Filed Pursuant to Rule 424(b)(3)
Registration No. 333-83250
PROSPECTUS
[HASBRO, INC. LOGO]
$250,000,000
HASBRO, INC.
2.75% CONVERTIBLE SENIOR DEBENTURES DUE 2021
AND
11,574,075 SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF THE DEBENTURES
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Hasbro, Inc., or Hasbro, issued the debentures in a private placement in
November 2001. This prospectus will be used by selling securityholders to
resell, from time to time, their debentures and the common stock issuable upon
conversion of their debentures. We will not receive any of the proceeds from any
sale of the debentures or common stock issuable upon conversion of the
debentures.
The interest rate on the debentures is 2.75% per year and interest is
payable on June 1 and December 1 of each year, beginning on June 1, 2002. The
interest rate on the debentures may be subject to an upward interest adjustment,
as described in this prospectus.
Holders may convert the debentures into 46.2963 shares of our common stock
for each $1,000 principal amount of debentures (equivalent to an initial
conversion price of $21.60 per share based on the issue price of the debentures)
under the circumstances described under the caption "Description of
Debentures -- Conversion Rights." As of May 23, 2002 the debentures were not
immediately convertible. Our common stock is quoted on the New York Stock
Exchange under the symbol "HAS." The last reported price of our common stock on
May 23, 2002 was $15.27 per share.
A complete description of the terms of the debentures is set forth under
the caption "Description of Debentures."
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INVESTING IN THE DEBENTURES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is May 30, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO
SELL THESE SECURITIES. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF
THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
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TABLE OF CONTENTS
PAGE
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Summary..................................................... 2
Risk Factors................................................ 4
Note Regarding Forward-Looking Statements................... 11
Use of Proceeds............................................. 12
Ratio of Earnings to Fixed Charges.......................... 12
Description of Debentures................................... 13
Description of Capital Stock................................ 32
Certain Anti-Takeover Provisions............................ 33
Certain United States Federal Income Tax Considerations..... 38
Selling Securityholders..................................... 44
Plan of Distribution........................................ 48
Where You Can Find More Information......................... 50
Incorporation of Certain Documents by Reference............. 50
Validity of Securities...................................... 51
Experts..................................................... 51
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1
SUMMARY
The following summary is qualified in its entirety by and should be read
together with the more detailed information and the audited and unaudited
financial statements, including the related notes, incorporated by reference in
this prospectus. Except as expressly indicated or unless the context otherwise
requires, "Hasbro", "we", "our" and "us" means Hasbro, Inc., a Rhode Island
corporation organized on January 8, 1926, and its consolidated subsidiaries.
Unless the context requires otherwise, all references to "common stock" are to
our common stock, par value $0.50 per share, and the associated rights issued
under our Shareholders Rights Plan dated June 16, 1999.
COMPANY OVERVIEW
Hasbro is a worldwide leader in children's and family leisure time and
entertainment products and services, including the design, manufacture and
marketing of games and toys ranging from traditional to high-tech. Both
internationally and in the United States, our widely recognized core brands such
as PLAYSKOOL, TONKA, SUPER SOAKER, MILTON BRADLEY, PARKER BROTHERS, TIGER, and
WIZARDS OF THE COAST provide what we believe to be the highest quality play
experiences in the world. We manage our business by focusing on two major areas:
Toys and Games. Our offerings include a broad variety of games, including
traditional board and card, hand-held electronic, children's consumer
electronic, trading card and roleplaying games, as well as electronic
interactive products, robotic pets, electronic learning aids and puzzles. Toy
offerings include boys' action, preschool, creative play and girls' toys, dolls
and plush products. We also license to others various trademarks, characters and
other property rights for use in connection with consumer promotions and the
sale by others of noncompeting toys and non-toy products. For the fiscal year
ended December 30, 2001, we had worldwide net revenues of $2.9 billion and net
earnings of $59.7 million.
In our U.S. Toys segment, we market our products as boys' toys, girls'
toys, preschool and creative play. Brands and products from the Toys segment
include: MR. POTATO HEAD, TONKA, G.I. JOE, STAR WARS, MONSTERS, INC., BOB THE
BUILDER, TRANSFORMERS, TINKERTOY, EASY BAKE OVEN, PLAY-DOH and PLAYSKOOL.
In our Games segment, we market our games and puzzles under several well
known core brands, including MILTON BRADLEY, PARKER BROTHERS, AVALON HILL, TIGER
and WIZARDS OF THE COAST. Brands and products from the Games segment include:
MONOPOLY, BATTLESHIP, THE GAME OF LIFE, SCRABBLE, CHUTES AND LADDERS, CANDY
LAND, TROUBLE, MOUSETRAP, OPERATION, HUNGRY HUNGRY HIPPOS, CONNECT FOUR,
TWISTER, YAHTZEE, JENGA, CLUE, SORRY!, RISK, BOGGLE, OUIJA, TRIVIAL PURSUIT,
DIPLOMACY, ACQUIRE and WHEELS ON THE BUS.
Our Tiger Electronics brand products bring innovation and technology to
entertainment and lifestyle products for the whole family, including the HIT
CLIPS micro music systems. WIZARDS OF THE COAST trading card and roleplaying
games include the popular MAGIC: THE GATHERING, DUNGEONS AND DRAGONS and HARRY
POTTER trading card game, based on The New York Times best-selling novels.
We operate in more than 25 countries, selling a representative range of the
toy and game products we market in the United States, together with some items
which are sold only internationally. In the fiscal year ended December 30, 2001,
we derived approximately 36% of our total consolidated net revenues from
international customers.
Our common stock is listed on the New York Stock Exchange under the symbol
"HAS." Our principal executive offices are located at 1027 Newport Avenue,
Pawtucket, Rhode Island, 02862. Our telephone number at that address is (401)
431-8697. For additional information about our business, please see our Form
10-K for the fiscal year ended December 30, 2001 and our other filings with the
SEC which are incorporated by reference into this document. The capitalized
terms used above are our trademarks or trade names, or those of our licensors.
2
CREDIT RATINGS OF THE DEBENTURES
The debentures are currently rated Ba3 by Moody's Investors Service, Inc.,
BB by Standard & Poor's Ratings Group and BB by Fitch IBCA Duff & Phelps.
Investors may find current information regarding these ratings by visiting the
Internet websites maintained by these ratings services.
3
RISK FACTORS
Investing in the debentures involves risk. The risks and uncertainties
described are not the only ones facing our company. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations.
RISKS RELATING TO OUR BUSINESS
VOLATILITY OF CONSUMER PREFERENCES AND THE HIGH LEVEL OF COMPETITION IN THE
FAMILY ENTERTAINMENT INDUSTRY MAKES IT DIFFICULT TO MAINTAIN THE LONG-TERM
SUCCESS OF EXISTING PRODUCT LINES AND CONSISTENTLY INTRODUCE SUCCESSFUL NEW
PRODUCTS.
Our business and operating results depend largely upon the appeal of our
family entertainment products, principally games and toys. A decline in the
popularity of our existing products and product lines or the failure of new
products and product lines to achieve and sustain market acceptance could result
in reduced overall revenues and margins, which could have a material adverse
effect on our business, financial condition and results of operations. Our
continued success will depend on our ability to redesign, restyle and extend our
existing family entertainment product lines and to develop, introduce and gain
customer acceptance of new family entertainment product lines. However, consumer
preferences with respect to family entertainment are continuously changing and
are difficult to predict. Individual family entertainment products generally,
and high technology products in particular, often have short life cycles. The
success of entertainment properties released theatrically, such as STAR WARS,
DISNEY or HARRY POTTER related productions, can significantly affect revenues we
derive from licensed product related to those properties. In addition,
competition in the industry could adversely impact our ability to secure,
maintain, and renew popular licenses on beneficial terms, if at all, and to
attract and retain the talented employees necessary to design, develop and
market successful products. The loss of rights granted pursuant to any of our
licensing agreements could have a material adverse effect on our business and
competitive position. We cannot assure you that:
- any of our current products or product lines will continue to be popular
for any significant period of time;
- any property for which we have a significant license will achieve
popularity;
- any new products or product lines introduced by us will achieve an
adequate degree of market acceptance;
- any new product's life cycle will be sufficient to permit us to
profitably recover development, manufacturing, marketing, royalties
(including royalty advances and guarantees) and other costs of the
product; or
- we will be able to manufacture, source and ship new or continuing
products in a timely basis to meet constantly changing consumer demands.
Our failure to successfully anticipate, identify and react to consumer
preferences in family entertainment could have an adverse effect on our
revenues, profitability and results of operations.
OUR BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND,
IN LARGE PART, ON OUR SALES DURING THE RELATIVELY BRIEF HOLIDAY SEASON. FURTHER,
THIS SEASONALITY IS INCREASING, AS LARGE RETAILERS BECOME MORE EFFICIENT IN
THEIR CONTROL OF INVENTORY LEVELS THROUGH QUICK RESPONSE MANAGEMENT TECHNIQUES.
Sales of our family entertainment products at retail are seasonal, with a
majority of retail sales occurring during the period from September through
December in anticipation of the holiday season. This seasonality is increasing,
as large retailers become more efficient in their control of inventory levels
through quick response management techniques. These customers are timing
reorders so that they are being filled by suppliers closer to the time of
purchase by consumers, which to a large extent occurs during September through
December, rather than maintaining large on-hand inventories throughout the year
to meet
4
consumer demand. While these techniques reduce a retailer's investment in
inventory, they increase pressure on suppliers like us to fill orders promptly
and shift a significant portion of inventory risk and carrying costs to the
supplier. The limited inventory carried by retailers may also reduce or delay
retail sales. Additionally, the logistics of supplying more and more product
within shorter time periods will increase the risk that we fail to achieve tight
and compressed shipping schedules. This seasonal pattern requires significant
use of working capital mainly to manufacture or acquire inventory during the
year prior to the holiday season, and requires accurate forecasting of demand
for products during the holiday season. Our failure to accurately predict and
respond to consumer demand could result in our underproducing popular items
and/or overproducing less popular items which would have an adverse effect on
our sales and results of operations. In addition, as a result of the seasonal
nature of our business, we would be significantly and adversely affected by
unforeseen events, such as a terrorist attack, that negatively affect the retail
environment or consumer buying patterns, if such events were to occur during a
key selling season.
THE CONTINUING CONSOLIDATION OF OUR RETAIL CUSTOMER BASE MEANS THAT ECONOMIC
DIFFICULTIES OR CHANGES IN THE PURCHASING POLICIES OF OUR MAJOR CUSTOMERS COULD
HAVE A SIGNIFICANT IMPACT ON US.
We depend upon a relatively small retail customer base to sell our
products. For the fiscal year ended December 30, 2001, Wal-Mart Stores, Inc. and
Toys R Us, Inc. accounted for approximately 17% and 13%, respectively, of our
consolidated net revenues and our five largest customers, including Wal-Mart and
Toys R Us, in the aggregate accounted for approximately 48% of our consolidated
net revenues. If one or more of our major customers were to experience
difficulties in fulfilling their obligations to us, cease doing business with
us, significantly reduce the amount of their purchases from us or return
substantial amounts of our products, it could have a material adverse effect on
our business, financial condition and results of operations. In addition, the
bankruptcy or other lack of success of one or more of our significant retailers
could negatively impact our revenues and bad debt expense.
WE MAY NOT REALIZE ANTICIPATED BENEFITS OF ACQUISITIONS OR THESE BENEFITS MAY BE
DELAYED OR REDUCED IN THEIR REALIZATION; OUR ABILITY TO MAKE ACQUISITIONS IS
LIMITED BY OUR CREDIT AGREEMENT.
Acquisitions have been a significant part of our growth over the years and
have enabled us to further broaden and diversify our product offerings. Although
we target companies that we believe offer attractive family entertainment
products, we cannot be certain that the products of companies we acquire will
achieve or maintain popularity with consumers. In some cases, we expect that the
integration of the product lines of the companies that we acquire into our
operations will create production, marketing and other operating synergies. We
believe that these synergies can create greater revenue growth and profitability
and, where applicable, cost savings, operating efficiencies and other
advantages. However, we cannot be certain that these synergies, efficiencies and
cost savings will be realized. Even if achieved, these benefits may be delayed
or reduced in their realization. In other cases, we acquire companies that we
believe have strong and creative management, in which case we plan to create
synergies by operating them autonomously rather than integrating them into our
operations. We cannot be certain that the key talented individuals at these
companies will continue to work for us after the acquisition or that they will
continue to develop popular and profitable products or services.
Because of limitations in our credit agreement, we are limited in our
ability to make substantial acquisitions in the near term. Although we plan to
focus greater attention and resources on our core owned and controlled brands,
we cannot assure you that such efforts will produce revenue growth to replace
the growth historically provided by acquisitions.
OUR SUBSTANTIAL SALES AND MANUFACTURING OPERATIONS OUTSIDE THE UNITED STATES
SUBJECT US TO RISKS NORMALLY ASSOCIATED WITH INTERNATIONAL OPERATIONS.
