<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[x] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
HASBRO, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
HASBRO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
TIME:
10:00 a.m. local time
DATE:
Wednesday, May 12, 1999
PLACE:
The 200 Fifth Avenue Club
200 Fifth Avenue
New York, NY 10010
PURPOSE:
- Elect five directors to terms expiring in 2002 and one director to a term
expiring in 2001.
- Act on a proposal to approve the 1999 Senior Management Annual
Performance Plan.
- Transact such other business as may properly come before the meeting and
any adjournment or postponement of the meeting.
OTHER IMPORTANT INFORMATION:
- Hasbro's Board recommends that you vote your shares "FOR" each of the
nominees and "FOR" approval of the Plan.
- Shareholders of record of Hasbro common stock at the close of business on
March 19, 1999 may vote at the meeting.
- You are cordially invited to attend the meeting to vote your shares in
person. If you are not able to do so, you may vote by Internet, by
telephone or by mail. See the enclosed proxy card and proxy statement for
specific instructions. PLEASE VOTE YOUR SHARES.
By Order of the Board of Directors
Phillip H. Waldoks
Secretary
Dated: March 31, 1999
<PAGE> 3
HASBRO, INC.
1027 NEWPORT AVENUE
PAWTUCKET, RHODE ISLAND 02862
------------------------
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
------------------------
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
Q: WHY AM I RECEIVING THESE MATERIALS?
A: The Board of Directors (the "Board") of Hasbro, Inc. (sometimes referred to
as the "Company" or "Hasbro") is sending these proxy materials to you on or
about March 31, 1999 in connection with Hasbro's annual meeting of shareholders
which will take place on May 12, 1999 at The 200 Fifth Avenue Club, 200 Fifth
Avenue, New York, New York 10010. The information included in this proxy
statement relates to the proposals to be voted on at the meeting, the voting
process, the compensation of directors and our most highly paid officers, and
certain other required information. Our 1998 Annual Report is also enclosed.
Q: WHAT PROPOSALS WILL BE VOTED ON AT THE MEETING?
A: There are two proposals scheduled to be voted on at the meeting:
- The election of directors
- The approval of the 1999 Senior Management Annual Performance Plan (the
"Plan")
Q: WHAT SHARES OWNED BY ME CAN BE VOTED?
A: All shares owned by you as of March 19, 1999, the Record Date, may be voted
by you. These shares include those (1) held directly in your name as the
shareholder of record, including shares purchased through Hasbro's Dividend
Reinvestment and Cash Stock Purchase Program and (2) held for you as the
beneficial owner through a stockbroker, bank or other nominee.
Q: WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD AND
AS A BENEFICIAL OWNER?
A: Most Hasbro shareholders hold their shares through a stockbroker, bank or
other nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned
beneficially.
SHAREHOLDER OF RECORD
If your shares are registered directly in your name with Hasbro's Transfer
Agent, BankBoston, N.A., c/o Equiserve Limited Partnership, you are considered,
with respect to those shares, the shareholder of record, and these proxy
materials are being sent directly to you by Hasbro. As the shareholder of
record, you have the right to grant your voting proxy directly to Hasbro or to
vote in person at the meeting. Hasbro has enclosed a proxy card for you to use.
BENEFICIAL OWNER
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the beneficial owner of shares held in street name
and the proxy materials are being sent to you by your broker or nominee who is
considered, with respect to those shares, the shareholder of record. As the
beneficial owner, you have the right to direct your broker on how to vote and
are also invited to attend the meeting. However, since you are not the
shareholder of record, you may not vote these shares in person at the meeting
unless you receive a proxy from your broker or nominee. Your broker or nominee
has enclosed a voting instruction card for you to use.
Q: HOW CAN I VOTE MY SHARES IN PERSON AT THE MEETING?
A: Shares held directly in your name as the shareholder of record may be voted
in person at the annual meeting. If you choose to do so, please bring the
enclosed proxy card or proof of identification. Shares beneficially owned may be
voted by you if you receive and present at the meeting a proxy from your broker
or
2
<PAGE> 4
nominee. Even if you plan to attend the annual meeting, we recommend that you
also submit your proxy as described below so that your vote will be counted if
you later decide not to attend the meeting.
Q: HOW CAN I VOTE MY SHARES WITHOUT ATTENDING THE MEETING?
A: Whether you hold shares directly as the shareholder of record or
beneficially in street name, you may direct your vote without attending the
meeting. You may vote by granting a proxy or, for shares held in street name, by
submitting voting instructions to your broker or nominee. In most instances, you
will be able to do this over the Internet, by telephone or by mail. Please refer
to the summary instructions below and those included on your proxy card or, for
shares held in street name, the voting instruction card included by your broker
or nominee.
BY INTERNET -- If you have Internet access, you may submit your proxy from any
location in the world by following the "Vote by Internet" instructions on the
proxy card.
BY TELEPHONE -- You may submit your proxy by following the "Vote by Telephone"
instructions on the proxy card.
BY MAIL -- You may do this by marking, dating and signing your proxy card or,
for shares held in street name, the voting instruction card included by your
broker or nominee and mailing it in the enclosed, postage prepaid and addressed
envelope. No postage is required if mailed in the United States.
Q: HOW ARE VOTES COUNTED?
A: Each share of common stock, par value $.50 per share (the "Common Stock"),
entitles its holder to one vote on all matters to come before the meeting,
including the election of directors. In the election of directors, you may vote
"FOR" all of the nominees or your vote may be "WITHHELD" with respect to one or
more of the nominees. For the other proposal, you may vote "FOR", "AGAINST" or
"ABSTAIN". If you "ABSTAIN", it has the same effect as a vote "AGAINST". If you
sign your proxy card or broker voting instruction card with no instructions,
your shares will be voted in accordance with the recommendations of the Board.
Q: CAN I CHANGE MY VOTE?
A: You may change your proxy instructions at any time prior to the vote at the
meeting. For shares held directly in your name, you may accomplish this by
granting another proxy that is properly signed and bears a later date, by
sending a properly signed written notice to the Secretary of the Company or by
attending the meeting and voting in person. To revoke a proxy previously
submitted by telephone or through the Internet, you may simply vote again at a
later date, using the same procedures, in which case your later submitted vote
will be recorded and your earlier vote revoked. Attendance at the meeting will
not cause your previously granted proxy to be revoked unless you specifically so
request. For shares held beneficially by you, you may accomplish this by
submitting new voting instructions to your broker or nominee.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY OR VOTING INSTRUCTION
CARD?
A: It means your shares are registered differently or are in more than one
account. Please provide voting instructions for all proxy and voting
instructions cards you receive.
Q: HOW CAN I ATTEND THE MEETING?
A: You may attend the meeting if you are listed as a shareholder of record as
of March 19, 1999 and bring proof of identification. If you hold your shares
through a broker or other nominee, you will need to provide proof of ownership
by bringing either a copy of the voting instruction card provided by your broker
or a copy of a brokerage statement showing your share ownership as of March 19,
1999.
Q: WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the meeting and publish final
results in our quarterly report on Form 10-Q for the second quarter of fiscal
1999.
Q: WHAT IS THE QUORUM FOR THE MEETING?
A: Holders of record (the "Shareholders") of the Common Stock on March 19, 1999
are entitled to vote at the meeting or any adjournments thereof. As of that date
there were 195,889,550 shares of Common Stock outstanding and entitled to vote
and a majority of the outstanding shares will constitute a quorum for the
transaction of business at the meeting.
3
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Five directors are to be elected at the Annual Meeting to terms expiring in
2002 and one director is to be elected to a term expiring in 2001. The Board has
recommended as nominees for election as directors the first six persons named in
the table below. Five of the nominees are currently directors of the Company.
The Board is divided into three classes. The terms of the nine remaining
directors expire in 2000 and 2001. Unless otherwise specified in the
accompanying Proxy, the shares voted pursuant thereto will be cast for the
persons named below as nominees for election as directors. If, for any reason,
any of the nominees named below should be unable to serve as a director, it is
intended that such Proxy will be voted for the election, in his or her place, of
a substituted nominee who would be recommended by management. Management,
however, has no reason to believe that any nominee named below will be unable to
serve as a director.
The following table sets forth as to each nominee and as to each incumbent
director whose term of office extends to 2000 and 2001 and who is, therefore,
not a nominee for election as a director at this Annual Meeting: (i) his or her
age; (ii) all positions and offices with the Company; (iii) principal occupation
or employment during the past five years; (iv) other directorships of publicly
held companies or investment companies; and (v) period of service as a director
of the Company. Except as otherwise indicated, each person has had the same
principal occupation or employment during the past five years.
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATION AND HAS BEEN A TERM
NAME AGE OTHER DIRECTORSHIPS DIRECTOR SINCE EXPIRES
---- --- ------------------------ -------------- -------
<S> <C> <C> <C> <C>
Nominees for Terms Expiring in 2002
Herbert M. Baum................... 62 President and Chief Operating Officer 1999 *
since 1999. Prior thereto, Chairman
and Chief Executive Officer, Quaker
State Corporation. Director, Dial
Corp., Fleming Companies Inc.,
Meredith Corp., Midas, Inc. and
Whitman Corp.
E. Gordon Gee..................... 55 President, Brown University since * *
1998. Prior thereto, President, The
Ohio State University. Director,
Allmerica Financial Group, Asarco
Inc., Glimcher Realty Trust, Intimate
Brands Inc. and The Limited Inc.
Sylvia K. Hassenfeld.............. 78 Former Chairman since 1996 and, prior 1983 *
thereto, Chairman of the Board,
American Jewish Joint Distribution
Committee, Inc.
Norma T. Pace..................... 77 President, Paper Analytics Associates 1984 *
(economic consulting) since 1995.
Senior Economic Advisor, WEFA Group
(economic consulting and planning).
Director, Englehard Corp.
E. John Rosenwald, Jr............. 69 Vice Chairman, The Bear Stearns 1983 *
Companies, Inc. (investment bankers).
Director, The Bear Stearns Companies,
Inc. and Cendant Corporation.
Nominee for Term Expiring in 2001
Alfred J. Verrecchia.............. 56 Executive Vice President, Global 1992 *
Operations and Development since 1999.
Prior thereto, Executive Vice
President and President -- Global
Operations from 1996 to 1999. Prior
thereto, Chief Operating Officer --
Domestic Toy Operations. Director,
Allendale Mutual and Old Stone Corp.
