000 shares of Common Stock, of which 126,352,563 shares are
issued and outstanding;
(c) Options. Except as described in Exhibit "D-3" hereto there
are no Options, warrants or similar rights to acquire from the Company, or
agreements or other obligations by the Company, absolute or contingent, to issue
or sell Common Stock, whether on conversion or exchange of Convertible
Securities or otherwise;
(d) Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
(e) Authority. The Company has the right and power, and is
duly authorized and empowered, to enter into, execute, deliver and perform its
obligations under this Warrant;
(f) Binding Effect. This Warrant has been duly authorized,
executed and delivered and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii)
general principles of equity;
(g) No Conflict. The execution, delivery and/or performance by
the Company of this Warrant shall not, by the lapse of time, the giving of
notice or otherwise, constitute a violation of any applicable law or a breach of
any provision contained in the Company's Charter or Bylaws or contained in any
agreement, instrument or document to which the Company is a party or by which it
is bound;
(h) Consents. Except as contemplated by Article V and Section
6.2(b), no consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the valid issuance of the Warrant or for the performance of any of the
Company's obligations hereunder, except in connection with listing of the
Warrant Shares on the American Stock Exchange, which listing will be effected in
accordance with the rules and regulations of the American Stock Exchange;
(i) Offering. Neither the Company nor any agent acting on its
behalf has, either directly or indirectly, sold, offered for sale or disposed
of, or attempted or offered to dispose of, this Warrant or any part hereof, or
any similar obligation of the Company, to, or has solicited any offers to buy
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any thereof from, any Person or Persons other than the Holder. Neither the
Company nor any agent acting on its behalf will sell or offer for sale or
dispose of, or attempt or offer to dispose of, this Warrant or any part thereof
to, or solicit any offers to buy any warrant of like tenor from, or otherwise
approach or negotiate in respect thereof, with, any Person or Persons so as
thereby to bring the issuance of this Warrant within the provisions of Section 5
of the Securities Act;
(j) Registration. Assuming the accuracy of the Holder's
representations made herein, it is not necessary in connection with the issuance
and sale of this Warrant to the Holder pursuant to this Agreement to Register
this Warrant under the Securities Act; and
6.2. Covenants. The Company covenants that:
(a) Authorized Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant (for
purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all other Options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock shall
be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take
all such action as may be necessary to assure that the Common Stock issuable
upon the exercise of this Warrant may be so issued without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange or automated quotation system upon which any capital stock of the
Company may be listed or quoted, as the case may be, provided that the Holder,
at its sole expense, will take all such action as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection
with its acquisition of securities of the Company. Such action by the Company
may include, but not be limited to, causing such shares to be duly registered or
approved, listed or quoted on relevant domestic securities exchanges or
automated quotation systems; and
(c) Fully Paid Shares. The Company will take all actions
necessary or appropriate to validly and legally issue fully paid and
nonassessable shares of Common Stock upon exercise of this Warrant. All such
shares will be free from all taxes, liens and charges with respect to the
issuance thereof, other than any stock transfer taxes in respect to any transfer
occurring contemporaneously with such issuance.
ARTICLE VII.
MISCELLANEOUS
7.1. Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer and income taxes) and other
governmental charges that may be imposed in respect of, the issuance, sale and
delivery of the Warrant and the Warrant Shares to the Holder.
7.2. Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company or (c) notice of any other proceedings of the
Company.
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7.3. Like Tenor. All Warrants shall at all times be substantially
identical except as to the Preamble.
7.4. Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.5. Enforcement Costs. If the Holder, a Shareholder or the Company
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
7.6. Nonwaiver; Cumulative Remedies. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
7.7. Notices. Any notice, demand or delivery to be made pursuant to
this Warrant will be sufficiently given or made if sent by certified or
registered mail, postage prepaid, nationally recognized overnight delivery
service or facsimile transmission, addressed to (a) the Holder and the
Shareholders at their last known addresses appearing on the books of the Company
maintained for such purpose or (b) the Company at its Principal Executive
Office. The Holder, the Shareholders and the Company may each designate a
different address by notice to the other pursuant to this Section 7.7. A notice
shall be deemed effective upon receipt.
7.8. Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns. The Company shall, at the time of exercise of
this Warrant, in whole or in part, upon request of the Holder or any Shareholder
but at the Company's expense, acknowledge in writing its continuing obligations
hereunder with respect to rights of the Holder or such Shareholder to which it
shall continue to be entitled after such exercise in accordance with the terms
hereof; provided that the failure of the Holder or any Shareholder to make any
such request shall not affect the continuing obligation of the Company to the
Holder or such Shareholder in respect of such rights.
7.9. Modification; Severability.
(a) If, in any action before any court or agency legally
empowered to enforce any term, any term is found to be unenforceable, then such
term shall be deemed modified to the extent necessary to make it enforceable by
such court or agency.
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(b) If any term is not curable as set forth in subsection (a)
above, the unenforceability of such term shall not affect the other provisions
of this Warrant but this Warrant shall be construed as if such unenforceable
term had never been contained herein.
7.10. Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
7.11. Survival of Representations and Warranties. The representations
and warranties of any party in this Warrant shall survive the execution and
delivery of this Warrant and the consummation of the transactions contemplated
hereby, notwithstanding any investigation by the such party or its agents.
7.12. Amendment. This Warrant may not be modified or amended except by
written agreement of the Company, the Holder and the Shareholder(s), if any,
holding a majority of the Warrant Shares.
7.13. Headings. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
7.14. Meanings. Whenever used in this Warrant, any noun or pronoun
shall be deemed to include both the singular and plural and to cover all
genders; and the words "herein," "hereof" and "hereunder" and words of similar
import shall refer to this instrument as a whole, including any amendments
hereto.
7.15. Governing Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer this October 14, 1997.
LUCASFILM LTD. ("Holder") HASBRO, INC. ("Company")
By: /s/ GORDON RADLEY By: /s/ HAROLD P. GORDON
--------------------------- ---------------------------
Title: President Title: Vice Chairman
------------------------ ------------------------
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SCHEDULE OF EXHIBITS
EXHIBIT "D-1" -- Notice of Exercise (Section 2.1)
EXHIBIT "D-2" -- Investment Representation Certificate (Section 3.2(a))
EXHIBIT "D-3" -- Assignment Form (Section 3.2(d))
EXHIBIT "D-4" -- Schedule of Outstanding Options and Convertible Securities
(Sections 6.1(c))
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EXHIBIT "D-1"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of Hasbro, Inc. and herewith makes payment therefor in the amount of
$_____________, all at the price and on the terms and conditions specified in
the within Warrant and requests that a certificate (or certificates in
denominations of _______shares) for the shares of Common Stock of Hasbro, Inc.
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) [NAME], whose address is and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Common Stock of Hasbro, Inc. not being purchased hereunder be issued in the name
of and delivered to (choose one) (a) the undersigned or (b) [NAME], whose
address is ____________________.
Dated:________________________
NOTICE: The signature to this Notice of Exercise must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatever.
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EXHIBIT "D-2"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: Hasbro, Inc.
Security: Common Stock
Amount:
Date:
(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(b) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act");
(c) The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefor, which exemption depends upon, among other things, the bona fide nature
of the Purchaser's investment intent as expressed herein;
(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and
(e) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein.
The Purchaser represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act or any successor
regulation thereunder.
Date:___________________ PURCHASER:___________________________________
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EXHIBIT "D-3"
OUTSTANDING OPTIONS
ASSIGNMENT FORM
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto _______________, whose address is
_____________ all of the rights of the undersigned under the within Warrant,
with respect to shares of Common Stock of Hasbro, Inc. and, if such shares of
Common Stock shall not include all the shares of Common Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Common Stock of Hasbro, Inc. not being transferred hereunder be
issued in the name of and delivered to the undersigned, and does hereby
irrevocably constitute and appoint _______________ attorney to register such
transfer on the books of Hasbro, Inc. maintained for the purpose, with full
power of substitution in the premises.
Dated:______________________
_____________________________________
By:__________________________________
(Signature of Registered Holder)
Title:_______________________________
NOTICE: The signature to this Assignment must correspond with the name upon the
face of the within Warrant in every particular, without alteration or
enlargement or any change whatever.
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EXHIBIT "D-4"
OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES
(Sections 6.1(c))
1. Options granted under employee and non-employee director stock option
plans for 10,515,835 shares of Common Stock.
2. 6% Convertible Subordinated Notes due 1998 convertible into 7,607,723
shares of Common Stock.
3. Warrants granted to DreamWorks LLC for shares of Common Stock.
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EXHIBIT 10(j)
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THIS WARRANT.
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED), (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER,
AS PROVIDED HEREIN.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated October 30, 1998
This certifies that for value received:
LUCAS LICENSING LTD.
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from Hasbro, Inc., a Rhode Island corporation (the "Company"), up to
2,400,000 fully paid and nonassessable shares of the Common Stock of the
Company, at the exercise price of thirty-five dollars ($35.00) per share. The
number of shares purchasable hereunder and the Exercise Price are subject to
adjustment in certain events, all as more fully set forth under Article IV
herein.
ARTICLE I.
DEFINITIONS
"Additional Stock" means any of Common Stock, Convertible Securities
and Options.
"Change in Control" means:
A. The acquisition (or series of related acquisitions) by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the then outstanding shares of Common
Stock (the "Outstanding Common Stock") or (y) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (i) any acquisition (or series of related acquisitions) directly from
the Company or any of its subsidiaries of shares that would constitute, after
issuance, or any acquisition (or series of related acquisitions) consented to by
the Board of Directors of the Company of outstanding shares constituting, in the
aggregate, less than 40% of the Outstanding Voting Securities, (ii) any
acquisition by the Company or any of its subsidiaries, (iii) any acquisition by
any
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employee benefit plan (or related trust) sponsored or maintained by the Company
or any of its subsidiaries, (iv) any acquisition by Alan or Sylvia Hassenfeld,
members of their respective immediate families, or heirs of Alan or Sylvia
Hassenfeld or of any member of their respective immediate families, the Sylvia
Hassenfeld Trust, the Merrill Hassenfeld Trust, the Alan Hassenfeld Trust, the
Hassenfeld Foundation, any trust or foundation established by or for the primary
benefit of any of the foregoing, or controlled by one or more of any of the
foregoing, or any affiliates or associates (as such terms are defined in Rule
12b-2 promulgated under the 1934 Act) of any of the foregoing (such holders
described in clauses (ii) and (iii) and in this clause (iv), the "Permitted
Acquirors") or (v) any acquisition by any corporation with respect to which,
following such acquisition, (a) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
the Outstanding Voting Securities immediately prior to such acquisition in
substantially the same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, and (b) less than 40% of such outstanding shares of common
stock of such corporation and of such combined voting power of such outstanding
voting securities is then beneficially owned, directly or indirectly, by an
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the 1934 Act), other than the Permitted Acquirors; or
B. Any event in which individuals who as of the Closing Date constitute
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Closing Date, whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents; or
C. A reorganization, merger or consolidation involving the Company
(whether or not the Company is the surviving entity), in each case, with respect
to which (i) all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such reorganization, merger
or consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership immediately prior to such reorganization, merger or
consolidation, of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be, or (ii) following such reorganization, merger or
consolidation, any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors,
beneficially owns, directly or indirectly, 40% or more of such outstanding
shares of common stock of such surviving corporation and of such combined voting
power of such outstanding voting securities; or
D. (i) A complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of the
Company (in one transaction or a series of related transactions), other than to
a corporation, with respect to which following such sale or other disposition,
(A) more than 50% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common
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Stock and Outstanding Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Common Stock and
Outstanding Voting Securities, as the case may be, and (B) less than 40% of such
outstanding shares of common stock of such corporation and of such combined
voting power of the outstanding voting securities of such corporation is then
beneficially owned, directly or indirectly, by an individual entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act), other than
the Permitted Acquirors; or
E. The acquisition (or series of related acquisitions) by a Competitor
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the Outstanding Common Stock or (y) the
Outstanding Voting Securities unless such Competitor is approved by Holder as a
passive investor in the Company, such approval not to be unreasonably withheld.
"Charter" means the certificate of incorporation of the Company, as
filed with the Rhode Island Secretary of State.
"Closing Date" means October 30, 1998.
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Exchange Act of 1934 or the
Securities Act.
"Common Stock" means the Company's Common Stock, par value $.50 per
share, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock, and any other capital stock
of the Company of any class or series now or hereafter authorized having the
right to share in distributions either of earnings or assets of the Company
without limit as to amount or percentage.
"Company" means Hasbro, Inc., a Rhode Island corporation, and any
successor corporation.
"Competitor" means a Person or group of Persons (within the meaning of
Section 13(d)(3) or 14(d)(2) of the 1934 Act) engaged as a significant part of
its or their business in the business of producing or distributing any
entertainment properties including, without limitation, motion pictures,
television production, and interactive educational and entertainment products.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for, with
or without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Employee Securities" shall mean all securities of the Company issued
or sold after October 30, 1998 to employees, consultants, officers or directors
of the Company with the approval of, or pursuant to a plan approved by, the
Board of Directors or any duly authorized committee thereof.
"Exercise Period" means the period commencing on the earlier of (i) the
U.S. Release Date of Episode I and (ii) the occurrence of a Change in Control
and terminating at 5:00 p.m. Pacific Time on the eleventh anniversary of the
Closing Date.
"Exercise Price" means the exercise price per share of Common Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means with respect to a share of Common Stock at
any date:
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(i) If shares of Common Stock are being sold pursuant to a
public offering under an effective registration statement under the Securities
Act which has been declared effective by the Commission and Fair Market Value is
being determined as of the closing of the public offering, the "per share price
to public" specified for such shares in the final prospectus for such public
offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
twenty trading days before such date. The closing price for each day shall be
the last sale price on such date or, if no such sale takes place on such date,
the average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted
to trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a registration described in
clause (i) of this definition, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
Nasdaq Stock Market or, if such shares are not then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Company and reasonably acceptable to the
Holder;
(iv) If no shares of Common Stock are then listed or admitted
to trading on any national exchange or traded on any national market system, if
no closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a registration described in clause (i) of this definition, the fair
value of a share of Common Stock shall be as determined by an investment bank
selected by Company with the approval of the Holder (which approval shall not be
unreasonably withheld or delayed), the costs of such investment banker to be
paid by the Company.
"Fiscal Year" means the fiscal year of the Company.
"Holder" means the person in whose name this Warrant is registered on
the books of the Company maintained for such purpose and any transferee
permitted under the terms of this Warrant of all or a portion of this Warrant.
"Option" means any right, warrant or option to subscribe for or
purchase shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, government entities and authorities and
other organizations, whether or not legal entities.
"Principal Executive Office" means the Company's office at 1027 Newport
Avenue, Pawtucket, Rhode Island 02862 or such other office as designated in
writing to the Holder by the Company.
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
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"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means the person who was previously the Holder and has
exercised all or a portion of this Warrant.
"U.S. Release Date of Episode I" means the initial theatrical release
in the United States of the first prequel theatrical motion picture to the
classic Star Wars trilogy.
"Warrant" means the warrant dated as of Closing Date issued to the
Holder and all warrants issued upon the partial exercise, transfer or division
of or in substitution for any Warrant.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of this Warrant provided that if under the terms hereof there
shall be a change such that the securities purchasable hereunder shall be issued
by an entity other than the Company or there shall be a change in the type or
class of securities purchasable hereunder, then the term shall mean the
securities issued or issuable upon the exercise of the rights granted hereunder.
ARTICLE II.
EXERCISE
2.1. Exercise Right; Manner of Exercise. The purchase rights
represented by this Warrant may be exercised by the Holder, in whole or in part,
at any time and from time to time during the Exercise Period upon (i) surrender
of this Warrant, together with an executed notice of exercise, substantially in
the form of Exhibit "D-1" ("Notice of Exercise") attached hereto, at the
Principal Executive Office, and (ii) payment to the Company of the aggregate
Exercise Price for the number of Warrant Shares specified in the Notice of
Exercise (such aggregate Exercise Price, the "Total Exercise Price"). The Total
Exercise Price shall be paid by check; provided, however, that if the Warrant
Shares are acquired in conjunction with a Registration of such Warrant Shares,
then the Holder may arrange for the aggregate Exercise Price for such Warrant
Shares to be paid to the Company from the proceeds of the sale of such Warrant
Shares pursuant to such Registration. The Person or Person(s) in whose name(s)
any certificate(s) representing the Warrant Shares which are issuable upon
exercise of this Warrant shall be deemed to become the Holder(s) of, and shall
be treated for all purposes as the record holder(s) of, such Warrant Shares, and
such Warrant Shares shall be deemed to have been issued, immediately prior to
the close of business on the date on which this Warrant and Notice of Exercise
are presented and payment made for such Warrant Shares, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within two business days after this Warrant is
exercised. If this Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant Shares which the
Holder is entitled to purchase hereunder. The issuance of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
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2.2. Conversion of Warrant.
(a) Right to Convert. In addition to, and without limiting, the
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X= Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
or such lesser number of Warrant Shares as may be selected by the Holder
A= The Fair Market Value of one Warrant Share as of the
Conversion Date
B= The Exercise Price
(b) Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
the Holder intends to exercise the Conversion Right and indicating the number of
Warrant Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date") and, at the Holder's election,
may be made contingent upon the closing of the consummation of the sale of
Common Stock pursuant to a Registration. Certificates for the Warrant Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding two business days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares; provided that the Holder will be responsible for any
transfer taxes in respect of the issuance of Warrant Shares to a Person other
than the Holder.
2.3. Fractional Shares. The Company shall not issue fractional shares of
Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise or conversion, the Company shall
purchase from the Holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated to the nearest
1/100th of a share) by the Fair Market Value of a share of Common Stock on the
date of the Notice of Exercise or the Conversion Date, as applicable. Payment of
such amount shall be made in cash or by check payable to the order of the Holder
at the time of delivery of any certificate or certificates arising upon such
exercise or conversion.
2.4. Continued Validity. A Shareholder shall be entitled to all rights
which a Holder of this Warrant is entitled pursuant to the provisions of this
Warrant, except rights which by their terms apply only to a Warrant.
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ARTICLE III.
TRANSFER, EXCHANGE AND REPLACEMENT
3.1. Maintenance of Registration Books. The Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever, and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. Restrictions on Transfers.
(a) Compliance with Securities Act. The Holder, by acceptance hereof
hereby makes the representations set forth in Exhibit D-2 with respect to its
acquisition of this Warrant and agrees that this Warrant and the Common Stock to
be issued to the Holder upon exercise hereof are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and that the Holder will not offer, sell or otherwise dispose of this Warrant or
any such shares of Common Stock except under circumstances which will not result
in a violation of the Securities Act or this Agreement. Unless registered under
the Securities Act, upon exercise of this Warrant (other than through conversion
of the Warrant on or after two years from the date hereof), the Holder shall
confirm in writing, by executing the form attached as Exhibit "D-2" hereto, that
the shares of Common Stock purchased thereby are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all Warrant Shares issued
upon exercise of this Warrant (unless Registered under the Securities Act) shall
be stamped or imprinted with legends in substantially the following form (in
addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
In addition, the Warrant shall be stamped or imprinted with a
legend in substantially the following form:
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED) (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER, ALL
AS PROVIDED HEREIN.
(c) Additional Restriction on Transfer. The Holder shall not sell,
assign or otherwise transfer, pledge or hypothecate all or part of this Warrant
prior to a Change in Control without the prior
7
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written consent of the Company, which consent may be withheld in the Company's
sole discretion; provided that (x) any such sale, assignment or other transfer
by the Holder of the Warrant in its entirety to an entity owned or controlled by
the Holder (but only for so long as it remains so owned or controlled and such
entity agrees (i) to be bound by the terms and conditions of this Warrant
pursuant to an agreement reasonably acceptable to the Company ("Assumption
Agreement") and (ii) to transfer this Warrant back to the Holder if it ceases to
be owned or controlled by the Holder), (y) any such sale, assignment or other
transfer by the Holder of the Warrant in connection with (i) the merger,
consolidation or reorganization of the Holder, (ii) the sale, assignment,
transfer or other disposition of all or substantially all of the Holder's assets
or business in one or more related transactions or (iii) the sale, assignment,
transfer or other disposition of all or substantially all of the Holder's
capital stock, provided that any transferee described in this clause (y)
executes an Assumption Agreement, (z) a bona fide pledge or hypothecation (so
long as any sale, assignment or other transfer in connection with any attempted
foreclosure of such a pledge or hypothecation would require such consent from
the Company), and (zz) any transfer to a Person directly or indirectly
controlling the Holder, provided such Person executes an Assumption Agreement,
may be effected without any such consent.
(d) Disposition of Warrant Shares. With respect to any offer, sale
or other disposition of any Warrant Shares issued upon exercise of this Warrant
prior to Registration of such shares, the Shareholder agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of the Shareholder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without Registration under the Securities Act or
qualification under any applicable state securities laws of such Warrant Shares
and indicating whether or not under the Securities Act certificates for such
Warrant Shares to be sold or otherwise disposed of, require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act and any other applicable securities laws,
such opinion to be in form and substance reasonably satisfactory to the Company.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify the
Shareholder that it may sell or otherwise dispose of such Warrant Shares all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this subsection (d) that the opinion of
counsel for the Shareholder is not reasonably satisfactory to the Company, the
Company shall so notify the Shareholder promptly after such determination has
been made and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, such Warrant Shares may be offered, sold or
otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonably
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing the Warrant Shares thus
transferred in accordance with this subsection (d) (except a transfer pursuant
to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act, unless in
the aforesaid reasonably satisfactory opinion of counsel for the Shareholder
such legend is not necessary in order to insure compliance with the Securities
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
(e) Termination of Restrictions. The restrictions imposed under this
Section 3.2 upon the transferability of the Warrant (other than those in Section
3.2(c)) and the shares of Common Stock acquired upon the exercise of this
Warrant shall cease when (i) a registration statement covering the applicable
securities becomes effective under the Securities Act, (ii) the Company is
presented with an opinion of counsel reasonably satisfactory to the Company that
such restrictions are no longer required in order to insure compliance with the
Securities Act or with a Commission "no-action" letter stating that future
transfers of such securities by the transferor or the contemplated transferee
would be exempt from registration under the Securities Act, or (iii) such
securities may be transferred in accordance with Rule 144(k). Subject to Section
3.2(c), if applicable, when such restrictions terminate, the Company shall, or
8
<PG$PCN>
shall instruct its transfer agent to, promptly, and without expense to the
Shareholder issue new securities in the name of the Shareholder not bearing the
legends required under subsection (b) of this Section 3.2.
3.3. Exchange. At the Holder's option, this Warrant may be exchanged for
other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (i) in
the case of any such loss, theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (ii) in the case of
any such mutilation, upon surrender of such Warrant for cancellation at the
Principal Executive Office, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
ARTICLE IV.
ANTIDILUTION PROVISIONS
4.1. Reorganization, Reclassification or Recapitalization of the Company.
In case of (1) a capital reorganization, reclassification or recapitalization of
the Company's capital stock (other than in the cases referred to in Section 4.2
hereof), (2) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of the Company's
property as an entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation, sale
or transfer, lawful provision shall be made so that there shall thereafter be
deliverable upon the exercise of this Warrant or any portion thereof (in lieu of
or in addition to the number of shares of Common Stock theretofore deliverable,
as appropriate), and without payment of any additional consideration, the number
of shares of stock or other securities or property to which the holder of the
number of shares of Common Stock which would otherwise have been deliverable
upon the exercise of this Warrant or any portion thereof at the time of such
reorganization, reclassification, recapitalization, consolidation, merger, sale
or transfer would have been entitled to receive in such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer.
This Section 4.1 shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant.
4.2. Reclassifications. If the Company changes any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted.
4.3. Splits and Combinations. If the Company at any time subdivides any of
its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Exercise Price under this
9
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Section 4.3, the number of shares of Common Stock issuable upon exercise of this
Warrant shall equal the number of shares determined by dividing (i) the
aggregate Exercise Price payable for the purchase of all shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Exercise Price per share in effect immediately after such adjustment.
4.4. Dividends and Distributions. If the Company declares a dividend or
other distribution on the Common Stock (other than a cash dividend or
distribution), then, as part of such dividend or distribution, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof, in addition to the number of shares of
Common Stock receivable thereupon and without payment of any additional
consideration, the amount of the dividend or other distribution to which the
holder of the number of shares of Common Stock obtained upon exercise hereof
would have been entitled to receive had the exercise occurred as of the record
date for such dividend or distribution.
4.5. Liquidation; Dissolution. If the Company shall dissolve, liquidate or
wind up its affairs, the Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in any
cash distribution to the Holder in excess of the aggregate Exercise Price for
the shares of Common Stock for which this Warrant is exercised, then the Holder
may, at its option, exercise this Warrant without making payment of such
aggregate Exercise Price and, in such case, the Company shall, upon distribution
to the Holder, consider such aggregate Exercise Price to have been paid in full,
and in making such settlement to the Holder, shall deduct an amount equal to
such aggregate Exercise Price from the amount payable to the Holder.
4.6. Antidilution Provisions.
4.6.1. Definitions. For purposes of this Section 4.6 the following
definitions shall apply:
"Common Stock Equivalents" shall mean Convertible Securities and
rights entitling the holder thereof to receive directly, or indirectly,
additional shares of Common Stock without the payment of any consideration by
such holder for such additional shares of Common Stock or Common Stock
Equivalents.
"Common Stock Outstanding" shall mean the aggregate of all Common
Stock outstanding and all Common Stock issuable upon conversion of all
outstanding Convertible Securities and exercise of all Options other than
Employee Securities issued after October 30, 1998, unless such Employee
Securities arise from exercise of Options granted prior to October 30, 1998.