We operate facilities and sell products in numerous countries outside the
United States. For the fiscal year ended December 30, 2001, our net revenues
from international customers comprised approximately 36% of our total
consolidated net revenues. We expect our sales to international customers to
continue to
5
account for a significant portion of our revenues. Additionally, we utilize
third-party manufacturers located principally in the Far East and we have
manufacturing facilities in Ireland and Spain. These sales and manufacturing
operations are subject to the risks normally associated with international
operations, including:
- currency conversion risks and currency fluctuations;
- limitations, including taxes, on the repatriation of earnings;
- political instability, civil unrest and economic instability;
- greater difficulty enforcing intellectual property rights and weaker laws
protecting such rights;
- complications in complying with laws in varying jurisdictions and changes
in governmental policies;
- natural disasters and the greater difficulty and expense in recovering
therefrom;
- transportation delays and interruptions; and
- the imposition of tariffs.
Our reliance on external sources of manufacturing can be shifted, over a
period of time, to alternative sources of supply, should such changes be
necessary. However, if we were prevented from obtaining products or components
for a material portion of our product line due to political, labor or other
factors beyond our control, our operations would be disrupted while alternative
sources of products were secured. Also, the imposition of trade sanctions by the
United States or the European Union against a class of products imported by us
from, or the loss of "normal trade relations" status by, the Peoples Republic of
China could significantly increase our cost of products imported into the United
States or Europe. Because of the importance of our international sales and
international sourcing of manufacturing to our business, our financial condition
and results of operations could be significantly and adversely affected if any
of the risks described above were to occur.
WE MAY NOT REALIZE THE FULL BENEFIT OF OUR LICENSES IF THE LICENSED MATERIAL HAS
LESS MARKET APPEAL THAN EXPECTED OR IF SALES REVENUE FROM THE LICENSED PRODUCTS
IS NOT SUFFICIENT TO EARN OUT THE MINIMUM GUARANTEED ROYALTIES.
An important part of our business involves obtaining licenses to produce
products based on various theatrical releases, such as STAR WARS, MONSTERS,
INC., and HARRY POTTER AND THE SORCERER'S STONE. The license agreements usually
require us to pay minimum royalty guarantees that may be substantial, and in
some cases may be greater than what we are able to recoup from actual sales,
which could result in write-offs of such amounts that would adversely effect our
results of operations. In addition, acquiring or renewing licenses may require
the payment of minimum guaranteed royalties that we consider to be too high to
be profitable, which may result in losing licenses we currently hold when they
become available for renewal, or missing business opportunities for new
licenses. As a licensee, we have no guaranty that a particular brand will be a
successful toy or game product. Furthermore, there can be no assurance that a
successful brand will continue to be successful or maintain a high level of
sales in the future. In the event that we are not able to acquire or maintain
advantageous licenses, our revenues and profits may be adversely effected.
OUR BUSINESS IS DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS AND WE MAY NOT BE ABLE
TO PROTECT SUCH RIGHTS SUCCESSFULLY.
Our intellectual property, including our license agreements and other
agreements which establish our ownership rights and maintain our
confidentiality, are of great value. We rely on a combination of trade secret,
copyright, trademark, patent and other proprietary rights laws to protect our
rights to this valuable intellectual property related to our brands. From time
to time, third parties have challenged, and may in the future try to challenge,
our ownership of our intellectual property. In addition, our business is subject
to the risk of third parties counterfeiting our products or infringing on our
intellectual property rights. We
6
may need to resort to litigation in the future to protect our intellectual
property rights, which could result in substantial costs and diversion of
resources. Our failure to protect our intellectual property rights could have a
material adverse effect on our business and competitive position.
WE ARE INVOLVED IN CERTAIN LITIGATION, ARBITRATION AND REGULATORY MATTERS WHERE
THE OUTCOME IS UNCERTAIN AND WHICH COULD ENTAIL SIGNIFICANT EXPENSE.
As is the case with many large multinational corporations, we are subject
from time to time to regulatory investigations, litigation and arbitration
disputes. Because the outcome of litigation, arbitration and regulatory
investigations is inherently difficult to predict, it is possible that the
outcome of such matters could entail significant expense.
During 2001, we received two inquiries from the Office of Fair Trading in
the United Kingdom (the "OFT") into allegedly anti-competitive pricing practices
by our United Kingdom ("U.K.") subsidiary, Hasbro U.K. Ltd. ("Hasbro U.K."). In
May 2002, the OFT issued preliminary decisions proposing to find that Hasbro
U.K. had entered into agreements with certain retailers and distributors in the
U.K. to fix prices in violation of U.K. competition laws. These decisions are
not final and we are in the process of preparing a comprehensive response to the
OFT. If a fine is imposed pursuant to the OFT inquiry, we currently estimate
that the amount of the fine could range from approximately $236,000 to $38.3
million. Because of a number of factors, including the lack of precedent under
the applicable U.K. statute and the significant appeal rights available to us in
the event of an adverse final determination by the OFT, there is no amount
within this range which is a better estimate than any other amount in the range.
While we believe that some fine will be imposed, it is our position that the
amount of any fine should be at or near the low end of the range set forth
above, and we will be vigorously pursuing this position in our discussions with
the OFT. Nevertheless, it is possible that the outcome of this matter could
result in a significant fine that harms our financial position.
WE RELY ON EXTERNAL FINANCING, INCLUDING OUR CREDIT FACILITY, TO MAINTAIN OUR
OPERATIONS. IF WE ARE UNABLE TO OBTAIN OR SERVICE SUCH FINANCING, OR IF THE
RESTRICTIONS IMPOSED BY SUCH FINANCING WERE TOO BURDENSOME, OUR BUSINESS WOULD
BE NEGATIVELY AFFECTED.
In order to meet our working capital needs, particularly those prior to the
fourth quarter, we rely on our credit facility. In March 2002, we entered into
an amended and restated secured revolving credit agreement with existing and new
lenders, which provides for a $380 million revolving credit facility. This
facility is secured by substantially all of our domestic accounts receivable and
inventory, as well as certain of our intangible assets. The agreement contains
certain restrictive covenants setting forth minimum cash flow and coverage
requirements, and a number of other limitations, including restrictions on
capital expenditures, investments, acquisitions, share repurchases, incurrence
of indebtedness and dividend payments. These restrictive covenants may limit our
future actions, and financial, operating and strategic flexibility. In addition,
our financial covenants were set at the time we entered into our credit
facility. Our performance and financial condition may not meet our original
expectations, causing us to fail to meet such financial covenants. If we were
unable to meet our financial covenants, or if we failed to comply with other
covenants in our credit facility, we could face significant negative
consequences. A copy of our amended and restated credit agreement is included as
an exhibit to our annual report on Form 10-K for the fiscal year ended December
30, 2001.
We believe that our cash flow from operations, together with our cash and
access to existing credit facilities, are adequate for current and planned needs
in 2002. However, our actual experience may differ from these expectations.
Factors that may lead to a difference include, but are not limited to, the
matters discussed herein, as well as future events that might have the effect of
reducing our available cash balance, such as unexpected material operating
losses or increased capital or other expenditures, as well as increases in
inventory or accounts receivable or future events that may reduce or eliminate
the availability of external financial resources.
7
We also may choose to finance our capital needs, from time to time, through
the issuance of debt securities. Our ability to issue such securities on
satisfactory terms, if at all, will depend on the state of our business and
financial condition, any ratings issued by major credit rating agencies, market
interest rates, and the overall condition of the financial and credit markets at
the time of the offering. The condition of the credit markets and prevailing
interest rates have fluctuated in the past and are likely to fluctuate in the
future. Fluctuations in these factors could make it difficult for us to sell
debt securities or require us to offer higher interest rates in order to sell
new debt securities. The failure to receive financing on desirable terms, or at
all, could adversely affect our ability to support our future operations or
capital needs or engage in other business activities.
As of December 30, 2001, we had approximately $1,202 million of total
indebtedness outstanding. This total indebtedness includes the $250 million in
aggregate principal amount of the debentures. If we are unable to generate
sufficient available cash flow to service our outstanding debt we would need to
refinance such debt or face default. There is no guarantee that we would be able
to refinance debt on favorable terms, or at all.
MARKET CONDITIONS, GOVERNMENT ACTIONS AND REGULATIONS AND OTHER THIRD PARTY
CONDUCT COULD NEGATIVELY IMPACT IMPLEMENTATION OF OUR CONSOLIDATION PROGRAMS,
MARGINS, AND OTHER BUSINESS INITIATIVES.
Economic conditions, such as rising fuel prices, may adversely impact our
margins. In addition, general economic conditions were significantly and
negatively affected by the September 11th terrorist attacks and could be
similarly affected by any future attacks. Such a weakened economic and business
climate, as well as consumer uncertainty created by such a climate, could
adversely affect our sales and profitability. Other conditions, such as the
unavailability of electrical components, may impede our ability to manufacture,
source and ship new and continuing products on a timely basis. Additional
factors outside of our control could delay or increase the cost of implementing
our consolidation programs or alter our actions and reduce actual results.
AS A MANUFACTURER OF CONSUMER PRODUCTS AND A LARGE MULTINATIONAL CORPORATION, WE
ARE SUBJECT TO VARIOUS GOVERNMENT REGULATIONS, VIOLATION OF WHICH COULD SUBJECT
US TO SANCTIONS. IN ADDITION, WE COULD BE THE SUBJECT OF FUTURE PRODUCT
LIABILITY SUITS, WHICH COULD HARM OUR BUSINESS.
As a manufacturer of consumer retail products, we are subject to
significant government regulation under The Consumer Products Safety Act, The
Federal Hazardous Substances Act, and The Flammable Fabrics Act. While we take
all the steps we believe are necessary to comply with these acts, there can be
no assurance that we will be in compliance in the future. Failure to comply
could result in sanctions which could have a negative impact on our business,
financial condition, and results of operations.
In addition to government regulation, products that have been or may be
developed by us may expose us to potential liability from personal injury or
property damage claims by the users of such products. There can be no assurance
that a claim will not be brought against us in the future. While we currently
maintain product liability insurance coverage in amounts we believe sufficient
for our business risks, we may not be able to maintain such coverage or such
coverage may not be adequate to cover all potential claims. Moreover, even if we
maintain successful insurance coverage, any successful claim could materially
and adversely affect our business and financial condition and results of
operations.
As a large, multinational corporation, we are subject to a host of
governmental regulations throughout the world, including antitrust and tax
requirements, anti-boycott regulations and the Foreign Corrupt Practices Act.
Our failure to successfully comply with any such legal requirements could
subject us to monetary liabilities and other sanctions which could harm our
business and financial condition.
WE HAVE A MATERIAL AMOUNT OF GOODWILL WHICH, IF IT BECOMES IMPAIRED, WOULD
RESULT IN A REDUCTION IN OUR NET INCOME.
Approximately $761.6 million, or 22.6%, of our total assets as of December
30, 2001 represented goodwill. Goodwill is the amount by which the cost of an
acquisition accounted for using the purchase method exceeds the fair value of
the net assets we acquire. We record goodwill as an intangible asset on our
balance sheet and have historically amortized it on a straight-line basis over a
period of 10 to 40 years.
8
Recently, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets,
which is effective for us in the first quarter of fiscal 2002. SFAS No. 142
results in goodwill no longer being amortized. Instead, goodwill is subject to a
periodic impairment evaluation based on the fair value of the reporting unit.
Reductions in our net income caused by the write-down of goodwill could
materially and adversely affect our results of operations.
RISKS RELATED TO THE DEBENTURES AND THE OFFERING
WE EXPECT THAT THE TRADING VALUE OF THE DEBENTURES WILL BE SIGNIFICANTLY
AFFECTED BY THE PRICE OF OUR COMMON STOCK.
The market price of the debentures is expected to be significantly affected
by the market price of our common stock. This may result in greater volatility
in the trading value of the debentures than would be expected for nonconvertible
debt securities we issue.
THE CONDITIONS TO CONVERSION OF THE DEBENTURES MAY NOT BE MET AND THE
POSSIBILITY THAT THESE CONDITIONS MAY NOT BE MET COULD NEGATIVELY AFFECT THE
TRADING VALUE OF THE DEBENTURES.
The debentures may be converted into our common stock only if (1) the sales
price of our common stock trades at 110% of the accreted conversion price of the
debentures for specified minimum periods of time during a quarter, (2) the
debentures are called for redemption, (3) specified corporate transactions
occur, or (4) specified credit ratings events occur. We cannot assure you that
any one of these events will occur. If none of these events were to occur,
holders of the debentures would not be able to convert the debentures into our
common stock, which may reduce the liquidity and trading value of the
debentures.
CHANGES IN OUR CREDIT RATING OR THE CREDIT MARKETS COULD ADVERSELY AFFECT THE
PRICE OF THE DEBENTURES.
The price of the debentures is based on a number of factors, including:
- our rating with major credit rating agencies;
- the prevailing interest rates being paid by other companies similar to
us; and
- the overall condition of the financial markets.