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C>
* Nominee
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATION AND HAS BEEN A TERM
NAME AGE OTHER DIRECTORSHIPS DIRECTOR SINCE EXPIRES
---- --- ------------------------ -------------- -------
<S> <C> <C> <C> <C>
Directors Whose Terms Expire in 2000 and 2001
Alan R. Batkin.................... 54 Vice Chairman, Kissinger Associates, 1992 2001
Inc. (geopolitical strategic
consulting firm). Director, PEC Israel
Economic Corporation.
Harold P. Gordon.................. 61 Vice Chairman since 1995. Prior 1988 2000
thereto, Partner, Stikeman, Elliott
(law firm). Director, Alliance
Atlantis Communications Corporation
and G.T.C. Transcontinental Group,
Ltd.
Alex Grass........................ 71 Chairman of the Executive Committee, 1981 2000
Rite Aid Corporation (drug store
chain) since 1995. Prior thereto,
Chairman of the Board and Chief
Executive Officer, Rite Aid
Corporation. Chairman of the Board,
SuperRite Corporation.
Alan G. Hassenfeld................ 50 Chairman of the Board and Chief 1978 2000
Executive Officer since 1999. Prior
thereto, Chairman of the Board,
President and Chief Executive Officer.
Marie Josee Kravis................ 49 Senior Fellow, Hudson Institute 1995 2000
(public policy analysis). Visiting
Fellow, Council on Foreign Relations.
Director, Canadian Imperial Bank of
Commerce, Ford Motor Company,
Hollinger International, Inc., The
Seagram Company Ltd. and Unimedia Inc.
Morris W. Offit................... 62 Chief Executive Officer, Offitbank 1995 2001
(investment management). Director,
Cantel Industries, Inc. and Mercantile
Bankshares Corporation.
Carl Spielvogel................... 70 Chairman and Chief Executive Officer, 1992 2001
Carl Spielvogel Associates, Inc.
(international investments) since
1997. Prior thereto, Chairman of the
Board and Chief Executive Officer,
United Auto Group, Inc. (operator of
multiple-franchise auto dealerships)
from 1994 to 1997. Prior thereto,
Chairman of the Board and Chairman of
the Executive Committee, Backer
Spielvogel Bates Worldwide, Inc.
(advertising) during 1994. Prior
thereto, Chairman and Chief Executive
Officer, Backer Spielvogel Bates
Worldwide, Inc. Director, Alliant
Foodservice, Inc., Barney's Dept.
Stores, Inc. and Data Broadcasting
Inc.
Preston Robert Tisch.............. 72 Co-Chairman of the Board, Loews 1988 2000
Corporation since 1999. Prior thereto,
Co-Chairman and Co-Chief Executive
Officer, Loews Corporation. Director,
Bulova Watch Company, Inc., CNA
Financial Corporation, Loews
Corporation and Rite Aid Corporation.
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
PRINCIPAL OCCUPATION AND HAS BEEN A TERM
NAME AGE OTHER DIRECTORSHIPS DIRECTOR SINCE EXPIRES
---- --- ------------------------ -------------- -------
<S> <C> <C> <C> <C>
Paul Wolfowitz.................... 55 Dean, Paul H. Nitze School of Advanced 1995 2001
International Studies, The Johns
Hopkins University. Former
Undersecretary of Defense for Policy,
U.S. Department of Defense. Former
U.S. Ambassador to the Republic of
Indonesia. Former U.S. Assistant
Secretary of State for East Asian and
Pacific Affairs. Director of eleven
mutual funds of the Dreyfus
Corporation.
</TABLE>
* * *
Sylvia K. Hassenfeld is the mother of Alan G. Hassenfeld.
Those directors who are also executive officers of the Company serve as
officers and directors of the Company's various subsidiaries at the request and
convenience of the Company.
During 1998, the Board held seven meetings. Mr. Offit attended fewer than
75% of the aggregate number of meetings of the Board and the Committee on which
he served during 1998.
The Executive Committee of the Board, which currently consists of Alan R.
Batkin, Alan G. Hassenfeld, Norma T. Pace and E. John Rosenwald, Jr., did not
meet in 1998. The Executive Committee is vested with all of the powers that are
held by the Board, except that by law the Executive Committee may not exercise
any power of the Board relating to amendment of the Articles of Incorporation or
By-Laws of the Company, adoption of a plan of merger or consolidation, the sale,
lease or exchange of all or substantially all the property or assets of the
Company or the voluntary dissolution of the Company. The Executive Committee
also performs such functions as are assigned to it by the Board from time to
time.
The Nominating and Governance Committee of the Board, which currently
consists of Sylvia K. Hassenfeld, Preston Robert Tisch and Paul Wolfowitz, met
once in 1998. The Nominating and Governance Committee makes recommendations for
possible additions to the Board and at the request of the Board is authorized to
make recommendations regarding the governance of the Board and the committees
thereof. The Nominating and Governance Committee has neither the authority nor
the procedures to consider nominees recommended by shareholders. The By-Laws
provide that shareholders may nominate directors at an annual meeting by giving
notice to the Secretary of the Company not less than 60 days nor more than 90
days prior to the one-year anniversary date of the immediately preceding annual
meeting and providing specified information regarding the proposed nominee and
each shareholder proposing such nomination.
The Audit Committee of the Board, which currently consists of Alex Grass,
Claudine B. Malone, Morris W. Offit and Norma T. Pace (Chair), held four
meetings in 1998. The function of the Audit Committee is to recommend to the
Board the accounting firm to serve as the Company's independent auditors and to
review with such firm, and with the Company's internal auditors and officers,
matters relating to corporate financial reporting procedures and policies,
adequacy of financial, accounting and operating controls and the scope of the
respective audits performed by the Company's independent auditors and internal
auditors.
The Compensation and Stock Option Committee of the Board, which currently
consists of Alan R. Batkin, Alex Grass, Marie Josee Kravis and Carl Spielvogel
(Chair), held eight meetings in 1998. The Compensation and Stock Option
Committee has been delegated responsibility for all employee compensation and
benefit plans, is authorized to make grants and awards under the Company's
employee stock option plans and administers the non-employee director
compensation plans.
COMPENSATION OF DIRECTORS
Members of the Board who are not otherwise employed by the Company
("Non-employee Directors") receive a retainer of $25,000 per year and a fee of
$1,000 per Board or committee meeting attended, except
6
<PAGE> 8
that if two or more of such meetings are held on the same day, the fee for the
first meeting is $1,000 and the fee for each additional meeting is $500. The
Chair of the Audit Committee and the Chair of the Compensation and Stock Option
Committee each receive an additional retainer of $3,500 per year. Action by
written consent is not considered attendance at a meeting for purposes of fees
to directors.
Pursuant to the Deferred Compensation Plan for Non-employee Directors (the
"Deferred Plan"), which is unfunded, Non-employee Directors must defer a minimum
of 20% of the annual Board retainer fee into a stock unit account, the value of
each unit initially being equal to the fair market value of one share of Common
Stock as of the end of the quarter in which the compensation being deferred
would otherwise be payable. Stock units increase or decrease in value based on
the fair market value of the Common Stock. In addition, an amount equal to the
dividends paid on an equivalent number of shares of Common Stock is credited to
each Non-employee Director's stock unit account as of the end of the quarter in
which the dividend was paid. Non-employee Directors may defer the remainder of
their retainer and/or meeting fees into the stock unit account or an interest
account, which bears interest at the five year Treasury rate. The Company makes
a deemed matching contribution to the stock unit account equal to 10% of the
amount deferred, with one-half of such Company contribution vesting on December
31 of the calendar year in which the deferred compensation otherwise would have
been paid and one-half on the next December 31, provided the participant is a
director on such vesting date. Unvested Company contributions will automatically
vest on death, total disability or retirement by the director at or after age
seventy-two. Compensation deferred under the Deferred Plan, whether in the stock
unit account or the interest account, will be paid out in cash after termination
of service as a director. Directors may elect that compensation so deferred be
paid out in a lump sum or in up to ten annual installments, commencing either in
the quarter following, or in the January following, the quarter in which service
as a director terminates.
Under the Hasbro, Inc. Retirement Plan for Directors (the "Retirement
Plan"), which is unfunded, each director (who is not otherwise eligible for
benefits under the Company's Pension Plan) who has attained the age of
sixty-five and completed five years of service on the Board is entitled to
receive, beginning at age seventy-two, an annual benefit equal to the annual
retainer payable to directors during the year in which the director retires
(which does not include the fees paid to directors for attendance at meetings).
If a director retires on or after the director's seventy-second birthday, the
annual benefit will continue for the life of the director. If a director retires
between the ages of sixty-five and seventy-two, the number of annual payments
will not exceed the retired director's years of service. Upon a Change of
Control, as defined in the Retirement Plan, directors and retired directors are
entitled to lump-sum payments equal to the present value of their benefits under
the Retirement Plan.
Under the Stock Option Plan for Non-employee Directors, approved by
shareholders on May 11, 1994, each Non-employee Director then in office received
on May 11, 1994, each Non-employee Director who joined the Board after May 11,
1994 received upon becoming a director, and any new Non-employee Director will
receive upon becoming a director, a one-time grant of a nonqualified,
nontransferable ten year option to purchase 11,250 shares (as adjusted to
reflect the two 3 for 2 stock splits, each paid in the form of a 50% stock
dividend on March 21, 1997 and March 15, 1999, respectively) of Common Stock at
110% of the fair market value per share of Common Stock on the date of grant.
The options become exercisable at a rate of 20% per year commencing on the first
anniversary of the date of grant, except that exercisability will be accelerated
upon a participant ceasing to be a member of the Board because of permanent
disability, death, retirement at or after age 72 or after a Change of Control,
as defined in the Stock Option Plan for Non-employee Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's wholly owned subsidiary, Hasbro Canada Inc. ("Hasbro
Canada"), leases its manufacturing and warehouse facilities from Central Toy
Manufacturing Inc. ("CTM"), a real estate corporation which is 25% owned by the
estate of Merrill Hassenfeld, a former Chief Executive Officer and director of
the Company. Sylvia K. Hassenfeld, a director of the Company, is executrix and a
beneficiary of the estate of Merrill Hassenfeld. Total rent paid by Hasbro
Canada to CTM for the leases of offices and warehouse facilities in 1998 was
approximately $579,000 Canadian (approximately $391,000 U.S.). In management's
opinion, these leases are on terms at least as favorable as would otherwise
presently be obtainable. In
7
<PAGE> 9
March 1998, Hasbro Canada and CTM entered into a lease addendum extending the
leases to January 31, 2001 at the then current rent, with Hasbro Canada having
options to renew for three additional three year terms at fair market rental. If
the parties cannot agree, the fair market rental would be determined by
appraisal. Hasbro Canada has a right of first refusal to purchase the premises
unless it indicates its intention not to renew the leases. CTM, with the
assistance of Hasbro Canada, obtained from a financial institution a new loan
secured by a first mortgage on the premises in the amount of approximately
$1,625,000 Canadian with a due date of February 1, 2001. The lease addendum
provides that, until January 31, 2003, should such loan not be renewed, extended
or replaced beyond February 1, 2001, Hasbro Canada would advance on behalf of
the shareholders of CTM, other than the estate of Merrill Hassenfeld, the amount
necessary to pay off 75% of the loan and 75% of all operating expenses until
sale, lease or refinancing of the premises. CTM would be obligated to repay the
advance no later than January 31, 2003, which would be secured by a first
mortgage on the premises but would be nonrecourse individually to such
shareholders. CTM agreed that all cash flow from the premises (including sale,
lease and refinancing) will be used to pay the then existing loan and any Hasbro
Canada advances. It is anticipated that the balance of the CTM loan at February
1, 2001 will be approximately $625,000 Canadian.