"Current Exercise Price" shall mean the Exercise Price immediately
before the occurrence of any event, which, pursuant to Section 4.6, causes an
adjustment to the Exercise Price.
4.6.2. Adjustments to Exercise Price. The Exercise Price in effect
from time to time shall be subject to adjustment in certain cases as follows:
4.6.2.1. Issuance of Securities. Subject to Section 4.6.3, in
case the Company shall at any time after October 30, 1998 issue or sell any
Common Stock or Common Stock Equivalent without consideration, or for a
consideration per share less than the Fair Market Value, then, and thereafter
successively upon each such issuance or sale, the Current Exercise Price shall
simultaneously with such issuance or sale be adjusted to an Exercise Price
(calculated to the nearest cent) determined by multiplying the Current Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the number of shares of Common Stock Outstanding on
such date of sale or issuance plus the number of shares of Common Stock which
the aggregate consideration received for the issuance or sale
10
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of such additional shares would purchase at the Fair Market Value and the
denominator of which shall be the number of shares of Common Stock Outstanding
immediately after the issuance or sale.
For the purposes of this subsection 4.6.2.1, the following
provisions shall also be applicable:
4.6.2.1.1. Cash Consideration. In case of the issuance or sale
of additional Common Stock or Common Stock Equivalents for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by this corporation for such shares (or, if such shares are
offered by the corporation for subscription, the subscription price, or, if such
shares are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price), without deducting
therefrom any compensation or discount paid or allowed to underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith.
4.6.2.1.2. Non-Cash Consideration. In case of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration, a part of which shall be other
than cash, the fair value of such consideration as determined by the board of
directors of the Company in the good faith exercise of its business judgment,
irrespective of the accounting treatment thereof, shall be deemed to be the
value, for purposes of this Section 4.6.2, of the consideration other than cash
received by the Company for such securities.
4.6.2.1.3. Options and Convertible Securities. In case the
Company shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this Section 4.6.2. and to have been issued for the sum of the amount
(if any) paid for such Options or Convertible Securities and the minimum amount
(if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable; provided that, subject to the
provisions of Section 4.6.2.1.4, no adjustment or further adjustment of the
Exercise Price shall be made upon the actual issuance of (a) any such Common
Stock or Convertible Securities or upon the conversion or exchange of any such
Convertible Securities or the exercise of such Options or (b) any Common Stock
issued or sold pursuant to conversion of any Convertible Securities or exercise
of any Options to the extent outstanding on October 30, 1998.
4.6.2.1.4. Change in Option Price or Conversion Rate. If the
exercise price provided for in any Option referred to in subsection 4.6.2.1.3,
or the rate at which any Convertible Securities referred to in subsection
4.6.2.1.3 are convertible into or exchangeable for shares of Common Stock shall
change at any time (other than under or by reason of provisions designed to
protect against dilution), the Current Exercise Price in effect at the time of
such event shall forthwith be readjusted to the Exercise Price that would have
been in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed exercise price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold. If the exercise price provided for in any such Option referred to in
subsection 4.6.2.1.3, or the additional consideration (if any) payable upon the
conversion or exchange of any Convertible Securities referred to in subsection
4.6.2.1.3, or the rate at which any Convertible Securities referred to in
subsection 4.6.2.1.3 are convertible into or exchangeable for shares of Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution and such reduction would
trigger an adjustment under Subsection 4.6.2.1, then in case of the delivery of
shares of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Current Exercise Price then
11
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in effect hereunder shall, upon issuance of such shares of Common Stock, be
adjusted to such amount as would have obtained had such Option or Convertible
Security never been issued and had adjustments been made only upon the issuance
of the shares of Common Stock actually delivered and for the consideration
actually received for such Option or Convertible Security and the Common Stock.
4.6.2.1.5. Termination of Option or Conversion Rights. In the
event of the termination or expiration of any right to purchase Common Stock
under any Option or of any right to convert or exchange Convertible Securities,
the Current Exercise Price shall, upon such termination, be changed to the
Exercise Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.
4.6.3. Employee Securities. Notwithstanding anything in this Article
IV to the contrary, the Exercise Price shall not be adjusted by virtue of the
issuance or sale of Employee Securities and no Employee Securities shall be
included in any manner in the computation from time to time of the Exercise
Price under subsection 4.6.2 or in Common Stock Outstanding for purposes of such
computation except that Employee Securities constituting Common Stock arising
from exercise of Options granted prior to October 30, 1998 shall be included in
Common Stock Outstanding.
4.7. Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
4.8. Other Dilutive Events. If any event occurs as to which the other
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant; provided, that no adjustments shall be made in connection with the
issuance of Common Stock upon exercise, conversion or exchange of Options or
Convertible Securities to the extent that adjustment has previously been made
upon issuance of such Options or Convertible Securities and each lowering of the
effective purchase price of Common Stock pursuant to such Option or Convertible
Securities. Upon receipt of such opinion, the Company shall promptly mail a copy
thereof to the Holder and shall make the adjustments described therein.
4.9. Certificates and Notices.
(a) Adjustment Certificates. Upon any adjustment of the Exercise
Price and/or the number of shares of Common Stock purchasable upon exercise of
this Warrant, a certificate, signed by (i) the Company's President or Chief
Financial Officer, or (ii) any independent firm of certified public accountants
of recognized national standing the Company selects at its own expense, setting
forth in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated, shall be mailed to the Holder and shall
specify the adjusted Exercise Price and the number of shares of Common Stock
purchasable upon exercise of the Warrant after giving effect to the adjustment.
(b) Extraordinary Corporate Events. If the Company, after the date
hereof, proposes to effect (i) any transaction described in Sections 4.1 or 4.2
hereof, or (ii) a liquidation, dissolution or winding up of the Company
described in Section 4.5 hereof or (iii) any payment of a dividend or
distribution with respect to the Common Stock (other than a cash dividend or
distribution), then, in each such case, the Company shall mail to the Holder a
notice describing such proposed action and specifying the date on which the
Company's books shall close, or a record shall be taken, for determining the
holders
12
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of Common Stock entitled to participate in such action, or the date on which
such reorganization, reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to receive securities and/or other property deliverable
upon such action, if any such date is to be fixed. Such notice shall be mailed
to the Holder at least twenty days prior to the record date for such action in
the case of any action described in clause (i) above at least ten days prior to
the record date for such action in the case of any action described in clause
(iii) above, and in the case of any action described in clause (ii) above, at
least twenty days prior to the date on which the action described is to take
place and at least twenty days prior to the record date for determining holders
of Common Stock entitled to receive securities and/or other property in
connection with such action. The failure to give notice required by this Section
4.9(b) or any defect therein shall be a breach of this Warrant but shall not
affect the legality or validity of the action taken by the Company or the vote
upon any such action. Unless specifically required by this Article IV, the
Exercise Price, the number of shares covered by each Warrant and the number of
Warrants outstanding shall not be subject to adjustment as a result of the
Company being required to give notice pursuant to this Section 4.9(b).
4.10. No Impairment. The Company shall not, by amendment of the Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in the carrying out of all the provisions of this Article IV
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment.
4.11. Application. Except as otherwise provide herein, all sections of
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V.
REGISTRATION RIGHTS
5.1. Registration on Form S-3.
5.1.1. Filing of Registration Statement. The Company shall use its
best efforts to secure effectiveness of, as soon as practicable, and shall file
no later than 10 days after the commencement of the Exercise Period, a
registration statement in form and substance satisfactory to the Holder on Form
S-3 (the "Registration Statement") with the Commission under the Securities Act
to register the issuance of Warrant Shares upon exercise of the Warrant and the
transfer of such Warrant Shares (the Warrant Shares constituting the
"Registrable Securities"); provided however, that in the event the Company fails
to file reports in a timely manner or otherwise fails (due to an action or
inaction of the Company) to be eligible to file a registration statement on Form
S-3, the Company shall file a registration statement on Form S-1.
5.1.2. Registrable Expenses. The Company shall pay all Registration
Expenses (as defined below) in connection with any registration, qualification
or compliance hereunder, and each Holder shall pay all Selling Expenses (as
defined below) and other expenses that are not Registration Expenses relating to
the Registrable Securities resold by such Holder. "Registration Expenses" shall
mean all expenses, except for Selling Expenses, incurred by the Company in
complying with the registration provisions herein described, including, without
limitation, all registration, qualification and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and expenses
and the expense of any special audits incident to or required by any such
registration. "Selling Expenses" shall mean all selling commissions,
underwriting fees and stock transfer taxes applicable to the Registrable
Securities and all fees and disbursements of counsel for any Holder.
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5.1.3. Additional Company Obligations. In the case of any
registration effected by the Company pursuant to these registration provisions,
the Company will use its best efforts to: keep such registration effective until
such date as all of the Registrable Securities have been sold or could
immediately be sold pursuant to Rule 144(k) promulgated by the Commission; (ii)
prepare and file with the Commission such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of the Registrable Securities;
(iii) furnish such number of prospectuses and other documents incident thereto,
including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request; (iv) cause all such Registrable Securities
registered as described herein to be listed on each securities exchange and
quoted on each quotation system on which similar securities issued by the
Company are then listed or quoted; (v) provide a transfer agent and registrar
for all Registrable Securities registered pursuant to the Registration Statement
and a CUSIP number for all such Registrable Securities; (vi) use its best
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its securityholders, to the extent required, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the first month
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and (vii)
file the documents required of the Company and otherwise use its best efforts to
maintain requisite blue sky clearance in (A) all jurisdictions in which any of
the Warrant Shares are originally sold and (B) all other states specified in
writing by a Holder as may reasonably be required to sell such Holder's Warrant
Shares, provided, however, that the Company shall not be required to qualify to
do business, subject itself to taxation, or consent to service of process in any
state in which it is not now so qualified or subject to taxation or has not so
consented.
5.1.4. Conditions and Limitations
(a) Cooperation by Holder. It shall be a condition precedent
to the obligation of the Company to take any action pursuant to this Article V
in respect of the Registrable Securities that the Holder shall furnish to the
Company such information regarding such Registrable Securities and the intended
method of disposition thereof and such other information as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company.
(b) Notification Prior to Sale. If any Holder shall propose to
sell any Registrable Securities pursuant to the Registration Statement, it shall
notify the Company of its intent to do so at least three full business days
prior to such sale, and the provision of such notice to the Company shall be
deemed to establish an agreement by such Holder to comply with the registration
provisions contained herein. Such notice shall be deemed to constitute a
representation that any information previously supplied by such Holder is
accurate as of the date of such notice. At any time within such three business
day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided,
however, that in order to exercise this right, the Company must deliver a
certificate in writing to the Holder to the effect that a delay in such sale is
necessary because, in the good faith judgment of the Company, a sale pursuant to
the Registration Statement would require the public disclosure of information
that would not otherwise be required to be disclosed (which disclosure would be
likely, in the good faith judgment of the Company, to be materially harmful to
the Company) or could in other respects constitute a violation of the federal
securities laws. In such an event, the Company shall use its best efforts to
amend the Registration Statement to the extent required to comply with Section
5.1.4 and to take all other actions necessary to allow such sale under the
federal securities laws, and shall notify the Holders promptly after it has
determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to refuse
to permit the Holder to resell any Registrable Securities more than twice in any
twelve-month period, and any individual period during which the Company refuses
to permit the Holder to resell any Registrable Securities shall not exceed sixty
days.
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The Company will promptly notify each holder of any Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event or existence of any fact as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they are made, and, as promptly as is practicable,
prepare and furnish to such holder a reasonable number of copies of any required
supplement to or amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances in which they are made. By
acquisition of Registrable Securities, each holder of such Registrable
Securities shall be deemed to have agreed that upon receipt of any notice from
the Company of the happening of any event of the kind described in the preceding
sentence, such holder will promptly discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holder's receipt of the copies of any required
supplemented or amended prospectus contemplated by this Section. If so directed
by the Company, each holder of Registrable Securities will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
in such holder's possession of the prospectus covering such Registrable
Securities at the time of receipt of such notice. Subject to the foregoing, when
a Holder is entitled to sell and gives notice of its intent to sell pursuant to
the Registration Statement, the Company shall furnish to such Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they are made.
5.2. Indemnification and Contribution.
5.2.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
such Holder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any claim by a third party
asserting any untrue statement of a material fact contained in the Registration
Statement or omission of a material fact therefrom necessary to make the
statements therein not misleading, on the effective date thereof, or arise out
of any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will, as incurred, reimburse such Holder
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damages or liability arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or (ii) any
untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
5.2.2. Indemnification by Holder. Each Holder, severally and not
jointly, agrees to indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any claim by a
third party asserting (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in
preparation of the Registration Statement, provided, however, that no Holder
shall be liable in any such case for any untrue statement included in any
15
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prospectus which statement has been corrected, in writing, by such Holder and
delivered to the Company at least three business days before the sale from which
such loss occurred or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered by the Holder to the
purchaser prior to the pertinent sale or sales by the Holder, and each Holder,
severally and not jointly, will, as incurred, reimburse the Company for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim.
5.2.3. Indemnification Procedures. Promptly after receipt by any
indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an indemnifying person
pursuant to this Section 5.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and the indemnifying
person shall have been notified thereof, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable opinion of counsel for the indemnified person for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that in the case of the immediately preceding proviso the indemnifying
person shall not be responsible for the legal expenses of more than one counsel
for all indemnified persons.
5.2.4. Contribution in Lieu of Indemnity. If the indemnification
provided for in this Section 5.2 is unavailable to or insufficient to hold
harmless an indemnified party under Section 5.2.1 or 5.2.2 above in respect of
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefit and relative fault
of the respective parties as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or a Holder on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to this
Section 5.2.4 were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 5.2.4. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 5.2.4 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.2.4, no Holder shall be
required to contribute any amount in excess of the net amount received by the
Holder from the sale of the Registrable Securities to which such loss relates.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 5.2.4 to contribute are several in proportion to
their respective sales of Registrable Securities to which such loss relates and
not joint.
5.2.5. Controlling Persons Indemnified. The obligations of the
Company and the Holders under this Section 5.2 shall be in addition to any
liability which the Company and the respective
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Holders may otherwise have and shall extend, upon the same terms and conditions,
to each person, if any, who controls or may be deemed to control the Company or
any Holder within the meaning of the Securities Act including, without
limitation, the directors and officers of the Company and the Holder, as the
case may be.
5.3. Transfer Of Registration Rights. The right to sell Registrable
Securities pursuant to the Registration Statement described herein will
automatically be assigned to each transferee of the Warrant or Warrant Shares
permitted under the terms of this Warrant. In the event that it is necessary, in
order to permit a Holder to sell Registrable Securities pursuant to the
Registration Statement, to amend the Registration Statement to name such Holder,
such Holder shall upon written notice to the Company, be entitled to have the
Company make such amendment as soon as reasonably practicable.
ARTICLE VI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
6.1. Representations and Warranties. The Company represents and warrants
that as of the date hereof:
(a) Legal Status; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Rhode Island
and is qualified or licensed to do business in all other countries, states and
provinces in which the laws thereof require the Company to qualify and/or be
licensed, except where failure to qualify or be licensed would not have a
material adverse effect on the business or assets of the Company taken as a
whole;
(b) Capitalization. The Company's authorized capital stock consists
of: 300,000,000 shares of Common Stock, of which 130,792,386 shares are issued
and outstanding;
(c) Options. Except as described in Exhibit "D-3" hereto there are
no Options, warrants or similar rights to acquire from the Company, or
agreements or other obligations by the Company, absolute or contingent, to issue
or sell Common Stock, whether on conversion or exchange of Convertible
Securities or otherwise;
(d) Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
(e) Authority. The Company has the right and power, and is duly
authorized and empowered, to enter into, execute, deliver and perform its
obligations under this Warrant;
(f) Binding Effect. This Warrant has been duly authorized, executed
and delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii)
general principles of equity;
(g) No Conflict. The execution, delivery and/or performance by the
Company of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the Company's Charter or Bylaws or contained in any
agreement, instrument or document to which the Company is a party or by which it
is bound;
(h) Consents. Except as contemplated by Article V and Section
6.2(b), no consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the valid issuance of the Warrant or for the performance of any of the
Company's obligations hereunder, except in connection with listing of the
Warrant Shares on the American
17
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Stock Exchange, which listing will be effected in accordance with the rules and
regulations of the American Stock Exchange;
(i) Offering. Neither the Company nor any agent acting on its behalf
has, either directly or indirectly, sold, offered for sale or disposed of, or
attempted or offered to dispose of, this Warrant or any part hereof, or any
similar obligation of the Company, to, or has solicited any offers to buy any
thereof from, any Person or Persons other than the Holder. Neither the Company
nor any agent acting on its behalf will sell or offer for sale or dispose of, or
attempt or offer to dispose of, this Warrant or any part thereof to, or solicit
any offers to buy any warrant of like tenor from, or otherwise approach or
negotiate in respect thereof, with, any Person or Persons so as thereby to bring
the issuance of this Warrant within the provisions of Section 5 of the
Securities Act;
(j) Registration. Assuming the accuracy of the Holder's
representations made herein, it is not necessary in connection with the issuance
and sale of this Warrant to the Holder pursuant to this Agreement to Register
this Warrant under the Securities Act; and
6.2. Covenants. The Company covenants that:
(a) Authorized Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant (for
purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all other Options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock shall
be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take all such
action as may be necessary to assure that the Common Stock issuable upon the
exercise of this Warrant may be so issued without violation of any applicable
law or regulation, or of any requirements of any domestic securities exchange or
automated quotation system upon which any capital stock of the Company may be
listed or quoted, as the case may be, provided that the Holder, at its sole
expense, will take all such action as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection
with its acquisition of securities of the Company. Such action by the Company
may include, but not be limited to, causing such shares to be duly registered or
approved, listed or quoted on relevant domestic securities exchanges or
automated quotation systems; and
(c) Fully Paid Shares. The Company will take all actions necessary
or appropriate to validly and legally issue fully paid and nonassessable shares
of Common Stock upon exercise of this Warrant. All such shares will be free from
all taxes, liens and charges with respect to the issuance thereof, other than
any stock transfer taxes in respect to any transfer occurring contemporaneously
with such issuance.
ARTICLE VII.
MISCELLANEOUS
7.1. Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer and income taxes) and other
governmental charges that may be imposed in respect of, the issuance, sale and
delivery of the Warrant and the Warrant Shares to the Holder.
7.2. Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b)
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notice of or attend any meetings of shareholders of the Company or (c) notice of
any other proceedings of the Company.
7.3. Like Tenor. All Warrants shall at all times be substantially
identical except as to the Preamble.
7.4. Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.5. Enforcement Costs. If the Holder, a Shareholder or the Company seeks
to enforce its rights hereunder by legal proceedings or otherwise, then the
non-prevailing party shall pay all reasonable costs and expenses incurred by the
prevailing party, including, without limitation, all reasonable attorneys' fees
(including the allocable costs of in-house counsel).
7.6. Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
7.7. Notices. Any notice, demand or delivery to be made pursuant to this
Warrant will be sufficiently given or made if sent by certified or registered
mail, postage prepaid, nationally recognized overnight delivery service or
facsimile transmission, addressed to (a) the Holder and the Shareholders at
their last known addresses appearing on the books of the Company maintained for
such purpose or (b) the Company at its Principal Executive Office. The Holder,
the Shareholders and the Company may each designate a different address by
notice to the other pursuant to this Section 7.7. A notice shall be deemed
effective upon receipt.
7.8. Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns. The Company shall, at the time of exercise of
this Warrant, in whole or in part, upon request of the Holder or any Shareholder
but at the Company's expense, acknowledge in writing its continuing obligations
hereunder with respect to rights of the Holder or such Shareholder to which it
shall continue to be entitled after such exercise in accordance with the terms
hereof; provided that the failure of the Holder or any Shareholder to make any
such request shall not affect the continuing obligation of the Company to the
Holder or such Shareholder in respect of such rights.
7.9. Modification; Severability.
(a) If, in any action before any court or agency legally empowered
to enforce any term, any term is found to be unenforceable, then such term shall
be deemed modified to the extent necessary to make it enforceable by such court
or agency.
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(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
7.10. Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
7.11. Survival of Representations and Warranties. The representations and
warranties of any party in this Warrant shall survive the execution and delivery
of this Warrant and the consummation of the transactions contemplated hereby,
notwithstanding any investigation by the such party or its agents.
7.12. Amendment. This Warrant may not be modified or amended except by
written agreement of the Company, the Holder and the Shareholder(s), if any,
holding a majority of the Warrant Shares.
7.13. Headings. The headings of the Articles and Sections of this Warrant
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
7.14. Meanings. Whenever used in this Warrant, any noun or pronoun shall
be deemed to include both the singular and plural and to cover all genders; and
the words "herein," "hereof" and "hereunder" and words of similar import shall
refer to this instrument as a whole, including any amendments hereto.
7.15. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer this October 30, 1998.
LUCAS LICENSING LTD. ("Holder") HASBRO, INC. ("Company")
By: /s/ GORDON RADLEY By: /s/ HAROLD P. GORDON
------------------------ ------------------------
Title: President Title: Vice Chairman
--------------------- ---------------------
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SCHEDULE OF EXHIBITS
EXHIBIT "D-1" - Notice of Exercise (Section 2.1)
EXHIBIT "D-2" - Investment Representation Certificate (Section 3.2(a))
EXHIBIT "D-3" -- Assignment Form (Section 3.2(d))
EXHIBIT "D-4" - Schedule of Outstanding Options and Convertible Securities
(Sections 6.1(c))
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EXHIBIT "D-1"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby irrevocably
exercises the within Warrant for and purchases shares of Common Stock of Hasbro,
Inc. and herewith makes payment therefor in the amount of $_______, all at the
price and on the terms and conditions specified in the within Warrant and
requests that a certificate (or _________ certificates in denominations of
_______shares) for the shares of Common Stock of Hasbro, Inc. hereby purchased
be issued in the name of and delivered to (choose one) (a) the undersigned or
(b) [NAME], whose address is and, if such shares of Common Stock shall not
include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of Hasbro, Inc. not being purchased hereunder be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) [NAME], whose address is
_____________________________.
Dated:___________________
NOTICE: The signature to this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
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EXHIBIT "D-2"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: Hasbro, Inc.
Security: Common Stock
Amount:
Date:
(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(b) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act");
(c) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein;
(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and
(e) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein.
The Purchaser represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act or any successor
regulation thereunder.
Date:______________ PURCHASER:____________________________
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EXHIBIT "D-3"
OUTSTANDING OPTIONS
ASSIGNMENT FORM
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto __________, whose address is __________
all of the rights of the undersigned under the within Warrant, with respect to
shares of Common Stock of Hasbro, Inc. and, if such shares of Common Stock shall
not include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of Hasbro, Inc. not being transferred hereunder be issued in the name of
and delivered to the undersigned, and does hereby irrevocably constitute and
appoint _____________ attorney to register such transfer on the books of Hasbro,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated: __________________
___________________________________
___________________________________
By:________________________________
(Signature of Registered Holder)
Title:_____________________________
NOTICE: The signature to this Assignment must correspond with the name
upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
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EXHIBIT "D-4"
OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES
(Sections 6.1(c))
1. Options granted under employee and non-employee director stock option plans
for 9,395,028 shares of Common Stock.
2. Warrants granted to Lucas Licensing, Ltd. and Lucasfilm Ltd. for shares of
Common Stock on October 14, 1997.
3. Warrants granted to DreamWorks LLC for shares of Common Stock.
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EXHIBIT 10(k)
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THIS WARRANT.
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED), (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER, AS
PROVIDED HEREIN.
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated October 30, 1998
This certifies that for value received:
LUCASFILM LTD.
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from Hasbro, Inc., a Rhode Island corporation (the "Company"), up to
1,600,000 fully paid and nonassessable shares of the Common Stock of the
Company, at the exercise price of thirty-five dollars ($35.00) per share. The
number of shares purchasable hereunder and the Exercise Price are subject to
adjustment in certain events, all as more fully set forth under Article IV
herein.
ARTICLE I.
DEFINITIONS
"Additional Stock" means any of Common Stock, Convertible Securities
and Options.