The condition of the credit markets and prevailing interest rates have
fluctuated in the past and are likely to fluctuate in the future. Fluctuations
in these factors could have an adverse effect on the price of the debentures.
In addition, credit rating agencies continually revise their ratings for
the companies that they follow, including us. The credit rating agencies also
evaluate the family entertainment industry as a whole and may change their
credit rating for us based on their overall view of our industry. We cannot be
sure that credit rating agencies will maintain their ratings on the debentures.
A negative change in our rating could have an adverse effect on the price of the
debentures.
AN ACTIVE TRADING MARKET FOR DEBENTURES MAY NOT DEVELOP.
We cannot assure you that an active trading market for the debentures will
develop or as to the liquidity or sustainability of any such market, or the
ability of holders to sell their debentures or the price at which holders of the
debentures may be able to sell their debentures. If an active market for the
debentures fails to develop or be sustained, the trading prices of the
debentures could be adversely affected. Future trading prices of the debentures
will also depend on many other factors, including, among other things,
prevailing interest rates, the market for similar securities, the price of our
common stock, our performance and other factors.
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WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE
FUNDAMENTAL CHANGE PURCHASE OR PURCHASE AT THE OPTION OF THE HOLDER.
On December 1, 2005, December 1, 2011 and December 1, 2016, and upon the
occurrence of a Fundamental Change (as defined below under "Description of
Debentures -- Fundamental Change") of Hasbro, holders of the debentures may
require us to purchase their debentures. However, it is possible that we would
not have sufficient funds at that time to make the required purchase of the
debentures. In addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, may not
constitute a Fundamental Change under the indenture. See "Description of
Debentures -- Purchase of Debentures by Us at the Option of the Holder" and
"-- Fundamental Change."
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING
THE DEBENTURES.
While the proper tax treatment of a holder of the debentures is uncertain,
we and each holder agreed in the indenture to treat the debentures as
"contingent payment debt instruments" and to be bound by our application of the
Treasury regulations that govern contingent payment debt instruments. Pursuant
to this agreement, a holder is required to accrue interest on a constant
yield-to-maturity basis at a rate comparable to the rate at which we would
borrow in a noncontingent, nonconvertible borrowing (8.24%). A holder will
recognize taxable income significantly in excess of cash received while the
debentures are outstanding. In addition, a holder will recognize ordinary income
upon a sale, exchange, conversion or redemption of the debentures at a gain. See
"Certain United States Federal Income Tax Considerations."
10
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in this prospectus by
reference may contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These statements may be identified by the use of forward-looking words or
phrases such as "anticipate," "believe," "expect," "intend," "may," "planned,"
"potential," "should," "will," and "would." These forward-looking statements
reflect our current expectations and are based upon currently available data.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for such forward-looking statements. In order to comply with the terms of the
safe harbor, we note that a variety of factors could cause actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements. These factors include,
but are not limited to:
- our ability to manufacture, source and ship new and continuing products
in a timely manner and customers' and consumers' acceptance of those
products in a competitive product environment;
- economic conditions, currency fluctuations, political instability and
government regulation and other actions in the various markets in which
we operate throughout the world;
- our ability to generate sales during the fourth quarter, particularly
during the relatively brief holiday season, which is the period in which
we derive a substantial portion of our revenues;
- the inventory policies of retailers, including the continuing trend of
concentration of our revenues in the second half and fourth quarter of
the year, together with the continuing consolidation of our retail
customer base and their increased reliance on quick response inventory
management techniques, which increases the risks of our underproducing
popular items, overproducing less popular items and failing to achieve
tight and compressed shipping schedules;
- the bankruptcy or other lack of success of one or more of our significant
retailers, which could negatively impact our revenues or bad debt
exposure;
- the impact of competition on revenues, margins and other aspects of our
business, including our ability to secure, maintain and renew popular
licenses and our ability to attract and retain employees in a competitive
environment;
- the risk that anticipated benefits of acquisitions may not occur or be
delayed or reduced in their realization;
- the risk that the market appeal of our licensed products will be less
than expected or that the sales revenue generated by those products will
be insufficient to cover the minimum guaranteed royalties;
- our ability to obtain and enforce intellectual property rights both in
the United States and abroad;
- the risk that any litigation or arbitration disputes or regulatory
investigations could entail significant expense;
- our ability to obtain external financing on terms acceptable to us in
order to meet our working capital needs;
- the risk that we may be subject to governmental sanctions for failure to
comply with applicable regulations or to product liability suits relating
to products we manufacture and distribute;
- the risk that our reported goodwill may become impaired, requiring us to
take a charge against our income; and
- risks described from time to time in our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and other filings under the Exchange Act.
These or other events or circumstances could cause our actual performance
or financial results in future periods to differ materially from those expressed
in the forward-looking statements. We undertake no obligation to make any
revisions to the forward-looking statements contained in this prospectus or the
documents incorporated by reference in this prospectus, or to update the
forward-looking statements to reflect events or circumstances occurring after
the date of this prospectus.
11
USE OF PROCEEDS
All of the debentures and the shares of our common stock issuable upon
conversion of the debentures are being sold by the selling securityholders or
their pledges, donees, transferees or other successors in interest. We will not
receive any proceeds from the sale of the debentures or the shares of our common
stock issuable upon conversion of the debentures.
RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth the ratio of earnings to fixed charges of Hasbro
and its consolidated subsidiaries for each of the periods indicated.
THREE MONTHS ENDED MARCH(1) FISCAL YEARS(2)
--------------------------------- ----------------------------------------------------------------------------------
2002 2001 PRO FORMA 2001(3) 2001 2000 1999 1998 1997
--------------------- ---------- ----------------- ---------- ---------- ---------- ---------- ----------
0.05 * 1.96 1.76 * 4.10 6.70 5.66
---------------
* Earnings for the three months ended April 1, 2001 and the fiscal year ended
in December 31, 2000 were inadequate to cover fixed charges by $35,232 and
$225,986, respectively.
(1) Three months ended March 31, 2002 and April 1, 2001.
(2) Fiscal years 2001, 2000, 1999, 1998 and 1997 ended on December 30, 2001,
December 31, 2000, December 26, 1999, December 27, 1998 and December 28,
1997, respectively.
(3) The pro forma ratio of earnings to fixed charges for the fiscal year ended
December 30, 2001 gives effect to the repurchase of $250,127,000 in
principal amount of indebtedness primarily from the proceeds received by
Hasbro from the issuance of the debentures in November 2001 as if (i) the
receipt of such proceeds and (ii) the repurchase of such indebtedness had
both occurred on January 1, 2001.
For purposes of computing the ratios of earnings to fixed charges:
- fixed charges include interest, amortization of debt expense and
one-third of rentals; and
- earnings available for fixed charges represent earnings before cumulative
effect of accounting change, fixed charges and income taxes.
12
DESCRIPTION OF DEBENTURES
We issued the debentures under an indenture dated as of November 30, 2001
between us and The Bank of Nova Scotia Trust Company of New York, as trustee.
The following summary does not purport to be complete, and is subject to,
and is qualified in its entirety by reference to, all of the provisions of the
debentures and the indenture. We urge you to read the indenture and the form of
the debentures, which you may obtain from us upon request. In this section,
references to "Hasbro," "we," "our" or "us" refer solely to Hasbro, Inc. and not
its subsidiaries.
GENERAL
The debentures are senior unsecured obligations of ours and are limited to
an aggregate principal amount of $250,000,000. The debentures will mature on
December 1, 2021. The debentures rank equally with all of our existing and
future senior unsecured indebtedness.
The debentures were initially offered at a price to investors of $1,000 per
debenture. The debentures accrue interest at a rate of 2.75% per year from
November 30, 2001 or from the most recent interest payment date to which
interest has been paid or duly provided, payable semiannually in arrears on June
1 and December 1 of each year, beginning June 1, 2002. In addition, we will pay
an upward interest adjustment under the circumstances described below. The
maturity value of each debenture may exceed $1,000 in the event an upward
interest adjustment becomes payable on the debentures. The debentures were
issued only in denominations of $1,000 principal amount and multiples of $1,000
principal amount.
Interest, including additional amounts in the event of an upward interest
adjustment, will be paid to the person in whose name a debenture is registered
at the close of business on May 15 or November 15, as the case may be,
immediately preceding the relevant interest payment date. We will calculate
interest on the debentures on the basis of a 360-day year composed of twelve
30-day months.
You have the option to convert your debentures into shares of our common
stock initially at a conversion rate of 46.2963 shares of common stock per
debenture. This is equivalent to an initial conversion price of $21.60 per share
of common stock. The conversion rate is subject to adjustment if certain events
occur. Upon conversion, you will receive only shares of our common stock. You
will not receive any cash payment for interest accrued to the conversion date.
You are not required to pay any fees or commissions in connection with the
conversion of the debentures into shares of our common stock. As of May 23,
2002, the debentures were not immediately convertible.
If any interest payment date, maturity date, redemption date or purchase
date of a debenture falls on a day that is not a business day, the required
payment of principal and interest will be made on the next succeeding business
day as if made on the date that the payment was due and no interest will accrue
on that payment for the period from and after the interest payment date,
maturity date, redemption date or purchase date, as the case may be, to the date
of that payment on the next succeeding business day. The term "business day"
means, with respect to any debenture, any day other than a Saturday, a Sunday or
a day on which banking institutions in The City of New York are authorized or
required by law, regulation or executive order to close.
Each holder agreed in the indenture, for United States federal income tax
purposes, to treat the debentures as "contingent payment debt instruments" and
to be bound by our application of the Treasury regulations that govern
contingent payment debt instruments, including our determination that the rate
at which interest will be deemed to accrue for United States federal income tax
purposes is 8.24%, which is the rate comparable to the rate at which we would
borrow on a noncontingent, nonconvertible borrowing. Accordingly, each holder is
required to accrue interest on a constant yield to maturity basis at that rate,
with the result that a holder will recognize taxable income significantly in
excess of cash received while the debentures are outstanding. Based on our
treatment of the debentures for United States federal income tax purposes, as
discussed above, a holder would be required to recognize ordinary income upon a
conversion of a debenture into our common stock equal to the excess, if any,
between the value of the stock received on the conversion and the holder's
adjusted tax basis in the debentures. For a more detailed
13
discussion, see "Certain United States Federal Income Tax Considerations."
However, the proper application of the regulations that govern contingent
payment debt instruments to a holder of a debenture is uncertain in a number of
respects, and if our treatment were successfully challenged by the Internal
Revenue Service, it might be determined that, among other differences, a holder
should have accrued interest income at a lower rate, should not have recognized
income or gain upon the conversion, and should not have recognized ordinary
income upon a taxable disposition of its debenture.
EACH INVESTOR SHOULD CONSULT A TAX ADVISOR REGARDING THE TAX TREATMENT OF AN
INVESTMENT IN THE DEBENTURES AND WHETHER AN INVESTMENT IN THE DEBENTURES IS
ADVISABLE IN LIGHT OF THE AGREED UPON TAX TREATMENT AND THE INVESTOR'S
PARTICULAR TAX SITUATION.
INTEREST ADJUSTMENT
The interest rate on the debentures is 2.75% per year through December 1,
2005. If the average of the sale prices of our common stock is less than or
equal to 45% of the accreted conversion price per share of common stock for any
20 out of the last 30 trading days ending on the fifth day preceding any June 1
or December 1, as applicable, commencing December 1, 2005, then the interest
rate on the debentures will be subject to an upward interest adjustment to the
applicable reset rate (as defined below) for the six-month period beginning June
1 or December 1. If an upward interest adjustment is in effect and the average
of the sale prices of our common stock is not less than or equal to 45% of the
accreted conversion price of the debentures for any 20 out of the last 30
trading days ending on the fifth day preceding any June 1 or December 1, then
the interest rate on the debentures for the six-month period beginning on such
June 1 or December 1 will revert to 2.75% per year. If an upward interest
adjustment is in effect for a particular six-month period, we will pay a portion
of the interest adjustment as cash interest at an annualized rate of 0.25% per
year (0.125% per six-month period) of the sum of the principal amount plus any
accrued and unpaid non-current interest, and the remaining interest will be
accrued and payable at maturity. Following a tax event, we may elect to pay
interest entirely in cash.
In the event of an upward interest adjustment, the maturity value of a
debenture will exceed its initial maturity value of $1,000.
The "sale price" of our common stock on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average asked prices) on that date as reported on the New
York Stock Exchange or, if our common stock is not then listed on the New York
Stock Exchange, then as reported by the Nasdaq system.
The accreted conversion price per share of our common stock as of any day
will equal 100% of the principal amount of the debentures plus accrued and
unpaid non-current interest, divided by the number of shares of common stock
issuable upon conversion of such debenture on that day.
In the event of any upward interest adjustment, we will disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business News containing
this information or publish the information on our Web site or through such
other public medium as we may use at that time.