Since the beginning of the 1998 fiscal year, the Company paid an aggregate
amount of approximately $182,000 to Lindsay Associates for architectural
services provided at arms-length in the ordinary course of business principally
in connection with the redesign of the Company's headquarters and expansion of
the Company's New York showroom. Lindsay Boutros-Ghali, an architect, is the
principal of Lindsay Associates and the spouse of Adam Klein, a former executive
officer of the Company.
The Bear Stearns Companies, Inc. provides investment banking and related
services to the Company. E. John Rosenwald, Jr., a director of the Company, is a
director and Vice Chairman of the Bear Stearns Companies, Inc.
On September 25, 1998, the Company amended the Company's existing
agreements with Lucas Licensing Ltd. ("Licensing") and Lucasfilm Ltd. ("Film")
to add the categories granted by Licensing and Film to Galoob Toys, Inc.
("Galoob") effective upon the Company's acquisition of Galoob. On October 30,
1998, the date of the Company's acquisition of Galoob, the Company issued an
aggregate of 6 million warrants (as adjusted to reflect the 3 for 2 stock split
paid in the form of a 50% dividend on March 15, 1999) to Licensing and Film. The
Common Stock subject to such warrants, when added to the Common Stock subject to
warrants previously granted by the Company to Licensing and Film, would if all
warrants were fully exercised constitute approximately 7.4% of the Company's
outstanding shares. All Hasbro warrants held by Licensing and Film become
exercisable upon the U.S. theatrical release of Episode I: The Phantom Menace in
the new Star Wars prequel. Accordingly, under SEC rule 13d-3, George W. Lucas,
Jr., as owner, director and officer of Film and Licensing, may be deemed to own
approximately 7.4% of the Company's outstanding shares. See "Voting Securities
and Principal Holders" thereof. Since the beginning of fiscal 1998, the Company
and its subsidiaries (including Galoob prior to its acquisition by the Company)
paid an aggregate of approximately $126 million in royalty advances and
royalties to Licensing pursuant to license agreements entered into at arms
length in the ordinary course of business. The Company anticipates that the
amount it will pay Licensing in fiscal 1999 pursuant to its amended agreements
with Licensing will exceed $250 million.
Vote Required. The vote of a majority of those shares of Common Stock
present or represented by proxy at the annual meeting is required to elect
directors. Accordingly, an abstention or broker non-vote will in effect
constitute a vote against a nominee.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION OF THE SIX
NOMINEES NAMED ABOVE (PROPOSAL NO. 1).
8
<PAGE> 10
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
AMONG HASBRO, S&P 500 AND RUSSELL 1000
CONSUMER DISCRETIONARY ECONOMIC SECTOR(1)
The following graph tracks an assumed investment of $100 on the start dates
indicated below in the Company's Common Stock, the S&P 500 Index and the Russell
1000 Consumer Discretionary Economic Sector, assuming full reinvestment of
dividends and no payment of brokerage or other commissions or fees. Past
performance is not necessarily indicative of future performance.
[5 YEAR COMPARISON CHART]
<TABLE>
<CAPTION>
HASBRO S&P 500 RUSSELL 1000 CONSUMER
------ ------- DISCRETIONARY ECONOMIC
SECTOR
----------------------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 80.00 102.00 95.00
'1995' 87.00 139.00 113.00
'1996' 108.00 176.00 130.00
'1997' 132.00 217.00 170.00
'1998' 145.00 285.00 227.00
</TABLE>
- ---------------
(1) While the information for Hasbro and S&P 500 is as of the last trading day
in Hasbro's fiscal year, the data for the Russell Sector is as of the last
trading day in the calendar year.
REPORT OF THE
COMPENSATION AND STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS
1998 COMPENSATION POLICIES WITH RESPECT TO EXECUTIVE OFFICERS
The general goal of the Compensation and Stock Option Committee (the
"Committee") with respect to the compensation of executive officers (including
those named in the summary compensation table below) is that the Company provide
competitive compensation and benefits that
- attract and retain capable executives who are important to the success of
the Company,
- reward them for performance,
- provide them with a strong incentive to increase shareholder value, and
- accomplish the foregoing in as fair, understandable and cost-effective
manner as possible.
Executive compensation during 1998 consisted of salary, a management
incentive bonus and stock options. In authorizing and approving compensation
increases and awards for executive officers (other than the Chief Executive
Officer), the Committee relies principally upon the recommendations of the Chief
Executive Officer.
9
<PAGE> 11
Base salaries for new executive officers are initially determined by
evaluating the responsibilities of the position held, the experience of the
individual and the competitive marketplace for comparable executive talent.
Subsequent yearly adjustments are made by reference to changes in duties and
responsibilities, competitive market conditions and personal performance. In
approving the increases to base salaries for 1998, the Committee generally
targeted the Company's pay levels to correspond with approximately the 75th
percentile of salaries paid by other consumer non-durable products companies
surveyed in Management Compensation Services Project 777 Executive Compensation
Study, whose participants partially overlap with the companies included in the
Russell 1000 Consumer Discretionary Economic Sector (the "Russell Sector") set
forth in the above graph. The Frank Russell Company does not publish
compensation data for the companies included in the Russell Sector.
Approximately 1315 employees, including executive officers, were awarded
annual management incentive bonuses with respect to fiscal 1998. Individual and
corporate performance objectives were established at the beginning of the year.
Corporate and business unit pre-tax earnings performance objectives were
determined on the basis of a budget review carried out by senior management with
respect to each business unit which forms the basis for the operating plan
prepared by senior management and approved by the Board in February of each
year. The remainder of this paragraph will outline the bonus programs applicable
to executive officers other than the Chief Executive Officer, whose bonus is
discussed below. See "1998 Compensation of the Chief Executive Officer". Target
bonuses for executive officers range from 30% to 45% of base salary. Performance
in excess of targeted performance would yield higher bonuses, except that
bonuses in excess of 100% of base salary require special Committee review and
approval. The management incentive bonus for executive officers who are deemed
to have corporate-wide responsibility (which include all the individuals named
in the summary compensation table below) was generally based 75% on corporate
performance and 25% on individual performance. The management incentive bonus
for those individuals deemed to have business unit responsibility was weighted
25% for corporate performance, 50% for business unit performance and 25% for
individual performance. Corporate performance for 1998 and that of most of the
business units fell short of their pre-tax earnings targets. The 1998 management
bonuses for executive officers were based in part on the applicable corporate
and business unit performance and in part on the contribution of the individual.
In 1998, non-qualified stock options were granted to approximately 610
employees, including executive officers, pursuant to the Company's employee
stock option plans. The Committee, which is composed solely of "Non-Employee
Directors", as defined in Rule 16b-3 of the rules and regulations of the
Securities and Exchange Commission, granted individual options to executive
officers in order to provide an incentive to motivate and retain those
individuals who are important to the Company's future success. Stock options are
designed to align the interests of executives with those of shareholders, since
the executives can only benefit from the options if there is price appreciation
in the Common Stock after the date of grant. All stock options granted in 1998
had an exercise price equal to at least the fair market value of the Common
Stock on the date of grant and most vested over three years. Certain options
granted in 1998 were granted to newly or recently hired senior executives
pursuant to the Company's long term incentive program established in 1993.
Pursuant to the program, which is designed to supplement the Company's regular
stock option program, nonqualified options are granted every other year to key
executives at 110% of market value on date of grant, vesting over five years.
Under the program, value is provided to the executive only if share appreciation
exceeds the premium. In 1998, the overall size of the regular stock option pool
was limited to 1% of the issued shares pursuant to a policy established by the
Committee that keys the overall size of the pool to the Company's relative
performance vis a vis the Russell Sector. The amount of stock options previously
awarded and outstanding for each executive officer is reviewed by the Committee
but is not considered a critical factor in determining the size of any
executive's stock option award in any year. Options granted were allocated on
the basis of individual compensation level, responsibility and performance.
1998 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
As set forth in the accompanying tables, Mr. Hassenfeld's salary of
$1,014,816 for 1998 represented a 5.9% increase over his 1997 salary, his
management incentive bonus with respect to 1998 was $422,400, which represented
41.6% of his 1998 salary, and in 1998 he was granted options to purchase 60,000
(as adjusted to
10
<PAGE> 12
reflect the 3 for 2 stock split paid in the form of a 50% stock dividend on
March 15, 1999) shares of Common Stock, which represented approximately 2.3% of
all options granted to employees during 1998. All compensation decisions
regarding Mr. Hassenfeld were made by the Committee, which is composed solely of
"outside directors" in accordance with Section 162(m) of the Internal Revenue
Code of 1986, as amended, in all cases without the participation of Mr.
Hassenfeld or other executive officers of the Company. In setting Mr.
Hassenfeld's 1998 salary, the Committee took into account comparative data with
respect to chief executive officer compensation provided to the Committee with a
view towards setting Mr. Hassenfeld's compensation levels at approximately the
75th percentile of other consumer non-durable products companies surveyed. The
Committee also took into account the fact that Mr. Hassenfeld's salary had not
increased since 1996. The Committee determined Mr. Hassenfeld's management bonus
pursuant to the Company's Senior Management Annual Performance Plan (the "Annual
Performance Plan") which was approved by shareholders in 1994. Mr. Hassenfeld is
the only participant in the Annual Performance Plan. Under the Annual
Performance Plan, the Committee designated a net earnings performance goal for
the Company for 1998, which was based on the 1998 operating plan approved by the
Board in February 1998. The target bonus for Mr. Hassenfeld under the Annual
Performance Plan is 75% of salary, if 100% of the performance goal is achieved,
with a maximum bonus of 150% of salary, if 130% or more of the performance goal
is attained. No bonus is payable under the Annual Performance Plan unless at
least 70% of the performance goal is attained. More than 70% but less than 100%
of the targeted performance goal was achieved by the Company resulting in the
bonus paid to Mr. Hassenfeld. The options granted to Mr. Hassenfeld in 1998
reflected individual compensation level, responsibility and performance.