"Change in Control" means:
A. The acquisition (or series of related acquisitions) by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
20% or more of either (x) the then outstanding shares of Common Stock (the
"Outstanding Common Stock") or (y) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (i)
any acquisition (or series of related acquisitions) directly from the Company or
any of its subsidiaries of shares that would constitute, after issuance, or any
acquisition (or series of related acquisitions) consented to by the Board of
Directors of the Company of outstanding shares constituting, in the aggregate,
less than 40% of the Outstanding Voting Securities, (ii) any acquisition by the
Company or any of its subsidiaries, (iii) any acquisition by any
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employee benefit plan (or related trust) sponsored or maintained by the Company
or any of its subsidiaries, (iv) any acquisition by Alan or Sylvia Hassenfeld,
members of their respective immediate families, or heirs of Alan or Sylvia
Hassenfeld or of any member of their respective immediate families, the Sylvia
Hassenfeld Trust, the Merrill Hassenfeld Trust, the Alan Hassenfeld Trust, the
Hassenfeld Foundation, any trust or foundation established by or for the primary
benefit of any of the foregoing, or controlled by one or more of any of the
foregoing, or any affiliates or associates (as such terms are defined in Rule
12b-2 promulgated under the 1934 Act) of any of the foregoing (such holders
described in clauses (ii) and (iii) and in this clause (iv), the "Permitted
Acquirors") or (v) any acquisition by any corporation with respect to which,
following such acquisition, (a) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
the Outstanding Voting Securities immediately prior to such acquisition in
substantially the same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, and (b) less than 40% of such outstanding shares of common
stock of such corporation and of such combined voting power of such outstanding
voting securities is then beneficially owned, directly or indirectly, by an
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the 1934 Act), other than the Permitted Acquirors; or
B. Any event in which individuals who as of the Closing Date constitute
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Closing Date, whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the 1934 Act) or other actual or threatened solicitation
of proxies or consents; or
C. A reorganization, merger or consolidation involving the Company
(whether or not the Company is the surviving entity), in each case, with respect
to which (i) all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such reorganization, merger
or consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership immediately prior to such reorganization, merger or
consolidation, of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be, or (ii) following such reorganization, merger or
consolidation, any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors,
beneficially owns, directly or indirectly, 40% or more of such outstanding
shares of common stock of such surviving corporation and of such combined voting
power of such outstanding voting securities; or
D. (i) A complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of the
Company (in one transaction or a series of related transactions), other than to
a corporation, with respect to which following such sale or other disposition,
(A) more than 50% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such sale or other disposition in substantially
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the same proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, and (B) less than 40% of such outstanding shares of common
stock of such corporation and of such combined voting power of the outstanding
voting securities of such corporation is then beneficially owned, directly or
indirectly, by an individual entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the 1934 Act), other than the Permitted Acquirors; or
E. The acquisition (or series of related acquisitions) by a Competitor of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of either (x) the Outstanding Common Stock or (y) the
Outstanding Voting Securities unless such Competitor is approved by Holder as a
passive investor in the Company, such approval not to be unreasonably withheld.
"Charter" means the certificate of incorporation of the Company, as filed
with the Rhode Island Secretary of State.
"Closing Date" means October 30, 1998.
"Commission" means the Securities and Exchange Commission, or any other
federal agency then administering the Securities Exchange Act of 1934 or the
Securities Act.
"Common Stock" means the Company's Common Stock, par value $.50 per share,
any stock into which such stock shall have been changed or any stock resulting
from any reclassification of such stock, and any other capital stock of the
Company of any class or series now or hereafter authorized having the right to
share in distributions either of earnings or assets of the Company without limit
as to amount or percentage.
"Company" means Hasbro, Inc., a Rhode Island corporation, and any
successor corporation.
"Competitor" means a Person or group of Persons (within the meaning of
Section 13(d)(3) or 14(d)(2) of the 1934 Act) engaged as a significant part of
its or their business in the business of producing or distributing any
entertainment properties including, without limitation, motion pictures,
television production, and interactive educational and entertainment products.
"Convertible Securities" means evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Employee Securities" shall mean all securities of the Company issued or
sold after October 30, 1998 to employees, consultants, officers or directors of
the Company with the approval of, or pursuant to a plan approved by, the Board
of Directors or any duly authorized committee thereof.
"Exercise Period" means the period commencing on the earlier of (i) the
U.S. Release Date of Episode I and (ii) the occurrence of a Change in Control
and terminating at 5:00 p.m. Pacific Time on the twelfth anniversary of the
Closing Date.
"Exercise Price" means the exercise price per share of Common Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
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"Fair Market Value" means with respect to a share of Common Stock at any
date:
(i) If shares of Common Stock are being sold pursuant to a public
offering under an effective registration statement under the Securities Act
which has been declared effective by the Commission and Fair Market Value is
being determined as of the closing of the public offering, the "per share price
to public" specified for such shares in the final prospectus for such public
offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
twenty trading days before such date. The closing price for each day shall be
the last sale price on such date or, if no such sale takes place on such date,
the average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a registration described in
clause (i) of this definition, the average of the reported closing bid and asked
prices thereof on such date in the over-the-counter market as shown by the
Nasdaq Stock Market or, if such shares are not then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Company and reasonably acceptable to the
Holder;
(iv) If no shares of Common Stock are then listed or admitted to
trading on any national exchange or traded on any national market system, if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a registration described in clause (i) of this definition, the fair
value of a share of Common Stock shall be as determined by an investment bank
selected by Company with the approval of the Holder (which approval shall not be
unreasonably withheld or delayed), the costs of such investment banker to be
paid by the Company.
"Fiscal Year" means the fiscal year of the Company.
"Holder" means the person in whose name this Warrant is registered on the
books of the Company maintained for such purpose and any transferee permitted
under the terms of this Warrant of all or a portion of this Warrant.
"Option" means any right, warrant or option to subscribe for or purchase
shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, government entities and authorities and
other organizations, whether or not legal entities.
"Principal Executive Office" means the Company's office at 1027 Newport
Avenue, Pawtucket, Rhode Island 02862 or such other office as designated in
writing to the Holder by the Company.
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
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"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means the person who was previously the Holder and has
exercised all or a portion of this Warrant.
"U.S. Release Date of Episode I" means the initial theatrical release
in the United States of the first prequel theatrical motion picture to the
classic Star Wars trilogy.
"Warrant" means the warrant dated as of Closing Date issued to the Holder
and all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"Warrant Shares" means the shares of Common Stock issued or issuable upon
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities issued
or issuable upon the exercise of the rights granted hereunder.
ARTICLE II.
EXERCISE
2.1. Exercise Right; Manner of Exercise. The purchase rights represented
by this Warrant may be exercised by the Holder, in whole or in part, at any time
and from time to time during the Exercise Period upon (i) surrender of this
Warrant, together with an executed notice of exercise, substantially in the form
of Exhibit "D-1" ("Notice of Exercise") attached hereto, at the Principal
Executive Office, and (ii) payment to the Company of the aggregate Exercise
Price for the number of Warrant Shares specified in the Notice of Exercise (such
aggregate Exercise Price, the "Total Exercise Price"). The Total Exercise Price
shall be paid by check; provided, however, that if the Warrant Shares are
acquired in conjunction with a Registration of such Warrant Shares, then the
Holder may arrange for the aggregate Exercise Price for such Warrant Shares to
be paid to the Company from the proceeds of the sale of such Warrant Shares
pursuant to such Registration. The Person or Person(s) in whose name(s) any
certificate(s) representing the Warrant Shares which are issuable upon exercise
of this Warrant shall be deemed to become the Holder(s) of, and shall be treated
for all purposes as the record holder(s) of, such Warrant Shares, and such
Warrant Shares shall be deemed to have been issued, immediately prior to the
close of business on the date on which this Warrant and Notice of Exercise are
presented and payment made for such Warrant Shares, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to such
Person or Person(s). Certificates for the Warrant Shares so purchased shall be
delivered to the Holder within two business days after this Warrant is
exercised. If this Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant Shares which the
Holder is entitled to purchase hereunder. The issuance of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
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2.2. Conversion of Warrant.
(a) Right to Convert. In addition to, and without limiting, the
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any part hereof into Warrant
Shares at any time and from time to time during the term hereof. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder, without
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X= Y (A-B)
-------
A
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The number of Warrant Shares purchasable pursuant to this Warrant
or such lesser number of Warrant Shares as may be selected by the Holder
A= The Fair Market Value of one Warrant Share as of the
Conversion Date
B= The Exercise Price
(b) Method of Exercise. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
the Holder intends to exercise the Conversion Right and indicating the number of
Warrant Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date") and, at the Holder's election,
may be made contingent upon the closing of the consummation of the sale of
Common Stock pursuant to a Registration. Certificates for the Warrant Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding two business days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares; provided that the Holder will be responsible for any
transfer taxes in respect of the issuance of Warrant Shares to a Person other
than the Holder.
2.3. Fractional Shares. The Company shall not issue fractional shares of
Common Stock upon any exercise or conversion of this Warrant. As to any
fractional share of Common Stock which the Holder would otherwise be entitled to
purchase from the Company upon such exercise or conversion, the Company shall
purchase from the Holder such fractional share at a price equal to an amount
calculated by multiplying such fractional share (calculated to the nearest
1/100th of a share) by the Fair Market Value of a share of Common Stock on the
date of the Notice of Exercise or the Conversion Date, as applicable. Payment of
such amount shall be made in cash or by check payable to the order of the Holder
at the time of delivery of any certificate or certificates arising upon such
exercise or conversion.
2.4. Continued Validity. A Shareholder shall be entitled to all rights
which a Holder of this Warrant is entitled pursuant to the provisions of this
Warrant, except rights which by their terms apply only to a Warrant.
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ARTICLE III.
TRANSFER, EXCHANGE AND REPLACEMENT
3.1. Maintenance of Registration Books. The Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. The Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever, and neither the Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. Restrictions on Transfers.
(a) Compliance with Securities Act. The Holder, by acceptance hereof
hereby makes the representations set forth in Exhibit D-2 with respect to its
acquisition of this Warrant and agrees that this Warrant and the Common Stock to
be issued to the Holder upon exercise hereof are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and that the Holder will not offer, sell or otherwise dispose of this Warrant or
any such shares of Common Stock except under circumstances which will not result
in a violation of the Securities Act or this Agreement. Unless registered under
the Securities Act, upon exercise of this Warrant (other than through conversion
of the Warrant on or after two years from the date hereof), the Holder shall
confirm in writing, by executing the form attached as Exhibit "D-2" hereto, that
the shares of Common Stock purchased thereby are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all Warrant Shares issued
upon exercise of this Warrant (unless Registered under the Securities Act) shall
be stamped or imprinted with legends in substantially the following form (in
addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (A) (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION AND (B) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
In addition, the Warrant shall be stamped or imprinted with a
legend in substantially the following form:
THIS WARRANT MAY NOT BE TRANSFERRED (i) OTHER THAN TO AN AFFILIATE (AS
DEFINED UNDER THE SECURITIES ACT OF 1933, AS AMENDED) (ii) FOLLOWING A
CHANGE IN CONTROL OR (iii) IN CONNECTION WITH THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS, BUSINESS OR CAPITAL STOCK OF HOLDER, ALL
AS PROVIDED HEREIN.
(c) Additional Restriction on Transfer. The Holder shall not sell,
assign or otherwise transfer, pledge or hypothecate all or part of this Warrant
prior to a Change in Control without the prior written consent of the Company,
which consent may be withheld in the Company's sole discretion;
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provided that (x) any such sale, assignment or other transfer by the Holder of
the Warrant in its entirety to an entity owned or controlled by the Holder (but
only for so long as it remains so owned or controlled and such entity agrees (i)
to be bound by the terms and conditions of this Warrant pursuant to an agreement
reasonably acceptable to the Company ("Assumption Agreement") and (ii) to
transfer this Warrant back to the Holder if it ceases to be owned or controlled
by the Holder), (y) any such sale, assignment or other transfer by the Holder of
the Warrant in connection with (i) the merger, consolidation or reorganization
of the Holder, (ii) the sale, assignment, transfer or other disposition of all
or substantially all of the Holder's assets or business in one or more related
transactions or (iii) the sale, assignment, transfer or other disposition of all
or substantially all of the Holder's capital stock, provided that any transferee
described in this clause (y) executes an Assumption Agreement, (z) a bona fide
pledge or hypothecation (so long as any sale, assignment or other transfer in
connection with any attempted foreclosure of such a pledge or hypothecation
would require such consent from the Company), and (zz) any transfer to a Person
directly or indirectly controlling the Holder, provided such Person executes an
Assumption Agreement, may be effected without any such consent.
(d) Disposition of Warrant Shares. With respect to any offer, sale
or other disposition of any Warrant Shares issued upon exercise of this Warrant
prior to Registration of such shares, the Shareholder agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of the Shareholder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without Registration under the Securities Act or
qualification under any applicable state securities laws of such Warrant Shares
and indicating whether or not under the Securities Act certificates for such
Warrant Shares to be sold or otherwise disposed of, require any restrictive
legend as to applicable restrictions on transferability in order to insure
compliance with the Securities Act and any other applicable securities laws,
such opinion to be in form and substance reasonably satisfactory to the Company.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify the
Shareholder that it may sell or otherwise dispose of such Warrant Shares all in
accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this subsection (d) that the opinion of
counsel for the Shareholder is not reasonably satisfactory to the Company, the
Company shall so notify the Shareholder promptly after such determination has
been made and shall specify the legal analysis supporting any such conclusion.
Notwithstanding the foregoing, such Warrant Shares may be offered, sold or
otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonably
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing the Warrant Shares thus
transferred in accordance with this subsection (d) (except a transfer pursuant
to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act, unless in
the aforesaid reasonably satisfactory opinion of counsel for the Shareholder
such legend is not necessary in order to insure compliance with the Securities
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
(e) Termination of Restrictions. The restrictions imposed under this
Section 3.2 upon the transferability of the Warrant (other than those in Section
3.2(c)) and the shares of Common Stock acquired upon the exercise of this
Warrant shall cease when (i) a registration statement covering the applicable
securities becomes effective under the Securities Act, (ii) the Company is
presented with an opinion of counsel reasonably satisfactory to the Company that
such restrictions are no longer required in order to insure compliance with the
Securities Act or with a Commission "no-action" letter stating that future
transfers of such securities by the transferor or the contemplated transferee
would be exempt from registration under the Securities Act, or (iii) such
securities may be transferred in accordance with Rule 144(k). Subject to Section
3.2(c), if applicable, when such restrictions terminate, the Company shall, or
shall instruct its transfer agent to, promptly, and without expense to the
Shareholder issue new securities in the name of the Shareholder not bearing the
legends required under subsection (b) of this Section 3.2.
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3.3. Exchange. At the Holder's option, this Warrant may be exchanged for
other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to the Company at the Principal
Executive Office for exchange, the Company shall execute and deliver the
Warrants which the Holder is entitled to receive. All Warrants issued upon any
registration of transfer or exchange of Warrants shall be the valid obligations
of the Company, evidencing the same rights, and entitled to the same benefits,
as the Warrants surrendered upon such registration of transfer or exchange. No
service charge shall be made for any exchange of this Warrant.
3.4. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (i) in
the case of any such loss, theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (ii) in the case of
any such mutilation, upon surrender of such Warrant for cancellation at the
Principal Executive Office, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
ARTICLE IV.
ANTIDILUTION PROVISIONS
4.1. Reorganization, Reclassification or Recapitalization of the Company.
In case of (1) a capital reorganization, reclassification or recapitalization of
the Company's capital stock (other than in the cases referred to in Section 4.2
hereof), (2) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of the Company's
property as an entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation, sale
or transfer, lawful provision shall be made so that there shall thereafter be
deliverable upon the exercise of this Warrant or any portion thereof (in lieu of
or in addition to the number of shares of Common Stock theretofore deliverable,
as appropriate), and without payment of any additional consideration, the number
of shares of stock or other securities or property to which the holder of the
number of shares of Common Stock which would otherwise have been deliverable
upon the exercise of this Warrant or any portion thereof at the time of such
reorganization, reclassification, recapitalization, consolidation, merger, sale
or transfer would have been entitled to receive in such reorganization,
reclassification, recapitalization, consolidation, merger, sale or transfer.
This Section 4.1 shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant.
4.2. Reclassifications. If the Company changes any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted.
4.3. Splits and Combinations. If the Company at any time subdivides any of
its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Exercise Price under this Section 4.3, the number of
shares of Common Stock issuable upon exercise of this Warrant shall equal the
number of shares determined by dividing (i) the aggregate Exercise Price payable
for the purchase of all
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shares issuable upon exercise of this Warrant immediately prior to such
adjustment by (ii) the Exercise Price per share in effect immediately after such
adjustment.
4.4. Dividends and Distributions. If the Company declares a dividend or
other distribution on the Common Stock (other than a cash dividend or
distribution), then, as part of such dividend or distribution, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof, in addition to the number of shares of
Common Stock receivable thereupon and without payment of any additional
consideration, the amount of the dividend or other distribution to which the
holder of the number of shares of Common Stock obtained upon exercise hereof
would have been entitled to receive had the exercise occurred as of the record
date for such dividend or distribution.
4.5. Liquidation; Dissolution. If the Company shall dissolve, liquidate or
wind up its affairs, the Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in any
cash distribution to the Holder in excess of the aggregate Exercise Price for
the shares of Common Stock for which this Warrant is exercised, then the Holder
may, at its option, exercise this Warrant without making payment of such
aggregate Exercise Price and, in such case, the Company shall, upon distribution
to the Holder, consider such aggregate Exercise Price to have been paid in full,
and in making such settlement to the Holder, shall deduct an amount equal to
such aggregate Exercise Price from the amount payable to the Holder.
4.6. Antidilution Provisions.
4.6.1. Definitions. For purposes of this Section 4.6 the following
definitions shall apply:
"Common Stock Equivalents" shall mean Convertible Securities and
rights entitling the holder thereof to receive directly, or indirectly,
additional shares of Common Stock without the payment of any consideration by
such holder for such additional shares of Common Stock or Common Stock
Equivalents.
"Common Stock Outstanding" shall mean the aggregate of all Common
Stock outstanding and all Common Stock issuable upon conversion of all
outstanding Convertible Securities and exercise of all Options other than
Employee Securities issued after October 30, 1998, unless such Employee
Securities arise from exercise of Options granted prior to October 30, 1998.
"Current Exercise Price" shall mean the Exercise Price immediately
before the occurrence of any event, which, pursuant to Section 4.6, causes an
adjustment to the Exercise Price.
4.6.2. Adjustments to Exercise Price. The Exercise Price in effect
from time to time shall be subject to adjustment in certain cases as follows:
4.6.2.1. Issuance of Securities. Subject to Section 4.6.3, in
case the Company shall at any time after October 30, 1998 issue or sell any
Common Stock or Common Stock Equivalent without consideration, or for a
consideration per share less than the Fair Market Value, then, and thereafter
successively upon each such issuance or sale, the Current Exercise Price shall
simultaneously with such issuance or sale be adjusted to an Exercise Price
(calculated to the nearest cent) determined by multiplying the Current Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the number of shares of Common Stock Outstanding on
such date of sale or issuance plus the number of shares of Common Stock which
the aggregate consideration received for the issuance or sale of such additional
shares would purchase at the Fair Market Value and the denominator of which
shall be the number of shares of Common Stock Outstanding immediately after the
issuance or sale.
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For the purposes of this subsection 4.6.2.1, the following
provisions shall also be applicable:
4.6.2.1.1. Cash Consideration. In case of the issuance or sale
of additional Common Stock or Common Stock Equivalents for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by this corporation for such shares (or, if such shares are
offered by the corporation for subscription, the subscription price, or, if such
shares are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price), without deducting
therefrom any compensation or discount paid or allowed to underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith.
4.6.2.1.2. Non-Cash Consideration. In case of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration, a part of which shall be other
than cash, the fair value of such consideration as determined by the board of
directors of the Company in the good faith exercise of its business judgment,
irrespective of the accounting treatment thereof, shall be deemed to be the
value, for purposes of this Section 4.6.2, of the consideration other than cash
received by the Company for such securities.
4.6.2.1.3. Options and Convertible Securities. In case the
Company shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this Section 4.6.2. and to have been issued for the sum of the amount
(if any) paid for such Options or Convertible Securities and the minimum amount
(if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable; provided that, subject to the
provisions of Section 4.6.2.1.4, no adjustment or further adjustment of the
Exercise Price shall be made upon the actual issuance of (a) any such Common
Stock or Convertible Securities or upon the conversion or exchange of any such
Convertible Securities or the exercise of such Options or (b) any Common Stock
issued or sold pursuant to conversion of any Convertible Securities or exercise
of any Options to the extent outstanding on October 30, 1998.
4.6.2.1.4. Change in Option Price or Conversion Rate. If the
exercise price provided for in any Option referred to in subsection 4.6.2.1.3,
or the rate at which any Convertible Securities referred to in subsection
4.6.2.1.3 are convertible into or exchangeable for shares of Common Stock shall
change at any time (other than under or by reason of provisions designed to
protect against dilution), the Current Exercise Price in effect at the time of
such event shall forthwith be readjusted to the Exercise Price that would have
been in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed exercise price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold. If the exercise price provided for in any such Option referred to in
subsection 4.6.2.1.3, or the additional consideration (if any) payable upon the
conversion or exchange of any Convertible Securities referred to in subsection
4.6.2.1.3, or the rate at which any Convertible Securities referred to in
subsection 4.6.2.1.3 are convertible into or exchangeable for shares of Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution and such reduction would
trigger an adjustment under Subsection 4.6.2.1, then in case of the delivery of
shares of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Current Exercise Price then in
effect hereunder shall, upon issuance of such shares of Common Stock, be
adjusted to such amount as would have obtained had such Option or Convertible
Security never been issued and had adjustments been
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made only upon the issuance of the shares of Common Stock actually delivered and
for the consideration actually received for such Option or Convertible Security
and the Common Stock.
4.6.2.1.5. Termination of Option or Conversion Rights. In the
event of the termination or expiration of any right to purchase Common Stock
under any Option or of any right to convert or exchange Convertible Securities,
the Current Exercise Price shall, upon such termination, be changed to the
Exercise Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.
4.6.3. Employee Securities. Notwithstanding anything in this Article
IV to the contrary, the Exercise Price shall not be adjusted by virtue of the
issuance or sale of Employee Securities and no Employee Securities shall be
included in any manner in the computation from time to time of the Exercise
Price under subsection 4.6.2 or in Common Stock Outstanding for purposes of such
computation except that Employee Securities constituting Common Stock arising
from exercise of Options granted prior to October 30, 1998 shall be included in
Common Stock Outstanding.
4.7. Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
4.8. Other Dilutive Events. If any event occurs as to which the other
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights represented by
this Warrant; provided, that no adjustments shall be made in connection with the
issuance of Common Stock upon exercise, conversion or exchange of Options or
Convertible Securities to the extent that adjustment has previously been made
upon issuance of such Options or Convertible Securities and each lowering of the
effective purchase price of Common Stock pursuant to such Option or Convertible
Securities. Upon receipt of such opinion, the Company shall promptly mail a copy
thereof to the Holder and shall make the adjustments described therein.
4.9. Certificates and Notices.
(a) Adjustment Certificates. Upon any adjustment of the Exercise
Price and/or the number of shares of Common Stock purchasable upon exercise of
this Warrant, a certificate, signed by (i) the Company's President or Chief
Financial Officer, or (ii) any independent firm of certified public accountants
of recognized national standing the Company selects at its own expense, setting
forth in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated, shall be mailed to the Holder and shall
specify the adjusted Exercise Price and the number of shares of Common Stock
purchasable upon exercise of the Warrant after giving effect to the adjustment.
(b) Extraordinary Corporate Events. If the Company, after the date
hereof, proposes to effect (i) any transaction described in Sections 4.1 or 4.2
hereof, or (ii) a liquidation, dissolution or winding up of the Company
described in Section 4.5 hereof or (iii) any payment of a dividend or
distribution with respect to the Common Stock (other than a cash dividend or
distribution), then, in each such case, the Company shall mail to the Holder a
notice describing such proposed action and specifying the date on which the
Company's books shall close, or a record shall be taken, for determining the
holders of Common Stock entitled to participate in such action, or the date on
which such reorganization, reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding up shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
Common Stock of
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record shall be entitled to receive securities and/or other property deliverable
upon such action, if any such date is to be fixed. Such notice shall be mailed
to the Holder at least twenty days prior to the record date for such action in
the case of any action described in clause (i) above at least ten days prior to
the record date for such action in the case of any action described in clause
(iii) above, and in the case of any action described in clause (ii) above, at
least twenty days prior to the date on which the action described is to take
place and at least twenty days prior to the record date for determining holders
of Common Stock entitled to receive securities and/or other property in
connection with such action. The failure to give notice required by this Section
4.9(b) or any defect therein shall be a breach of this Warrant but shall not
affect the legality or validity of the action taken by the Company or the vote
upon any such action. Unless specifically required by this Article IV, the
Exercise Price, the number of shares covered by each Warrant and the number of
Warrants outstanding shall not be subject to adjustment as a result of the
Company being required to give notice pursuant to this Section 4.9(b).
4.10. No Impairment. The Company shall not, by amendment of the Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in the carrying out of all the provisions of this Article IV
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment.
4.11. Application. Except as otherwise provide herein, all sections of
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V.
REGISTRATION RIGHTS
5.1. Registration on Form S-3.
5.1.1. Filing of Registration Statement. The Company shall use its
best efforts to secure effectiveness of, as soon as practicable, and shall file
no later than 10 days after the commencement of the Exercise Period, a
registration statement in form and substance satisfactory to the Holder on Form
S-3 (the "Registration Statement") with the Commission under the Securities Act
to register the issuance of Warrant Shares upon exercise of the Warrant and the
transfer of such Warrant Shares (the Warrant Shares constituting the
"Registrable Securities"); provided however, that in the event the Company fails
to file reports in a timely manner or otherwise fails (due to an action or
inaction of the Company) to be eligible to file a registration statement on Form
S-3, the Company shall file a registration statement on Form S-1.
5.1.2. Registrable Expenses. The Company shall pay all Registration
Expenses (as defined below) in connection with any registration, qualification
or compliance hereunder, and each Holder shall pay all Selling Expenses (as
defined below) and other expenses that are not Registration Expenses relating to
the Registrable Securities resold by such Holder. "Registration Expenses" shall
mean all expenses, except for Selling Expenses, incurred by the Company in
complying with the registration provisions herein described, including, without
limitation, all registration, qualification and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and expenses
and the expense of any special audits incident to or required by any such
registration. "Selling Expenses" shall mean all selling commissions,
underwriting fees and stock transfer taxes applicable to the Registrable
Securities and all fees and disbursements of counsel for any Holder.