The "applicable reset rate" for any six-month period in which there is an
upward interest adjustment in effect will be the rate set as of each purchase
date (as defined below) and will be equal to the rate (the "reference fixed
rate") that would, in the sole and reasonable judgment of the reset rate agent,
result in a trading price of par for a hypothetical issue of senior,
non-convertible, fixed-rate, callable debt securities of ours with:
(i) a final maturity equal to the term from the most recent purchase
date until the next purchase date;
(ii) an aggregate principal amount equal to the then principal amount
of the debentures plus accrued and unpaid non-current interest; and
14
(iii) provisions that are, insofar as would be practicable for an
issue of senior, non-convertible, fixed-rate, callable debt securities,
substantially identical to those of the debentures;
provided that the applicable reset rate for any period shall not exceed 11% per
year. If the reset rate agent determines in its reasonable judgment that there
is no suitable reference fixed rate, the applicable interest rate on the
debentures for that period will be the interest rate then in effect on the
debentures, such interest rate to remain in effect until the reset rate agent
determines that there is a suitable reference fixed rate at which time the reset
rate agent shall determine the applicable reset rate for the period ending on
the next purchase date.
RESET RATE AGENT; DETERMINATIONS CONCLUSIVE
We have designated Salomon Smith Barney Inc. as the reset rate agent. For
the determination of the applicable reset rate, the reset rate agent will seek
indicative reference rates from one other nationally recognized investment bank.
The determination of any applicable reset rate will be made by the reset rate
agent by averaging the indicative reference rates obtained by Salomon Smith
Barney Inc. and such other investment bank. The determination of any applicable
reset rate by the reset rate agent will be conclusive and binding upon the reset
rate agent, Hasbro, the trustee and the holders of the debentures, in the
absence of manifest error.
The reset rate agent may be removed at any time with or without cause by us
giving at least 60 days' written notice to the reset rate agent. The reset rate
agent may resign at any time upon giving at least 30 days' written notice to us.
A successor reset rate agent will be appointed by us.
INTEREST
We will pay interest on the sum of principal amount plus accrued and unpaid
non-current interest, if any, on the debentures at a rate of 2.75% per year. In
addition, we will pay additional interest in the event of an upward interest
adjustment. Interest will be based on a 360-day year comprised of twelve 30-day
months, and will be payable semiannually on June 1 or December 1. Cash interest
as a result of an upward interest adjustment will be paid at the rate of 0.25%
per year (0.125% per six-month period), and any remaining interest resulting
from the upward interest adjustment will accrue and be payable at maturity. The
record date for the payment of interest to holders will be May 15 and November
15 of each year. Following a tax event (as defined below), we may elect to pay
interest entirely in cash. We will give notice to holders of the debentures, no
later than 30 days prior to each record date, of the amount of cash interest to
be paid as of the next interest payment date. We will pay interest on the
debentures by wire transfer or by check mailed to the address of the registered
holders of the debentures as of the record date relating to each interest
payment date.
You should be aware that interest that accrues for the period you hold the
debentures must be included in your gross income for United States federal
income tax purposes in accordance with the Treasury regulations that govern debt
instruments providing for contingent payments. For more information, see the
discussion below in the section captioned "Certain United States Federal Income
Tax Considerations."
TAX EVENT
We can elect to pay the entire interest adjustment on the debentures in
cash from and after the date a tax event occurs instead of having non-current
interest accrue on the debentures. If that happens, the principal amount on
which we pay cash interest will be restated and will be equal to the principal
amount as of the day of restatement plus accrued and unpaid non-current
interest. This restated principal amount will be the amount due at maturity. If
we elect this option, interest will be based on a 360-day year comprised of
twelve 30-day months. Cash interest at the higher rate will accrue from our
option exercise date and will be payable semiannually in arrears on June 1 or
December 1.
15
The term "tax event" means the receipt by us of an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of:
- any amendment to or change (including any announced prospective change
(which will not include a proposed change)) in the laws (or any
regulations thereunder) of the United States or any political subdivision
or taxing authority of the United States or any political subdivision,
provided that a tax event will not occur more than 90 days before the
effective date of any prospective change in such laws or regulations; or
- any judicial decision or official administrative pronouncement, ruling,
regulatory procedure, notice or announcement, including any notice or
announcement of intent to adopt such procedures or regulations (an
"administrative action"); or
- any amendment to or change in the administrative position or
interpretation of any administrative action or judicial decision that
differs from the theretofore generally accepted position, in each case,
by any legislative body, court, governmental agency or regulatory body,
irrespective of the manner in which such amendment or change is made
known, which amendment or change is effective or such administrative
action or decision is announced, in each case, on or after the date of
original issuance of the debentures;
there is more than an insubstantial risk that interest on the debentures,
including interest pursuant to an upward interest adjustment, either:
- would not be deductible by us in its entirety on a current accrual basis;
or
- would not be deductible under any other method, in whole or in part, by
us for United States federal income tax purposes.
OPTIONAL REDEMPTION
No sinking fund is provided for the debentures. Prior to December 6, 2005,
we cannot redeem the debentures. On or after December 6, 2005, we may redeem for
cash all or part of the debentures at any time, upon not less than 30 nor more
than 60 days' notice by mail to holders of debentures, for a price equal to 100%
of the principal amount of the debentures to be redeemed plus any accrued and
unpaid interest to the redemption date, if the sale price of our common stock
for at least 20 trading days in any period of 30 consecutive trading days ending
on the fifth day preceding the date of such notice is more than 125% of the
accreted conversion price per share of common stock.
If we decide to redeem fewer than all of the outstanding debentures, the
trustee will select the debentures to be redeemed by lot, or on a pro rata basis
or by another method the trustee considers fair and appropriate.
If the trustee selects a portion of your debenture for partial redemption
and you convert a portion of the same debenture, the converted portion will be
deemed to be from the portion selected for redemption.
In the event of any redemption in part, we will not be required to:
- issue, register the transfer of or exchange any debenture during a period
of 15 days before any selection of debentures for redemption; or
- register the transfer of or exchange any debenture so selected for
redemption, in whole or in part, except the unredeemed portion of any
debenture being redeemed in part.
CONVERSION RIGHTS
Subject to the conditions described below, holders may convert each of
their debentures into shares of our common stock initially at a conversion ratio
of 46.2963 shares of common stock per $1,000 principal amount of debentures
(equivalent to an initial conversion price of $21.60 per share of common stock
based on the issue price of the debentures). The conversion rate and the
equivalent conversion price in effect at
16
any given time are referred to as the "applicable conversion rate" and the
"applicable conversion price," respectively, and will be subject to adjustment
as described below. If a debenture has been called for redemption, holders will
be entitled to convert the debentures from the date of notice of the redemption
until the close of business two business days immediately preceding the date of
redemption. A holder may convert fewer than all of such holder's debentures so
long as the debentures converted are an integral multiple of $1,000 principal
amount.
Holders may surrender their debentures for conversion into shares of our
common stock prior to stated maturity under the circumstances described below.
As of May 23, 2002, the debentures were not immediately convertible.
CONVERSION UPON SATISFACTION OF SALE PRICE CONDITION
A holder may surrender any of its debentures for conversion into shares of
our common stock during any calendar quarter if the sale price of our common
stock for at least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the previous quarter is more than 110% of the
accreted conversion price per share of common stock on such last trading day.
For example, based on an accreted conversion price of $21.60 on March 28, 2002,
the sale price of our common stock would have had to have been above $23.76 for
a least 20 trading days within the period from February 14, 2002 to March 28,
2002 in order for holders to have the right to convert debentures during the
second quarter of 2002 pursuant to this condition.
CONVERSION UPON REDEMPTION
A holder may surrender for conversion any debenture called for redemption
at any time prior to the close of business two business days prior to the
redemption date, even if it is not otherwise convertible at such time.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
- distribute to all holders of our common stock certain rights entitling
them to purchase shares of our common stock at less than the sale price
of a share of our common stock as of the business day prior to the date
of declaration for such distribution or
- distribute to all holders of our common stock our assets, debt securities
or certain rights to purchase our securities, which distribution has a
per share value exceeding 15% of the sale price of our common stock on
the day preceding the declaration date for such distribution,
we must notify the holders of the debentures at least 20 days prior to the
ex-dividend date for such distribution. Once we have given such notice, holders
may surrender their debentures for conversion at any time until the earlier of
the close of business on the business day prior to the ex-dividend date or our
announcement that such distribution will not take place, even if the debentures
are not otherwise convertible at such time; provided that a holder may not
exercise this right to convert if the holder will otherwise participate in the
distribution without conversion.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash,
securities or other property (other than if such property consists of shares of
voting common stock of the surviving person that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United
States, and such shares represent at least 95% of the aggregate fair market
value (as determined by our board of directors) of such property), a holder may
surrender debentures for conversion at any time from and after the date which is
15 days prior to the anticipated effective date of the transaction until 15 days
after the actual effective date of such transaction. If we are a party to a
consolidation, merger or binding share exchange pursuant to which our common
stock is converted into cash, securities or other property, then at the
effective time of the transaction, the right to
17
convert a debenture into common stock will be changed into a right to convert it
into the kind and amount of cash, securities or other property which the holder
would have received if the holder had converted its debentures immediately prior
to the transaction. If the transaction also constitutes a Fundamental Change, as
defined below, a holder can require us to purchase all or a portion of its
debentures as described below under "-- Fundamental Change."
CONVERSION UPON CREDIT RATINGS EVENT
A holder may surrender any of its debentures for conversion at any time if
the long-term credit rating assigned to the debentures by any two of Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or
Fitch IBCA Duff & Phelps are reduced two notches below Ba3, BB and BB,
respectively, or if the debentures are no longer rated by any two of these
ratings services, or if the ratings for the debentures have been suspended by
any two of these ratings services.
The initial conversion rate is 46.2963 shares of common stock for each
debenture. This is equivalent to an initial conversion price of $21.60 per share
of common stock based on the issue price of the debentures. You will not receive
any cash payment representing accrued and unpaid interest upon conversion of a
debenture. Instead, upon conversion we will deliver to you a fixed number of
shares of our common stock and any cash payment to account for fractional
shares. The cash payment for fractional shares will be based on the sale price
of our common stock on the trading day immediately prior to the conversion date.
Delivery of shares of common stock will be deemed to satisfy our obligation to
pay the principal amount of the debentures, including accrued interest. Accrued
and unpaid interest will be deemed paid in full rather than canceled,
extinguished or forfeited. We will not adjust the conversion rate to account for
the accrued interest. You are not required to pay any fees or commissions in
connection with the conversion of the debentures into shares of our common
stock. We have designated the trustee to initially act as the conversion agent.
If a holder wishes to exercise its conversion right, such holder must
deliver an irrevocable conversion notice, together, if the debentures are in
certificated form, with the certificated security, to the conversion agent who
will, on the holder's behalf, convert the debentures into shares of our common
stock. Holders may obtain copies of the required form of the conversion notice
from the conversion agent.
If a holder has already delivered a purchase notice or a Fundamental Change
notice with respect to a debenture, however, the holder may not surrender that
debenture for conversion until the holder has withdrawn the notice in accordance
with the indenture.
Based on our treatment of the debentures for United States federal income
tax purposes, as discussed above, a holder would be required to recognize
ordinary income upon a conversion of a debenture into our common stock equal to
the excess, if any, between the value of the stock received on the conversion
and the holder's adjusted tax basis in the debentures. For a more detailed
discussion, see "Certain United States Federal Income Tax Considerations."
The conversion rate is subject to adjustment upon the following events:
(1) the payment of dividends and other distributions payable
exclusively in shares of our common stock on our common stock;
(2) the issuance to all or substantially all holders of our common
stock of rights or warrants that allow the holders to purchase shares of
our common stock at less than the then Average Sale Price (as defined in
the indenture); provided that no adjustment will be made if holders of the
debentures may participate in the transaction on a basis and with notice
that our board of directors determines to be fair and appropriate or in
certain other cases;
(3) subdivisions, combinations, or reclassifications of our common
stock;
(4) payment of dividends or distributions to all holders of our common
stock consisting of evidences of our indebtedness, securities or capital
stock, cash or assets, excluding any common stock
18
referred to in (1) above, any rights or warrants referred to in (2) above
and dividends and distributions paid solely in cash;
(5) payment of dividends or distributions on our common stock paid
exclusively in cash, excluding:
- cash dividends that do not exceed the per share amount of the
immediately preceding regular cash dividend, as adjusted to reflect
any of the events described in (1) to (4) above;
- cash dividends, if the annualized per share amount thereof does not
exceed 15% of the current market price of our common stock on the
trading day immediately prior to the date of declaration of the
dividend; and
- a redemption of any rights issued under our shareholders rights plan;
and
(6) payment to holders of our common stock in respect of a tender or
exchange offer, other than an odd lot offer, made by us or any subsidiary
of ours for our common stock (excluding stock options) in excess of 110% of
the current market price of our common stock as of the trading day next
succeeding the last date tenders or exchanges may be made in the tender or
exchange offer.