SECTION 162(m) OF THE INTERNAL REVENUE CODE ("SECTION 162(m)")
The Committee believes that the Company's compensation plans preserve the
ability of the Company to obtain tax deductions for annual remuneration in
excess of $1,000,000 to any of the individuals named in the table below (the
"named executives"). With respect to the current payment of annual cash
management incentive bonuses which would otherwise exceed the limits on
deductibility established by Section 162(m), the Committee has utilized the
Senior Management Annual Performance Plan (the "Performance Plan") from 1994
through 1998 and has adopted the 1999 Senior Management Annual Performance Plan
(the "Plan") subject to shareholder approval (see Proposal No. 2 below). The
Non-Qualified Deferred Compensation Plan adopted in 1997 permits executives to
defer all or a portion of their salaries and bonuses and with respect to the
named executives permits the Company to defer remuneration that would not be
deductible under Section 162(m). As a result, only the Chief Executive Officer
is currently affected by the Section 162(m) limitations and he is the sole
participant for the 1998 and 1999 fiscal years. The Committee believes that,
under ordinary circumstances and subject to shareholder approval of the Plan,
the Company's compensation programs should comply with the requirements of
Section 162(m) so as to permit the deductibility of all amounts paid to the
covered executive officers with respect to 1999. The Committee recognizes,
however, that there may be instances where it would be in the best interests of
the Company and its shareholders to make compensation payments which would not
then be deductible.
Alan R. Batkin, Alex Grass, Marie Josee Kravis and Carl Spielvogel
(Chairman) as members of the Compensation and Stock Option Committee of the
Board of Directors as of 1998 fiscal year end.
11
<PAGE> 13
EXECUTIVE COMPENSATION
The following table summarizes compensation paid by the Company for
services rendered during 1998, 1997 and 1996 by the Chief Executive Officer of
the Company and the four most highly compensated executives of the Company other
than the Chief Executive Officer:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(a) BONUS(a) COMPENSATION(b) OPTIONS(c) Compensation(d)
--------------------------- ---- ---------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Alan G. Hassenfeld.............. 1998 $1,014,816 $422,400 $32,784 60,000 $70,724
Chairman of the Board, 1997 957,900 718,425 36,834 303,750 58,398
President and Chief Executive 1996 957,900 450,000 33,493 56,250 44,171
Officer
Alfred J. Verrecchia............ 1998 671,089 510,000 12,963 42,000 52,702
Executive Vice-President and 1997 633,450 350,000 14,034 213,750 34,665
President -- Global Operations 1996 618,397 160,000 13,465 56,250 30,440
Harold P. Gordon................ 1998 576,672 210,000 26,256 40,000 37,820
Vice Chairman 1997 544,286 268,000 62,140 198,750 33,645
1996 528,230 175,000 63,771 56,250 6,215
John T. O'Neill................. 1998 526,114 210,000 8,472 40,000 31,604
Executive Vice-President and 1997 476,525 250,000 8,248 198,750 26,807
Chief Financial Officer 1996 462,840 175,000 8,599 56,250 25,357
Adam Klein...................... 1998 512,868 170,000 7,192 45,000 30,170
Executive Vice-President and 1997 413,906 225,000 6,604 183,750 2,220
President, Global Marketing 1996 156,923 60,000 1,088 56,250 --
and Strategy(e)
</TABLE>
- ---------------
(a) Includes amounts deferred by the individual pursuant to the Company's
Retirement Savings Plan and Nonqualified Deferred Compensation Plan (the
"Deferred Compensation Plan"). Also includes, in the case of Mr. Verrecchia,
a special award by the Committee in 1998 of $250,000 that was paid directly
into Mr. Verrecchia's account in the Deferred Compensation Plan. Mr. Klein
was employed by the Company for a portion of 1996 only.
(b) Includes the following amounts which were included in 1998 taxable income
for each named individual in connection with a program whereby a leased
automobile, or an automobile allowance, is provided to the executive by the
Company: $7,784 for Mr. Hassenfeld, $11,463 for Mr. Verrecchia, $5,756 for
Mr. Gordon, $7,622 for Mr. O'Neill, and $5,687 for Mr. Klein. Also includes
the following amounts paid by the Company and included in 1998 taxable
income for each named individual in connection with a program whereby
certain financial planning and tax preparation services are provided to the
individual and paid for by the Company: $25,000 for Mr. Hassenfeld, $1,500
for Mr. Verrecchia, $20,500 for Mr. Gordon, $850 for Mr. O'Neill and $1,505
for Mr. Klein. Does not include other personal benefits that do not in the
aggregate exceed $50,000 in any year for any individual.
(c) All share amounts are adjusted to reflect the two 3 for 2 stock splits, each
paid in the form of a 50% stock dividend, on March 21, 1997 and March 15,
1999, respectively.
(d) Includes the executive's pro-rata share of the Company's contribution to the
profit-sharing account under the Company's Retirement Savings Plan which is
in part contributed to the individual's account in the Retirement Savings
Plan and, to the extent in excess of certain Internal Revenue Code of 1986,
as amended (the "Code") maximums, deemed allocated to the individual's
account in the Company's unfunded Supplemental Benefit Retirement Plan (the
"Supplemental Plan"), which for 1998 amounted to $64,997 for Mr. Hassenfeld,
$47,666 for Mr. Verrecchia, $31,675 for Mr. Gordon, $29,104 for Mr. O'Neill,
and $27,670 for Mr. Klein. Includes for each individual, the sum of $2,500
which represents the Company's 25% match of sums saved in 1998 by each named
executive in his applicable savings account under the Retirement Savings
Plan, Supplemental Plan or Deferred Compensation Plan. Also includes $3,227,
$2,536 and $3,645 in premiums paid by the Company in 1998 for individual
life insurance policies for Messrs. Hassenfeld, Verrecchia and Gordon,
respectively.
12
<PAGE> 14
(e) On March 19, 1999, Adam Klein resigned as an executive officer of the
Company. See "Employment, Severance and Consulting Agreements" below.
* * *
The following table sets forth certain information regarding stock option
grants in 1998 to the individuals named above. All amounts have been adjusted to
reflect the 3 for 2 stock split paid in the form of a 50% stock dividend on
March 15, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS Value(a)
-------------------------------------------------------- -------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE PER EXPIRATION GRANT DATE
NAME GRANTED(b)(c) IN FISCAL YEAR SHARE DATE PRESENT VALUE
- ---- ------------- -------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Alan G. Hassenfeld............... 60,000 2.3 $24.875 4/22/08 $520,800
Alfred J. Verrecchia............. 42,000 1.6 $24.875 4/22/08 364,560
Harold P. Gordon................. 40,000 1.5 $24.875 4/22/08 347,200
John T. O'Neill.................. 40,000 1.5 $24.875 4/22/08 347,200
Adam Klein....................... 45,000 1.7 $24.875 4/22/08 390,600
</TABLE>
- ---------------
(a) The Grant Date Present Value was determined using the standard application
of the Black-Scholes option pricing methodology using the following
assumptions: volatility 26%, dividend yield 0.86% and a risk free interest
rate of 5.73% based on the options being outstanding for approximately six
years. The Grant Date Present Values do not take into account risk factors
such as non-transferability and limits on exercisability. In assessing the
Grant Date Present Values indicated in the above table, it should be kept in
mind that no matter what theoretical value is placed on an option on the
date of grant, the ultimate value of the option is dependent on the market
value of the Common Stock at a future date, and the extent if any, by which
such market value exceeds the exercise price on the date of exercise.
(b) These options are non-qualified and were granted at fair market value on the
date of grant. Thirty-three and one-third percent of each option becomes
exercisable on the first anniversary of the date of grant and thirty-three
and one-third percent becomes exercisable on each anniversary thereafter
until fully exercisable. All options become fully vested in the event of
death, disability or retirement at the optionee's normal retirement date and
are exercisable for a period of one year thereafter. An optionee taking
early retirement may, under certain circumstances, exercise all or a portion
of the options unvested at his or her early retirement date and may exercise
such options for three months or such longer period as the Committee may
approve. Unless otherwise approved by the Committee in its discretion, upon
termination of employment for any other reason, only options vested at the
date of the termination may be exercised, and are exercisable for a period
of three months following termination.
(c) Upon a Change of Control, as defined below, all options become immediately
exercisable and, with certain exceptions, will be canceled in exchange for a
cash payment in the amount of the difference between the highest price paid
for a share of Common Stock in the transaction or series of transactions
pursuant to which the Change of Control shall have occurred or, if higher,
the highest reported sales price of a share of Common Stock during the
sixty-day period immediately preceding the date of the Change of Control.
Participants may exercise options and satisfy tax withholding liabilities by
payments in cash or by delivery of Common Stock equal to the exercise price
and the tax withholding liability. In addition, participants may instruct
the Company to withhold shares issuable upon exercise in satisfaction of tax
withholding liability.
* * *
The following table sets forth as to each of the named individuals: (a) the
number of shares acquired upon exercise of options during fiscal 1998; (b) the
value realized (market value on date of exercise less
13
<PAGE> 15
exercise price) upon the exercise of such options during fiscal 1998; (c) the
number of exercisable and unexercisable options held on December 27, 1998, the
last day of the 1998 fiscal year; and (d) the value of such options at December
27, 1998. The number of options set forth below correspond to the number of
shares to which they relate and have been adjusted to reflect the 3 for 2 stock
split paid in the form of a 50% stock dividend on March 15, 1999.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 27, 1998 AT DECEMBER 27, 1998
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan G. Hassenfeld..... 96,187 $1,728,379 972,750 401,250 $7,833,852 $1,347,746
Alfred J. Verrecchia... 152,437 2,837,198 767,250 287,250 6,917,329 982,943
Harold P. Gordon....... 60,000 557,582 324,900 257,500 2,214,548 846,756
John T. O'Neill........ 127,687 1,501,508 377,250 255,250 2,373,527 941,898
Adam Klein............. 37,500 226,636 44,250 203,250 167,099 485,063
</TABLE>
* * *
The following table shows the estimated annual benefits payable upon
retirement in specified remuneration and years of service classifications under
the Company's Pension Plan (the "Pension Plan") and under the Supplemental Plan:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFIT BY YEARS OF SERVICE CLASSIFICATION(2)
AVERAGE --------------------------------------------------------------------------
COMPENSATION(1) 10 15 20 25 30 35(3)
--------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000............... $ 33,333 $ 50,000 $ 66,667 $ 83,333 $100,000 $100,000
400,000.............. 66,667 100,000 133,333 166,667 200,000 200,000
800,000.............. 133,333 200,000 266,667 333,333 400,000 400,000
1,200,000.............. 200,000 300,000 400,000 500,000 600,000 600,000
1,600,000.............. 266,666 400,000 533,333 666,667 800,000 800,000
</TABLE>
- ---------------
(1) Covered compensation under the Pension Plan and the Supplemental Plan
includes total salaries and bonuses (as set forth in the Summary
Compensation Table) for the five highest consecutive years during the ten
years preceding retirement ("Average Compensation").