5.1.3. Additional Company Obligations. In the case of any
registration effected by the Company pursuant to these registration provisions,
the Company will use its best efforts to: keep such registration effective until
such date as all of the Registrable Securities have been sold or could
immediately be sold pursuant to Rule 144(k) promulgated by the Commission; (ii)
prepare and file with the Commission such amendments and supplements to the
Registration Statement and the prospectus used in connection
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with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of the
Registrable Securities; (iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Holder from time to time may reasonably request; (iv) cause all
such Registrable Securities registered as described herein to be listed on each
securities exchange and quoted on each quotation system on which similar
securities issued by the Company are then listed or quoted; (v) provide a
transfer agent and registrar for all Registrable Securities registered pursuant
to the Registration Statement and a CUSIP number for all such Registrable
Securities; (vi) use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its securityholders, to the
extent required, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and (vii) file the documents required of
the Company and otherwise use its best efforts to maintain requisite blue sky
clearance in (A) all jurisdictions in which any of the Warrant Shares are
originally sold and (B) all other states specified in writing by a Holder as may
reasonably be required to sell such Holder's Warrant Shares, provided, however,
that the Company shall not be required to qualify to do business, subject itself
to taxation, or consent to service of process in any state in which it is not
now so qualified or subject to taxation or has not so consented.
5.1.4. Conditions and Limitations
(a) Cooperation by Holder. It shall be a condition precedent
to the obligation of the Company to take any action pursuant to this Article V
in respect of the Registrable Securities that the Holder shall furnish to the
Company such information regarding such Registrable Securities and the intended
method of disposition thereof and such other information as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company.
(b) Notification Prior to Sale. If any Holder shall propose to
sell any Registrable Securities pursuant to the Registration Statement, it shall
notify the Company of its intent to do so at least three full business days
prior to such sale, and the provision of such notice to the Company shall be
deemed to establish an agreement by such Holder to comply with the registration
provisions contained herein. Such notice shall be deemed to constitute a
representation that any information previously supplied by such Holder is
accurate as of the date of such notice. At any time within such three business
day period, the Company may refuse to permit the Holder to resell any
Registrable Securities pursuant to the Registration Statement; provided,
however, that in order to exercise this right, the Company must deliver a
certificate in writing to the Holder to the effect that a delay in such sale is
necessary because, in the good faith judgment of the Company, a sale pursuant to
the Registration Statement would require the public disclosure of information
that would not otherwise be required to be disclosed (which disclosure would be
likely, in the good faith judgment of the Company, to be materially harmful to
the Company) or could in other respects constitute a violation of the federal
securities laws. In such an event, the Company shall use its best efforts to
amend the Registration Statement to the extent required to comply with Section
5.1.4 and to take all other actions necessary to allow such sale under the
federal securities laws, and shall notify the Holders promptly after it has
determined that such circumstances no longer exist. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to refuse
to permit the Holder to resell any Registrable Securities more than twice in any
twelve-month period, and any individual period during which the Company refuses
to permit the Holder to resell any Registrable Securities shall not exceed sixty
days.
The Company will promptly notify each holder of any Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event or existence of any fact as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
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misleading in light of the circumstances in which they are made, and, as
promptly as is practicable, prepare and furnish to such holder a reasonable
number of copies of any required supplement to or amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances in
which they are made. By acquisition of Registrable Securities, each holder of
such Registrable Securities shall be deemed to have agreed that upon receipt of
any notice from the Company of the happening of any event of the kind described
in the preceding sentence, such holder will promptly discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of any required supplemented or amended prospectus contemplated by this Section.
If so directed by the Company, each holder of Registrable Securities will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, in such holder's possession of the prospectus covering
such Registrable Securities at the time of receipt of such notice. Subject to
the foregoing, when a Holder is entitled to sell and gives notice of its intent
to sell pursuant to the Registration Statement, the Company shall furnish to
such Holder a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they are made.
5.2. Indemnification and Contribution.
5.2.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
such Holder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any claim by a third party
asserting any untrue statement of a material fact contained in the Registration
Statement or omission of a material fact therefrom necessary to make the
statements therein not misleading, on the effective date thereof, or arise out
of any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will, as incurred, reimburse such Holder
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damages or liability arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or (ii) any
untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
5.2.2. Indemnification by Holder. Each Holder, severally and not
jointly, agrees to indemnify and hold harmless the Company from and against any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any claim by a
third party asserting (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in
preparation of the Registration Statement, provided, however, that no Holder
shall be liable in any such case for any untrue statement included in any
prospectus which statement has been corrected, in writing, by such Holder and
delivered to the Company at least three business days before the sale from which
such loss occurred or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered by the Holder to the
purchaser prior to the pertinent sale or sales by the Holder, and each Holder,
severally and not jointly, will, as
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incurred, reimburse the Company for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim.
5.2.3. Indemnification Procedures. Promptly after receipt by any
indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to be sought against an indemnifying person
pursuant to this Section 5.2, such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action, and, subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person and the indemnifying
person shall have been notified thereof, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall wish, to
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable opinion of counsel for the indemnified person for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that in the case of the immediately preceding proviso the indemnifying
person shall not be responsible for the legal expenses of more than one counsel
for all indemnified persons.
5.2.4. Contribution in Lieu of Indemnity. If the indemnification
provided for in this Section 5.2 is unavailable to or insufficient to hold
harmless an indemnified party under Section 5.2.1 or 5.2.2 above in respect of
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefit and relative fault
of the respective parties as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or a Holder on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to this
Section 5.2.4 were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 5.2.4. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 5.2.4 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.2.4, no Holder shall be
required to contribute any amount in excess of the net amount received by the
Holder from the sale of the Registrable Securities to which such loss relates.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 5.2.4 to contribute are several in proportion to
their respective sales of Registrable Securities to which such loss relates and
not joint.
5.2.5. Controlling Persons Indemnified. The obligations of the
Company and the Holders under this Section 5.2 shall be in addition to any
liability which the Company and the respective Holders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls or may be deemed to control the Company or any Holder within the
meaning of the Securities Act including, without limitation, the directors and
officers of the Company and the Holder, as the case may be.
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5.3. Transfer Of Registration Rights. The right to sell Registrable
Securities pursuant to the Registration Statement described herein will
automatically be assigned to each transferee of the Warrant or Warrant Shares
permitted under the terms of this Warrant. In the event that it is necessary, in
order to permit a Holder to sell Registrable Securities pursuant to the
Registration Statement, to amend the Registration Statement to name such Holder,
such Holder shall upon written notice to the Company, be entitled to have the
Company make such amendment as soon as reasonably practicable.
ARTICLE VI.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
6.1. Representations and Warranties. The Company represents and warrants
that as of the date hereof:
(a) Legal Status; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Rhode Island
and is qualified or licensed to do business in all other countries, states and
provinces in which the laws thereof require the Company to qualify and/or be
licensed, except where failure to qualify or be licensed would not have a
material adverse effect on the business or assets of the Company taken as a
whole;
(b) Capitalization. The Company's authorized capital stock consists
of: 300,000,000 shares of Common Stock, of which 130,792,386 shares are issued
and outstanding;
(c) Options. Except as described in Exhibit "D-3" hereto there are
no Options, warrants or similar rights to acquire from the Company, or
agreements or other obligations by the Company, absolute or contingent, to issue
or sell Common Stock, whether on conversion or exchange of Convertible
Securities or otherwise;
(d) Preemptive Rights. No shareholder of the Company has any
preemptive rights to subscribe for shares of Common Stock;
(e) Authority. The Company has the right and power, and is duly
authorized and empowered, to enter into, execute, deliver and perform its
obligations under this Warrant;
(f) Binding Effect. This Warrant has been duly authorized, executed
and delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii)
general principles of equity;
(g) No Conflict. The execution, delivery and/or performance by the
Company of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the Company's Charter or Bylaws or contained in any
agreement, instrument or document to which the Company is a party or by which it
is bound;
(h) Consents. Except as contemplated by Article V and Section
6.2(b), no consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the valid issuance of the Warrant or for the performance of any of the
Company's obligations hereunder, except in connection with listing of the
Warrant Shares on the American Stock Exchange, which listing will be effected in
accordance with the rules and regulations of the American Stock Exchange;
(i) Offering. Neither the Company nor any agent acting on its behalf
has, either directly or indirectly, sold, offered for sale or disposed of, or
attempted or offered to dispose of, this Warrant or any part hereof, or any
similar obligation of the Company, to, or has solicited any offers to buy
17
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any thereof from, any Person or Persons other than the Holder. Neither the
Company nor any agent acting on its behalf will sell or offer for sale or
dispose of, or attempt or offer to dispose of, this Warrant or any part thereof
to, or solicit any offers to buy any warrant of like tenor from, or otherwise
approach or negotiate in respect thereof, with, any Person or Persons so as
thereby to bring the issuance of this Warrant within the provisions of Section 5
of the Securities Act;
(j) Registration. Assuming the accuracy of the Holder's
representations made herein, it is not necessary in connection with the issuance
and sale of this Warrant to the Holder pursuant to this Agreement to Register
this Warrant under the Securities Act; and
6.2. Covenants. The Company covenants that:
(a) Authorized Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant (for
purposes of determining compliance with this covenant, the shares of Common
Stock issuable upon exercise of all other Options and warrants to acquire Common
Stock and upon conversion of all instruments convertible into Common Stock shall
be deemed issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take all such
action as may be necessary to assure that the Common Stock issuable upon the
exercise of this Warrant may be so issued without violation of any applicable
law or regulation, or of any requirements of any domestic securities exchange or
automated quotation system upon which any capital stock of the Company may be
listed or quoted, as the case may be, provided that the Holder, at its sole
expense, will take all such action as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection
with its acquisition of securities of the Company. Such action by the Company
may include, but not be limited to, causing such shares to be duly registered or
approved, listed or quoted on relevant domestic securities exchanges or
automated quotation systems; and
(c) Fully Paid Shares. The Company will take all actions necessary
or appropriate to validly and legally issue fully paid and nonassessable shares
of Common Stock upon exercise of this Warrant. All such shares will be free from
all taxes, liens and charges with respect to the issuance thereof, other than
any stock transfer taxes in respect to any transfer occurring contemporaneously
with such issuance.
ARTICLE VII.
MISCELLANEOUS
7.1. Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer and income taxes) and other
governmental charges that may be imposed in respect of, the issuance, sale and
delivery of the Warrant and the Warrant Shares to the Holder.
7.2. Holder Not a Shareholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company or (c) notice of any other proceedings of the
Company.
7.3. Like Tenor. All Warrants shall at all times be substantially
identical except as to the Preamble.
7.4. Remedies. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the
18
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terms of this Warrant are not and will not be adequate to the fullest extent
permitted by law, and that such terms may be specifically enforced by a decree
for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
7.5. Enforcement Costs. If the Holder, a Shareholder or the Company seeks
to enforce its rights hereunder by legal proceedings or otherwise, then the
non-prevailing party shall pay all reasonable costs and expenses incurred by the
prevailing party, including, without limitation, all reasonable attorneys' fees
(including the allocable costs of in-house counsel).
7.6. Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
7.7. Notices. Any notice, demand or delivery to be made pursuant to this
Warrant will be sufficiently given or made if sent by certified or registered
mail, postage prepaid, nationally recognized overnight delivery service or
facsimile transmission, addressed to (a) the Holder and the Shareholders at
their last known addresses appearing on the books of the Company maintained for
such purpose or (b) the Company at its Principal Executive Office. The Holder,
the Shareholders and the Company may each designate a different address by
notice to the other pursuant to this Section 7.7. A notice shall be deemed
effective upon receipt.
7.8. Successors and Assigns. This Warrant shall be binding upon, the
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns. The Company shall, at the time of exercise of
this Warrant, in whole or in part, upon request of the Holder or any Shareholder
but at the Company's expense, acknowledge in writing its continuing obligations
hereunder with respect to rights of the Holder or such Shareholder to which it
shall continue to be entitled after such exercise in accordance with the terms
hereof; provided that the failure of the Holder or any Shareholder to make any
such request shall not affect the continuing obligation of the Company to the
Holder or such Shareholder in respect of such rights.
7.9. Modification; Severability.
(a) If, in any action before any court or agency legally empowered
to enforce any term, any term is found to be unenforceable, then such term shall
be deemed modified to the extent necessary to make it enforceable by such court
or agency.
(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
7.10. Integration. This Warrant replaces all prior and contemporaneous
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
19
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7.11. Survival of Representations and Warranties. The representations and
warranties of any party in this Warrant shall survive the execution and delivery
of this Warrant and the consummation of the transactions contemplated hereby,
notwithstanding any investigation by the such party or its agents.
7.12. Amendment. This Warrant may not be modified or amended except by
written agreement of the Company, the Holder and the Shareholder(s), if any,
holding a majority of the Warrant Shares.
7.13. Headings. The headings of the Articles and Sections of this Warrant
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
7.14. Meanings. Whenever used in this Warrant, any noun or pronoun shall
be deemed to include both the singular and plural and to cover all genders; and
the words "herein," "hereof" and "hereunder" and words of similar import shall
refer to this instrument as a whole, including any amendments hereto.
7.15. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
20
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer this October 30, 1998.
LUCASFILM LTD. ("Holder") HASBRO, INC. ("Company")
By: /s/ GORDON RADLEY By: /s/ HAROLD P. GORDON
------------------------ ------------------------
Title: President Title: Vice Chairman
--------------------- ---------------------
21
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SCHEDULE OF EXHIBITS
EXHIBIT "D-1" -- Notice of Exercise (Section 2.1)
EXHIBIT "D-2" -- Investment Representation Certificate (Section 3.2(a))
EXHIBIT "D-3" -- Assignment Form (Section 3.2(d))
EXHIBIT "D-4" -- Schedule of Outstanding Options and Convertible Securities
(Sections 6.1(c))
22
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EXHIBIT "D-1"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby irrevocably
exercises the within Warrant for and purchases shares of Common Stock of Hasbro,
Inc. and herewith makes payment therefor in the amount of $____________, all at
the price and on the terms and conditions specified in the within Warrant and
requests that a certificate (or _________ certificates in denominations of
_________ shares) for the shares of Common Stock of Hasbro, Inc. hereby
purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) [NAME], whose address is and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Common Stock of Hasbro, Inc. not being purchased hereunder be issued in the name
of and delivered to (choose one) (a) the undersigned or (b) [NAME], whose
address is __________________________________.
Dated:____________________
NOTICE: The signature to this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
23
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EXHIBIT "D-2"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: Hasbro, Inc.
Security: Common Stock
Amount:
Date:
(a) In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(b) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act");
(c) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein;
(d) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased; and
(e) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein.
The Purchaser represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act or any successor
regulation thereunder.
Date:__________________ PURCHASER:____________________________
24
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EXHIBIT "D-3"
OUTSTANDING OPTIONS
ASSIGNMENT FORM
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto ________, whose address is __________
all of the rights of the undersigned under the within Warrant, with respect to
shares of Common Stock of Hasbro, Inc. and, if such shares of Common Stock shall
not include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of Hasbro, Inc. not being transferred hereunder be issued in the name of
and delivered to the undersigned, and does hereby irrevocably constitute and
appoint __________ attorney to register such transfer on the books of Hasbro,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:____________________
___________________________________
___________________________________
By:________________________________
(Signature of Registered Holder)
Title:_____________________________
NOTICE: The signature to this Assignment must correspond with the name
upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
25
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EXHIBIT "D-4"
OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES
(Sections 6.1(c))
1. Options granted under employee and non-employee director stock option plans
for 9,395,028 shares of Common Stock.
2. Warrants granted to Lucas Licensing, Ltd. and Lucasfilm Ltd. for shares of
Common Stock on October 14, 1997.
3. Warrants granted to DreamWorks LLC for shares of Common Stock.
26
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EXHIBIT 10(rr)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 5th day of
January, 1999 is entered into by Hasbro, Inc., a corporation with its
principal place of business at Pawtucket, Rhode Island (the "Company"), and
Herbert M. Baum (the "Employee").
WHEREAS, the Company desires to employ the Employee as President and Chief
Operating Officer of the Company and the Employee desires to be employed by
the Company as President and Chief Operating Officer;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the
parties agree as follows:
1. Term of Employment
------------------
The Company hereby agrees to employ the Employee, and the Employee hereby
accepts employment with the Company, upon the terms set forth in this
Agreement, for the period commencing on January 5, 1999 (the "Commencement
Date") and ending on January 5, 2002, unless sooner terminated in accordance
with the provisions of Section 5 or extended as hereinafter provided in this
Section 1 (such period, as it may be extended or terminated, the "Employment
Period"). The Employment Period may be extended not later than January 5,
2002 for an additional one year period from the then current expiration date
of the Employment Period provided the Employee and the Company mutually agree
in writing to extend the Employment Period.
2. Title; Capacity
---------------
The Company will employ the Employee, and the Employee agrees to work for
the Company, as its President and Chief Operating Officer of the Company and
in such other senior executive positions with the Company and with domestic
and foreign subsidiaries of the Company as the Company's Board of Directors
(the "Board") and the Chairman of the Board and Chief Executive Officer of
the Company may reasonably determine from time to time. The Employee shall
be based at the Company's headquarters in Pawtucket, Rhode Island and shall
undertake such domestic and foreign business travel as shall be reasonably
required to fulfill his duties. The Employee shall report directly to the
Chairman of the Board and Chief Executive Officer of the Company.
The Employee shall have authorities, duties and responsibilities
commensurate with his position of President and Chief Operating Officer
(including but not limited to, responsibility for all operating functions and
units of the Company with all of said functions and units reporting directly
or, with his consent, indirectly to him) and shall have such other
authorities, duties and responsibilities commensurate with his position as
the Board shall from time to time reasonably assign to him. The Employee
shall devote substantially his full business time in the performance of the
foregoing services, except that he may serve on the boards of directors of
other businesses, trade associations and charitable organizations, engage in
charitable activities and community affairs and manage his personal
investments and affairs as long as these activities present no conflict of
interest and do not materially interfere with the performance of his duties
hereunder.
The Employee agrees to abide in all material respects with the policies of
the Company applicable to senior executives, officers and members of the
Board and any changes therein which may be adopted from time to time by the
Company with regard to conflicts of interest.
3. Member of the Board
-------------------
During the Employment Period, the Company agrees that it shall recommend to
the Board the election of the Employee as a Director of the Company on the
Commencement Date or as soon as practical thereafter. Upon the expiration of
his term as a Director during the Employment Period, the Company agrees to
use its best efforts to cause him to be re-nominated for election and to
recommend his election.
4. Compensation and Benefits
-------------------------
4.1 Salary
------
During the Employment Period, the Company shall pay the Employee, in weekly
installments one week in arrears, an annual base salary of not less than
$750,000 (the "Base Salary"). Such Base Salary shall be considered for
upward adjustment annually in accordance with the Company's salary increase
guidelines based upon the Employee's achievement of individual performance
goals but subject to recommendation by the Chairman and Chief Executive
Officer and approval by the Compensation and Stock Option Committee of the
Board (the "Compensation Committee"). Once increased, Base Salary shall not
be reduced and shall thereafter be the "Base Salary" hereunder.
4.2 Bonus
-----
During the Employment Period, the Employee shall be eligible to participate
in the Company's management incentive bonus arrangement with a target bonus
of not less than 45% of Base Salary. The Employee's actual bonus may be
greater or less than his target bonus for such year depending upon the
Company's and the Employee's actual performance during the applicable bonus
year. In the event Employee's employment is terminated prior to the
completion of a bonus year due to (I) his death or Disability, (ii) a
termination by the Employee for "Good Reason," or (iii) a termination by the
Company without "Cause," the Company will pay the Employee a pro rata bonus
for such year equal to at least the bonus for such year he would have
received based on assuming his individual performance was the same as that of
the prior year and the actual Company performance for such year multiplied by
a fraction, the numerator of which is the number of days during such bonus
year that the Employee is employed by the Company, and the denominator of
which is three hundred sixty-five (365). If such pro rata bonus is for 1999,
the entire bonus shall be based on the actual Company performance for such
year.
4.3 Stock Options
-------------
(a) Subject to the approval of the Compensation Committee of the Board the
Company shall grant to the Employee options (the "Options") to purchase
175,000 shares of the Company's Common Stock (the "Shares") on the
Commencement Date, or as soon thereafter as practical, at the then-current
Fair Market Value of the Company Shares as of the date of the grant under and
according to the terms of the Company's Stock Incentive Performance Plan and
the applicable Stock Option Agreement. During the Employment Period, Options
to purchase 58,333 shares shall vest on each of the first two anniversaries
of the Commencement Date and the remaining Options to purchase 58,334 shares
shall vest on January 5, 2002, the last day of the initial three year
Employment Period.
(b) Subsequent grants of regular stock options may be made subject to the
Company's standard practice and policy in making such grants, except that the
Employee will not have any right to participate in the Company's premium
priced stock option program. Subsequent stock option grants will be subject
to not less favorable vesting and exercise provisions than those set forth in
this Section 4.3.
(c) Unless the termination of Employee's employment is for Cause, the
Employee will have three (3) years from the date on which his employment
terminates or, if earlier, until the expiration of stated term of the
Options, to exercise all unexercised vested Options.
(d) If the Employee's employment with the Company terminates upon or after
the expiration of the initial three year Employment Period for any reason
whatsoever other than Cause, provided the Employee executes a non-compete
agreement in the form of Exhibit A hereto, the Options shall become fully
vested on the date of termination. In the event the prior sentence does not
apply and the Employee is terminated by the Company without Cause or the
Employee terminates his employment with or without Good Reason either during
or after the initial three year Employment Period, the Options shall continue
to vest during the period which the Employee is receiving severance payment
from the Company.
(e) In the event of the Employee's termination of employment due to the
Employee's death or Disability, vesting of all unvested options will be fully
accelerated as of the date of death or Disability.
4.4 Retirement Benefits
-------------------
(a) The Employee shall be eligible to participate in the Hasbro, Inc.
Pension Plan (the "Pension Plan") and the Hasbro, Inc. Supplemental
Retirement Benefit Plan (the "Supplemental Plan") on the same basis as other
senior executives of the Company.
(b) In addition, after the Employee's employment terminates for any
reason, the Employee shall receive an annuity payable in monthly
installments, the first such installment being paid on the first day of the
month following the month in which the employee attains age 65 or his
employment terminates, whichever occurs later (subject to earlier
commencement, as referred to below), and the last such installment being paid
on the first day of the month in which the Employee dies (subject to the
right to elect an actuarially equivalent form), in which the annual amount
is 3.3% of the Employee's Average Annual Cash Compensation multiplied by the
number of full years and partial years (with proration to include full months
employed during any partial years) the Employee had been employed by the
Company at termination of employment. The amount payable under the preceding
sentence shall be reduced by the sum of the benefits payable to the Employee
in the form of a life annuity commencing at age 65 (or such later date),
under (a) the Pension Plan, and (b)the Supplemental Plan. For purposes of
this supplemental retirement benefit, the Employee's Average Annual Cash
Compensation shall be one-third of the total Base Salary and management
incentive bonuses (exclusive of any severance pay (but not Accrued
Obligations) or other additional compensation) received by the Employee in
the three highest consecutive years during the Employees' period of
employment. For purposes of the calculation in the previous sentence, the
Annual Cash Compensation taken into account for any single year,, shall not
exceed $909,091. If the Employee had been employed by the Company for fewer
than three years, the Employee's Average Annual Cash Compensation shall be
the annualized average of the Employee's total Base Salary and management
incentive bonuses during the period of employment (including any pro-rata
bonus amounts due for the year of termination) (with the management incentive
bonus being deemed the 1999 target bonus until the 1999 management incentive
bonus is paid).
At the Employee's option, the benefit described above shall be payable in
any actuarially equivalent annuity form of benefit provided under the Pension
Plan or an actuarially equivalent lump sum, determined using the actuarial
conversion factors used for the Pension Plan. If the benefit commences prior
to age 65, it shall be reduced by the early retirement reduction factor set
forth in the Pension Plan. Any lump sum payment shall be made during the
first two calendar weeks of January in the year following termination of
employment.
The benefits provided under this Section 4.4 shall be unfunded and shall be
paid from the general assets of the Company. In the event of a Change of
Control (as defined in the Change of Control Agreement referred to in Section
8 below), these benefits shall be paid from a fully funded corporate rabbi
trust. The Employee shall have a right to the benefit hereunder and any
rabbi trust no greater than the right of an unsecured general creditor of the
Company. The benefits are not assignable by the Employee prior to receipt.
4.5 Financial Planning
------------------
During the Employment Period, the Company shall provide the Employee, at
the Company's expense, tax and financial counseling from a provider of such
services of the Employee's own choosing up to Fifteen Thousand Dollars
($15,000) per year. Such tax and financial assistance shall be provided as
may be reasonably required to prepare any income tax returns that the
Employee may be required to file and as may be reasonably required to prepare
an appropriate estate plan.
4.6 Automobile Allowance
--------------------
During the Employment Period, the Company shall make available to the
Employee a Company automobile allowance of $920 per month or the equivalent
in a leased automobile suitable to the Employee's position in accordance with
the Company's automobile policy.
4.7 Relocation
----------
(a) In connection with the establishment of a residence in Rhode Island
for purposes of the Employee's employment with the Company, the Employee
shall be eligible for relocation benefits under the Company's policy entitled
"Relocation Expenses-Transferred Employees and Executive New Hires."
(b) Upon termination of employment, for any reason whatsoever, in
connection with the Employee's relocation back to his initial home location,
the Employee shall be eligible for relocation benefits under the Company's
policy entitled "Relocation Expenses-Transferred Employees and Executive New
Hires," as if he were a transferred active employee. In addition, such
relocation benefits will also include a guarantee of the original purchase
price of the Rhode Island residence plus the fair market value of any capital
improvements. Such guarantee may be called on by the Employee by the
Employee notifying the Company in writing of his desire to sell the residence
to the Company or its designee for the above price. The sale shall be closed
within sixty (60) days after the Employee gives the Company such written
notice.