In the event we elect to make a distribution described in (2) or (5) above
which, in the case of (5), has a per share value equal to more than 15% of the
sale price of our shares of common stock on the day preceding the declaration
date for such distribution, we will be required to give notice to the holders of
the debentures at least 20 days prior to the ex-dividend date for such
distribution and, upon the giving of such notice, the debentures may be
surrendered for conversion at any time until the close of business on the
business day prior to the ex-dividend date or until we announce that such
distribution will not take place. No adjustment to the conversion rate or the
ability of a holder of a debenture to convert will be made if the holder will
otherwise participate in the distribution without conversion or in certain other
cases.
If our shareholders rights plan, described under "Certain Anti-Takeover
Provisions -- Shareholders Rights Plan," is triggered, holders of the debentures
will be entitled to receive these rights provided that the debentures are
converted into shares of common stock prior to the distribution of the separate
certificate representing those rights. There shall not be any adjustment to the
conversion rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
- the exercise or redemption of the rights in accordance with any rights
agreement; or
- the termination or invalidation of the rights.
The applicable conversion price will not be adjusted:
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of additional
optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or rights
to purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of or assumed by Hasbro or
any of its subsidiaries; or
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right, or exercisable, exchangeable or convertible
security outstanding as of the date the debentures were first issued.
We may increase the conversion rate as permitted by law for at least 20
days, so long as the increase is irrevocable during the period. If any action
would require adjustment of the conversion rate under more than one of the
provisions described above, only one adjustment will be made and that adjustment
will be the amount of adjustment that has the highest absolute value to the
holders of the debentures. No adjustment in the applicable conversion price will
be required unless the adjustment would require an
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increase or decrease of at least 1% of the applicable conversion price. If the
adjustment is not made because the adjustment does not change the applicable
conversion price by more than 1%, then the adjustment that is not made will be
carried forward and taken into account in any future adjustment. Except as
specifically described above, the applicable conversion price will not be
subject to adjustment in the case of the issuance of any of our common stock, or
securities convertible into or exchangeable for our common stock.
PURCHASE OF DEBENTURES BY US AT THE OPTION OF THE HOLDER
Holders have the right to require us to purchase the debentures on December
1, 2005, December 1, 2011 and December 1, 2016 (each, a "purchase date"). We
will be required to purchase any outstanding debentures for which a holder
delivers a written purchase notice to the paying agent. This notice must be
delivered during the period beginning at any time from the opening of business
on the date that is 20 business days prior to the relevant purchase date until
the close of business two business days prior to the purchase date. If the
purchase notice is given and withdrawn during such period, we will not be
obligated to purchase the related debentures. Our purchase obligation is also
subject to some additional conditions as described in the indenture. Also, our
ability to satisfy our purchase obligations may be affected by the factors
described in "Risk Factors" under the caption "We may not have the ability to
raise the funds necessary to finance the Fundamental Change purchase or purchase
at the option of the holder."
The purchase price payable will be equal to 100% of the principal amount of
the debentures to be purchased plus any accrued and unpaid interest to such
purchase date.
We may choose to pay the purchase price in cash or shares of our common
stock or a combination of cash and shares of our common stock, provided that we
will pay any accrued and unpaid current cash interest in cash. For a discussion
of the United States federal income tax treatment of a holder receiving cash,
shares of common stock or any combination thereof, see "Certain United States
Federal Income Tax Considerations."
If we choose to pay the purchase price in whole or in part in shares of our
common stock or a combination of cash and shares of our common stock, we will be
required to give notice on a date not less than 20 business days prior to each
purchase date to all holders at their addresses shown in the register of the
registrar, and to beneficial owners as required by applicable law (i.e. if no
notice is given, we will pay the purchase price with cash), stating, among other
things:
- whether we will pay the purchase price of the debentures in cash, in
shares of our common stock, or any combination thereof, specifying the
percentages of each;
- If we elect to pay with shares of our common stock, the method of
calculating the price of our common stock; and
- the procedures that holders must follow to require us to purchase their
debentures.
If we pay with shares of our common stock, they will be valued at 97.5% of
the market price of our common stock.
Simultaneously with such notice of purchase, we will disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business News containing
this information and publish the information on our Web site or through such
other public medium as we may use at that time.
A holder's notice electing to require us to purchase your debentures must
state:
- if certificated debentures have been issued, the debentures certificate
numbers, or if not certificated, your notice must comply with appropriate
DTC procedures;
- the portion of the principal amount of debentures to be purchased, in
multiples of $1,000;
- that the debentures are to be purchased by us pursuant to the applicable
provisions of the debentures; and
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- in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in shares of our common stock, in whole
or in part, but the purchase price is ultimately to be paid to the holder
entirely in cash because any of the conditions to payment of the purchase
price or portion of the purchase price in shares of our common stock is
not satisfied prior to the close of business on the last business day
prior to the purchase date, whether the holder elects:
(1) to withdraw the purchase notice as to some or all of the
debentures to which it relates, or
(2) to receive cash in respect of the entire purchase price for all
debentures or portions of debentures subject to the purchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder will be deemed to
have elected to receive cash in respect of the entire purchase price for all
debentures subject to the purchase notice in these circumstances. For a
discussion of the United States federal income tax treatment of a holder
receiving cash instead of shares of our common stock, see "Certain United States
Federal Income Tax Considerations."
You may withdraw any purchase notice by a written notice of withdrawal
delivered to the paying agent prior to the close of business on the date that is
two business days prior to the purchase date. The notice of withdrawal must
state:
- the principal amount of the withdrawn debentures;
- if certificated debentures have been issued, the certificate numbers of
the withdrawn debentures, or if not certificated, your notice must comply
with appropriate DTC procedures; and
- the principal amount, if any, which remains subject to the purchase
notice.
If we elect to pay the purchase price, in whole or in part, in shares of
our common stock, the number of shares to be delivered by us will be equal to
the portion of the purchase price to be paid in shares of our common stock
divided by 97.5% of the market price of one share of our common stock as
determined by us in our purchase notice. We will pay cash based on the market
price for all fractional shares.
The "market price" means the average of the sale prices of our common stock
for the 20 trading day period ending on the third business day prior to the
applicable purchase date or the date of determination (if the third business day
prior to the applicable purchase date or the date of determination is a trading
day, or if not, then on the last trading day prior to the third business day),
appropriately adjusted to take into account the occurrence, during the period
commencing on the first of the trading days during such 20 trading day period
and ending on the applicable purchase date or the date of determination, of some
events that would result in an adjustment of the conversion rate with respect to
our common stock.
Because the market price of our common stock is determined prior to the
applicable purchase date, holders of the debentures bear the market risk with
respect to the value of our common stock to be received from the date the market
price is determined to the purchase date. We may pay the purchase price or any
portion of the purchase price in shares of our common stock only if the
information necessary to calculate the market price is published in a daily
newspaper of national circulation.
Upon determination of the actual number of shares of our common stock to be
paid upon redemption of the debentures, we will disseminate a press release
through Dow Jones & Company, Inc. or Bloomberg Business News containing this
information or publish the information on our Web site or through such other
public medium as we may use at that time.
A holder must either effect book-entry transfer or deliver the debentures,
together with necessary endorsements, to the office of the paying agent after
delivery of the purchase notice to receive payment of the purchase price. You
will receive payment on the purchase date or the time of book-entry transfer or
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the delivery of the debentures. If the paying agent holds money or securities
sufficient to pay the purchase price of the debentures on the business day
following the purchase date, then:
- the debentures will cease to be outstanding;
- interest, including any interest payable pursuant to an interest
adjustment will cease to accrue; and
- all other rights of the holder will terminate.
This will be the case whether or not book-entry transfer of the debentures
is made or whether or not the debenture is delivered to the paying agent.
RANKING
The debentures are our senior unsecured obligations and rank equally with
all of our existing and future senior unsecured indebtedness. However, the
debentures are effectively subordinated to all existing and future obligations
of our subsidiaries.
As of December 30, 2001, we had approximately $1,202 million of total
indebtedness outstanding. As of December 30, 2001, our subsidiaries had
approximately $52.1 million of outstanding indebtedness, to which the debentures
would have been structurally subordinated.
FUNDAMENTAL CHANGE
If a Fundamental Change as defined below occurs, a holder of debentures
will have the right, at its option, to require us to purchase all of its
debentures not previously called for redemption, or any portion of the principal
amount thereof, that is equal to $1,000 or an integral multiple of $1,000. The
price we are required to pay is equal to 100% of the principal amount of the
debentures to be purchased plus accrued and unpaid interest to the purchase
date.
Within 30 days after the occurrence of a Fundamental Change, we are
obligated to give to the holders of the debentures notice of the Fundamental
Change and of the purchase right arising as a result of the Fundamental Change.
We must also deliver a copy of this notice to the trustee. To exercise the
purchase right, a holder of the debentures must deliver on or before the 30th
day after the date of our notice irrevocable written notice to the trustee of
the holder's exercise of its purchase right, together with the debentures with
respect to which the right is being exercised. We are required to purchase the
debentures on the date that is 45 days after the date of our notice.
A Fundamental Change will be deemed to have occurred at the time that any
of the following occurs:
(1) any person acquires beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series of
transactions, of shares of our capital stock entitling the person to
exercise 50% or more of the total voting power of all shares of our capital
stock that is entitled to vote generally in elections of directors ("voting
stock"), other than an acquisition by us, any of our subsidiaries or any of
our employee benefit plans; or
(2) we merge or consolidate with or into any other person, any merger
of another person into us, or we convey, sell, transfer or lease all or
substantially all of our assets to another person, other than any
transaction:
- that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of our capital stock (such as an
acquisition by a subsidiary); or
- where the holders of our voting stock immediately prior to the
transaction have 50% or more of the total voting stock of Hasbro or
its successor immediately after the transaction; or
- which is effected solely to change our jurisdiction of incorporation
and results in a reclassification, conversion or exchange of
outstanding shares of our common stock solely into shares of our
common stock of the surviving entity; or
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(3) any time our continuing directors do not constitute a majority of
our board of directors (or, if applicable, a successor corporation to us).
However, a Fundamental Change will not be deemed to have occurred if
either:
(A) the sale price of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after
the later of the Fundamental Change or the public announcement of the
Fundamental Change in the case of a Fundamental Change relating to an
acquisition of capital stock, or the period of 10 consecutive trading days
ending immediately before the Fundamental Change, in the case of
Fundamental Change relating to a merger, consolidation or asset sale,
equals or exceeds 105% of the accreted conversion price per share of common
stock in effect on each of those trading days; or
(B) all of the consideration (excluding cash payments for fractional
shares and cash payments made pursuant to dissenters' appraisal rights) in
a merger or consolidation otherwise constituting a Fundamental Change under
clause (1) and/or clause (2) above consists of shares of common stock
traded on a national securities exchange or quoted on the Nasdaq National
Market (or will be so traded or quoted immediately following the merger or
consolidation) and as a result of the merger or consolidation the
debentures become convertible into such common stock.
For purposes of these provisions:
- whether a person is a "beneficial owner" will be determined in accordance
with Rule 13d-3 under the Exchange Act; and
- "person" includes any syndicate or group that would be deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
The definition of Fundamental Change includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, the ability of a holder
of the debentures to require us to purchase its debentures as a result of the
conveyance, transfer, sale, lease or other disposition of less than all of our
assets may be uncertain.
The foregoing provisions would not necessarily provide the holders of the
debentures with protection if we are involved in a highly leveraged or other
transaction that may adversely affect the holders.
If a Fundamental Change were to occur, we may not have enough funds to pay
the Fundamental Change purchase price. See "Risk Factors" under the caption "We
may not have the ability to raise the funds necessary to finance the Fundamental
Change purchase or purchase at the option of the holder." In addition, we have,
and may in the future incur, other indebtedness with similar change in control
provisions permitting our holders to accelerate or to require us to purchase our
indebtedness upon the occurrence of similar events or on some specific dates. If
we fail to purchase the debentures when required following a Fundamental Change,
we will be in default under the indenture.
MERGER AND SALES OF ASSETS BY HASBRO
We may not, in a single transaction or a series of related transactions (1)
consolidate with or merge into any other person or convey, transfer, sell or
lease our properties and assets substantially as an entirety to any person or
(2) permit any person to consolidate with or merge into us unless:
- the person formed by the consolidation or into which we are merged or the
person to which our properties and assets are so conveyed, transferred,
sold or leased, shall be a corporation, limited liability company,
partnership or trust organized and existing under the laws of the United
States, any State within the United States or the District of Columbia
and, if we are not the surviving person, the surviving person assumes the
payment of the principal of and interest on the debentures and the
performance of our other covenants under the indenture;
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- in all cases, immediately after giving effect to the transaction, no
event of default, and no event that, after notice or lapse of time or
both, would become an event of default, will have occurred and be
continuing; and
- we or such successor person shall have delivered to the trustee an
officers' certificate and an opinion of counsel, each stating that such
transaction and the supplemental indenture comply with the indenture and
that all conditions precedent in the indenture relating to such
transaction have been satisfied.