(2) Estimated retirement benefit amounts shown are prior to reduction by an
Internal Revenue Service designated amount keyed to a participant's latest
three-year average Social Security entitlement. Amounts shown are computed
on the single straight-life annuity option. Early retirement, which is
permitted up to 10 years prior to the normal retirement date, and other
payment options will reduce the annual benefit amount shown. Payments from
the Supplemental Plan, which is unfunded, are not subject to provisions of
the Code that limit benefits under the Pension Plan.
(3) For purposes of determining benefits under the Pension Plan and the
Supplemental Plan, credited years of service cannot exceed 30.
14
<PAGE> 16
The following table sets forth, as to the five named individuals, their
years of credited service under the Pension Plan and the Supplemental Plan:
<TABLE>
<CAPTION>
CREDITED YEARS
OF SERVICE
--------------
<S> <C>
Alan G. Hassenfeld......................................... 30
Alfred J. Verrecchia....................................... 30
Harold P. Gordon........................................... 4
John T. O'Neill............................................ 12
Adam Klein................................................. 2
</TABLE>
EMPLOYMENT, SEVERANCE AND CONSULTING AGREEMENTS
The agreements summarized below (or the form thereof) have been filed with
the Securities and Exchange Commission as exhibits to the Company's periodic
filings and such summaries do not purport to be complete and are qualified in
their entirety by reference to such agreements.
Eleven senior executives, including the five above-named individuals (other
than Mr. Klein), are parties to employment agreements (the "Change of Control
Agreements") with the Company. The Change of Control Agreements come into effect
only upon a "Change of Control," as defined, and continue for three years after
such date (the "Employment Period"). If, during the Employment Period, an
executive's employment with the Company is involuntarily terminated other than
for "Cause," the executive is entitled to three times the executive's average
annual base salary and bonus for the five years preceding the Change of Control,
plus an amount equal to the shortfall between the actuarial benefit payable to
the executive under the Company's retirement plans as a result of the early
termination and the amount the executive would have received if the executive
had continued in the employ of the Company for the remainder of the Employment
Period. The executive and the executive's family would also be entitled to the
continuation of medical, welfare, life insurance, disability and other benefits
for at least the remainder of the Employment Period. If the executive is subject
to the payment of excise tax under Section 280G of the Code, the Company will
pay such executive an additional amount so as to place the executive in the same
after-tax position such executive would have been in had such excise tax not
applied. In addition, the Change of Control Agreements permit an executive to
terminate the executive's employment for "Good Reason" at any time or for any
reason during a 30-day period immediately following the first anniversary of the
Change of Control and receive the above-described severance benefits. "Good
Reason" includes diminution of the executive's responsibilities or compensation,
relocation or purported termination otherwise than as expressly permitted by the
Change of Control Agreements. Under certain circumstances, certain payments by
the Company pursuant to the Change of Control Agreements may not be deductible
for federal income tax purposes. A "Change of Control" is defined (for purposes
of the Change of Control Agreements, the Retirement Plan and the Company's stock
option plans) as the occurrence of certain events, including acquisition by a
third party of 20% or more of the Company's outstanding voting securities, a
change in the majority of the Board or approval by shareholders of a
reorganization, merger, consolidation, liquidation or dissolution of the Company
subject, in each case, to certain exceptions. "Cause" is defined (for purposes
of the Agreements and the Employment Agreements with Messrs. Baum and Gordon
described below) as demonstrably willful or deliberate violations of the
executive's responsibilities which are committed in bad faith or without
reasonable belief that such violations are in the best interests of the Company,
which are unremedied after notice, or conviction of the executive of a felony
involving moral turpitude.
Mr. Gordon (the "Employee") has an additional employment agreement, dated
as of January 1, 1996 (the "Agreement"). The Employee is eligible to participate
in the Company's management incentive bonus arrangements (with a target bonus of
45% of base salary) as well as other benefit plans and programs available to
senior executives and employees generally. The Company agrees to use its best
efforts to cause Employee to be nominated for re-election as a Director upon
expiration of his current or any future term and to recommend such re-election.
15
<PAGE> 17
If the Employee's employment terminates for any reason, he will be entitled
to a life annuity payment from the Company equal to 3.33% of his "Final Average
Pay" multiplied by the number of full years employed, payable at age 65, less
any amounts payable under the Company's Pension Plan, Supplemental Plan or U.S.
Social Security. In addition, the Company will maintain a key executive life
insurance policy in an amount sufficient to pay a life annuity benefit
commencing at age 65 (or termination of employment, if later) of $225,000 per
year. If the Employee is terminated by the Company (other than for "Cause")
prior to February 1, 2000, he would be entitled to an annual life insurance
annuity benefit of $160,714 and may acquire additional years of vested benefits
at a cost of $216,480 per year. If he dies before the commencement of the life
insurance annuity payments, his beneficiary would receive a lump sum death
benefit of $1,500,000 and none of the other life insurance annuity payments
would be payable. If he dies after the life insurance annuity payments begin but
before the receipt of 240 months of payments, the balance of said 240 months of
payments will be made to his beneficiary. If the insurance policy value is
insufficient to make the foregoing payments, the Company will make these
payments from its general assets.
If the Employee is terminated (other than for "Cause") prior to April 30,
1999, he would receive one year and nine months of base salary as severance pay,
with the length of the severance pay reduced by three months for every
additional three months of service thereafter until January 31, 2000. In the
event of a Change of Control (as defined above), the Employee would be entitled
to receive the greater of the severance benefits set forth in the immediately
preceding sentence and the amounts payable under the Change of Control
Agreement. The Agreement also amended the Employee's Change of Control Agreement
to make certain clarifying and conforming changes.
The Employee is entitled to relocation benefits under existing policies
except that such benefits are provided for both of Employee's Canadian
residences. Further, if Employee is terminated (other than for "Cause") within
the first seven years of employment, the Company will provide relocation
assistance for Employee's primary residence in the United States including a
guarantee of the original purchase price thereof plus the fair market value of
any capital improvements. In addition, the Employee shall receive such
additional relocation benefits as may be agreed between the chief executive
officer and the Employee. The Employee may terminate his employment and collect
benefits under the Agreement within one year after any diminution of his
responsibilities, removal from or failure to be re-elected to the Board,
relocation or any breach by the Company of any of its obligations described
above or any other material breach of the Agreement by the Company. "Final
Average Pay" is defined in the Agreement as one-fifth of total salaries and
bonuses received by the Employee in the five highest consecutive years of
employment or if Employee was employed for less than five years, the annualized
average of salaries and bonuses.
On January 31, 1998, George R. Ditomassi resigned as an executive officer
of the Company, terminated his employment with the Company and entered into a
consulting agreement with the Company.
On January 30, 1998, the Company and George R. Ditomassi, Jr., entered into
certain letter agreements, pursuant to which the Company agreed to pay Mr.
Ditomassi severance pay of $41,979 per month through December 31, 1999 (the
"Severance Period"), to continue his participation during the Severance Period
in the executive automobile, tax preparation, basic life, medical and dental
insurance programs, to pay the premiums for $800,000 in supplemental term life
insurance during the Severance Period and to permit his outstanding options to
continue to vest during the Severance Period and to become fully vested and
exercisable at the end of the Severance Period. The Company and Mr. Ditomassi
exchanged certain releases and the Company agreed to pay for his legal expenses
incurred in drafting the letter agreements and related documents. The Company
also agreed that if the rights of indemnity of officers or directors of the
Company are enhanced thereafter, he would be entitled to such enhanced rights as
they relate to action taken while an officer, director or employee of the
Company. If Mr. Ditomassi begins full time regular non-temporary employment with
a third party during the Severance Period, his right to severance pay would end,
and to the extent that other benefits being continued are provided by such new
employer, those benefits would also cease. Mr. Ditomassi agreed not to compete
with or interfere in any relationship of the Company for a period beginning on
January 31, 1998 and ending one year from the date severance benefits cease.
16
<PAGE> 18
On January 31, 1998, the Company and Mr. Ditomassi entered into a
consulting agreement (the "Consulting Agreement") with a term ending on October
31, 1999 (although Mr. Ditomassi has the right to terminate the Consulting
Agreement at any time), pursuant to which Mr. Ditomassi will work on and/or
provide advice with respect to certain matters as well as additional matters
reasonably requested by the Chairman of the Company from time to time. As basic
compensation for consulting services, the Company agreed to pay Mr. Ditomassi
$5,000 per month plus minimum lump sum payments of $150,000 in March of 1999 and
$125,000 in March of 2000 (or a pro rata portion thereof if the Consulting
Agreement is terminated prior to such payments), subject to increase at the
discretion of the Chairman of the Company. Pursuant to the preceding sentence,
the Company made a lump sum payment to Mr. Ditomassi of $175,000 in March 1999.
Mr. Ditomassi agreed not to compete with, or interfere with any relationship of,
the Company for a period beginning on January 31, 1998 and ending one year
following the term of the Consulting Agreement.
The Company and Herbert M. Baum (the "Executive") are parties to an
Employment Agreement, dated as of January 5, 1999 (the "Employment Agreement")
as well as a Change of Control Agreement. Pursuant to the Employment Agreement,
the Executive has been elected President and Chief Operating Officer of the
Company and a member of the Board. The Employment Agreement has a three year
term, subject to extension by mutual agreement of the Company and the Executive
(the "employment term"). The Executive's base salary is $750,000 subject to
increases approved by the Committee.
The Executive is eligible to participate in the Company's management
incentive bonus arrangements (with a target bonus of 45% of base salary) as well
as other benefit plans and programs available to senior executives and employees
generally. The Company agrees to use its best efforts to cause Employee to be
nominated for re-election as a Director upon expiration of his term and to
recommend such re-election during his employment term. If the Executive's
employment terminates for any reason, he will be entitled to a life annuity
payment from the Company equal to 3.3% of his average annual cash compensation
multiplied by the number of full years employed, payable at age 65, less any
amounts payable under the Company's Pension and Supplemental Plans, except that
the maximum annual compensation taken into account for purposes of the
calculation shall not exceed $909,091. In the event of a Change of Control as
defined above, the Company will make these payments from a fully funded
corporate rabbi trust.