(c) In addition, the Employee shall receive such additional relocation
benefits as may be agreed upon by the Chairman and Chief Executive Officer of
the Company and the Employee.
(d) The Company shall pay the Employee a full gross up with regard to
amounts paid pursuant to this Section 4.7 so that , to the extent that such
amounts are includible in the Employee's gross income, the Employee has no
cost for such relocation on an after-tax basis.
4.8 Fringe Benefits
---------------
During the Employment Period, the Employee shall be entitled to participate
in all bonus, benefit and fringe plans and programs that the Company
establishes and makes available to its senior executives or employees
generally, as they may be in effect from time to time if any, to the extent
that Employee's position, tenure, salary, age, health and other
qualifications make him eligible to participate, including, but not limited
to, the programs indicated in the Hasbro Benefits Summary previously
delivered to Employee. The Employee shall be entitled to four weeks of paid
vacation time during each calendar year (prorated for partial years) during
the Employment Period.
4.9 Reimbursement of Expenses
-------------------------
The Company shall reimburse the Employee for reasonable travel, entertainment
and other expenses incurred or paid by him in connection with, or related to,
the performance of his duties, responsibilities or services under this
Agreement, upon presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information as the Company
may request, provided, however, that the amount available for travel,
entertainment and other expenses may be fixed in writing in advance by the
Board at a level commensurate with his position.
4.10 Deferred Compensation
---------------------
The Employee shall be entitled to participate in the Company's Non-
Qualified Deferred Compensation Plan in accordance with the terms of such
Plan, provided that any termination of Executive's employment (other than for
death or Disability) shall be deemed a "retirement" under such plan.
4.11 401(k) and Profit Sharing Benefits
----------------------------------
The Employee shall be entitled to participate in the Company's Retirement
Savings Plan subject to and in accordance with the terms of such plan.
4.12 Annual Physical
----------------
The Company shall reimburse the Employee for the normal costs of an annual
physical examination, including laboratory costs, by a physician of his own
choosing in each calendar year.
4.13 Indemnification
---------------
(a) Effective upon his election as a Director, the Company and the
Employee shall enter into the Company's standard Directors' Indemnification
Agreement, in the form filed as an Exhibit to the Company's Annual Report on
Form 10-K (the "Indemnification Agreement"). The Company acknowledges, as a
clarification of the last sentence of Section 6 of the Indemnification
Agreement, that even if after the Company has assumed defense of a claim, the
Employee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Employee in the conduct of the defense
of the claim, the Company will thereafter be responsible for the fees and
disbursement of the Employee's separate counsel.
(b) The Company shall not retroactively amend the By-Laws of the Company
so as to adversely affect Employee's rights to indemnification thereunder.
So long as the Company purchases directors' and officers' liability
insurance, the Company shall maintain Employee's coverage thereunder with
respect to covered acts or omissions during the Employment Period.
5. Employment Termination
----------------------
The Employee's employment by the Company pursuant to this Agreement shall
terminate at or prior to the expiration of the Employment Period upon the
occurrence of any of the following:
5.1 Termination of the Employment Period
------------------------------------
At the expiration of the Employment Period in accordance with Section 1;
5.2 Termination by the Company for Cause
------------------------------------
Upon written notice by the Company to the Employee of a termination for
Cause, provided such notice is given within one hundred eighty (180) days
after the discovery by the Board or the Chief Executive Officer of the Cause
event. For the purposes of this Section 5.2, "Cause" shall be deemed to
exist upon the occurrence (or non-occurrence, as the case may be) of any of
the following: (a) repeated violations by the Employee of the Employee's
obligations under Section 2 of this Agreement (other than as a result of
incapacity due to physical or mental illness) which are demonstrably willful
and deliberate on the Employee's part, which are committed in bad faith or
without reasonable belief that such violations are in the best interests of
the Company and which are not remedied within thirty (30) days after receipt
of written notice from the Board specifying such violations; or (b) the
conviction of the Employee of a felony involving moral turpitude.
5.3 Termination by the Company without Cause
----------------------------------------
At the election of the Company, immediately upon written notice by the
Company to the Employee without Cause;
5.4 Death or Disability
-------------------
Thirty days after the death of the Employee. Upon thirty (30) days' prior
written notice by the Company to the Employee of a termination for
Disability, provide such notice is delivered during the period of Disability.
As used in this Agreement the term "Disability" shall mean the inability of
the Employee, due to a physical or mental disability, for a continuous period
of 180 days to substantially perform the services contemplated under this
Agreement. A determination of disability shall be made by a physician
satisfactory to both the Employee and the Company, provided that if the
Employee and the Company do not agree on a physician, the Employee and the
Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties;
5.5 Termination by the Employee with or without Good Reason
-------------------------------------------------------
At the election of the Employee upon Good Reason or otherwise, upon five
business days' prior written notice of termination. For purposes of this
Agreement, "Good Reason" for termination shall be deemed to exist solely if
the Employee terminates employment within one year after the occurrence of
any of the following without the explicit written consent of the Employee:
(a) diminution of title, responsibilities, authority or duties; (b) a failure
to be elected to or removal from the Board; (c) a change in work location
beyond a 50 mile radius from the Employee's current location of employment
(it being understood that foreign business travel shall not constitute a
"change in work location" for these purposes unless it averages more than one
calendar week per month outside North America), (d) the failure of the
Company to obtain and deliver to the Employee a satisfactory written
agreement from any successor to the Company to assume and agree to perform
this Agreement, or (e) any breach of Section 4 of this Agreement or any other
material breach of this Agreement by the Company; or
5.6 Agreement of the Parties
------------------------
By mutual consent of the Employee and the Company.
6. Effect of Termination
---------------------
6.1 Termination for Cause or Upon Expiration of the Agreement Term
--------------------------------------------------------------
In the event than the Employee's employment is terminated for Cause
pursuant to Section 5.2 or upon the expiration of the Agreement pursuant to
Section 5.1, the Company shall have no further obligations under this
Agreement other than to pay to the Employee the following amounts and
benefits: (i) any unpaid Base Salary, (ii) any unpaid incentive bonus for
the fiscal year ending immediately prior to Employee's termination date (or
in the case of expiration, the year of expiration), (iii) any accrued but
unused vacation that is still eligible to be taken in accordance with Company
policy , (iv) reimbursement for any business expenses incurred prior to the
Employee's date of termination to which the Employee would be otherwise
entitled, (v) the Employee's entitlements with regard to the Options as set
forth in Section 4.3 and (vi) any benefits or fringes due under any benefit
or fringe benefit plan or arrangement in accordance with the terms of said
plan or arrangement due for the period prior to such termination and (vii)
the retirement benefits set forth in Section 4.4 (collectively, the Accrued
Obligations").
6.2 Termination by the Company without Cause, Termination by the
------------------------------------------------------------
Employee for Good Reason, or Termination by Agreement of the
------------------------------------------------------------
Parties
-------
In the event that the Employee's employment is terminated by the Company
without Cause pursuant to Section 5.3, or by the Employee for Good Reason
pursuant to Section 5.5, or upon mutual agreement of the parties pursuant to
Section 5.6, the Company shall pay to the Employee, in addition to any
Accrued Obligations and the bonus amount set forth in Section 4.2, a lump sum
payment in an amount equal to the lesser of (i) his annual Base Salary then
in effect for eighteen (18) months, or (ii) his annual Base Salary for the
period beginning on the date of termination through and including the
expiration of the Employment Period set forth in Section 1 as if no
termination had occurred. The Employee shall have no obligation to mitigate
by seeking other employment and there shall be no offset against amounts due
the Employee under this Agreement on account of any remuneration attributable
to any subsequent employment he may obtain. In addition, the Company shall
continue its contributions toward the Company's health and life insurance
benefits on the same basis as immediately prior to the date of termination,
except as provided below, for the applicable period outlined above under (i)
or (ii). Notwithstanding the foregoing, the Company shall not be required to
provide any health or life insurance benefit otherwise receivable by the
Employee pursuant to this Section 6.2 if the Employee is actually covered by
an equivalent benefit (at the same cost to the Employee, if any) from another
employer during which continuing benefits are provided pursuant to this
Section 6.2. Any such benefit made available to the Employee shall be
reported to the Company. The Company shall provide the foregoing severance
pay and benefits to the Employee as set forth in this Section 6.2 only upon
execution by the Employee of a release of claims, other than with respect to
the Employee's rights under the Indemnification Agreement, with regard to
post employment benefits and as a stockholder and option holder, in a form
reasonably satisfactory to the Company. If the Employee fails to execute the
aforesaid release of claims agreement, the Company shall have no further
obligations under this Agreement other than to pay to the Employee the
compensation and benefits otherwise payable to him under Section 4 through
the last day of his actual employment by the Company and the Accrued
Obligations.
6.3 Termination by the Employee Without Good Reason
-----------------------------------------------
In the event that the Employee terminates his employment without Good
Reason pursuant to Section 5.5, the Company shall pay to the Employee, in
addition to any Accrued Obligations, a lump sum payment in an amount equal to
the lesser of (i) his annual base salary then in effect for twelve (12)
months, or (ii) his annual base salary for the period beginning on the date
of termination through and including the expiration of the Employment as set
forth in Section 1 as if no termination had occurred. The Employee shall
have no obligation to mitigate by seeking other employment and there shall be
no offset against amounts due the Employee under this Agreement on account of
any remuneration attributable to any subsequent employment he may obtain. In
addition, the Company shall continue its contributions toward the Company's
health and life insurance benefits on the same basis as immediately prior to
the date of termination, except as provided below, for the applicable period
outlined above under (i) or (ii). Notwithstanding the foregoing, the Company
shall not be required to provide any health or life insurance benefit
otherwise receivable by the Employee pursuant to this Section 6.3 if the
Employee is actually covered by an equivalent benefit (at the same cost to
the Employee, if any) from another employer during which continuing benefits
are provided pursuant to this Section 6.3. Any such benefit made available
to the Employee shall be reported to the Company. The Company shall provide
the foregoing severance pay and benefits to the Employee as set forth in this
Section 6.3 only upon execution by the Employee of a release of claims, other
than with respect to the Employee's rights under the Indemnification
Agreement, with regard to post employment benefits and as a stockholder and
optionholder in a form reasonably satisfactory to the Company. If the
Employee fails to execute the aforesaid release of claims agreement, the
Company shall have no further obligations under this Agreement other than to
pay to the Employee the compensation and benefits otherwise payable to him
under Section 4 through the last day of his actual employment by the Company
and the Accrued Obligations.
6.4 Termination for Death or Disability
-----------------------------------
In the event that the Employee's employment is terminated by death or
because of disability pursuant to Section 5.4, the Company shall pay to the
Employee or to the Employee's heirs or to the executor or administrator of
the Employee's estate, as the case may be, in addition to any Accrued
Obligations and the bonus amount set forth in Section 4.2, compensation which
would otherwise be payable to him under Section 4.1 of this Agreement through
the end of the month in which such termination occurs.
7. Legal Fees
----------
The Company agrees to reimburse the Employee for reasonable legal and
consulting fees incurred in connection with the negotiation, acceptance and
execution of the employment terms and this Agreement.
8. Change of Control
-----------------
The Company and the Employee are parties to another agreement which
provides the Employee with certain benefits upon the occurrence of a Change
in Control of the Company (as defined therein). This other agreement shall
be referred to as "the Change in Control Agreement." Upon the "Effective
Date," as defined in the Change in Control Agreement, the Employee shall be
entitled to receive the greater of the payments and benefits accruing to the
Employee under (a) the Change in Control Agreement, or (b) this Agreement.
Notwithstanding anything therein to the contrary, Section 3 of the Change in
Control Agreement is hereby clarified to provide that the Employee may
voluntarily terminate his employment at any time during the Employment Period
without such termination constituting a breach or other violation of such
agreement.
9. Proprietary Information and Developments
----------------------------------------
The Employee agrees to execute the Company's standard Invention Assignment
and Proprietary Information Agreement.
10. Notices
-------
All notices required or permitted under this Agreement shall be in writing
and shall be deemed effective upon personal or overnight delivery or three
business days after deposit in the United States Post Office, by registered
or certified mail, postage prepaid, addressed to the other party at the
addresses shown below, or at such other address or addresses as either party
shall designate to the other in accordance with this Section 10.
If to the Company:
Hasbro, Inc.
1011 Newport Avenue
Pawtucket, RI 02862
Attn: Harold P. Gordon
Vice Chairman
With a copy to:
Hasbro, Inc.
32 West 23rd Street
New York, NY 10010
Attn: Phillip H. Waldoks
Senior Vice President--
Corporate Legal Affairs and Secretary
If to the Employee:
Herbert M. Baum
45 Loring Place
Providence, RI 02906
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036-8299
Attn: Michael S. Sirkin, Esq.
11. Pronouns
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the
singular forms of nouns and pronouns shall include the plural, and vice
versa.
12. Entire Agreement
----------------
This Agreement, together with the agreements referred to herein,
constitutes the entire agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating to the
subject matter of this Agreement other than the Change in Control Agreement.
13. Amendment
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Employee.
14. Governing Law
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the internal laws of the State of Rhode Island.
15. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of both
parties and their respective successors and assigns, including any
corporation with which or into which the Company may be merged or which may
succeed to all or substantially all of its assets or business, provided,
however, that the obligations of the Employee are personal and shall not be
assigned by him. Notwithstanding the foregoing, the Company may, with the
Employee's prior written consent, assign an appropriate portion of its
obligations hereunder to one or more of its subsidiaries.
16. Miscellaneous
-------------
16.1
No delay or omission by the Company or the Employee in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company or the Employee on any one occasion
shall be effective only in that instance and shall not be construed as a bar
or waiver of any right on any other occasion.
16.2
The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
16.3
The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
16.4
In case any provision of this Agreement shall be invalid, illegal or
otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
HASBRO, INC.
By: /s/ Alan G. Hassenfeld
-----------------------
Title: Chairman of the Board and
Chief Executive Officer
EMPLOYEE
/s/ Herbert M. Baum
--------------------
Herbert M. Baum
EXHIBIT A
RETIREE ACCELERATED OPTION EXERCISE AGREEMENT
AGREEMENT, dated ________ __, ____, between Hasbro, Inc., a Rhode Island
corporation having its principal place of business at 1027 Newport Avenue,
Pawtucket, Rhode Island 02862 (the "Company"), and Herbert M. Baum, residing
at 45 Loring Place, Providence, RI 02906 ("Optionee").
RECITAL
The Company and Optionee are parties to the Stock Option Agreements
described on Schedule 1 hereto (the "Option Agreements"), pursuant to which
Optionee has been granted options to purchase shares of common stock, par
value $.50 per share, of the Company at prices designated in the Option
Agreements (the "Options") exercisable in accordance with Section 2 of each
of the Options Agreements.
The Company and the Optionee are also party to an Employment Agreement,
dated as of January 5, 1999 (the "Employment Agreement") and this Agreement
is made pursuant to the first sentence in Section 4.3 (d) of the Employment
Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Employment Agreements.
The Optionee wishes to be granted the right to exercise Optionee's Options
that are not yet exercisable in accordance with the schedule set forth in
Section 2 of each of the Option Agreements (the "Unvested Options").
The Company is willing to grant Optionee the right to exercise all Unvested
Options (see Schedule 1 hereto) for a period beginning on the date Employee's
employment with the Company terminates, other than for Cause, upon or after
the expiration of the initial three year Employment Period (the "Retirement
Date") and ending three years thereafter, in consideration for Optionee's
covenants herein.
Optionee understands that all of Optionee's Options that shall not have
been exercised by Optionee within said three-year period shall expire at the
end of said three-year period, regardless of the expiration date otherwise
specified in Section 2 of each of the Option Agreements.
AGREEMENT
In consideration of the mutual covenants and promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
Section 1. Acceleration of Options
-----------------------
The Optionee's Unvested Options are hereby exercisable for the period
beginning on the Retirement Date and ending three years thereafter, at which
time all of Optionee's Options that have not been exercised shall expire.
Section 2. Non-Competition Covenants of the Optionee
-----------------------------------------
The Optionee agrees that, except as otherwise provided in this Section 2,
Optionee will not, without the prior written consent of the Company, for a
period from the Retirement Date until the later of (a) the first anniversary
of the Retirement Date and (b) the period that any of Optionee's Options are
outstanding, in any country in which the Company or any affiliate is engaged
in business on the date hereof, directly or indirectly own, manage, operate,
join, control or participate in the ownership, management, operation or
control of, render services or advice to, or be connected with, as partner,
stockholder, director, officer, agent, employee, consultant or otherwise, any
business, firm or corporation which competes with the Company or any of its
affiliates, except that nothing shall prevent the Optionee from serving as an
outside director or executive officer of any publicly held company, less than
5% of the revenues of which derive from products or services that are
competitive with products or services of the Company, provided that Optionee
shall not be directly involved in the development, manufacture or
distribution of such competitive products or services. The Optionee shall
not be deemed under this Section 2 to be engaged in any business solely by
reason of ownership, as an investment only, of less than two percent of the
outstanding amount of any securities of any corporation regularly traded on a
national stock exchange or over-the-counter.
Section 3. Miscellaneous
-------------
3.1 Rights and Remedies Upon Breach
-------------------------------
If the Optionee breaches, or threatens to commit a breach of, any of the
provisions of Section 2 (the "Covenants"), the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to
the Company under law or in equity.
3.1.1 Specific Performance
--------------------
The right and remedy to have the Covenants specifically enforced by any
court of competent jurisdiction, it being agreed that any breach or
threatened breach of the Covenants would cause irreparable injury to the
Company and that money damages would not provide an adequate remedy to the
Company.
3.2 Severability of Covenants
-------------------------
The Optionee acknowledges and agrees that the Covenants are reasonable and
valid in geographical and temporal scope and in all other respects. If any
court determines that any of the Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the Covenants shall not thereby by
affected and shall be given full effect without regard to the invalid
portions.
3.3 Blue-Penciling
--------------
If any court determines that any of the Covenants, or any part thereof, is
unenforceable because of the duration or geographic scope of such provisions,
such court shall have the power to reduce the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
3.4 Enforceability in Jurisdictions
-------------------------------
The Optionee intends to, and hereby confers jurisdiction to, enforce the
Covenants upon the courts of any jurisdiction within the geographical scope
of such Covenants. If the courts of any one or more of such jurisdiction
hold the Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect the Company's right to the relief provided above
in the courts of any other jurisdiction within the geographical scope of the
Covenants, as to breaches of the Covenants in such other respective
jurisdictions, such Covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
3.5 Entire Agreement
----------------
This Agreement contains the entire agreement among the parties with respect
to the subject matter hereof and supersedes all prior agreements, written or
oral, with respect thereto.
3.6 Waivers and Amendments; Non-Contractual Remedies;
-------------------------------------------------
Preservation of Remedies
------------------------
This Agreement may be amended, superseded, cancelled, terminated, renewed
or extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. The rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any party may otherwise have at
law or in equity.
3.7 Governing Law
-------------
This Agreement shall be governed and construed in accordance with the laws
of the State of Rhode Island applicable to agreements made and to be
performed entirely within such state.
3.8 Binding Effect; Assignment
--------------------------
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and legal representatives. This
Agreement is not assignable except by operation of law or by the Company to
any of its affiliates or successors.
3.9 Counterparts
------------
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
thereto.
3.10 Headings
--------
The headings in this Agreement are for reference only, and shall not affect
the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
OPTIONEE:
------------------------
Herbert M. Baum
HASBRO, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SCHEDULE 1
Unvested Options
1. Stock Option Agreement, dated __________ __, ____, for _______ shares
at the exercise price of __.____ of which _______ are Unvested Options.
2. Stock Option Agreement, dated __________ __, ____, for _______ shares
at the exercise price of __.____ of which _______ are Unvested Options.
Exhibit 10(ss)
March 23, 1999
Mr. Adam Klein
7 Lowell Street
Cambridge, MA 02138
Dear Adam:
In connection with your termination of employment on April 1, 1999
("Termination Date") and subject to the approval of the Compensation and
Stock Option Committee of the Board of Directors, Hasbro, Inc. (the
"Company") will provide you with the benefits described below provided you
timely sign, return and do not revoke this Letter Agreement within the seven
(7) day revocation period.
1. Description of Severance
------------------------
In return for the execution of this Letter Agreement, the Company agrees to
pay you five hundred and twenty thousand dollars and fifty-two cents
($520,000.52), less all applicable state and federal taxes, as severance pay.
The severance pay will be paid to you from April 1, 1999 through March 31,
2000 ("the Severance Period") as follows:
$43,333.16 on April 1, 1999; and
In weekly installments commencing on April 9,1999 and ending on March 31,
2000; each installment in the gross amount of nine thousand one hundred
sixty-six dollars and sixty-eight cents ($9,166.68).
You will not be eligible for payment under the Company's holiday bonus during
the Severance Period. The payments will commence no sooner than April 1, 1999
and the eighth (8th) day after the execution of this Agreement, provided it
has become binding between you and the Company.
2. Benefits Continuation
---------------------
During the Severance Period, the Company further agrees to the following:
(a) Effective as of the termination date, you shall be considered to have
elected to continue receiving group medical and dental insurance pursuant to
the law known as COBRA, 29 U.S.C. section 1161 et. seq. During the Severance
Period, the Company will continue to pay the share of the premiums for such
coverage that is paid by the Company for active and similarly situated
executives who receive the same type of coverage. The remaining balance of
any premium costs, and all premium costs after the Severance Period, shall be
paid by you on a monthly basis for as long as and to the extent that, you
remain eligible for COBRA continuation.
(b) Continuation of your Company provided life insurance.
(c) Use of your Company leased vehicle, cellphone, personal computer and fax
machine provided that you will be responsible for all operating and
maintenance costs (other than automobile insurance and lease payments).
(d) During the first quarter of the year 2000, you shall receive a
management bonus equivalent for 1999. This payment shall be made in
accordance with general Company practice and will be one hundred and seventy
thousand dollars ($170,000.00), less applicable state and federal taxes.
At your election, you may receive either (1) the "Key Employee Service"
outplacement through Right Associates, at any Right Associates location or,
(2) a cash payment of twenty thousand dollars ($20,000.00), less applicable
state and federal taxes. To elect the cash option, you must notify Robert
Carniaux by April 30, 1999. If the cash option is elected, payment will be
made within 10 days of the Company's notification of your election.
In the event you obtain other employment prior to the expiration of the
Severance Period, continuation of all benefits and use of Company equipment
outlined in paragraphs (a), (b) and (c), above, will cease effective on the
date you commence other employment to the extent that such employment affords
you comparable benefits and equipment.
Effective the Termination Date, you will no longer be eligible for, or
participate in, the Company's short-term disability, long-term disability,
pension, 401(K), profit sharing benefits, or any other program not
specifically listed herein. The Company will pay to you within a reasonable
time after the Termination Date, subject to plan's requirements for
processing such account distributions, any amounts owed to you under the 401
(K) and profit sharing plan.
You understand and agree that the payment of benefits hereunder is greater
than, and satisfies, any entitlement or right to benefits, if any, that you
may have under the Hasbro, Inc. Severance Benefits Plan for Salaried
Employees.
3. Stock Options
-------------
Effective as of the Termination Date, all options that would vest pursuant
to your existing stock option agreements with the Company between the
Termination Date and April 23, 2000 shall be deemed to be vested on the
Termination Date and shall be exercisable between the Termination Date and
March 31, 2000.
You agree to refrain from selling any shares of Company stock before the
second business day following the announcement of 1st quarter earnings of
1999.
4. Releases
--------
In exchange for the benefits described in paragraphs 1, 2 and 3 above,
certain of which benefits that you are not otherwise entitled to, you hereby
fully, forever, irrevocably and unconditionally release, remise and discharge
the Company, and any subsidiary or affiliated organization of the Company or
their current or former officers, directors, 5% stockholders, corporate
affiliates, attorneys or employees (the "Released Parties") from any and all
claims, charges, complaints, demands, actions, causes of action, suits,
rights, debts, sums of money, costs, accounts, reckonings, covenants,
contracts, agreements, promises, doings, omissions, damages, executions,
obligations, liabilities and expenses (including attorneys' fees and costs),
of every kind and nature, known or unknown, which you ever had or now have
against the Released Parties including, but not limited to, all claims
arising out of your employment, all claims arising out of your separation
from employment, all claims arising from any failure to reemploy you, all
claims and damages relating to race, sex, national origin, handicap,
religious, sexual orientation, benefits and age discrimination, all
employment discrimination claims under Title VII of the Civil Rights Act of
1964, 42 U.S.C. section 2000 et. seq., the Age Discrimination in Employment
Act, 29 U.S.C. section 621 et. seq., the Employee Retirement Income Security
Act of 1974, 29 U.S.C. section 1001, et. seq., and the Americans with
Disabilities Act, 42 U.S.C. section 12101 et. seq., and similar state or
local statutes including M.G.L. c. 151B, section 1 et. seq., R.I. Fair
Employment Practices Act, R.I., Gen. Laws section 28-5-1, et. seq., all
wrongful discharge claims, common law tort, defamation, breach of contract
and other common law claims and any claims under any other federal, state or
local statutes or ordinances not expressly referenced above.
Notwithstanding the foregoing, in no event shall you be deemed by this
paragraph 4 to have released: (1) any rights or claims you may have for
payments or benefits under this Agreement; and (2) your rights to
indemnification or contribution as provided by law or to protection under the
Company's directors' and officers' liability insurance policies (and in the
event such indemnity or insurance rights shall be enhanced you shall be
entitled to such enhanced rights as they relate to action taken while an
officer or employee of the Company).