EVENTS OF DEFAULT
The following are events of default with respect to the debentures:
(1) default for 30 days in payment of any interest or liquidated
damages (as described below) due and payable on the debentures, including
additional interest payable upon an upward interest adjustment;
(2) default in payment of the principal amount of the debentures and
accrued and unpaid interest at maturity, upon redemption, purchase at the
option of the holder or following a Fundamental Change when the same
becomes due and payable;
(3) default in our obligation to deliver shares of our common stock
upon an appropriate election by holders of debentures to convert those
debentures and continuance of such default for 10 days;
(4) failure to comply in any material respect with any other covenant
or agreement in respect of the debentures contained in the indenture or the
debentures for 60 days after written notice to us by the trustee or to us
and the trustee by holders of at least 25% in aggregate principal amount of
the debentures then outstanding;
(5) failure to provide timely notice of a Fundamental Change;
(6) default under any credit agreement, mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by us or any of our
significant subsidiaries (or the payment of which is guaranteed by us or
any of our significant subsidiaries), which default
- is caused by a failure to pay when due any principal of such
indebtedness within the grace period provided for in such
indebtedness, which failure continues beyond any applicable grace
period, or
- results in the acceleration of such indebtedness prior to its express
maturity, without such acceleration being rescinded or annulled,
and, in each case, the principal amount of such indebtedness, together with
the principal amount of any other such indebtedness under which there is a
payment default or the maturity of which has been so accelerated,
aggregates $25,000,000 or more and such payment default is not cured or
such acceleration is not annulled within 30 days after written notice to us
by the trustee or to us and the trustee by holders of at least 25% in
aggregate principal amount of the debentures then outstanding;
(7) failure by us or any of our significant subsidiaries to pay final,
non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of
$25,000,000, which judgments are not stayed, bonded or discharged within 60
days after their entry; and
(8) certain events involving our or any of our significant
subsidiaries' bankruptcy, insolvency or reorganization.
The indenture requires that we file annually with the trustee a certificate
describing any material default by us in the performance of any conditions or
covenants that has occurred under the indenture and
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its status. We must give the trustee written notice within 30 days of any event
of default described in (4), (5), (6), (7) or (8) above.
The indenture provides that if an event of default occurs and is continuing
with respect to the debentures, either the trustee or the holders of at least
25% in aggregate principal amount of the outstanding debentures may declare the
principal amount plus accrued and unpaid interest, if any, on the debentures to
be due and payable immediately. If an event of default relating to events or
bankruptcy, insolvency or reorganization occurs, the principal amount plus
accrued and unpaid interest, if any, on the debentures will become immediately
due and payable without any action on the part of the trustee or any holder.
A holder of debentures may pursue any remedy under the indenture only if:
- the holder gives the trustee written notice of a continuing event of
default for the debentures;
- the holders of at least 25% in principal amount of the outstanding
debentures make a written request to the trustee to pursue the remedy;
- the holder offers to the trustee indemnity reasonably satisfactory to the
trustee;
- the trustee fails to act for a period of 60 days after receipt of notice
and offer of indemnity; and
- during that 60-day period, the holders of a majority in principal amount
of the debentures do not give the trustee a direction inconsistent with
the request.
This provision does not, however, affect the right of a holder of
debentures to sue for enforcement of payment of the principal of or interest,
including liquidated damages, on the holder's debenture on or after the
respective due dates expressed in its debenture or the holder's right to convert
its debenture in accordance with the indenture.
The trustee is entitled under the indenture, subject to the duty of the
trustee during a default to act with the required standard of care, to be
indemnified before proceeding to exercise any right or power under the indenture
at the direction of the registered holders of the debentures or which requires
the trustee to expend or risk its own funds or otherwise incur any financial
liability. The indenture also provides that the registered holders of a majority
in principal amount of the outstanding debentures (or of all debt securities
affected, voting as one class) may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee with respect to that series of debt
securities. The trustee, however, may refuse to follow any such direction that
conflicts with law or the indenture, is unduly prejudicial to the rights of
other registered holders of that series of debt securities, or would involve the
trustee in personal liability.
The indenture provides that while the trustee generally must mail notice of
a default or event of default to the registered holders of the debentures within
60 days of occurrence, the trustee may withhold notice of any default or event
of default (except in payment on the debt securities) if the trustee in good
faith determines that the withholding of such notice is in the interest of the
registered holders of the debentures.
MODIFICATION AND WAIVER
We may amend or supplement the indenture if the holders of a majority in
principal amount of the debentures consent to it. Without the consent of the
holder of each debenture affected, however, no modification may:
- reduce the amount of debentures whose holders must consent to an
amendment, supplement or waiver;
- reduce the rate of accrual of interest or change the time for payment of
interest on the debentures;
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- reduce the value of our common stock to which reference is made in
determining whether an interest adjustment will be made on the
debentures, or change the method by which this value is calculated;
- reduce the principal amount of the debentures or change its stated
maturity;
- reduce the redemption or purchase price of the debentures or change the
time at which the debentures may or must be redeemed or purchased;
- make payments on the debentures payable in currency other than as
originally stated in the debentures;
- impair the holder's right to institute suit for the enforcement of any
payment on the debentures;
- make any change in the percentage of principal amount of debentures
necessary to waive compliance with some provisions of the indenture or to
make any change in this provision for modification;
- waive a continuing default or event of default regarding any payment on
the debentures; or
- adversely affect the conversion or repurchase provisions of the
debentures.
We may amend or supplement the indenture or waive any provision of it
without the consent of any holders of debentures in some circumstances,
including:
- to cure any ambiguity, omission, defect or inconsistency, provided such
amendment does not materially and adversely affect the debentures;
- to provide for the assumption of our obligations under the indenture by a
successor upon any merger, consolidation or asset transfer permitted
under the indenture;
- to provide for uncertificated debentures in addition to or in place of
certificated debentures or to provide for bearer debentures;
- to provide any security for or guarantees of the debentures;
- to comply with any requirement to effect or maintain the qualification of
the indenture under the Trust Indenture Act of 1939;
- to add covenants that would benefit the holders of debentures or to
surrender any rights we have under the indenture;
- to add events of default with respect to the debentures; or
- to make any change that we and the trustee may deem necessary or
desirable, provided such amendment does not materially and adversely
affect the debentures.
The holders of a majority in principal amount of the outstanding debentures
may waive any existing or past default or event of default. Those holders may
not, however, waive any default or event of default in any payment on any
debenture or compliance with a provision that cannot be amended or supplemented
without the consent of each holder affected.
REGISTRATION RIGHTS
The shelf registration statement of which this prospectus forms a part has
been filed under the terms of the registration agreement we entered into with
the initial purchasers of the debentures. Pursuant to the registration
agreement, we agreed for the benefit of the holders of the debentures and common
stock issued upon conversion thereof that
- we would, at our cost, within 90 days after the original issue date of
the debentures, file a shelf registration statement with the SEC with
respect to resales of the debentures and the common stock issuable upon
their conversion;
26
- we will use our commercially reasonable efforts to cause such shelf
registration statement to be declared effective under the Securities Act
within 180 days after the issue date; and
- subject to our rights to suspend the use of the shelf registration
statement, we will use our commercially reasonable efforts to keep the
shelf registration statement continuously effective under the Securities
Act until the earliest of (i) the second anniversary of the issue date,
(ii) the date on which the debentures or the common stock issuable upon
their conversion may be sold by non-affiliates of us pursuant to
paragraph (k) of Rule 144 (or any successor provision) promulgated by the
SEC under the Securities Act and (iii) the date as of which all the
debentures or the common stock issuable upon their conversion have been
sold pursuant to the shelf registration statement.
If the shelf registration statement
- is not filed with the SEC on or prior to 90 days, or has not been
declared effective by the SEC within 180 days or
- is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by a replacement shelf
registration statement filed and declared effective) or usable for the
offer and sale of transfer restricted securities for a period of time
(including any suspension period) which exceeds 90 days in the aggregate
in any 12-month period during the period beginning on the issue date and
ending on or prior to the second anniversary of such date
(both of which we refer to as a "registration default"), we will pay liquidated
damages to each holder of transfer restricted securities which has complied with
its obligations under the registration agreement.
The amount of liquidated damages payable during any period in which a
registration default has occurred and is continuing is that amount which is
equal to:
- 0.25 percent (or 25 basis points) per annum per $1,000 principal amount
of debentures or $2.50 per annum per 46.2963 shares of our common stock
(subject to adjustment in the event of a stock split, stock
recombination, stock dividend and the like) constituting transfer
restricted securities, for the first 90 days during which a Registration
Default has occurred and is continuing; and
- 0.50 percent (or 50 basis points) per annum per $1,000 principal amount
of debentures or $5.00 per annum per 46.2963 shares of our common stock
(subject to adjustment as set forth above) constituting transfer
restricted securities for any additional days during which such
registration default has occurred and is continuing.
All accrued liquidated damages will be paid on each damages payment date (as
defined in the registration agreement). Following the cure of a registration
default, liquidated damages will cease to accrue with respect to such
registration default.
"Transfer restricted securities" means each debenture and any share of our
common stock issued on conversion thereof until the date on which such debenture
or share, as the case may be:
- has been transferred pursuant to the shelf registration statement or
another registration statement covering such debenture or share which has
been filed with the SEC pursuant to the Securities Act, in either case
after such registration statement has become effective under the
Securities Act;
- has been transferred pursuant to Rule 144 under the Securities Act (or
any similar provision then in force); or
- may be sold or transferred pursuant to paragraph (k) of Rule 144 under
the Securities Act (or any successor provision promulgated by the SEC).
Upon request, we will provide or cause to be provided to each holder of the
debentures, or our common stock issuable upon conversion of the debentures,
copies of this prospectus. We will also notify or cause to be notified each such
holder when the shelf registration statement for the debentures or our common
stock issuable upon conversion of the debentures has become effective and take
certain other actions as are required to permit unrestricted resales of the
debentures or our common stock issuable upon
27
conversion of the debentures. A holder of debentures or our common stock
issuable upon conversion of the debentures that sells such securities pursuant
to a shelf registration statement:
- is required to be named as a selling security holder in this prospectus
and to deliver this prospectus to purchasers;
- is subject to certain of the civil liability provisions under the
Securities Act in connection with such sales; and
- is bound by the provisions of the registration agreement that are
applicable to such holder (including certain indemnification and
contribution rights or obligations).
Holders of debentures or our common stock wishing to resell debentures or
our common stock issuable upon their conversion pursuant to the shelf
registration statement are required to complete and deliver to us a notice and
questionnaire. Holders are required to complete and deliver the questionnaire at
least 10 days prior to the effectiveness of the shelf registration statement if
they wish to be named as selling securityholders in this prospectus at the time
of effectiveness. If we receive a completed questionnaire, together with such
other information as may be reasonably requested by us, from a holder of
debentures following the effectiveness of the shelf registration statement, we
will, as promptly as practicable but in any event within five business days of
such receipt, file such supplements to this prospectus as are necessary to
permit such holder to deliver this prospectus to purchasers of debentures or our
common stock issuable upon their conversion (subject to our right to suspend the
use of the prospectus as described below). However, to the extent that we are
required to file an amendment to the shelf registration statement in order to
permit any such holder to deliver this prospectus to purchasers of debentures or
our common stock issuable upon their conversion, we will file such an amendment
no later than the first business day of the next calendar quarter that begins on
or after ten business days following the date we receive the completed
questionnaire. Any holder that does not timely complete and deliver a
questionnaire or provide such other information will not be named as a selling
securityholder in this prospectus and therefore will not be permitted to sell
any securities pursuant to the shelf registration statement.
We are permitted to suspend the use of this prospectus which is a part of
the shelf registration statement for a period not to exceed 45 days in any
three-month period or for two periods not to exceed an aggregate of 90 days in
any twelve-month period (both of which we refer to as a "suspension period")
under certain circumstances relating to pending corporate developments, public
filings with the SEC and similar events. We will pay all expenses of the shelf
registration statement; however, each holder is required to bear the expense of
any broker's commission, agency fee or underwriter's discount or commission.
The summary herein of certain provisions of the registration agreement is
subject to, and is qualified in its entirety by reference to, all the provisions
of the registration agreement, a copy of which is available upon request to us
as described under "Where You Can Find More Information."
CALCULATIONS IN RESPECT OF DEBENTURES
We are responsible for making all calculations called for under the
debentures, except for such calculations made by the reset rate agent. These
calculations include, but are not limited to, determinations of the market
prices of our common stock, accrued interest payable on the debentures and the
accreted conversion price of the debentures. We will make all these calculations
in good faith and, absent manifest error, our calculations will be final and
binding on holders of debentures. We will provide a schedule of our calculations
to each of the trustee and the conversion agent, and each of the trustee and
conversion agent is entitled to rely upon the accuracy of our calculations
without independent verification. The trustee will forward our calculations to
any holder of debentures upon the request of that holder.