If the Executive's employment is terminated without "Cause", by the
Executive for "good reason", as defined below, or by mutual agreement, the
Executive would receive his base salary as severance pay for the lesser of
eighteen months and the remainder of his employment term. If the Executive
terminates his employment without good reason, he shall be entitled to receive
his base salary as severance pay for the lesser of twelve months and the
remainder of his employment period. In the event of a Change of Control (as
defined above), the Executive would be entitled to receive the greater of the
severance benefits set forth above and the amounts payable under the Change of
Control Agreement.
The Executive has been awarded options to purchase 262,500 shares (as
adjusted to reflect the 3 for 2 stock split paid in the form of a 50% stock
dividend on March 15, 1999)of Common Stock at fair market value on the date of
grant vesting over three years. The Executive is eligible for further option
grants under the Company's regular option program and, unless the Executive's
employment is terminated for "Cause", Executive will have three years from the
date his employment terminates to exercise any options granted. If Executive is
terminated prior to expiration of his employment term, his options will continue
to vest during the period that severance pay is paid. If Executive's employment
terminates at or after January 5, 2002 (the "Retirement Date"), any unvested
options may become exercisable upon the execution and delivery by the Executive
of a covenant not to compete until the later of (a) the first anniversary of the
Retirement Date and (b) the period that any of Executive's options are
outstanding.
The Executive is entitled to relocation benefits under existing policies
except that the Company will provide relocation assistance for Executive's Rhode
Island residence including a guarantee of the original purchase price thereof
plus the fair market value of any capital improvements. In addition, the
Executive shall receive such additional relocation benefits as may be agreed
between the chief executive officer and the Executive. The Executive may
terminate his employment and collect benefits under the Employment Agreement
within one year after any diminution of his responsibilities, removal from or
failure to be re-elected
17
<PAGE> 19
to the Board, failure of any successor to the Company to assume and agree to
perform the Employment Agreement, relocation or any breach by the Company of any
of its obligations described above or any other material breach of the Agreement
by the Company (collectively, "good reason").
The Company agreed to reimburse the Executive for reasonable legal and
consulting fees incurred in connection with the negotiation, acceptance and
execution of the Employment Agreement.
On March 19, 1999, Adam Klein resigned as an executive officer of the
Company. On March 23, 1999, the Company and Mr. Klein entered into a letter
agreement, pursuant to which Mr. Klein terminated his employment with the
Company effective April 1, 1999 (the "Termination Date"). The Company agreed to
pay Mr. Klein $63,333 during the first week of April 1999 and $9,167 per week
through March 31, 2000 (the "Severance Period"). The Company agreed to pay his
reasonable legal expenses (not to exceed $15,000) in documenting the letter
agreement and related documents, to pay Mr. Klein, in the first quarter of 2000,
$170,000 as a 1999 management bonus and to permit all options that would vest
between the Termination Date and April 23, 2000 to be deemed vested on the
Termination Date and exercisable during the Severance Period. During the
Severance Period, Mr. Klein's Company-provided life, medical and dental
insurance will continue and he will have continued use of his leased automobile,
cell phone, personal computer and fax machine except that he will be responsible
for all operating and maintenance costs (other than automobile insurance and
lease payments). The Company and Mr. Klein exchanged certain releases, subject
to any rights to indemnification, contribution or protection under the Company's
directors' and officers' liability insurance. Mr. Klein agreed not to compete
with or interfere in any relationship of the Company during the Severance Period
except if the competitive product or service represents less than 5% of the
revenue of such competitor and Mr. Klein is not directly involved in the
development, manufacture or distribution of such competitive product or service.
PROPOSAL TO APPROVE THE
1999 SENIOR MANAGEMENT ANNUAL PERFORMANCE PLAN
(PROPOSAL NO. 2)
On February 16, 1999, the Compensation and Stock Option Committee of the
Board of Directors of the Company unanimously approved the adoption of the 1999
Senior Management Annual Performance Plan of the Company (the "Plan"). The Board
of Directors directed that the Plan be submitted to the Shareholders at the 1999
Annual Meeting for their approval. Targets set in February 1999 for the
applicable performance period shall be null and void and no payments pursuant
thereto may be made if the Plan is not approved by the Shareholders.
The purpose of the Plan is to promote the interests of the Company and its
shareholders by providing incentive for participating executive officers to
contribute to the improvement of operating results of the Company and to reward
outstanding performance on the part of those individuals whose decisions and
actions most significantly affect the growth, profitability and efficient
operation of the Company.
The Plan has been designed to enable the Company to receive federal income
tax deductions for awards paid under the Plan to its Chief Executive Officer and
the four other most highly compensated executive officers (collectively, the
"Covered Employees"), even if any Covered Employee's compensation exceeds
$1,000,000 in any year. Under Section 162(m) of the Internal Revenue Code and
certain regulations and rules promulgated thereunder by the Internal Revenue
Service (collectively the "Code"), corporations whose stock is publicly traded
generally are not entitled to deduct remuneration paid to covered employees to
the extent that payments for any year to any such employee exceed $1 million,
unless the payments are made under qualifying performance-based compensation
plans. The Company believes that if the Plan is approved by the Shareholders, it
will qualify as a performance-based compensation plan under the Code, although
the Company has not requested or received, and does not expect to receive, a
ruling from the Internal Revenue Service to that effect. A predecessor of the
Plan, the Senior Management Annual Performance Plan, was approved by
Shareholders in 1994. Under the Code, such plans must be approved by
shareholders every five years.
18
<PAGE> 20
SUMMARY DESCRIPTION OF THE PERFORMANCE PLAN
The following summary is qualified in its entirety by reference to the full
text of the Plan annexed to this Proxy Statement as Appendix A.
The Plan will be administered by the Compensation and Stock Option
Committee of the Board of Directors or a subcommittee of the Compensation
Committee consisting solely of two or more "outside directors" of the Company as
defined in the Code (the "Committee").
The major provisions of the Plan are as follows:
Eligibility. Eligibility for participation in the Plan is limited to
executive officers of the Company who are selected in the sole discretion
of the Committee. No person is automatically entitled to participate in the
Plan in any plan year. Because the Plan has been designed solely to meet
the requirements of the Code, it will be applicable only to annual
incentive awards paid to those executive officers who are Covered Employees
for that year and whose salary, bonus and other annual compensation (as set
forth on the summary compensation table above) may exceed $1 million.
Accordingly, the sole participant in the Plan, as selected by the Committee
for the 1999 fiscal year, is the Chief Executive Officer. However, in
future years, the Committee may select other Covered Employees to be
eligible for participation under the Plan if necessary to enable the
Company to receive a full tax deduction for current bonuses paid to them.
The Company intends in 1999 to continue to compensate all of its executive
officers, other than the Chief Executive Officer, under the compensation
plans and policies described elsewhere in this Proxy Statement under the
caption, "Report of the Compensation and Stock Option Committee of the
Board of Directors."
Determination of Benefits. The Committee has designated for the Chief
Executive Officer for 1999 and will, for each subsequent fiscal year,
designate a performance goal for that fiscal year, based on the Company's
Net Earnings, as defined below, for the fiscal year. While performance
goals will normally consist of a targeted increase in Net Earnings,
depending on the circumstances, a performance goal may consist of
maintaining Net Earnings or limiting a reduction in Net Earnings, all as
determined by the Committee in its discretion in any particular year.
Subject to the absolute right of the Committee to decrease awards in its
sole discretion, achievement of a performance goal will result in payment
in the case of the Chief Executive Officer of 75% of salary for each fiscal
year (the "target bonus") and if 127% or more of the performance goal is
achieved, up to a maximum bonus equal to 150% of salary for such fiscal
year (the "maximum bonus"). If and when other executive officers are
selected to participate in the Plan in the future, the Committee will
designate the target and maximum bonuses for such participants but in no
event will the target bonus exceed 75% of salary and the maximum bonus
exceed 150% of salary. No bonus will be payable under the Plan if less than
80% of the performance goal is achieved. Salaries of participants will not
be adjusted during a fiscal year. Annual increases in salary to
participants will not exceed 15% a year, except for material changes in
responsibility of the participant, in which case the annual increase will
not exceed 30%. The maximum amount that can be paid pursuant to the Plan to
any one individual with respect to any given fiscal year is $1.985 million.
For purposes of the Plan, "Net Earnings" for a fiscal year is defined
as the consolidated net earnings of the Company and its subsidiaries,
determined in accordance with generally accepted accounting principles on a
consistent basis, exclusive of (a) changes in accounting principles, (b)
all extraordinary items of income and expense, (c) all material
restructuring expenses, (d) the results of operations of acquisitions
consummated during the fiscal year and (e) all material non-recurring and
non-budgeted items of income and expense.
The Committee has the discretion to reduce the amount of any award or
to refuse to pay any award under the Plan.
Payment of Awards. All awards with respect to a fiscal year shall be
paid at any time or from time to time between the first day and March 15 of
the following fiscal year, provided that the Committee certifies
achievement of the performance goals in accordance with the Plan.
19
<PAGE> 21
Estimate of Benefits. The amounts that will be paid pursuant to the
Plan are not currently determinable. Had the Plan been in effect in fiscal
1998 and had all of the Covered Employees been selected to participate in
the Plan in fiscal 1998 and assuming that the target and maximum bonuses
for each such officer were 75% and 150% of salary, respectively, and that
the Committee did not exercise its discretion to reduce any award, the
amounts that would have been paid in accordance with the formula
established pursuant to the Plan and the maximum amounts that could have
been paid had the maximum bonuses been paid in 1998 are each set forth
below:
<TABLE>
<CAPTION>
MAXIMUM
NAME AND POSITION DOLLAR VALUE $DOLLAR VALUE
- ----------------- ------------ -------------
<S> <C> <C>
Alan G. Hassenfeld................................. $ 517,548 $1,522,200
Chairman of the Board,
President and Chief
Executive Officer
Alfred J. Verrecchia............................... 332,469 977,850
Executive Vice-President and
President, Global Operations
Harold P. Gordon................................... 291,245 855,602
Vice Chairman
John T. O'Neill.................................... 263,154 773,982
Executive Vice-President and
Chief Financial Officer
Adam Klein......................................... 259,021 761,826
Executive Vice-President and
President, Global Marketing and
Strategy
Executive Group (constituting the.................. 1,663,437 4,891,460
Covered Employees named above)
Non-Employee Director Group........................ 0 0
Non-Executive Officer Employee Group............... 0 0
</TABLE>
The Committee believes, that had the Plan been in effect in fiscal
1998, and had all of the Covered Employees been participants in the Plan in
fiscal 1998, the Committee would have exercised its discretion to reduce
all such awards to the bonuses actually paid to the individuals in 1998 as
set forth in the summary compensation table above, although any future
reduction in the amount of any award under the Plan is solely at the
discretion of the Committee and there is no assurance as to how the
Committee will exercise such discretion in the future.