The Company hereby fully, forever, irrevocably and unconditionally releases,
remises and discharges you from any and all claims, charges, complaints,
demands, actions, causes of actions, suits, rights, debts, sums of money,
costs, accounts, reckonings, covenants, contracts, agreements, promises,
doings, omissions, damages, executions, obligations, liabilities, and
expenses (including attorneys' fees and costs), of every kind and nature,
known or unknown, which the Company ever had or now has against you, provided
that this release will not extend to any intentional or willful wrongs, any
contractual obligation you have to the Company, any shareholder derivative
suits, and any matter relating to any violation of any statute, regulation or
other public law except to the extent you would otherwise be indemnified by
the Company.
5. Proprietary Information
-----------------------
You acknowledge and reaffirm your representations and obligations as set
forth in the Invention Assignment and Proprietary Information Agreement which
you previously signed in connection with your employment with the Company.
6. Covenant Not To Compete
-----------------------
(a) You agree that you will not, without written consent of the Company, at
any time during which Severance Benefits are payable under this Letter
Agreement, directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, render
services or advice to, or be connected with, as partner, stockholder,
director, officer, agent, employee, consultant or otherwise, any business,
firm or corporation which competes with the Company or any of its
subsidiaries, affiliates or joint ventures in any country in any line of
business in which the Company is engaged with the exception of any business,
firm or corporation which derives less than 5% of its revenues from products
or services that are competitive with products or services of the Company or
any of its subsidiaries, affiliates or joint ventures and provided you are
not directly involved in the development, manufacture or distribution of such
competitive products or services.
(b) You agree that during the period in which Severance Benefits are paid,
you will not interfere with any relationship, contractual or otherwise,
between the Company and any other party, including; without limitation, any
employee, customer, supplier, distributor, lessor or lessee, licensor or
licensee, commercial or investment banker.
7. Legal Expenses
--------------
The Company agrees to pay reasonable and documented legal expenses, up to a
maximum of fifteen thousand dollars ($15,000.00), incurred by you in
connection with drafting this Letter Agreement and related documents.
8. Nature of Agreement
-------------------
You and the Company understand and agree that this Letter Agreement is a
severance and settlement agreement and does not constitute an admission of
liability or wrongdoing on the part of you, the Company, or any other person.
9. Amendment
---------
This Letter Agreement shall be binding upon the parties and may not be
modified in any manner, except by an instrument in writing of concurrent or
subsequent date signed by a duly authorized representative of the parties
hereto. This agreement is binding upon and shall inure to the benefit of the
parties and their respective agents, assigns, estates, heirs, executors,
successors and administrators. No delay or omission by the Company in
exercising any right under this agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company on any one
occasion shall be effective only in that instance and shall not be construed
as a bar or waiver of any right on any other occasion.
10. Validity
--------
Should any provision of this Letter Agreement be declared or be determined
by any court of competent jurisdiction to be illegal or invalid, the validity
of the remaining parts, terms or provisions shall not be affected thereby and
said illegal and invalid part, term or provision shall be deemed not to be a
part of this agreement.
11. Nondisparagement
----------------
You agree to refrain from directly or indirectly interfering in any manner
with the operations or management of the Company and agree to refrain from
making any disparaging remarks about the Company, its subsidiaries, attorneys
and employees. The Company agrees that any employees and attorneys with
knowledge of this Agreement will refrain from making any disparaging remarks
about you. "Disparaging remarks," as defined herein, shall mean publication
made without privilege of a matter that is untrue or induces others not to do
business with or associate with the other party.
12. Entire Agreement and Applicable Law
-----------------------------------
This Letter Agreement contains and constitutes the entire understanding and
agreement between the parties hereto with respect to your severance benefits
and settlement of claims against the Company and cancels all previous oral
and written negotiations, agreements, commitments, and writings in connection
therewith. This agreement shall be governed by the laws of the State of
Rhode Island to the extent not preempted by federal law.
13. Acknowledgments
---------------
You acknowledge that you have been given at least twenty-one (21) days to
consider this Letter Agreement and that you are advised to consult with any
attorney of your own choosing prior to signing this letter. You may revoke
this agreement for a period of seven (7) days after signing this letter, and
the agreement shall not be effective or enforceable until the expiration of
this seven (7) day revocation period.
14. Voluntary Assent
----------------
You affirm that no other promises or agreements of any kind have been made
to or with you by any person or entity whatsoever to cause you to sign this
Letter Agreement, and that you fully understand the meaning and intent of
this agreement. You state and represent that you have had an opportunity to
fully discuss and review the terms of this agreement with an attorney. You
further state and represent that you have carefully read this letter,
understand the contents herein, freely and voluntarily assent to all of the
terms and conditions hereof, and sign your name of your own free act.
If you have any questions about this Letter Agreement, please call Robert
Carniaux, Senior Vice President, Human Resources at (401) 727-5654. If you
are in agreement with the above terms, please sign below.
Very truly yours,
/s/ Harold Gordon
------------------
Harold Gordon
Vice Chairman
Hasbro, Inc.
I hereby agree to the terms and conditions set forth above. I have been
given at least twenty-one (21) days to consider this Letter Agreement and I
have chosen to execute this Letter Agreement on the date below. I intend
that this letter will become a binding agreement between me and the Company
if I do not revoke my acceptance within seven (7) days.
/s/ Adam Klein
------------------
Date: March 23, 1999 Employee Name
--------------
To be returned in the enclosed envelope by April 13, 1999.
EXHIBIT 11
HASBRO, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(Thousands of Dollars and Shares Except Per Share Data)
1998 1997 1996
--------------- --------------- ---------------
Basic Diluted Basic Diluted Basic Diluted
------- ------- ------- ------- ------- -------
Net earnings $206,365 206,365 134,986 134,986 199,912 199,912
Interest and amortization
on convertible notes,
net of taxes - - - 4,782 - 5,757
------- ------- ------- ------- ------- -------
Net earnings applicable
to common shares $206,365 206,365 134,986 139,768 199,912 205,669
======= ======= ======= ======= ======= =======
Weighted average number
of shares outstanding: (a)
Outstanding at
beginning of period 200,162 200,162 193,294 193,294 196,525 196,525
Exercise of stock
options and warrants:
Actual 2,214 2,214 1,368 1,368 753 753
Assumed - 7,493 - 3,835 - 2,723
Conversion of convertible
notes:
Actual - - 2,033 2,033 9 9
Assumed - - - 9,429 - 11,499
Purchase of common stock (4,449) (4,449) (3,606) (3,606) (2,226) (2,226)
------- ------- ------- ------- ------- -------
Equivalent Shares 197,927 205,420 193,089 206,353 195,061 209,283
======= ======= ======= ======= ======= =======
Earnings per share $ 1.04 1.00 .70 .68 1.02 .98
======= ======= ======= ======= ======= =======
(a) Adjusted to reflect the three-for-two stock split declared on
February 19,1999 for payment on March 15,1999.
EXHIBIT 12
HASBRO, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Fiscal Years Ended in December
(Thousands of Dollars)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Earnings available for
fixed charges:
Net earnings $206,365 134,986 199,912 155,571 175,033
Add:
Cumulative effect of
change in accounting
principles - - - - 4,282
Fixed charges 53,209 43,893 47,174 52,422 44,280
Taxes on income 97,113 69,539 106,981 96,979 112,254
------- ------- ------- ------- -------
Total $356,687 248,418 354,067 304,972 335,849
======= ======= ======= ======= =======
Fixed charges:
Interest on long-term
debt $ 9,688 7,348 9,258 9,267 11,179
Other interest charges 26,423 20,138 22,207 28,321 19,610
Amortization of debt
expense 121 377 339 339 429
Rental expense representa-
tive of interest factor 16,977 16,030 15,370 14,495 13,062
------- ------- ------- ------- -------
Total $ 53,209 43,893 47,174 52,422 44,280
======= ======= ======= ======= =======
Ratio of earnings to fixed
charges 6.70 5.66 7.51 5.82 7.58
======= ======= ======= ======= =======
EXHIBIT 13
HASBRO, INC. AND SUBSIDIARIES
Selected Information Contained in
Annual Report to Shareholders
for the Year Ended December 27, 1998
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - -------------------------------------------------------------------------
The Company's Common Stock, Par Value $.50 per share (the "Common Stock"), is
traded on the American and London Stock Exchanges. The following table sets
forth the high and low sales prices as reported on the Composite Tape of the
American Stock Exchange and the cash dividends declared per share of Common
Stock, each as adjusted to reflect the three-for-two stock split declared on
February 19, 1997 and paid on March 15, 1999, for the periods listed.
Sales Prices
---------------- Cash Dividends
Period High Low Declared
- - ------ ---- --- --------------
1997
1st Quarter $19 3/4 16 1/16 $.05
2nd Quarter 19 5/8 15 1/4 .05
3rd Quarter 20 3/4 17 5/8 .05
4th Quarter 24 5/16 17 1/8 .05
1998
1st Quarter $25 3/4 19 7/8 $.05
2nd Quarter 27 1/16 23 1/8 .05
3rd Quarter 27 1/4 19 5/8 .05
4th Quarter 25 7/16 18 5/8 .05
The approximate number of holders of record of the Company's Common Stock as
of February 26, 1998 was 5,000.
Dividends
---------
Declaration of dividends is at the discretion of the Company's Board of
Directors and will depend upon the earnings, financial condition of the
Company and such other factors as the Board of Directors deems appropriate.
Payment of dividends is further subject to restrictions contained in
agreements relating to the Company's outstanding long-term debt. At December
27, 1998, under the most restrictive agreement the full amount of retained
earnings is free of restrictions.
SELECTED FINANCIAL DATA
- - -----------------------
(Thousands of Dollars and Shares Except per share Data and Ratios)
Fiscal Year
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Statement of
Earnings Data:
Net revenues $3,304,454 3,188,559 3,002,370 2,858,210 2,670,262
Net earnings $ 206 365 134,986 199,912 155,571 175,033
Per Common Share
Data: (1)
Earnings
Basic $ 1.04 .70 1.02 .79 .89
Diluted $ 1.00 .68 .98 .77 .85
Cash dividends
declared $ .21 .21 .18 .14 .12
Balance Sheet Data:
Total assets $3,793,845 2 899 717 2,701,509 2,616,388 2,378,375
Long-term debt $ 407,180 - 149,382 149,991 150,000
Ratio of Earnings to
Fixed Charges(2) 6.70 5.66 7.51 5.82 7.58
Weighted Average
Number of Common
Shares: (1)
Basic 197,927 193.089 195,061 197,272 197,554
Diluted 205,420 206,353 209,283 210,075 212,051
(1) Adjusted to reflect the three-for-two stock split declared on
February 19, 1999 and paid on March 15, 1999.
(2) For purposes of calculating the ratio of earnings to fixed charges,
fixed charges include interest, amortization of debt expense and
one-third of rentals, and earnings available for fixed charges
represent earnings before fixed charges and income taxes.
MANAGEMENT'S REVIEW
- - -------------------
Summary
- - -------
A percentage analysis of results of operations follows:
1998 1997 1996
---- ---- ----
Net revenues 100.0% 100.0% 100.0%
Cost of sales 41.3 42.6 44.3
----- ----- -----
Gross profit 58.7 57.4 55.7
Amortization 2.2 1.7 1.3
Royalties, research and development 12.9 12.1 10.6
Advertising 13.3 12.9 13.9
Selling, distribution and administration 19.8 19.4 18.8
Acquired in-process research and development
and restructuring charge .6 3.9 -
Interest expense 1.1 .9 1.1
Other (income) expense, net (.4) .1 (.2)
----- ----- -----
Earnings before income taxes 9.2 6.4 10.2
Income taxes 2.9 2.2 3.5
----- ----- -----
Net earnings 6.3% 4.2% 6.7%
===== ===== =====
(Thousands of Dollars Except Share Data)
Results of Operations
- - ---------------------
Net revenues for 1998 were $3,304,454 compared to $3,188,559 and $3,002,370
for 1997 and 1996, respectively. This approximate 4% increase in revenues
over 1997 levels was net of an approximate $26,000 unfavorable impact of
foreign currency translation rates. Revenue growth during the year was led by
products from the Tiger line, including Furby, the year's most sought-after
toy, the Hasbro Interactive line of CD-ROM interactive games, hand-held
electronic games marketed under the Milton Bradley and Parker Brothers
brands, and water toys from Larami. Within the Company's more traditional
product lines, revenues from boys' toys, creative play and games and puzzles
were all lower, reflecting both the lack of a major motion picture release
related to the Company's products and the changes in inventory management
policies at Toys `R Us. The preschool line, reflecting the strength of the
Teletubbies products, and girls' lines achieved moderate revenue growth.
The Company's gross profit margin increased to 58.7% from 57.4% in 1997,
which had been negatively impacted by 0.5% due to the Company's global
integration and profit enhancement program, and 55.7% in 1996. The
improvement from the adjusted 1997 margin of 57.9% is attributable to a lower
cost structure resulting from the removal of excess capacity, the increased
level of sales of interactive products which have a higher gross margin and
overall favorable material prices. This improvement in the 1998 gross margin
was moderated by the unanticipated shortfall in business with Toys `R Us
which resulted in lower than anticipated factory utilization.
Amortization expense of $72,208, which includes amortization of both property
rights and cost in excess of net assets acquired, compares with $53,767 in
1997 and $40,064 in 1996. The increases in all years were attributable to the
acquisitions made during the respective years. As a result of acquisitions
made during 1998, 1999 amortization expense will exceed that of 1998.
Expenditures for royalties, research and development increased to $424,673
from $386,912 in 1997 and $319,494 in 1996. Included in these amounts are
expenditures for research and development of $184,962 in 1998, $154,710 in
1997 and $152,487 in 1996. As percentages of net revenues, research and
development was 5.6% in 1998, up from 4.9% in 1997, which had decreased from
5.1% in 1996. The 1998 increase reflects the expenditures of the Company's
1998 acquisitions as well as the continuing investment to grow Hasbro
Interactive. While royalties increased in dollars during 1998, they remained
constant as a percentage of net revenues. The increased percentage in 1997,
when compared with 1996, was primarily attributable to the higher proportion
of the Company's revenues arising from licensed products as well as the
higher rates generally paid on such items. Royalty expense during 1999 is
expected to increase in both amount and as a percentage of net revenues due
to the expected higher percentage of the Company's products arising from
licensed product carrying higher royalty rates.
Advertising expenses, at 13.3% of net revenues, increased four-tenths of a
point from the 1997 level of 12.9% which had decreased a full point from
13.9% in 1996. The increase in 1998 and the decrease in 1997 both reflect the
mix of more non-entertainment based product in 1998, in the absence of
support from a major motion picture release.
During 1998, selling, distribution and administration costs increased by
approximately 6% to $655,938, or 19.8% of revenues, from the $617,140, or
19.4%, in 1997 and $563,645, or 18.8%, in 1996. In addition to normal
inflationary trends, both the 1998 and 1997 increases reflect the impact of
the Company's acquisitions and new operations in those years. Also adversely
impacting the 1998 rate was the unanticipated reduction in revenues resulting
from the changes in inventory management policies at Toys `R Us.
During the third quarter of 1998, the Company incurred a one-time charge to
write off the $20,000 appraised value of acquired in-process research and
development of MicroProse, Inc. (MicroProse), which was acquired for
approximately $70,000 on September 14, 1998.
Late in the fourth quarter of 1997, Hasbro announced a global integration and
profit enhancement program which anticipated the redundancy of approximately
2,500 employees, principally in manufacturing, and provided for actions in
three principal areas: a continued consolidation of the Company's
manufacturing operations; the streamlining of marketing and sales, while
exiting from certain underperforming markets and product lines; and the
further leveraging of overheads. Of the $140,000 estimated costs related to
these actions, $125,000 was reported as a nonrecurring charge and $15,000 was
reflected in cost of sales. Of the nonrecurring amount, approximately $54,000
related to severance and people costs, $52,000 to property, plant and
equipment and leases and $19,000 to product line related costs. During 1998
the employment of all employees planned for redundancy was terminated. The
approximate $63,000 accrual remaining at December 27, 1998, is principally
attributable to severance costs, which will be disbursed over the employee's
entitlement period, and costs associated with lease terminations and the
closing of certain facilities. In the balance sheet, such property, plant and
equipment is included as a component of other assets. With the exception of
the ultimate disposition of certain facilities closed as a result of this
program, the program has been substantially completed. The Company had
initially estimated its pretax cost savings from this initiative to be
$40,000 in 1998 and $350,000 over the period 1998 through 2002. Because of
the unanticipated shortfall in sales to Toys 'R Us during the current year
and changes in product mix, factory utilization rates were not as high as
initially anticipated, which resulted in below target savings during 1998.
During 1998, the Company estimates that it has realized pretax savings of
approximately $30,000. The positive cash flow impact from this program has
and will occur largely in the form of reduced outflows for payment of costs
associated with the manufacture and sourcing of products.
Interest expense was $36,111 in 1998 compared to $27,486 during 1997 and
$31,465 during 1996. The increase during the current year largely reflects
the costs associated with funding the approximate $670,000 of acquisitions
during the year as well as the Company's stock repurchase program, both
partially offset by the availability of funds generated during 1997. The
decrease in 1997 reflected the impact of lower interest rates and the
availability of funds generated from operations during 1996. Due to
additional debt incurred during 1998, interest expense in 1999 is expected to
increase.
Other income of $14,707 in 1998 compares with expense of $3,097 and income of
$6,091 in 1997 and 1996, respectively. The change between 1998 and 1997
primarily reflects the larger benefits to Hasbro from its consolidated and
unconsolidated operations in which it either is, or has, a minority partner,
increased interest income and a decrease in foreign currency transactional
losses. The change between 1997 and 1996 reflects an increase in foreign
currency transactional losses and larger amounts attributable to Hasbro's
minority partners in various units.
Income tax expense as a percentage of pretax earnings in 1998 decreased to
32.0% from 34.0% and 34.9% in 1997 and 1996, respectively. The lower 1998
rate reflects the impact of the acquisitions made during the year and, in all
years, the implementation of various tax strategies and the downward trend of
the tax on international earnings due to the continued reorganization of the
Company's global business.
Liquidity and Capital Resources
- - -------------------------------
The Company continued to have a strong and liquid balance sheet with cash and
cash equivalents of $177,748 at December 27, 1998. Cash and cash equivalents
were $361,785 and $218,971 at December 28, 1997 and December 29, 1996,
respectively.
Hasbro generated approximately $127,000 of net cash from its operating
activities in 1998, compared with approximately $544,000 in 1997 and $280,000
in 1996. The significant change between the 1998 and 1997 amounts results
from a combination of factors. During 1998, $267,231 was utilized by changes
in operating assets and liabilities. With the $170,723 increase in fourth
quarter revenues, most of which, under Hasbro's normal trading terms, became
due after the end of the Company's fiscal year, accounts receivable
increased. Inventories also increased, in part reflecting acquisitions made
during the year, as did prepaid expenses and other current assets, largely
reflecting higher advance royalty payments. Partially offsetting these
utilizations of funds was a small increase in accounts payable and other
accrued liabilities. During 1997, $273,344 was provided by changes in
operating assets and liabilities. Contributing to this were reductions in
accounts receivable, inventories and prepaid expenses and other current
assets and an increase in trade payables and accrued liabilities, reflecting
the unpaid portion of the costs associated with the Company's global
integration and profit enhancement program. During 1996, changes in operating
assets and liabilities utilized approximately $50,000 with receivables,
prepaid expenses and other current assets and trade payables and accrued
liabilities all contributing to this utilization. Receivable growth reflected
the $83,000 increase in fourth quarter sales, partially offset by a non-
recourse sale of certain receivables. The utilization of funds through
prepaid expenses and other current assets and accounts payable and accrued
liabilities was largely attributable to timing differences on certain
payments. Partially offsetting these utilizations was approximately $43,000
provided through the reduction of inventory levels in 1996.
Cash flows from investing activities were a net utilization of $792,700,
$269,277 and $127,286 in 1998, 1997 and 1996, respectively. During 1998, the
Company expended approximately $142,000 on additions to its property, plant
and equipment while during each of 1997 and 1996 it expended approximately
$100,000. Of these amounts, 38% in 1998, 51% in 1997 and 57% in 1996 were for
purchases of tools, dies and molds related to the Company's products. The
1998 additions also include the expenditures associated with the
consolidation of its Spanish manufacturing operation within one facility.
During the three years, depreciation and amortization of plant and equipment
was $96,991, $112,817 and $98,201, respectively.
Hasbro made three major acquisitions during 1998, having an aggregate
purchase price of $669,737. On April 1, it acquired substantially all of the
business and operating assets of Tiger Electronics, Inc. and certain
affiliates (Tiger). On September 14, 1998, it acquired the outstanding shares
of MicroProse through a cash tender offer of $6.00 for each outstanding share
of MicroProse. On October 30, 1998, it acquired the outstanding shares of
Galoob Toys, Inc. (Galoob) through a cash tender offer of $12.00 for each
outstanding share of Galoob. During 1997, Hasbro acquired certain assets of
OddzOn Products, Inc. and Cap Toys, Inc., wholly owned subsidiaries of Russ
Berrie and Company, Inc., for $167,379. In 1996, the Company made several
small acquisitions and investments, none of which was significant.
As part of the traditional marketing strategies of the toy industry, many
sales made early in the year are not due for payment until the fourth quarter
or early in the first quarter of the subsequent year, thus making it
necessary for the Company to borrow significant amounts pending these
collections. During the year, the Company borrowed through the issuance of
commercial paper and short-term lines of credit to fund its seasonal working
capital requirements in excess of funds available from operations and the
issuance of long-term debt. During 1999, the Company expects to fund these
needs in a similar manner and believes that the funds available to it are
adequate to meet its needs. At February 28, 1999, the Company's unused
committed and uncommitted lines of credit, including revolving credit
agreements for $350,000 (long-term) and $150,000 (short-term), were in excess
of $1,000,000.
During 1998, net financing activities provided approximately $490,000,
principally through the issuance of $100,000 of 5.60% notes due November 1,
2005, $150,000 of 6.15% notes due July 15, 2008 and $150,000 of 6.60%
debentures due July 15, 2028. In 1997 and 1996, net financing activities
utilized approximately $125,000 and $95,000, respectively, of Hasbro's funds.
During the year, the Company also invested approximately $180,000 to
repurchase its common stock in the open market, which compares with
approximately $135,000 and $84,000 repurchased in 1997 and 1996,
respectively.
During October 1997, the Company called its 6% Convertible Subordinated Notes
Due 1998 for redemption. Substantially all of these notes were converted into
approximately 11.4 million shares (adjusted to reflect the three-for-two
stock split discussed below) of Hasbro common stock.
On December 9, 1997, the Board of Directors canceled all prior share
repurchase authorizations and authorized the purchase of up to an additional
$500,000 of the Company's common stock. At December 27, 1998, $309,540
remained under this authorization. The Company anticipates that it will
continue to repurchase its shares in the future, when it deems conditions to
be favorable, and will fund such purchases from working capital or available
lines of credit. The shares acquired under these programs are being used for
corporate purposes including issuance upon the exercise of stock options.
Financial Risk Management
- - -------------------------
The Company is exposed to market risks attributable to fluctuations in
foreign currency exchange rates primarily as a result of sourcing products in
five currencies while marketing those products in more than thirty
currencies. Results of operations will be affected primarily by changes in
the value of the U.S. dollar, Hong Kong dollar, British pound, French franc,
Mexican peso, Irish punt and Spanish peseta versus other currencies,
principally in Europe and the United States.
To manage this exposure, as of December 27, 1998, Hasbro has hedged a
considerable portion of its estimated 1999 foreign currency transactions
through the purchase of forward foreign exchange contracts. The Company
estimates that a hypothetical immediate 10% unfavorable movement in the
currencies involved could result in an approximate $5.7 million decrease in
the fair value of these instruments. The Company is also exposed to foreign
currency risk with respect to its net cash and cash equivalents or short-term
borrowing positions in other than the U.S. dollar. Hasbro believes, however,
that the risk on this net exposure would not be material to its financial
condition. In addition, the Company's revenues and costs have been and will
likely continue to be affected by changes in foreign currency rates. Other
than set forth above, the Company does not hedge, nor does it speculate, in
foreign currencies.
At December 27, 1998, the Company had fixed rate debt of $407,180. Interest
rate changes affect the fair value of this fixed rate debt but do not impact
earnings or cash flows. The Company estimates that a hypothetical one
percentage point decrease or increase in interest rates would increase or
decrease the fair value of this debt by approximately $38,000 or $33,000,
respectively.
The Economy and Inflation
- - -------------------------
The Company continued to experience difficult economic environments in some
parts of the world during 1998. The principal market for the Company's
products is the retail sector where certain customers have experienced
economic difficulty. The Company closely monitors the creditworthiness of its
customers and adjusts credit policies and limits as it deems appropriate.
The effect of inflation on the Company's operations during 1998 was not
significant and the Company will continue its policy of monitoring costs and
adjusting prices accordingly.
Year 2000
- - ---------
The Company has developed plans that address its possible exposure from the
impact of the Year 2000. This project is being managed by a global cross-
functional team of employees. The team meets regularly and makes periodic
reports on its progress to a management steering committee, the Audit
Committee of the Board of Directors and the Board of Directors.
The Company has completed the awareness and assessment phases of this project
through the inventorying and assessment of its critical financial,
operational (including imbedded and non-information technology) and
information systems. The renovation phase is now well underway, as a number
of non-compliant systems have been modified or replaced and plans are in
place for the required modifications or replacements of other non-compliant
systems. A planned global 'enterprise' system became operational at several
of the Company's major units during 1998 and replaced a number of older non-
compliant systems. As the global roll-out of this enterprise system
continues, additional Year 2000 compliance will occur. The Company is now in
the validation and implementation phases and believes that approximately 85%
of its mission critical systems are currently Year 2000 compliant and
virtually all will be by mid-1999. Excluding costs related to the enterprise
system, the Company's out of pocket costs associated with becoming Year 2000
compliant are estimated to approximate $3,000. These costs are being expensed
as incurred and approximately half of this amount has been spent to date.