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GOVERNING LAW
The indenture and the debentures are governed by, and construed in
accordance with, the laws of the State of New York.
TRUSTEE
The Bank of Nova Scotia Trust Company of New York is the trustee, security
registrar, paying agent and conversion agent.
If an event of default occurs and is continuing, the trustee will be
required to use the degree of care and skill of a prudent man in the conduct of
his own affairs. The trustee will become obligated to exercise any of its powers
under the indenture at the request of any of the holders of any debentures only
after those holders have offered the trustee indemnity reasonably satisfactory
to it.
If the trustee becomes one of our creditors, it will be subject to
limitations in the indenture on its rights to obtain payment of claims or to
realize on some property received for any such claim, as security or otherwise.
The trustee is permitted to engage in other transactions with us. If, however,
it acquires any conflicting interest, it must eliminate that conflict or resign.
The Bank of Nova Scotia Trust Company of New York is currently serving as the
trustee under other indentures governing our debt issuances.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
We issued the debentures in registered form, without interest coupons. We
will not charge a service charge for any registration of transfer or exchange of
the debentures. We may, however, require the payment of any tax or other
governmental charge payable for that registration.
The debentures are exchangeable for other debentures, for the same total
principal amount and for the same terms but in different authorized
denominations in accordance with the indenture. Holders may present debentures
for registration of transfer at the office of the security registrar or any
transfer agent we designate. The security registrar or transfer agent will
effect the transfer or exchange when it is satisfied with the documents of title
and identity of the person making the request.
We have appointed the trustee as security registrar for the debentures. We
may at any time rescind that designation or approve a change in the location
through which any registrar acts. We are required to maintain an office or
agency for transfers and exchanges in each place of payment. We may at any time
designate additional registrars for the debentures.
In the case of any redemption, the security registrar will not be required
to register the transfer or exchange of any debentures either:
- during a period of 15 days before any selection of debentures for
redemption; or
- if the debentures have been called for redemption in whole or in part,
except the unredeemed portion of any debentures being redeemed in part.
PAYMENT AND PAYING AGENT
Payments on the debentures will be made in U.S. dollars at the office of
the trustee. At our option, however, we may make payments by check mailed to the
holder's registered address or, with respect to global debentures, by wire
transfer. We will make interest payments to the person in whose name the
debentures are registered at the close of business on the record date for the
interest payment.
We have designated the trustee as our paying agent for payments on
debentures. We may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office through which
any paying agent acts.
Subject to the requirements of any applicable abandoned property laws, the
trustee and paying agent shall pay to us upon written request any money held by
them for payments on the debentures that remain
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unclaimed for two years after the date upon which that payment has become due.
After payment to us, holders entitled to the money must look to us for payment.
In that case, all liability of the trustee or paying agent with respect to that
money will cease.
NOTICES
Except as otherwise described herein, notice to registered holders of the
debentures will be given by mail to the addresses as they appear in the security
register. Notices will be deemed to have been given on the date of such mailing.
REPLACEMENT OF DEBENTURES
We will replace any debentures that become mutilated, destroyed, stolen or
lost at the expense of the holder upon delivery to the trustee of the mutilated
debentures or evidence of the loss, theft or destruction satisfactory to us and
the trustee. In the case of a lost, stolen or destroyed debentures, indemnity
satisfactory to the trustee and us may be required at the expense of the holder
of the debentures before a replacement debenture will be issued.
PAYMENT OF STAMP AND OTHER TAXES
We will pay all stamp and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the debentures. We will not be
required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority thereof or therein.
BOOK-ENTRY SYSTEM
The debentures are represented by one or more global securities. Each
global security is deposited with, or on behalf of, DTC and is registered in the
name of a nominee of DTC. Except under circumstances described below, the
debentures will not be issued in definitive form.
Investors who purchase debentures in offshore transactions in reliance on
Regulation S under the Securities Act may hold their interest in a global
security directly through Euroclear Bank S.A./N.V., as operator of the Euroclear
System ("Euroclear") and Clearstream Banking, societe anonyme ("Clearstream"),
if they are participants in such systems, or indirectly through organizations
that are participants in such systems. Euroclear and Clearstream hold interests
in the global securities on behalf of their participants through their
respective depositaries, which in turn hold such interests in the global
securities in customers' securities accounts in the depositaries' names on the
books of DTC.
Upon the issuance of the global security, DTC credited on its book-entry
registration and transfer system the accounts of persons designated by the
initial purchaser with the respective principal amounts of the debentures
represented by the global security. Ownership of beneficial interests in a
global security is limited to persons that have accounts with DTC or its nominee
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests in a global security is shown on, and the
transfer of that ownership is effected only through, records maintained by DTC
or its nominee (with respect to interests of persons other than participants).
The laws of some states require that some purchasers of securities take physical
delivery of the securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a global security.
So long as DTC or its nominee is the registered owner of a global security,
DTC or its nominee, as the case may be, is considered the sole owner or holder
of the debentures represented by that global security for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
security are not entitled to have debentures represented by that global security
registered in their names, are not entitled to receive (and will not receive)
physical delivery of debentures in definitive form and are not considered the
owners or holders thereof under the indenture. Principal and interest payments,
30
if any, on debentures registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the registered owner of the
relevant global security. Neither Hasbro, the trustee, any paying agent or the
security registrar for the debentures has any responsibility or liability for
any aspect of the records relating to nor payments made on account of beneficial
interests in a global security or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest, if any, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant global security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in a global security held through these participants will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of the participants.
Unless and until they are exchanged in whole or in part for debentures in
definitive form, the global securities may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of
DTC.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Clearstream participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(Brussels time). Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the global securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in the global securities from a
DTC participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Clearstream, as the case may be)
immediately following the DTC settlement date, and such credit of any
transactions interests in the global securities settled during such processing
day will be reported to the relevant Euroclear or Clearstream participant on
such day. Cash received in Euroclear or Clearstream as a result of sales of
interests in the global securities by or through a Euroclear or Clearstream
participant to a DTC participant will be received with value on the DTC
settlement date, but will be available in the relevant Euroclear or Clearstream
cash account only as of the business day following settlement in DTC.
If DTC is at any time unwilling or unable to continue as a depositary and a
successor depositary is not appointed by us within 90 days, we will issue
debentures in definitive form in exchange for the global securities relating to
the debentures. In addition, we may at any time and in our sole discretion
determine not to have debentures represented by global securities and, in such
event, will issue debentures in definitive form in exchange for the global
securities relating to the debentures. In any such instance, an owner of a
beneficial interest in a global security will be entitled to physical delivery
in definitive form of debentures represented by the global security equal in
principal amount to the beneficial interest and to have the debentures
registered in its name. Debentures so issued in definitive form will be issued
as registered debentures in denominations of $1,000 and integral multiples
thereof, unless otherwise specified by us.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 600,000,000 shares of common
stock, and 5,000,000 shares of preference stock. No shares of preference stock
were issued or outstanding as of May 23, 2002. However, 60,000 shares of
preference stock (the "Junior Participating Preference Stock") have been
authorized and reserved for issuance in connection with the preference stock
purchase rights (the "Rights") described in "Certain Anti-Takeover Provisions --
Shareholders Rights Plan" and "-- Junior Participating Preference Stock."
VOTING RIGHTS
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by shareholders.
DIVIDEND RIGHTS
The holders of common stock, subject to the rights of holders of any
outstanding preference stock, are entitled to receive dividends as determined by
the board of directors.
LIQUIDATION RIGHTS AND OTHER PROVISIONS
Subject to the prior rights of creditors and the holders of any outstanding
preference stock, the holders of the common stock are entitled to share ratably
in our remaining assets in the event of our liquidation, dissolution or winding
up.
The common stock is fully paid and is not liable to any calls or
assessments and is not convertible into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock, and, in
accordance with the Rhode Island Business Corporation Act and our Articles of
Incorporation, there are no preemptive rights.
EquiServe Trust Company, N.A., acting directly and through EquiServe L.P.,
acts as transfer agent and registrar for our common stock.
DIRECTORS' LIABILITY
Our Articles of Incorporation provide that, to the fullest extent permitted
by the Rhode Island Business Corporation Act, a member of the board of directors
will not be personally liable to us or our shareholders for monetary damages for
breaches of his or her legal duties to us or our shareholders as a director,
except for liability:
- for any breach of the director's duty of loyalty to us or our
shareholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawfully declaring dividend payments or purchasing stock; or
- for any transaction from which the director derived an improper personal
benefit, other than as permitted under Section 7-1.1-37 of the Rhode
Island Business Corporation Act.
In addition, we have entered into an indemnification agreement with each of
our directors, whereby we have agreed to indemnify each director for amounts
that the director is legally obligated to pay, including judgments, settlements
of fines, including certain related expenses to be advanced by us, due to
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any actual or alleged breach of duty, neglect, error, misstatement, misleading
statement or other act or omission by a director in his or her capacity as a
director. This indemnification agreement excludes claims:
- covered by our directors and officers liability insurance policy;
- for which the director is otherwise indemnified or reimbursed;
- relating to certain judgments or adjudications under which the director
is liable for breaches of duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct or involving knowing violations
of law, liability imposed pursuant to the provisions of Section 7-1.1-43
of the Rhode Island Business Corporation Act, actions or certain
transactions from which the director derives an improper personal
benefit;
- relating to the director's liability for accounting for profits under
Section 16 of the Exchange Act;
- in respect of remuneration, if found unlawful; and
- as to which a final and non-appealable judgment has determined that
payment to the director thereunder is unlawful.
In addition, our By-Laws include certain provisions which provide that our
directors and officers generally shall be indemnified against specific
liabilities to the fullest extent permitted or required by the Rhode Island
Business Corporation Act.
CERTAIN ANTI-TAKEOVER PROVISIONS
The provisions of our Articles of Incorporation summarized in the
succeeding paragraphs could have an anti-takeover effect. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of our Board of Directors and in their policies. They may, however,
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider to be in his or her best interest, including those attempts that
might result in a premium over the market price for the shares held by
shareholders.
Our Board of Directors is divided into three classes that are elected for
staggered three-year terms. Directors can be removed from office only for cause
and, with certain exceptions, only with the approval of a majority vote of the
entire Board of Directors or by the affirmative vote of holders of a majority of
our then outstanding shares of capital stock entitled to vote for these
directors. Vacancies on the Board of Directors may be filled only by the
remaining directors and not by the shareholders.
Under our Articles of Incorporation, the Board of Directors by resolution
may establish one or more series of preference stock having the number of
shares, designation, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations as may be fixed by the Board of
Directors without any further shareholder approval. These rights, preferences,
privileges and limitations as may be established could have the effect of
impeding or discouraging the acquisition of control of us.
Our Articles of Incorporation also provide that any action required or
permitted to be taken by our shareholders may be effected only at an annual or
special meeting of shareholders, or by the unanimous written consent of
shareholders.
In order to approve a number of extraordinary corporate transactions, such
as a merger, consolidation or sale of all or substantially all assets, with an
Interested Person, as defined below, our Articles of Incorporation require:
- an 80% vote of all outstanding shares entitled to vote, including a
majority vote of all disinterested shareholders;
- the approval of a majority of the entire Board of Directors, including
the affirmative vote of a majority of the "Continuing Directors," as
defined in our Articles of Incorporation; and
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- the satisfaction of procedural requirements which are intended to assure
that shareholders are treated fairly under the circumstances.
"Interested Person," as used in the preceding paragraph means:
- any person together with its "Affiliates" and "Associates," as defined in
the Exchange Act, and any person acting in concert therewith who is the
beneficial owner, directly or indirectly, of ten percent or more of the
votes held by the holders of the securities generally entitled to vote
for directors (the "Voting Stock"),
- any Affiliate or Associate of an Interested Person, including without
limitation, a Person acting in concert therewith,
- any person that at any time within the two year period immediately prior
to the date in question was the beneficial owner, directly or indirectly,
of ten percent or more of the votes held by the holders of shares of
Voting Stock, or
- an assignee of, or successor to, any shares of Voting Stock which were at
any time within the two year period prior to the date in question
beneficially owned by any Interested Person, if such assignment or
succession occurred in a transaction or series of transactions not
involving a public offering as defined by the Securities Act.
This definition of an Interested Person is subject to certain exceptions as
contained within our Articles of Incorporation.
The 80% vote will not be required and, in accordance with the Rhode Island
Business Corporation Act, only a majority vote of shareholders will generally be
required if this type of a transaction is approved by a majority of the entire
Board of Directors, including the affirmative vote of at least two-thirds of the
Continuing Directors.
SHAREHOLDERS RIGHTS PLAN
On June 16, 1999, we entered into a rights agreement with BankBoston, N.A.,
the predecessor to EquiServe Trust Company, N.A., as Rights Agent. This
agreement, as amended on December 4, 2000, replaced a previous rights agreement,
dated June 4, 1989, which expired on June 30, 1999. As with most shareholder
rights agreements, the terms of our rights agreement are complex and not easily
summarized, particularly as they relate to the acquisition of our common stock
and to exercisability of the Rights. This summary may not contain all of the
information that is important to you. Accordingly, you should carefully read our
rights agreement, which is incorporated by reference into this prospectus in its
entirety. Capitalized terms used in this summary and not otherwise defined shall
have the meanings given to them in the rights agreement.