Amendment and Termination of the Plan. The Committee may amend,
terminate or suspend the Plan in whole or in part at any time except that
no amendment for which shareholder approval is required either by the Code
in order to assure the deductibility by the Company of payments payable
under the Plan or by other applicable law shall be effective without such
shareholder approval having been obtained.
Vote required. The affirmative vote of a majority of the shares of
Common Stock present or represented by proxy at the annual meeting is
required for approval of the Plan. Accordingly, both an abstention and a
broker non-vote will in effect constitute a vote against the Plan.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE
THE 1999 SENIOR MANAGEMENT ANNUAL PERFORMANCE PLAN. (PROPOSAL NO. 2)
20
<PAGE> 22
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of March 19, 1999 (except as
noted), with respect to the ownership of the Common Stock (the only class of
outstanding voting securities of the Company) by certain persons known by the
Company to be the beneficial owners of more than 5% of such stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ---------------- ----------------- ----------
<S> <C> <C>
Alan G. Hassenfeld....................................... 18,393,983(2) 9.3
1027 Newport Avenue
Pawtucket, RI 02862
George W. Lucas, Jr. .................................... 15,750,000(3) 7.4
c/o LucasFilm Ltd.
5858 Lucas Valley Road
Nicasio, CA 94946
Capital Guardian Trust Company........................... 10,558,920(4) 5.4
11100 Santa Monica Blvd.
Los Angeles, CA 90025
</TABLE>
- ---------------
(1) Based upon information furnished by each shareholder or contained in filings
made with the Securities and Exchange Commission.
(2) Includes 8,890,921 shares held as sole trustee for the benefit of his
mother, 829,482 shares held as sole trustee of a trust for Mr. Hassenfeld's
benefit and currently exercisable options or options exercisable within 60
days hereof to purchase 1,082,750 shares. Mr. Hassenfeld has sole voting and
investment authority with respect to all shares except those described in
the following sentence, as to which he shares voting and investment
authority. Also includes 986,850 shares owned by The Hassenfeld Foundation,
of which Mr. Hassenfeld is an officer and director, as to which shares Mr.
Hassenfeld disclaims beneficial ownership, 695,470 shares held as one of the
trustees of a charitable lead trust for the benefit of The Hassenfeld
Foundation and 154,216 shares held as one of the trustees of a trust for the
benefit of his mother and her grandchildren.
(3) Represents 6,300,000 warrants owned by LucasFilm Ltd. ("Film") and 9,450,000
warrants owned by its wholly-owned subsidiary, Lucas Licensing Ltd.
("Licensing") which become exercisable on the U.S. theatrical release of
"The Phantom Menace" which is currently scheduled to take place on May 19,
1999. Mr. Lucas, as founder, controlling person and sole director of Film
and Licensing, may be deemed to beneficially own the shares of Common Stock
which may be purchased upon exercise of these warrants. See "Certain
Relationships and Related Transactions".
(4) Capital Guardian Trust Company and certain investment management affiliates
have sole dispositive power over 10,558,920 shares of Common Stock and sole
voting power over 9,117,520 of such shares. The foregoing information is as
at December 31, 1998.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information, as of March 19, 1999, with
respect to the ownership of the Common Stock (the only class of outstanding
equity securities of the Company) by each director of the Company, each nominee
for director, each named executive officer and by all directors, nominees and
21
<PAGE> 23
executive officers as a group. Unless otherwise indicated, each person has sole
voting and dispositive power with respect to such shares.
<TABLE>
<CAPTION>
PERCENT
COMMON OF
NAME OF DIRECTOR, NOMINEE OR EXECUTIVE OFFICER(1) STOCK CLASS
------------------------------------------------- ---------- -------
<S> <C> <C>
Alan R. Batkin(2)........................................... 25,210 *
Herbert M. Baum............................................. 1,500 *
E. Gordon Gee............................................... -- *
Harold P. Gordon(3)......................................... 418,259 *
Alex Grass(4)............................................... 48,711 *
Alan G. Hassenfeld (5)...................................... 18,393,983 9.3
Sylvia K. Hassenfeld(6)..................................... 1,085,734 *
Marie Josee Kravis(7)....................................... 8,985 *
Claudine B. Malone(8)....................................... 13,383 *
Morris W. Offit(9).......................................... 14,632 *
John T. O'Neill(10)......................................... 398,083 *
Norma T. Pace(11)........................................... 20,056 *
E. John Rosenwald, Jr.(12).................................. 226,450 *
Carl Spielvogel(13)......................................... 56,386 *
Preston Robert Tisch(14).................................... 16,318 *
Alfred J. Verrecchia(15).................................... 1,015,502 *
Paul Wolfowitz(16).......................................... 14,039 *
All Directors, Nominees and Executive Officers as a Group
(includes 25 persons)(17)................................. 21,709,803 10.9
</TABLE>
- ---------------
* Less than one percent.
(1) Information in this table is based upon information furnished by each
director, nominee and executive officer. All amounts have been adjusted to
reflect the 3 for 2 stock split paid in the form of a 50% stock dividend on
March 15, 1999.
(2) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 12,273
shares deemed to be held in Mr. Batkin's stock unit account under the
Deferred Plan.
(3) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's stock option plans to purchase an
aggregate of 385,483 shares as well as 3,403 shares deemed to be held in
Mr. Gordon's stock unit account under the Deferred Plan. Excludes
fractional shares held in Mr. Gordon's account under the Company's Dividend
Reinvestment and Cash Stock Purchase Program.
(4) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 11,787
shares deemed to be held in Mr. Grass' stock unit account under the
Deferred Plan. Does not include 16,875 shares owned by the spouse of Mr.
Grass, as to which Mr. Grass disclaims beneficial ownership.
(5) See note (2) to the immediately preceding table.
(6) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares, 986,850 shares owned
by The Hassenfeld Foundation, of which Mrs. Hassenfeld is an officer and
director, and as to the shares of which she disclaims beneficial ownership,
and 1,693 shares deemed to be held in Mrs. Hassenfeld's stock unit account
under the Deferred Compensation Plan. Does not include the shares of Common
Stock held in trust for Mrs. Hassenfeld's benefit referred to in note (2)
to the immediately preceding table.
22
<PAGE> 24
(7) Represents currently exercisable options granted under the Company's Stock
Option Plan for Non-employee Directors to purchase 6,750 shares as well as
2,235 shares deemed to be held in Mrs. Kravis' stock unit account under the
Deferred Plan.
(8) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 1,683 shares
deemed to be held in Ms. Malone's stock unit account under the Deferred
Plan.
(9) Includes options currently exercisable and exercisable within sixty days
hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 9,000 shares as well as 1,132 shares
deemed to be held in Mr. Offit's stock unit account under the Deferred
Plan.
(10) Includes currently exercisable options and options exercisable within sixty
days hereof options granted under the Company's employee stock option plans
to purchase an aggregate of 360,583 shares.
(11) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 7,254 shares
deemed to be held in Mrs. Pace's stock unit account under the Deferred
Plan.
(12) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 12,700
shares deemed to be held in Mr. Rosenwald's stock unit account under the
Deferred Plan. Does not include shares held by The Bear Stearns Companies
Inc. in an investment account. Mr. Rosenwald is Vice Chairman of The Bear
Stearns Companies Inc.
(13) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 4,819 shares
deemed to be held in Mr. Spielvogel's stock unit account under the Deferred
Plan.
(14) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 11,250 shares as well as 1,693 shares
deemed to be held in Mr. Tisch's stock unit account under the Deferred
Plan.
(15) Includes currently exercisable options and options exercisable within sixty
days hereof granted under the Company's employee stock option plans to
purchase an aggregate of 850,250 shares. Does not include 151,875 shares
owned by Mr. Verrecchia's spouse, as to which Mr. Verrecchia disclaims
beneficial ownership.
(16) Represents options currently exercisable and exercisable within sixty days
hereof granted under the Company's Stock Option Plan for Non-employee
Directors to purchase an aggregate of 9,000 shares as well as 5,039 shares
deemed to be held in Mr. Wolfowitz's stock unit account under the Deferred
Plan.
(17) Of these shares, all directors and executive officers as a group have sole
voting and dispositive power with respect to 19,704,517 shares and have
shared voting and/or investment power with respect to 2,005,286 shares.
Includes 3,499,128 shares purchasable by directors and executive officers
upon exercise of currently exercisable options, or options exercisable
within sixty days hereof, granted under the Company's stock option plans
and 62,308 shares deemed to be held in stock unit accounts under the
Deferred Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act, as amended, requires the Company's directors
and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission and the American Stock Exchange initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Executive officers, directors and greater than
ten-percent shareholders are required by regulation promulgated by the
Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the last fiscal year ended
23
<PAGE> 25
December 27, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were complied
with.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board, upon recommendation of the Audit Committee of the Board, has
selected KPMG LLP, independent certified public accountants, to audit the
consolidated financial statements of the Company for the fiscal year ending
December 26, 1999. A representative of KPMG LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement, if so desired,
and will be available to respond to appropriate questions.
OTHER BUSINESS
Management knows of no other matters that may be presented to the Annual
Meeting. However, if any other matter properly comes before the meeting, or any
adjournment thereof, it is intended that Proxies in the accompanying form will
be voted in accordance with the judgment of the persons named therein.
PROPOSALS BY HOLDERS OF COMMON STOCK
Any proposal which a shareholder of the Company wishes to have considered
for inclusion in the proxy statement and proxy relating to the Company's 2000
Annual Meeting must be received by the Company at its executive offices no later
than December 2, 1999. The address of the Company's executive offices is 1027
Newport Avenue, Pawtucket, Rhode Island 02862.
In accordance with the By-Laws of the Company, which the Company believes
are consistent with the Articles of Incorporation of the Company, any new
business proposed by any shareholder to be taken up at the 2000 annual meeting
must be stated in writing and filed with the Secretary of the Company by
December 14, 1999. Except for proposals made pursuant to the preceding
paragraph, the Company will retain discretion to vote proxies with respect to
proposals received prior to December 14, 1999, provided (i) the Company includes
in its 2000 annual meeting proxy statement advice on the nature of the proposal
and how it intends to exercise its voting discretion and (ii) the proponent does
not issue a proxy statement.