The Company is also well into the process of reviewing the Year 2000
readiness of its customers, vendors and service providers. This review
process includes both the obtaining of confirmation from these business
partners of their readiness as well as reviews of such readiness by
independent third party consultants. While this review process is ongoing,
nothing has come to the attention of the Company that would lead it to
believe that its material customers, vendors and service providers will not
be Year 2000 ready.
The Company's risk management program includes disaster recovery contingency
plans that will be expanded by mid-year 1999 to include Year 2000 issues and
may include, for example, the maintaining and development of back-up systems
and procedures, early identification and selection of alternative Year 2000
ready suppliers and service providers, revisions to credit policies and
possible temporary increases in levels of inventories.
Year 2000 readiness has been a senior management priority of the Company for
some time and the Company believes that it is taking such reasonable and
prudent steps as are necessary to mitigate its risks related to Year 2000.
However, the effect, if any, on the Company's results of operations from Year
2000 if it, its customers, vendors or service providers are not fully Year
2000 compliant cannot be reasonably estimated. Notwithstanding the above, the
most likely impact on the Company would be a reduced level of activity in the
early part of the first quarter of the year 2000, a time at which, as a
result of the seasonality of the Company's business, its activities in sales,
manufacturing and sourcing, are at their low.
Certain statements contained in this discussion contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are inherently subject to known
and unknown risks and uncertainties. The Company's actual actions or results
may differ materially from those expected or anticipated in the forward-
looking statements. Specific factors that might cause such a difference
include, but are not limited to, delays in, or increases in the anticipated
cost of, the implementation of planned actions as a result of unanticipated
technical malfunctions or difficulties which would arise during the
validation process or otherwise; the inherent risk that assurances,
warranties, and specifications provided by third parties with respect to the
Company's systems, or such third party's Year 2000 readiness, may prove to be
inaccurate, despite the Company's review process; the continued availability
of qualified persons to carry out the remaining anticipated phases; the risk
that governments may not be Year 2000 ready, which could affect the
commercial sector in trade, finance and other areas, notwithstanding private
sector Year 2000 readiness; whether, despite a comprehensive review, the
Company has successfully identified all Year 2000 issues and risks; and the
risk that proposed actions and contingency plans of the Company and third
parties with respect to Year 2000 issues may conflict or themselves give rise
to additional issues.
Other Information
- - -----------------
The Company's revenue pattern continues to show the second half of the year
more significant to its overall business and within that half, the fourth
quarter most prominent. The Company believes that this will continue in 1999.
The Company is not aware of any material amounts of potential exposure
relating to environmental matters and does not believe its compliance costs
or liabilities to be material to its operating results or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), which the Company is required to adopt not
later than the beginning of fiscal 2000. SFAS 133 will require that the
Company record all derivatives, such as foreign exchange contracts, on the
balance sheet at fair value. Changes in derivative fair values will either
be recognized in earnings as an offset to the changes in the fair value of
the related hedged assets, liabilities and firm commitments or, for
forecasted transactions, deferred and recorded as a component of other
shareholders' equity until the hedged transactions occur and are recognized
in earnings. Any portion of a hedging derivative's change in fair value
which does not offset the change in fair value of the underlying exposure
will be immediately recognized in earnings. The Company does not believe
adoption of SFAS 133 will have a material impact on either the Company's
financial condition or its results of operations.
On February 19, 1999, the Company announced both a three-for-two stock split
and a quarterly dividend of $.06 per share, which represents a 13% increase
from that previously in effect. The stock split, in the form of a 50% stock
dividend, was paid on March 15, 1999 to shareholders of record on March 1,
1999, and the dividend is payable on May 17, 1999 to shareholders of record
on May 3, 1999.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - -------------------------------------------
See attached pages.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Hasbro, Inc.:
We have audited the accompanying consolidated balance sheets of
Hasbro, Inc. and subsidiaries as of December 27, 1998 and December 28, 1997
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the fiscal years in the three-year period ended
December 27, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Hasbro, Inc. and subsidiaries as of December 27, 1998 and December 28, 1997
and the results of their operations and their cash flows for each of the
fiscal years in the three-year period ended December 27, 1998 in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
February 3, 1999
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 27, 1998 and December 28, 1997
(Thousands of Dollars Except Share Data)
<CAPTION>
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 177,748 361,785
Accounts receivable, less allowance for
doubtful accounts of $64,400 in 1998
and $51,700 in 1997 958,826 783,008
Inventories 334,801 242,702
Prepaid expenses and other current assets 318,611 186,379
--------- ---------
Total current assets 1,789,986 1,573,874
Property, plant and equipment, net 330,355 280,603
--------- ---------
Other assets
Cost in excess of acquired net assets, less
accumulated amortization of $152,008 in 1998
and $128,237 in 1997 704,282 486,502
Other intangibles, less accumulated amortization
of $192,268 in 1998 and $135,467 in 1997 837,899 478,798
Other 131,323 79,940
--------- ---------
Total other assets 1,673,504 1,045,240
--------- ---------
Total assets $3,793,845 2,899,717
========= =========
</TABLE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 27, 1998 and December 28, 1997
(Thousands of Dollars Except Share Data)
<CAPTION>
Liabilities and Shareholders' Equity 1998 1997
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities
Short-term borrowings $ 372,249 122,024
Trade payables 209,119 179,156
Accrued liabilities 729,605 596,033
Income taxes 55,327 106,333
--------- ---------
Total current liabilities 1,366,300 1,003,546
Long-term debt 407,180 -
Deferred liabilities 75,570 58,054
--------- ---------
Total liabilities 1,849,050 1,061,600
--------- ---------
Shareholders' equity
Preference stock of $2.50 par value.
Authorized 5,000,000 shares; none issued - -
Common stock of $.50 par value. Authorized
300,000,000 shares; issued 209,698,516 shares
in 1998 and 139,799,011 shares in 1997 104,849 69,900
Additional paid-in capital 521,316 489,447
Retained earnings 1,621,799 1,457,495
Accumulated other comprehensive earnings (9,625) (3,903)
Treasury stock, at cost, 13,523,983 shares in
1998 and 6,357,948 shares in 1997 (293,544) (174,822)
--------- ---------
Total shareholders' equity 1,944,795 1,838,117
--------- ---------
Total liabilities and shareholders' equity $3,793,845 2,899,717
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Fiscal Years Ended in December
(Thousands of Dollars Except Share Data)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net revenues $3,304,454 3,188,559 3,002,370
Cost of sales 1,366,061 1,359,058 1,328,897
--------- --------- ---------
Gross profit 1,938,393 1,829,501 1,673,473
--------- --------- ---------
Expenses
Amortization 72,208 53,767 40,064
Royalties, research and development 424,673 386,912 319,494
Advertising 440,692 411,574 418,003
Selling, distribution and administration 655,938 617,140 563,645
Acquired in-process research and
development 20,000 - -
Restructuring charge - 125,000 -
--------- --------- ---------
Total expenses 1,613,511 1,594,393 1,341,206
--------- --------- ---------
Operating profit 324,882 235,108 332,267
--------- --------- ---------
Nonoperating (income) expense
Interest expense 36,111 27,486 31,465
Other (income) expense, net (14,707) 3,097 (6,091)
--------- --------- ---------
Total nonoperating expense 21,404 30,583 25,374
--------- --------- ---------
Earnings before income taxes 303,478 204,525 306,893
Income taxes 97,113 69,539 106,981
--------- --------- ---------
Net earnings $ 206,365 134,986 199,912
========= ========= =========
Per common share
Net earnings
Basic $ 1.04 .70 1.02
========= ========= =========
Diluted $ 1.00 .68 .98
========= ========= =========
Cash dividends declared $ .21 .21 .18
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended in December
(Thousands of Dollars)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $206,365 134,986 199,912
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization of plant
and equipment 96,991 112,817 98,201
Other amortization 72,208 53,767 40,064
Deferred income taxes 1,679 (40,555) (8,120)
Acquired in-process research and
development 20,000 - -
Change in operating assets and liabilities
(other than cash and cash equivalents):
(Increase) decrease in accounts
receivable (126,842) 11,920 (22,418)
(Increase) decrease in inventories (44,606) 40,739 42,959
(Increase) decrease in prepaid expenses
and other current assets (113,451) 20,326 (37,036)
Increase (decrease) in trade payables
and other current liabilities 17,668 200,359 (35,852)
Other (3,425) 9,482 2,283
------- ------- -------
Net cash provided by operating
activities 126,587 543,841 279,993
------- ------- -------
Cash flows from investing activities
Additions to property, plant and
equipment (141,950) (99,356) (101,946)
Investments and acquisitions, net of
cash acquired (667,736) (172,116) (33,027)
Other 16,986 2,195 7,687
------- ------- -------
Net cash utilized by investing
activities (792,700) (269,277) (127,286)
------- ------- -------
</TABLE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Fiscal Years Ended in December
(Thousands of Dollars)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from borrowings with original
maturities of more than three months 407,377 295,132 265,017
Repayments of borrowings with original
maturities of more than three months (24,925) (304,927) (255,636)
Net proceeds (payments) of other
short-term borrowings 271,895 21,599 (6,116)
Purchase of common stock (178,917) (134,880) (83,657)
Stock option and warrant transactions 58,493 37,258 17,745
Dividends paid (42,277) (39,694) (32,959)
------- ------- -------
Net cash provided (utilized) by
financing activities 491,646 (125,512) (95,606)
------- ------- -------
Effect of exchange rate changes on cash (9,570) (6,238) 840
------- ------- -------
(Decrease) increase in cash
and cash equivalents (184,037) 142,814 57,941
Cash and cash equivalents at beginning
of year 361,785 218,971 161,030
------- ------- -------
Cash and cash equivalents at end
of year $177,748 361,785 218,971
======= ======= =======
Supplemental information
Cash paid during the year for
Interest $ 25,135 23,480 29,430
======= ======= =======
Income taxes $128,436 135,446 92,670
======= ======= =======
Non-cash financing activities
6% Convertible Subordinated Notes Due
1998, converted into common stock $ - 149,354 609
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Thousands of Dollars)
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Shareholders'
Stock Capital Earnings Earnings Stock Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 44,043 279,288 1,198,937 25,755 (22,411) 1,525,612
Net earnings - - 199,912 - - 199,912
Other comprehensive earnings - - - (5,762) - (5,762)
Comprehensive earnings 194,150
Three-for-two stock split 22,027 (22,027) - - - -
Purchase of treasury stock - - - - (83,657) (83,657)
Stock option and warrant
transactions - 25,063 - - 24,834 49,897
Dividends declared - - (34,559) - - (34,559)
Other 10 598 (5) - - 603
--------- --------- --------- --------- --------- ---------
Balance, December 29, 1996 66,080 282,922 1,364,285 19,993 (81,234) 1,652,046
Net earnings - - 134,986 - - 134,986
Other comprehensive earnings - - - (23,896) - (23,896)
Comprehensive earnings 111,090
Purchase of treasury stock - - - - (134,880) (134,880)
Stock option and warrant
transactions - 57,378 - - 41,287 98,665
Dividends declared - - (41,783) - - (41,783)
Conversion of 6% debt 3,820 149,264 - - - 153,084
Other - (117) 7 - 5 (105)
--------- --------- --------- --------- --------- ---------
Balance, December 28, 1997 $ 69,900 489,447 1,457,495 (3,903) (174,822) 1,838,117
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity, continued
(Thousands of Dollars)
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Shareholders'
Stock Capital Earnings Earnings Stock Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 28, 1997 $ 69,900 489,447 1,457,495 (3,903) (174,822) 1,838,117
Net earnings - - 206,365 - - 206,365
Other comprehensive earnings - - - (5,722) - (5,722)
Comprehensive earnings 200,643
Three-for-two stock split 34,949 (34,949) - - - -
Purchase of treasury stock - - - - (178,917) (178,917)
Stock option and warrant
transactions - 66,818 - - 60,195 127,013
Dividends declared - - (42,061) - - (42,061)
--------- --------- --------- --------- --------- ---------
Balance, December 27, 1998 $ 104,849 521,316 1,621,799 (9,625) (293,544) 1,944,795
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements
</TABLE>
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Thousands of Dollars Except Share Data)
(1) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Hasbro,
Inc. and all significant majority-owned subsidiaries (Hasbro or the
Company). Investments in affiliates representing 20% to 50% ownership
interest are accounted for using the equity method. All significant
intercompany balances and transactions have been eliminated.
Preparation of Financial Statements
-----------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and notes thereto. Actual results could differ from those estimates.
Fiscal Year
-----------
Hasbro's fiscal year ends on the last Sunday in December. Each of the
reported three fiscal years are fifty-two week periods.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include all cash balances and highly liquid
investments purchased with a maturity to the Company of three months or
less.
Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Long-Lived Assets
-----------------
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying value may not be
recoverable. Recoverability is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be
generated by the asset.
Cost in Excess of Net Assets Acquired and Other Intangibles
-----------------------------------------------------------
Approximately 53% of Hasbro's goodwill results from the 1984 acquisition
of Milton Bradley Company (Milton Bradley), including its Playskool and
international units, and the 1991 acquisition of Tonka Corporation
(Tonka), including its Kenner, Parker Brothers and international units.
An additional approximate 35% results from the Company's 1998
acquisitions of Tiger Electronics, Inc., MicroProse, Inc. and Galoob
Toys, Inc. Goodwill is being amortized on the straight-line basis over
lives ranging from ten to forty years.
Substantially all of the other intangibles consist of the cost of
acquired product rights. In establishing the value of such rights, the
Company considers, but does not individually value, existing copyrights,
trademarks, patents, license agreements and other product-related
rights. Approximately 48% of these other intangibles relate to rights
acquired in the acquisitions noted above. These rights, which were
valued at their acquisition date based on the anticipated future cash
flows from the underlying product lines, are being amortized over five
to twenty-five years using the straight-line method. An additional
approximate 15% of these other intangibles relate to rights acquired
from a major motion picture studio and are being amortized over the
contract life, in proportion to projected sales of the licensed products
during the same period.
Depreciation and Amortization
-----------------------------
Depreciation and amortization are computed using accelerated and
straight-line methods to amortize the cost of property, plant and
equipment over their estimated useful lives. The principal lives, in
years, used in determining depreciation rates of various assets are:
land improvements 15 to 19, buildings and improvements 15 to 25 and
machinery and equipment 3 to 12.
Tools, dies and molds are amortized over a three year period or their
useful lives, whichever is less, using an accelerated method.
Research and Development
------------------------
Research and product development costs for 1998, 1997 and 1996 were
$184,962, $154,710 and $152,487, respectively.
Advertising
-----------
Production costs of commercials and programming are charged to
operations in the fiscal year during which the production is first
aired. The costs of other advertising, promotion and marketing programs
are charged to operations in the fiscal year incurred.
Income Taxes
------------
Hasbro uses the asset and liability approach for financial accounting
and reporting for income taxes. Deferred income taxes have not been
provided on undistributed earnings of international subsidiaries as
substantially all of such earnings are indefinitely reinvested by the
Company.
Foreign Currency Translation
----------------------------
Foreign currency assets and liabilities are translated into dollars at
current rates, and revenues, costs and expenses are translated at
average rates during each reporting period. Current earnings include
gains or losses resulting from foreign currency transactions as well as
translation gains and losses resulting from the use of the U.S. dollar
as the functional currency in highly inflationary economies. Other gains
and losses resulting from translation of financial statements are the
principal component of other comprehensive earnings.
Pension Plans, Postretirement and Postemployment Benefits
---------------------------------------------------------
Hasbro, except for certain international subsidiaries, has pension plans
covering substantially all of its full-time employees. Pension expense
is based on actuarial computations of current and future benefits. The
Company's policy is to fund amounts which are required by applicable
regulations and which are tax deductible. The estimated amounts of
future payments to be made under other retirement programs are being
accrued currently over the period of active employment and are also
included in pension expense.
Hasbro has a contributory postretirement health and life insurance plan
covering substantially all employees who retire under any of its United
States defined benefit pension plans and meet certain age and length of
service requirements. It also has several plans covering certain groups
of employees which may provide benefits to such employees following
their period of employment but prior to their retirement.
Risk Management Contracts
-------------------------
Hasbro does not enter into derivative financial instruments for
speculative purposes. The Company enters into foreign currency forward
and option contracts to mitigate its exposure to foreign currency
exchange rate fluctuations. This exposure relates to future purchases of
inventory not denominated in the functional currency of the unit
purchasing the inventory as well as other cross-border currency
requirements. Premiums on option contracts are amortized over their term
and if such contract is terminated before its maturity, the unamortized
premium is expensed and included in other expense, net. The carrying
value of options is included in prepaid expenses and other current
assets. Gains and losses on forward and option contracts meeting hedge
accounting requirements are deferred and recognized as adjustments to
the carrying value of the related transactions. In the event hedge
accounting requirements are not met, gains and losses on such
instruments are included currently in the statements of earnings.
Earnings Per Common Share
-------------------------
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding for the year. Diluted
earnings per share is similar except that the weighted average number of
shares outstanding is increased by shares issuable upon exercise of
stock options and warrants for which market price exceeds exercise
price, less shares which could have been purchased by the Company with
the related proceeds.
A reconciliation of earnings per share for the three fiscal years ended
December 27, 1998 is as follows:
1998 1997 1996
--------------- --------------- ---------------
Basic Diluted Basic Diluted Basic Diluted
------- ------- ------- ------- ------- -------
Net earnings $206,365 206,365 134,986 134,986 199,912 199,912
Effect of dilutive
securities:
6% Convertible
Notes due 1998 - - - 4,782 - 5,757
------- ------- ------- ------- ------- -------
Adjusted net
earnings $206,365 206,365 134,986 139,768 199,912 205,669
======= ======= ======= ======= ======= =======
Average shares
outstanding (in
thousands) 197,927 197,927 193,089 193,089 195,061 195,061
Effect of dilutive
securities:
6% Convertible
Notes due 1998 - - - 9,428 - 11,499
Options and
warrants - 7,493 - 3,836 - 2,723
------- ------- ------- ------- ------- -------
Equivalent shares 197,927 205,420 193,089 206,353 195,061 209,283
======= ======= ======= ======= ======= =======
Earnings per share $ 1.04 1.00 .70 .68 1.02 .98
======= ======= ======= ======= ======= =======
(2) Acquisitions
------------
On May 2, 1997, Hasbro purchased certain assets of OddzOn Products,
Inc., and Cap Toys, Inc. (OddzOn), wholly owned subsidiaries of Russ
Berrie and Company, Inc., for a purchase price of $167,379. This
acquisition was accounted for using the purchase method and, based on
estimates of fair market value, $43,582 has been allocated to net
tangible assets, $76,700 to product rights and $47,097 to goodwill.
Hasbro made three major acquisitions during 1998, having an aggregate
purchase price of $669,737. On April 1, it acquired substantially all of
the business and operating assets of Tiger Electronics, Inc. and certain
affiliates (Tiger). On September 14, 1998, it acquired MicroProse, Inc.
(MicroProse) through a cash tender offer of $6.00 for each outstanding
share of MicroProse. Upon completion of a short-form merger, MicroProse
became a wholly owned subsidiary of the Company and each untendered
share was converted into the right to receive $6.00 in cash. On October
30, 1998, it acquired Galoob Toys, Inc. (Galoob) through a cash tender
offer of $12.00 for each outstanding share of Galoob. Upon completion of
a short-form merger, Galoob became a wholly owned subsidiary of the
Company and each untendered share was converted into the right to
receive $12.00 in cash.
These three acquisitions were accounted for using the purchase method,
and accordingly, the net assets acquired have been recorded at their
fair value and the results of their operations included from the dates
of acquisition. Based on estimates of fair market value, $90,494 has
been allocated to net tangible assets, $306,710 to product rights,
$252,533 to goodwill and $20,000 to acquired in-process research and
development. The appraised fair value of this acquired in-process
research and development (interactive game software projects under
development at the date of acquisition) was determined using the
discounted cash flow approach, considered the percentage of completion
at the date of acquisition and was expensed at acquisition.
On a pro forma basis, reflecting these three acquisitions as if they had
taken place at the beginning of each period and after giving effect to
adjustments recording the acquisitions, and excluding the charge for in-
process research and development, unaudited net revenues, net earnings
and basic and diluted earnings per share for the year ended December 27,
1998 would have been $3,530,807, $171,866, $.87 and $.84, respectively,
and for the year ended December 28, 1997 would have been $3,904,061,
$65,189, $.34 and $.34, respectively. These pro forma results are not
indicative of either future performance or actual results which would
have occurred had the acquisitions taken place at the beginning of the
respective periods.
(3) Inventories
-----------
1998 1997
---- ----
Finished products $283,160 198,215
Work in process 12,698 12,208
Raw materials 38,943 32,279
------- -------
$334,801 242,702
======= =======
(4) Property, Plant and Equipment
-----------------------------
1998 1997
---- ----
Land and improvements $ 14,748 13,297
Buildings and improvements 197,295 181,362
Machinery and equipment 295,810 265,313
------- -------
507,853 459,972
Less accumulated depreciation 227,820 219,106
------- -------
280,033 240,866
Tools, dies and molds, net of
amortization 50,322 39,737
------- -------
$330,355 280,603
======= =======
Expenditures for maintenance and repairs which do not materially extend
the life of the assets are charged to operations.
(5) Short-Term Borrowings
---------------------
Hasbro has available unsecured committed and uncommitted lines of credit
from various banks approximating $500,000 and $750,000, respectively.
Substantially all of the short-term borrowings outstanding at the end of
1998 and 1997 represent borrowings made under, or supported by, these
lines of credit and the weighted average interest rates of the
outstanding borrowings were 6.0% and 6.3%, respectively. Hasbro's
working capital needs were fulfilled by borrowing under these lines of
credit and through the issuance of commercial paper, both of which were
on terms and at interest rates generally extended to companies of
comparable creditworthiness. The committed line includes $350,000 and
$150,000 available under long-term and short-term revolving credit
agreements, respectively. These agreements contain certain restrictive
covenants with which the Company is in compliance. Compensating balances
and facility fees were not material.
(6) Accrued Liabilities
-------------------
1998 1997
---- ----
Royalties $116,603 95,418
Advertising 172,621 112,299
Payroll and management incentives 54,622 44,014
1997 restructuring accruals 62,996 120,099
Other 322,763 224,203
------- -------
$729,605 596,033
======= =======
(7) Long-Term Debt
--------------
1998 1997
---- ----
5.60% Notes Due 2005 $100,000 -
6.15% Notes Due 2008 150,000 -
6.60% Debentures Due 2028 150,000 -
Other 7,180 -
------- -------
$407,180 -
======= =======
Current installments of $260 in 1998 are aggregated with short-term
borrowings. The maturities of long-term debt in 2000 and in the succeeding
three years are $296, $310, $324 and $339.
(8) Income Taxes
------------
Income taxes attributable to earnings before income taxes are:
1998 1997 1996
---- ---- ----
Current
United States $ 40,256 62,042 58,580
State and local 5,226 8,296 9,033
International 49,952 39,756 47,488
------- ------- -------
95,434 110,094 115,101
------- ------- -------
Deferred
United States (6,458) (31,533) 4,309
State and local (554) (2,793) 406
International 8,691 (6,229) (12,835)
------- ------- -------
1,679 (40,555) (8,120)
------- ------- -------
$ 97,113 69,539 106,981
======= ======= =======
Certain tax benefits are not reflected in income taxes in the statements
of earnings. Such benefits of $14,377 in 1998, $4,036 in 1997 and $6,793
in 1996, relate primarily to stock options.
A reconciliation of the statutory United States federal income tax rate
to Hasbro's effective income tax rate is as follows:
1998 1997 1996
---- ---- ----
Statutory income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net 1.0 1.7 2.0
Goodwill amortization 1.8 2.4 1.6
Tax on international earnings (5.4) (4.9) (2.2)
Reduction of valuation allowance - - (1.1)
Other, net (.4) (.2) (.4)
---- ---- ----
32.0% 34.0% 34.9%
==== ==== ====
The components of earnings before income taxes, determined by tax
jurisdiction, are as follows:
1998 1997 1996
---- ---- ----
United States $123,969 157,987 208,864
International 179,509 46,538 98,029
------- ------- -------
$303,478 204,525 306,893
======= ======= =======
The components of deferred income tax expense arise from various
temporary differences and relate to items included in the statements of
earnings.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 27, 1998
and December 28, 1997 are:
1998 1997
---- ----
Deferred tax assets:
Accounts receivable $ 27,556 24,497
Inventories 14,718 12,576
Net operating loss carryovers 31,608 22,821
Operating expenses 44,491 45,503
Postretirement benefits 12,269 12,343
Other 74,955 53,689
------- -------
Gross deferred tax assets 205,597 171,429
Valuation allowance (13,261) (8,649)
------- -------
Net deferred tax assets 192,336 162,780
------- -------
Deferred tax liabilities 46,174 49,060
------- -------
Net deferred income taxes $146,162 113,720
======= =======
Hasbro has a valuation allowance for deferred tax assets at December 27,
1998 of $13,261, which is an increase of $4,612 from the $8,649 at
December 28, 1997. The allowance pertains to United States and
international operating loss carryforwards, some of which have no
expiration and others that would expire beginning in 2001. If fully
realized, $8,760 will reduce goodwill and the balance will reduce future
income tax expense. Deferred tax liabilities relate primarily to
property rights.