COST OF SOLICITATION
The cost of soliciting Proxies in the accompanying form has been or will be
borne by the Company. In addition to solicitation by mail, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals and the Company will
reimburse them for any reasonable expenses incurred in connection therewith.
It is important that your shares be represented at the meeting. If you are
unable to be present in person, you are respectfully requested to vote by
Internet, by telephone or by marking, signing and dating the enclosed Proxy and
returning it in the pre-addressed envelope as promptly as possible. No postage
is required if mailed in the United States.
By Order of the Board of Directors
Phillip H. Waldoks
Secretary
Dated: March 31, 1999
Pawtucket, Rhode Island
24
<PAGE> 26
APPENDIX A
HASBRO, INC.
1999 SENIOR MANAGEMENT ANNUAL
PERFORMANCE PLAN
Section 1. Purpose. The purpose of the Hasbro, Inc. 1999 Senior
Management Annual Performance Plan (the "Plan") is to promote the interests of
Hasbro, Inc. (the "Company") and its shareholders by providing incentive to
participating senior executive officers of the Company to make significant
contributions to the performance of the Company and to reward outstanding
performance on the part of those individuals whose decisions and actions most
significantly affect the growth, profitability and efficient operation of the
Company.
Section 2. Term. The Plan shall be effective as of the first day of the
Company's 1999 fiscal year (the "Effective Date"), subject to shareholder
approval of the Plan at the Company's 1999 Annual Meeting of Shareholders, and
shall also be applicable for all future fiscal years of the Company unless
amended or terminated by the Company pursuant to Section 10, subject to any
future shareholder reapproval requirements of the Internal Revenue Code of 1986,
as amended (including without limitation Section 162(m) thereof), and the rules
and regulations (including any then current proposed and/or transitional rules
or regulations) promulgated thereunder by the Internal Revenue Service
(collectively the "Code").
Section 3. Coverage. For purposes of the Plan, the "Participant" shall
mean each executive officer of the Company selected by the Compensation and
Stock Option Committee of the Board of Directors or a subcommittee thereof, in
each case consisting solely of two or more "outside directors", as defined in,
and whose membership on the Committee satisfies the provisions of, Section 162
(m) of the Code (the "Committee"), with respect to such fiscal year.
Section 4. Performance Goals. The Committee shall designate, within the
time period required by the Code, a performance goal under the Plan for each
fiscal year (the "Performance Goal"). The Performance Goal shall be based on the
Company's Net Earnings (as defined in Section 6 below) for the fiscal year.
While Performance Goals will usually consist of a targeted increase in Net
Earnings, depending on the circumstances, a Performance Goal may consist of
maintaining Net Earnings or limiting a reduction in Net Earnings, all as
determined by the Committee in its discretion in any particular year.
Section 5. Performance Award Levels. Subject to Section 7 hereof,
achievement of a Performance Goal will result in a payment of, in the case of
the Chief Executive Officer, 75% of salary (which shall include all amounts
deferred by the Participant into the Company's Retirement Savings Plan, the
Company's Non-Qualified Deferred Compensation Plan and/or any similar or
successor plans) for the fiscal year (the "Targeted Performance Award"). In the
case of other executive officers selected by the Committee as eligible to
participate in the Plan, the Committee shall designate the percentage of salary
that shall constitute the Targeted Performance Award for each such Participant
but in no event will such percentage exceed 75% of salary. No payment under the
Plan shall be made if less than 80% of the Performance Goal is achieved. If 127%
or more of the Performance Goal is achieved, the Participant may receive a
maximum payment equal to 200% of the Targeted Performance Award, i.e. 150% of
salary for such fiscal year (the "Maximum Bonus"). The percent of the Targeted
Performance Award payable for the achievement of between 80% and 127% of the
Performance Goal shall be determined by the Committee within the time period
required by the Code for each fiscal year. In no event shall the salary of the
Participant be increased during a fiscal year. Annual increases in salary of any
Participant shall be limited to no more than 15% except that in the case of a
material increase in responsibility of such Participant, the annual increase in
salary shall not exceed 30%. In no event shall the maximum amount paid to any
one individual in respect of any given fiscal year exceed $1.985 million.
Section 6. Net Earnings. For purposes of the Plan, "Net Earnings" for a
fiscal year shall be the consolidated net earnings of the Company and its
subsidiaries, determined in accordance with generally accepted accounting
principles applied on a consistent basis, exclusive of (a) changes in accounting
principles,
A-1
<PAGE> 27
(b) all extraordinary items of income and expense, (c) all material
restructuring expenses, (d) the results of operations of acquisitions
consummated during the fiscal year and (e) all material non-recurring and non-
budgeted items of income and expense.
Section 7. Administration and Interpretation. The Plan shall be
administered by the Committee, which shall have the sole authority to select
Participants under the Plan and to make rules and regulations for the
administration of the Plan. In making any determinations under the Plan, the
Committee shall be entitled to rely on reports, opinions or statements of
officers or employees of the Company and its affiliates as well as those of
counsel, public accountants and other professional or expert persons. The
interpretations and decisions of the Committee with regard to the Plan shall be
final and conclusive, and the Committee shall have the full power and authority
in its sole discretion to reduce, or to refuse to make (but not to increase),
any payment payable as a result of the achievement of at least 80% of a
Performance Goal. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan.
Section 8. Certification of Achievement of Performance Goals. Provided
that the Code so requires, the Committee shall, prior to any payment under the
Plan, certify in writing the extent, if any, of achievement of Performance Goals
for each Participant. For purposes of this Section and for so long as the Code
permits, the approved minutes of the Committee meeting in which the
certification is made may be treated as a written certification.
Section 9. Payment of Awards. Payment, if any, under the Plan with
respect to a fiscal year shall be made to the Participant if the Participant is
employed by the Company at the end of such fiscal year and may be made at any
time or in installments from time to time between the first day and March 15 of
the next fiscal year at the discretion of the Committee.
Section 10. Amendment or Termination. The Committee may from time to time
amend the Plan in any respect or terminate or suspend at any time the Plan in
whole or in part, provided that no such amendments that may require shareholder
approval (a) to assure the deductibility by the Company of payments payable
under the Plan under the Code or (b) under any other applicable law, shall be
effective without such shareholder approval having been obtained.
Section 11. No Assignment. The rights hereunder, including without
limitation rights to receive any payment, shall not be sold, assigned,
transferred, encumbered or hypothecated by a Participant (except by testamentary
disposition or intestate succession). During the lifetime of any Participant any
payment shall be payable only to such Participant.
Section 12. The Company. For purposes of this Plan, the "Company" shall
include the successors and assigns of the Company, and this Plan shall be
binding on any corporation or other person with which the Company is merged or
consolidated, or which acquired substantially all of the assets of the Company,
or which otherwise succeeds to its business.
Section 13. No Right to Participate. Nothing in the Plan shall be deemed
to create any obligation on the part of the Committee to select any executive
officer of the Company as a Participant, nor confer upon any Participant in the
Plan the right to remain a Participant in the Plan for any subsequent fiscal
year.
Section 14. Governing Law. The validity, construction and effect of the
Plan and any action taken or relating to the Plan shall be determined in
accordance with the laws of the State of Rhode Island and applicable Federal
Law.
A-2
<PAGE> 28
SKU # 0537 PS 99
<PAGE> 29
HASBRO, INC.
1027 NEWPORT AVENUE
PAWTUCKET, RI 02862
Dear Fellow Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Hasbro, Inc. to be held at 10:00 a.m. on Wednesday, May 12,
1999, at The 200 Fifth Avenue Club, 200 Fifth Avenue, New York, New York. The
accompanying Notice of Annual Meeting and Proxy Statement contain detailed
information as to the formal business to be transacted at the meeting.
Your Vote Matters. Whether or not you plan to attend the 1999 Annual
Meeting, it is important that your shares be voted. Please follow the
instructions on the other side of this proxy card. You may, of course, attend
the 1999 Annual Meeting and vote in person, even if you have previously voted.
I am looking forward to seeing you there.
Sincerely,
Alan G. Hassenfeld
Chairman of the Board
and Chief Executive Officer
YOUR VOTE IS IMPORTANT
DETACH HERE
- -------------------------------------------------------------------------------
PROXY
HASBRO, INC.
ANNUAL MEETING OF SHAREHOLDERS - MAY 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement of Hasbro, Inc. (the "Company") and hereby
appoints ALAN G. HASSENFELD and HAROLD P. GORDON and each of them, with full
power of substitution to each of them, as attorneys and proxies to appear and
vote all of the shares of Common Stock standing in the name of the undersigned
at the Annual Meeting of Shareholders of the Company, to be held on May 12,
1999 at 10:00 A.M. at The 200 Fifth Avenue Club, 200 Fifth Avenue, New York,
New York, and at any adjournment thereof.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND
2 AND IN SUPPORT OF MANAGEMENT ON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
PLEASE MARK, SIGN AND DATE ON REVERSE SIDE AND PROMPTLY MAIL
IN THE ENCLOSED ENVELOPE.
/SEE REVERSE/ /SEE REVERSE/
/ SIDE / CONTINUED AND TO BE SIGNED ON REVERSE SIDE / SIDE /
<PAGE> 30
VOTE BY TELEPHONE
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8883).
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8883). For shareholders residing outside the
United States call collect on a touch-tone phone 1-201-536-3073.
3. Enter your 14-digit Control Number located on your Proxy Card above your
name.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime!
VOTE BY INTERNET
It's fast, convenient, and your vote is immediately confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Go to the Website http://www.eproxyvote.com/has
3. Enter your 14-digit Control Number located on your Proxy Card above your
name.
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT!
Go to http://www.eproxyvote.com/has anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
- -------------------------------------------------------------------------------
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of Directors
For Terms Expiring 2002: (01) Herbert M. Baum, (02) E. Gordon Gee, (03)
Sylvia K. Hassenfeld, (04) Norma T. Pace and (05) E. John Rosenwald, Jr.
For Term Expiring 2001: (06) Alfred J. Verrecchia
FOR ALL NOMINEES / / / / WITHHELD FROM ALL NOMINEES
/ /
--------------------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Approval of 1999 Senior Management / / / / / /
Annual Performance Plan.
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Sign exactly as your name(s) appear(s) hereon. When signing in a representative
capacity, please give full title as such. If more than one name is shown,
including the case of joint tenants, each person should sign.
Signature: Date:
-------------------------- -----------------
Signature: Date:
-------------------------- -----------------