Based on Hasbro's history of taxable income and the anticipation of
sufficient taxable income in years when the temporary differences are
expected to become tax deductions, it believes that it will realize the
benefit of the deferred tax assets, net of the existing valuation
allowance.
Deferred income taxes of $100,332 and $96,489 at the end of 1998 and
1997, respectively, are included as a component of prepaid expenses and
other current assets, and $53,331 and $21,541, respectively, are
included as a component of other assets. At the same dates, deferred
income taxes of $7,010 and $1,553, respectively, are included as a
component of deferred liabilities.
The cumulative amount of undistributed earnings of Hasbro's
international subsidiaries held for reinvestment is approximately
$282,000 at December 27, 1998. In the event that all international
undistributed earnings were remitted to the United States, the amount of
incremental taxes would be approximately $39,000.
(9) Capital Stock
-------------
Preference Share Purchase Rights
--------------------------------
Hasbro maintains a Preference Share Purchase Rights plan (the Rights
Plan). Under the terms of the Rights Plan, each share of common stock is
accompanied by a Preference Share Purchase Right. Each Right is only
exercisable under certain circumstances and, until exercisable, the
Rights are not transferable apart from Hasbro's common stock. When
exercisable, each Right will entitle its holder to purchase until June
30, 1999, in certain merger or other business combination or
recapitalization transactions, at the Right's then current exercise
price, a number of the acquiring company's or Hasbro's, as the case may
be, common shares having a market value at that time of twice the
Right's exercise price. Under certain circumstances, the rightholder
may, at the option of the Board of Directors of Hasbro (the Board),
receive shares of Hasbro's stock in exchange for Rights.
Prior to the acquisition by the person or group of beneficial ownership
of a certain percentage of Hasbro's common stock, the Rights are
redeemable for $.00296 per Right. The Rights Plan contains certain
exceptions with respect to the Hassenfeld family and related entities.
Common Stock
------------
On December 9, 1997, the Board canceled all prior share repurchase
authorizations and authorized the purchase of up to an additional
$500,000 of the Company's common stock. At December 27, 1998, $309,540
remained under this authorization.
On February 19, 1999, the Board declared a three-for-two stock split,
payable in the form of a 50% stock dividend, on March 15, 1999 to
shareholders of record on March 1, 1999. Appropriate changes to reflect
the split have been effected in the stock options and warrants. Except
for balance sheet presentation of the December 28, 1997 outstanding and
treasury shares, all share and per share amounts have been adjusted to
reflect this split.
(10) Stock Options and Warrants
--------------------------
Hasbro has various stock option plans for employees as well as a plan
for non-employee members of the Board (collectively, the plans) and has
reserved 25,351,914 shares of its common stock for issuance upon
exercise of options granted or to be granted under the plans. These
options generally vest in equal annual amounts over three to five years.
The plans provide that options be granted at exercise prices not less
than market value on the date the option is granted and options are
adjusted for such changes as stock splits and stock dividends. No
options are exercisable for periods of more than ten years after date of
grant. Although certain of the plans permit the granting of awards in
the form of stock options, stock appreciation rights, stock awards and
cash awards, to date, only stock options have been granted.
As permitted by Statement of Financial Accounting Standards No. 123
(SFAS 123), Hasbro continues to apply Accounting Principles Board
Opinion No. 25 (APB 25) in accounting for the plans under which no
compensation cost is recognized. Had compensation expense been recorded
under the provisions of SFAS 123, the impact on the Company's net
earnings and earnings per share would have been:
1998 1997 1996
---- ---- ----
Reported net earnings $206,365 134,986 199,912
Pro forma compensation expense,
net of tax (10,339) (5,880) (3,001)
------- ------- -------
Pro forma net earnings $196,026 129,106 196,911
======= ======= =======
Pro forma earnings per share
Basic $ .99 .67 1.01
Diluted $ .95 .65 .97
======= ======= =======
The weighted average fair value of options granted in 1998, 1997 and
1996 were $8.66, $5.76 and $4.62, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions
used for grants in 1998, 1997 and 1996, respectively: risk-free interest
rates of 5.70%, 6.20% and 5.51%; expected dividend yields of 0.85%,
1.12% and 1.13% and expected volatility of approximately 26% in 1998 and
21% in 1997 and 1996, and lives of approximately 6 years.
Additionally, the Company has reserved 22,500,000 shares of its common
stock for issuance upon exercise of outstanding warrants. During 1998,
warrants to purchase 6,000,000 shares at an exercise price of $23.3333
per share were issued in connection with the acquisition of certain
rights. The fair value of these warrants was $11.42 each on the date of
grant.
Information with respect to options and warrants, in thousands of
shares, for the three years ended December 27, 1998 is as follows:
1998 1997 1996
---- ---- ----
Number of shares:
Outstanding at beginning of year 31,424 20,452 13,315
Granted 8,639 14,191 9,508
Exercised (3,468) (2,651) (1,854)
Expired or canceled (234) (568) (517)
------ ------ ------
Outstanding at end of year 36,361 31,424 20,452
====== ====== ======
Exercisable at end of year 11,673 11,090 9,878
====== ====== ======
Weighted average exercise price:
Granted $ 23.86 18.77 14.50
Exercised $ 13.34 12.30 9.65
Expired or canceled $ 18.75 15.80 14.78
Outstanding at end of year $ 18.17 16.08 13.71
Exercisable at end of year $ 14.43 13.46 12.88
====== ====== ======
Information, in thousands of shares, with respect to the 36,361
options and warrants outstanding and the 11,673 exercisable at December
27, 1998, is as follows:
Weighted
Average Weighted
Remaining Average
Range of Contractual Exercise
Exercise Prices Shares Life Price
--------------- ------- ---------- -------
Outstanding
$ 4.56-$13.86 2,024 4.1 years $10.61
$14.00-$17.68 12,250 4.6 years $14.72
$18.67-$20.06 13,478 9.7 years $18.80
$23.04-$29.72 8,609 10.7 years $23.86
====== =====
Exercisable
$ 4.56-$13.86 2,024 $10.61
$14.00-$17.68 8,648 $14.78
$18.67-$20.06 988 $19.06
$23.04-$29.72 13 $24.88
====== =====
(11) Pension, Postretirement and Postemployment Benefits
---------------------------------------------------
Pension and Postretirement Benefits
-----------------------------------
Hasbro's net pension and profit sharing cost for 1998, 1997 and 1996 was
approximately $12,900, $13,400 and $15,700, respectively.
United States Plans
-------------------
Substantially all United States employees are covered under at least one
of several non-contributory defined benefit pension plans maintained by
the Company. Benefits under the two major plans, principally covering
non-union employees, are based primarily on salary and years of service.
One of these plans is funded. Benefits under the remaining plans are
based primarily on fixed amounts for specified years of service. One of
these plans is also funded. At December 27, 1998, the two funded plans
have plan assets of $219,410 and accumulated benefit obligations of
$149,907. The unfunded plans have accumulated benefit obligations of
$15,740.
Hasbro also provides certain postretirement health care and life
insurance benefits to eligible employees who retire and have either
attained age 65 with 5 years of service or age 55 with 10 years of
service. The cost of providing these benefits on behalf of employees who
retired prior to 1993 is and will continue to be substantially borne by
the Company. The cost of providing benefits on behalf of employees who
retire after 1992 is shared, with the employee contributing an
increasing percentage of the cost, resulting in an employee-paid plan
after the year 2002. The plan is not funded.
Pension Postretirement
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
Change in projected benefit
---------------------------
obligation
----------
Projected benefit obligation
at beginning of year $184,589 147,349 $ 28,885 24,562
Service cost 9,362 8,022 224 205
Interest cost 12,798 11,451 1,893 2,039
Plan amendments - 1,062 - -
Actuarial (gain) loss 6,468 21,989 (271) 3,799
Benefits paid (5,539) (4,744) (2,303) (1,720)
Expenses paid (615) (540) - -
------- ------- ------- -------
Projected benefit obligation
at end of year $207,063 184,589 $ 28,428 28,885
======= ======= ======= =======
Change in plan assets
---------------------
Fair value of plan assets at
beginning of year $196,634 162,641 $ - -
Actual return on plan assets 28,522 37,987 - -
Employer contribution 408 1,290 - -
Benefits paid (5,539) (4,744) - -
Expenses paid (615) (540) - -
------- ------- ------- -------
Fair value of plan assets at
end of year $219,410 196,634 $ - -
======= ======= ======= =======
Funded status $ 12,347 12,045 $(28,428) (28,885)
Unrecognized net (gain) loss (39,402) (36,435) 2,885 3,212
Unrecognized prior service cost 9,268 10,443 - -
------- ------- ------- -------
Accrued benefit cost $(17,787) (13,947) $(25,543) (25,673)
======= ======= ======= =======
The assets of the funded plans are managed by investment advisors and
consist primarily of pooled indexed and actively managed bond and stock
funds. For measuring the expected pension accumulated benefit
obligation, assumed discount rates of 6.75%, 7.00% and 7.75% were used
for 1998, 1997 and 1996, respectively; assumed long-term rates of
compensation increase of 4.50% in 1998 and 5.00% in 1997 and 1996, and
an assumed long-term rate of return on plan assets of 9.00% in all
years.
For measuring the expected postretirement benefit obligation, a 7.50%,
8.00% and 8.60% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1998, 1997 and 1996,
respectively. The 1998 rate was further assumed to decrease gradually to
4.50% in 2012, while the 1997 and 1996 rates were assumed to decrease to
5.00% over this same period. All were assumed to remain constant after
2012. The discount rates used in the pension calculation were also used
for the postretirement calculation.
1998 1997 1996
---- ---- ----
Components of net periodic cost
-------------------------------
Pension
-------
Service cost $ 9,362 8,022 8,583
Interest cost 12,798 11,451 9,869
Expected return on assets (17,465) (14,517) (11,633)
Net amortization and deferrals (448) (465) 168
------- ------- -------
Net periodic benefit cost $ 4,247 4,491 6,987
======= ======= =======
Postretirement
--------------
Service cost $ 224 205 289
Interest cost 1,893 2,039 1,727
Net amortization and deferrals 57 22 -
------- ------- -------
Net periodic benefit cost $ 2,174 2,266 2,016
======= ======= =======
If the health care cost trend rate were increased one percentage point
in each year, the accumulated postretirement benefit obligation at
December 28, 1998 and the aggregate of the benefits earned during the
period and the interest cost would have each increased by approximately
10%.
Hasbro also has a profit sharing plan covering substantially all of its
United States non-union employees. The plan provides for an annual
discretionary contribution by the Company which for 1998, 1997 and 1996
was approximately $5,000, $5,100 and $5,000, respectively.
International Plans
-------------------
Pension coverage for employees of Hasbro's international subsidiaries is
provided, to the extent deemed appropriate, through separate defined
benefit and defined contribution plans. These plans were neither
significant individually nor in the aggregate.
Postemployment Benefits
-----------------------
Hasbro has several plans covering certain groups of employees which may
provide benefits to such employees following their period of active
employment but prior to their retirement. These plans include certain
severance plans which provide benefits to employees involuntarily
terminated and certain plans which continue the Company's health and
life insurance contributions for employees who have left Hasbro's employ
under terms of its long-term disability plan.
(12) Leases
------
Hasbro occupies certain manufacturing facilities and sales offices and
uses certain equipment under various operating lease arrangements. The
rent expense under such arrangements, net of sublease income which is
not material, for 1998, 1997 and 1996 amounted to $50,932, $48,090 and
$46,092, respectively.
Minimum rentals, net of minimum sublease income which is not material,
under long-term operating leases for the five years subsequent to 1998
and in the aggregate are as follows:
1999 $ 38,163
2000 29,251
2001 22,941
2002 17,954
2003 15,523
Later years 89,486
-------
$213,318
=======
All leases expire prior to 2014. Real estate taxes, insurance and
maintenance expenses are generally obligations of the Company. It is
expected that in the normal course of business, leases that expire will
be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than
the amounts shown for 1998.
In addition, Hasbro leases certain facilities which, as a result of
restructurings, are no longer in use. Future costs relating to such
facilities were included as a component of the restructuring charge and
are not included in the table above.
(13) Restructuring Charge
--------------------
Late in the fourth quarter of 1997, the Company announced a global
integration and profit enhancement program which anticipated the
redundancy of approximately 2,500 employees, principally in
manufacturing, and provided for actions in three principal areas: a
continued consolidation of the Company's manufacturing operations; the
streamlining of marketing and sales, while exiting from certain
underperforming markets and product lines; and the further leveraging of
overheads. Of the $140,000 estimated costs related to these actions,
$125,000 was reported as a nonrecurring charge and $15,000 was reflected
in cost of sales. Of the nonrecurring amount approximately $54,000
related to severance and people costs, $52,000 to property, plant and
equipment and leases and $19,000 to product line related costs. During
1998, the employment of all employees planned for redundancy was
terminated. The approximate $63,000 accrual remaining at December 27,
1998, is principally attributable to severance costs, which will be
disbursed over the employee's entitlement period, and costs associated
with lease terminations and closing of certain facilities. In the
balance sheet, such property, plant and equipment is included as a
component of other assets. With the exception of the ultimate
disposition of certain facilities closed as a result of this program,
the program has been substantially completed.
(14) Financial Instruments
---------------------
Hasbro's financial instruments include cash and cash equivalents,
accounts receivable, short- and long-term borrowings, accounts payable
and accrued liabilities. At December 27, 1998, the carrying cost of
these instruments approximated their fair value. Its financial
instruments also include foreign currency forwards and options. At
December 27, 1998, the carrying value of these instruments approximated
their fair value based on quoted or publicly available market
information.
Hasbro uses foreign currency forwards and options, generally purchased
for terms of not more than twelve months, to protect itself from adverse
currency rate fluctuations on firmly committed and anticipated foreign
currency transactions. These over-the-counter contracts, which hedge
future purchases of inventory and other cross-border currency
requirements, are primarily denominated in United States and Hong Kong
dollars and Irish punts and entered into with counterparties who are
major financial institutions with which Hasbro also has other financial
relationships. The Company believes any risk related to default by a
counterparty to be remote.
The Company had the equivalent of approximately $130,000 and $35,000 of
foreign currency forwards outstanding at December 27, 1998 and December
28, 1997, respectively, and approximately $135,000 of foreign currency
options outstanding at December 28, 1997. Gains and losses deferred
under hedge accounting provisions are subsequently included in the
measurement of the related foreign currency transaction. Gains and
losses on contracts not meeting hedge accounting provisions are included
currently in earnings. The aggregate amount of gains and losses
resulting from all foreign currency transactions was not material.
(15) Commitments and Contingencies
-----------------------------
Hasbro had unused open letters of credit of approximately $20,000 and
$15,000 at December 27, 1998 and December 28, 1997, respectively.
The Company routinely enters into license agreements with inventors,
designers and others for the use of intellectual properties in its
products. Certain of these agreements contain provisions for the payment
of guaranteed or minimum royalty amounts. Under terms of currently
existing agreements, in certain circumstances the Company may become
liable for guaranteed minimum royalties of up to $660,000 between 1998
and 2007. Of this amount, in excess of $110,000 has been paid and is
included in the $145,066 of prepaid royalties which are a component of
prepaid expenses and other current assets on the balance sheet. Of the
remaining amount, Hasbro may be required to pay approximately $250,000,
$120,000 and $120,000 in 1999, 2002 and 2005, respectively. Such
payments are related to royalties which are expected to be incurred on
anticipated revenues in the years 1999 through 2007.
Hasbro is party to certain legal proceedings, substantially involving
routine litigation incidental to the Company's business, none of which,
individually or in the aggregate, is deemed to be material to the
financial condition of the Company.
(16) Segment Reporting
-----------------
Segment and Geographic Information
----------------------------------
Effective at year end 1998, Hasbro adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of
an Enterprise and Related Information. Prior period amounts have been
reclassified to conform to the requirements of SFAS 131.
Hasbro and its subsidiaries operate in one segment, the marketing,
licensing, development, manufacture and sourcing of toy and game
products on a global basis. Accounting policies for management reporting
are those described in the summary of significant accounting policies.
Information as to Hasbro's operations in different geographical areas is
presented below on the basis the Company uses to manage its business.
Net revenues and the related pretax earnings are categorized based on
location of the customer, while long-lived assets (property, plant and
equipment, cost in excess of acquired net assets and other intangibles)
are categorized based on their location:
1998 1997 1996
---- ---- ----
Net revenues
United States $2,113,057 1,947,824 1,777,579
International 1,191,397 1,240,735 1,224,791
--------- --------- ---------
$3,304,454 3,188,559 3,002,370
========= ========= ========
Pretax Earnings
United States $ 194,050 117,436 156,391
International 109,428 87,089 150,502
--------- --------- ---------
$ 303,478 204,525 306,893
========= ========= =========
Long-lived assets
United States $1,694,967 1,119,836 986,344
International 177,569 126,067 152,655
--------- --------- ---------
$1,872,536 1,245,903 1,138,999
========= ========= =========
Principal international markets include Western Europe, Canada, Mexico,
Australia, New Zealand and Hong Kong.
Other Information
-----------------
Hasbro markets its products primarily to customers in the retail sector.
Although the Company closely monitors the creditworthiness of its
customers, adjusting credit policies and limits as deemed appropriate, a
substantial portion of its customers' ability to discharge amounts owed
is dependent upon the overall retail economic environment.
Sales to the Company's two largest customers, Wal-Mart Stores, Inc. and
Toys `R Us, Inc., amounted to 18% and 17%, respectively, of consolidated
net revenues during 1998, 15% and 22%, respectively, during 1997 and 13%
and 22%, respectively, during 1996.
Hasbro purchases certain components and accessories used in its
manufacturing process and certain finished products from manufacturers
in the Far East. The Company's reliance on external sources of
manufacturing can be shifted, over a period of time, to alternative
sources of supply for products it sells, should such changes be
necessary. However, if Hasbro were prevented from obtaining products
from a substantial number of its current Far East suppliers due to
political, labor or other factors beyond its control, the Company's
operations would be disrupted while alternative sources of product were
secured. The imposition of trade sanctions by the United States or the
European Union against a class of products imported by Hasbro from, or
the loss of "most favored nation" trading status by, the Peoples
Republic of China could significantly increase the cost of the Company's
products imported into the United States or Europe from China.
(17) Quarterly Financial Data (Unaudited)
------------------------------------
1998
----
Quarter
-------------------------------------
First Second Third Fourth Full Year
----- ------ ----- ------ ---------
Net revenues $482,820 572,057 945,498 1,304,079 3,304,454
Gross profit $278,508 324,962 543,129 791,794 1,938,393
Earnings before
income taxes $ 11,808 8,262 89,601(a) 193,807 303,478
Net earnings $ 7,793 5,453 61,330 131,789 206,365
======= ======= ======= ========= =========
Per common share
Earnings
Basic $ .04 .03 .31 .67 1.04
Diluted $ .04 .03 .30 .65 1.00
Market price
High $ 25 3/4 27 1/16 27 1/4 25 7/16 27 1/4
Low $ 19 7/8 23 1/8 19 5/8 18 5/8 18 5/8
Cash dividends
declared $ .05 .05 .05 .05 .21
======= ======= ======= ========= =========
1997
----
Quarter
-----------------------------------
First Second Third Fourth Full Year
----- ------ ----- ------ ---------
Net revenues $555,784 583,886 915,533 1,133,356 3,188,559
Gross profit $320,413 330,969 512,506 665,613 1,829,501
Earnings before
income taxes $ 40,147 20,283 115,441 28,654(a) 204,525
Net earnings $ 25,694 12,981 77,400 18,911 134,986
======= ======= ======= ========= =========
Per common share
Earnings
Basic $ .13 .07 .41 .10 .70
Diluted $ .13 .07 .38 .09 .68
Market price
High $ 19 3/4 19 5/8 20 3/4 24 5/16 24 5/16
Low $ 16 1/16 15 1/4 17 5/8 17 1/8 15 1/4
Cash dividends
declared $ .05 .05 .05 .05 .21
======= ======= ======= ========= =========
1996
----
Quarter
-----------------------------------
First Second Third Fourth Full Year
----- ------ ----- ------ ---------
Net revenues $538,685 511,609 845,148 1,106,928 3,002,370
Gross profit $300,914 277,425 472,875 622,259 1,673,473
Earnings before
income taxes $ 39,109 9,143 104,934 153,707 306,893
Net earnings $ 24,365 5,986 70,469 99,092 199,912
======= ======= ======= ========= =========
Per common share
Earnings
Basic $ .12 .03 .36 .51 1.02
Diluted $ .12 .03 .35 .48 .98
Market price
High $ 20 7/8 17 3/16 17 19 9/16 20 7/8
Low $ 12 13/16 15 11/16 14 1/8 16 7/16 12 13/16
Cash dividends
declared $ .04 .04 .04 .04 .18
======= ======= ======= ========= =========
(a) In 1998, includes the expense impact of $20,000 relating to
acquired in-process research and development and, in 1997, $125,000
relating to restructuring of operations.
EXHIBIT 22
HASBRO, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant (a)
Name Under Which Subsidiary State or Other Jurisdiction of
Does Business Incorporation or Organization
- - --------------------------- ------------------------------
Galoob Toys, Inc. Delaware
Hasbro Australia Limited Australia
Hasbro Interactive, Inc. Delaware
Hasbro Interactive GmbH Germany
Hasbro Interactive SNC France
Leisuresoft Vertriebs GmbH Germany
MicroProse California, Inc. California
MicroProse Software, Inc. Maryland
Hasbro International, Inc. Delaware
Hasbro Canada, Inc. Canada
Hasbro de Mexico S.A. de C.V. Mexico
Hasbro Far East LTD Hong Kong
Tiger Electronics Far East, Limited Hong Kong
Hasbro France S.A. France
Hasbro Deutschland GmbH Germany
Tiger Electronics S.A.R.L. France
Hasbro Ireland Limited Ireland
Hasbro Italy S.r.l. Italy
Hasbro Latin America Inc. Delaware
Hasbro Argentina S.A. Argentina
Hasbro Chile LTDA Chile
Hasbro Latin America, L.P. Delaware
Hasbro Peru S.A. Peru
Hasbro New Zealand Limited New Zealand
Hasbro S.A. Switzerland
Hasbro Asia-Pacific Marketing Ltd. Hong Kong
Tiger Electronics Far East Services, Limited Hong Kong
Hasbro (Schweiz) AG Switzerland
Hasbro U.K. Limited United Kingdom
Hasbro Interactive Limited United Kingdom
Tiger Electronics UK Limited United Kingdom
MB International B.V. The Netherlands
Hasbro B.V. The Netherlands
Hasbro Hellas S.A. Greece
Hasbro Importacao e Exportacao
e de Jogos e Brinquedos Lds Portugal
Hasbro Magyarorszag Kft Hungary
Hasbro Osterreich Ges.m.b.H Austria
Hasbro Poland SpZoo Poland
Hasbro Toys & Games Holdings, S.L. Spain
MB Espana, S.A. Spain
S.A. Hasbro N.V. Belgium
Juguetrenes S.A. de C.V. Mexico
Palmyra Holdings Pte Ltd. Singapore
Hasbro Hong Kong Limited Hong Kong
Hasbro Singapore Pte Ltd. Singapore
Hasbro Toy (Malaysia) Sdn Bhd Malaysia
Hasbro Managerial Services, Inc. Rhode Island
Larami Limited Delaware
OddzOn, Inc. Delaware
Sonic Bites L.L.C. (dba Sound Bites L.L.C.) Delaware
Tiger Electronics, Ltd. Delaware
(a) Inactive subsidiaries and subsidiaries with minimal operations have
been omitted. Such subsidiaries, if taken as a whole, would not
constitute a significant subsidiary.
EXHIBIT 24(a)
ACCOUNTANTS' CONSENT
The Board of Directors
Hasbro, Inc.:
We consent to incorporation by reference in the Registration Statements Nos.
2-78018, 2-93483, 33-57344, 33-59583 and 333-38159 on Form S-8 and Nos. 33-
41548 and 333-44101 on Form S-3 of Hasbro, Inc. of our reports dated February
3, 1999 relating to the consolidated balance sheets of Hasbro, Inc. and
subsidiaries as of December 27, 1998 and December 28, 1997 and the related
consolidated statements of earnings, shareholders' equity and cash flows and
related schedule for each of the fiscal years in the three-year period ended
December 27, 1998, which report on the consolidated financial statements is
incorporated by reference and which report on the related schedule is
included in the Annual Report on Form 10-K of Hasbro, Inc. for the fiscal
year ended December 27, 1998.
/s/ KPMG LLP
Providence, Rhode Island
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> DEC-27-1998
<CASH> 177,748
<SECURITIES> 0
<RECEIVABLES> 1,023,226
<ALLOWANCES> 64,400
<INVENTORY> 334,801
<CURRENT-ASSETS> 1,789,986
<PP&E> 558,175
<DEPRECIATION> 227,820
<TOTAL-ASSETS> 3,793,845
<CURRENT-LIABILITIES> 1,366,300
<BONDS> 400,000
0
0
<COMMON> 104,849
<OTHER-SE> 1,839,946
<TOTAL-LIABILITY-AND-EQUITY> 3,793,845
<SALES> 3,304,454
<TOTAL-REVENUES> 3,304,454
<CGS> 1,366,061
<TOTAL-COSTS> 1,366,061
<OTHER-EXPENSES> 957,573
<LOSS-PROVISION> 13,057
<INTEREST-EXPENSE> 36,111
<INCOME-PRETAX> 303,478
<INCOME-TAX> 97,113
<INCOME-CONTINUING> 206,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,365
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