The Rights attach to all certificates representing shares of common stock
outstanding at the close of business on June 30, 1999 and will attach to any
shares of common stock issued by us, including upon the exercise of any warrants
and options or upon conversion of any convertible debt securities, after this
date and prior to the Distribution Date, as defined below. The Rights will
become exercisable and will separate from the common stock and be represented by
separate certificates on the Distribution Date, the date which is approximately
10 days after anyone acquires or commences a tender offer to acquire 15% of more
of our outstanding common stock (an "Acquiring Person"). The Rights will not be
exercisable until such date, if any, and will expire on June 30, 2009, unless
this date is extended or unless the Rights are earlier exchanged or redeemed by
us. Upon the Distribution Date, the Rights will initially be exercisable, at a
price of $140, for one ten-thousandth of a share of our Junior Participating
Preference Stock, although the terms of the exercise are subject to adjustment
under the rights agreement. Under the rights agreement, the following are not
Acquiring Persons:
- Hasbro;
- any of our subsidiaries;
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- employee benefit plans of ours or any of our subsidiaries;
- individuals and entities connected with the Hassenfeld family, as
described in the rights agreement;
- any person who becomes the owner of 15% or more of the common stock by
virtue of a repurchase of our common stock, unless after becoming aware
of this fact, such person acquires an additional 1%; and
- any person who reports the ownership of 15% or more of the common stock
in a filing under the Exchange Act, who does not state any intention to
control our management and who, upon request, certifies to us that the
15% threshold was crossed inadvertently and with no knowledge of the
terms of the Rights.
Upon any person becoming an Acquiring Person, subject to the exception
noted below in this paragraph, each Right will entitle the holder to purchase a
number of shares of our common stock having a then current market value of twice
the exercise price of the Right. For example, at the initial exercise price of
$140, upon exercise, each Right would entitle its holder to receive $280 worth
of common stock or other consideration, as described below. A holder of a Right
will not be entitled to purchase shares if any person becomes an Acquiring
Person in a tender offer or exchange offer for all outstanding shares that has
been determined by our Board of Directors, after receiving advice from one or
more investment banking firms, to be at a price which is fair to and otherwise
in the best interests of the shareholders.
In addition, each Right will entitle the holder to purchase a number of
shares of common stock of the acquiring company having a current market value of
twice the exercise price of the Right, if, after the date upon which someone has
become an Acquiring Person:
- we are party to a merger or another business combination transaction in
which we are not the surviving corporation;
- we are the surviving corporation in a merger or other business
combination, but all or part of our common stock is changed into or
exchanged for stock or other securities of another person, cash, or any
other property; or
- we sell 50% or more of our consolidated assets, cash flow or earning
power.
If any of the above events occurs, the acquiring company shall assume all of our
obligations under the rights agreement.
From and after the occurrence of the event which triggers the exercise of
the Rights, any Rights that are or were acquired or beneficially owned by any
Acquiring Person, any Associate or any Affiliate shall be void and any holder of
these Rights shall thereafter have no right to exercise these Rights.
At any time prior to the earlier of ten business days following the date
upon which someone has become an Acquiring Person and the expiration date of the
Rights, our Board of Directors may redeem all, but not less than all, of the
outstanding Rights at a price of $.01 per Right, subject to adjustment, payable
in cash, shares of common stock or other consideration. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate, and
the only right of the holders of Rights will be to receive the redemption price.
The exercisability of the Rights triggered by someone becoming an Acquiring
Person, as described above, will not occur until after the expiration of this
redemption right. If, however, a majority of our Board of Directors was elected
by shareholder action by written consent or is not comprised of members who were
nominated by the predecessor Board of Directors, the Rights shall not be
redeemed if this type of a redemption is likely to have the effect of allowing
anyone to become an Acquiring Person or to otherwise trigger the exercisability
of the Rights, as described above, for a period of 180 days following the
election.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by a person or group of 50% or more of our outstanding common stock,
our Board of Directors may exchange the Rights, other than those Rights owned by
the person or group which have become void. This exchange may be in whole or in
part, at a ratio of one share of common stock per Right, subject to adjustment.
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In the event that, after the Rights become exercisable for shares of our
common stock, there is an insufficient number of shares of our common stock
available to permit the full exercise of Rights, our Board of Directors has the
ability to substitute an equivalent value in:
- cash;
- a reduction in the exercise price of the Rights;
- shares of preference stock with an equivalent value to our common stock;
- debt securities;
- other assets; or
- any combination of the foregoing.
Prior to the Distribution Date, the rights agreement may be amended by our
Board of Directors without the consent of the holders of the Rights. After the
Distribution Date, the rights agreement may only be amended by our Board of
Directors, without the consent of the holders of the Rights, as follows:
- to cure any ambiguity;
- to correct any provisions which are defective or inconsistent;
- to shorten or lengthen any time period, though any lengthening must be
for the purpose of protecting the interests of the holders of the Rights;
or
- to make changes which do not adversely affect the interests of the
holders of the Rights.
The rights agreement may not be amended, however, at any time when the Rights
are not redeemable.
Until a holder of a Right exercises the Right, the holder will have no
rights as our shareholder, including, without limitation, the right to vote or
to receive dividends.
While the distribution of the Rights will not be taxable to shareholders or
to us, shareholders may, depending on the circumstances, recognize taxable
income in the event that the Rights become exercisable for our common stock, or
other consideration, or in the event the Rights are redeemed by us.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire us in a
manner which causes the Rights to become exercisable. We do not believe,
however, that the Rights would affect any prospective offeror willing to make an
offer at a price that is fair and otherwise in the best interests of the
shareholders, since the Board of Directors would be required by its fiduciary
duties under applicable law to consider the offer. If the offer were fair and
otherwise in the best interests of the shareholders, the Board could, at its
option, exercise its right to redeem the Rights as described above. In
considering the merits of a proposed offer and pursuant to Rhode Island law and
our Articles of Incorporation, however, our directors are authorized to take
into account our interests in addition to the interests of our shareholders. In
considering our interests, our directors may evaluate the effect of the proposed
offer on our employees, suppliers, creditors and customers. Our directors may
also consider the effect of the proposed offer on the communities in which we
operate as well as our long and short term interests, including the possibility
that these interests may be best served by our continued independence. If in
considering any of these factors, the Board of Directors determines the proposed
offer is not in our best interests, the Board may reject the offer and has no
obligation to facilitate or refrain from impeding the proposed offer. Because of
the redemption right, the Rights should also not interfere with any merger or
business combination approved by our Board of Directors.
JUNIOR PARTICIPATING PREFERENCE STOCK
In connection with the rights agreement, 60,000 shares of Junior
Participating Preference Stock have been reserved and authorized for issuance by
our Board of Directors. No shares of Junior Participating Preference Stock were
outstanding as of May 23, 2002. The following statements with respect to the
Junior Participating Preference Stock are subject to, and are qualified in their
entirety by reference to, the
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detailed provisions of our Articles of Incorporation, including the Certificate
of Designation relating to the Junior Participating Preference Stock (the
"Certificate of Designation"), which is incorporated herein by reference.
Shares of Junior Participating Preference Stock purchasable upon exercise
of the Rights will not be redeemable. Each share of Junior Participating
Preference Stock will be entitled to a minimum preferential quarterly dividend
payment of $10 per share but will be entitled to an aggregate dividend of 10,000
times the dividend declared per share of common stock. In the event of
liquidation, the holders of the Junior Participating Preference Stock will be
entitled to a minimum preferential liquidation payment of $10,000 per share,
plus accrued and unpaid dividends, and will also be entitled to preferential
treatment on the distribution of any remaining assets. Each share of Junior
Participating Preference Stock will have 10,000 votes, voting together with the
common stock. In the event of any merger, consolidation or other transaction in
which shares of common stock are exchanged, each share of Junior Participating
Preference Stock will be entitled to receive 10,000 times the amount received
per share of common stock. These Rights are subject to proportionate adjustment
in the event of certain stock splits, recombinations and other events.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relevant to the ownership and disposition of the debentures and
the shares of common stock into which the debentures may be converted. This
summary deals only with the debentures and the shares of common stock held as
capital assets for United States federal income tax purposes. As used in this
prospectus, "U.S. Holders" are any beneficial owners of the debentures or the
shares of common stock that are, for United States federal income tax purposes:
(1) citizens or residents of the United States, (2) corporations (or entities
treated as corporations for federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the District of
Columbia, (3) estates, the income of which is subject to United States federal
income taxation regardless of its source, and (4) trusts, if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust. As used in this prospectus, "Non-U.S.
Holders" are holders of the debentures or the shares of common stock that are,
for United States federal income tax purposes, (1) nonresident alien
individuals, (2) foreign corporations and (3) foreign estates or trusts that are
not subject to United States federal income taxation on their worldwide income.
If a partnership (including for this purpose any entity treated as a partnership
for United States federal income tax purposes) is a beneficial owner of the
debentures or the shares of common stock, the treatment of a partner in the
partnership will generally depend upon the status of the partner and upon the
activities of the partnership. A holder of the debentures or the shares of
common stock that is a partnership and partners in such partnership should
consult their tax advisors about the United States federal income tax
consequences of holding and disposing of the debentures or the shares of common
stock, as the case may be. Unless otherwise stated, this summary does not deal
with special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, holders that hold the debentures
as part of a hedge, straddle, "synthetic security" or other integrated
transaction for United States federal income tax purposes and holders whose
functional currency is not the U.S. dollar. Further, this summary does not
include any description of any alternative minimum tax consequences, United
States federal estate or gift tax laws or the tax laws of any state, local or
foreign government that may be applicable to the debentures or the shares of
common stock.
This summary is based on the Internal Revenue Code of 1986, as amended, the
Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are subject
to change and differing interpretations, possibly on a retroactive basis. No
statutory, administrative or judicial authority directly addresses the treatment
of the debentures or instruments similar to the debentures for United States
federal income tax purposes. Therefore, there can be no assurance that the
Internal Revenue Service (the "IRS") will not successfully challenge one or more
of the conclusions described in this prospectus.
We urge prospective investors to consult their tax advisors with respect to
the tax consequences to them of the purchase, ownership and disposition of the
debentures and the shares of common stock in light of their own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in United States federal and
other tax laws.
CLASSIFICATION OF THE DEBENTURES
Pursuant to the terms of the indenture, each holder of the debentures
agreed, for United States federal income tax purposes, to treat the debentures
as indebtedness for United States federal income tax purposes subject to the
regulations governing contingent payment debt instruments and to be bound by our
application of those regulations to the debentures, including our determination
of the rate at which interest is deemed to accrue on the debentures for United
States federal income tax purposes. The remainder of this discussion assumes
that the debentures are treated in accordance with that agreement and our
determinations. However, the proper application of the regulations governing
contingent payment debt instruments to a holder of a debenture is uncertain in a
number of respects, and no assurance can be given that the IRS will not assert
that the debentures should be treated differently or that such an assertion
38
would not prevail. Such treatment could affect the amount, timing and character
of income, gain or loss in respect of an investment in the debentures. In
particular, it might be determined that a holder should have accrued interest
income at a lower rate, should not have recognized income or gain upon the
conversion, and should have recognized capital gain upon a taxable disposition
of its debentures.
TREATMENT OF U.S. HOLDERS
Under the rules governing contingent payment debt instruments, a U.S.
Holder will generally be required to accrue interest income on the debentures,
in the amounts described below, regardless of whether the U.S. Holder uses the
cash or accrual method of tax accounting. Accordingly, U.S. Holders will likely
be required to include interest in taxable income in each year in excess of the
accruals on the debentures for non-tax purposes and in excess of any interest
payments actually received in that year. A U.S. Holder must accrue on its
debentures an amount of original issue discount as ordinary interest income for
United States federal income tax purposes for each accrual period prior to and
including the maturity date of the debentures that equals:
- the product of (i) the adjusted issue price (as defined below) of the
debentures as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the debentures,
adjusted for the length of the accrual period;
- divided by the number of days in the accrual period; and
- multiplied by the number of days during the accrual period that the U.S.
Holder held the debentures.
The "issue price" of a debenture is the first price at which a substantial
amount of the debentures is sold to the public, excluding bond houses, brokers
or similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The "adjusted issue price" of a debenture is
its issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below, and
decreased by the projected amounts of any payments with respect to the
debentures.
Under the rules governing contingent payment debt instruments, we are
required to establish the "comparable yield" for the debentures. We have
determined that the comparable yield for the debentures is the annual yield we
would incur, as of the initial issue date, on a fixed rate nonconvertible debt
security with no contingent payments, but with terms and conditions otherwise
comparable to those of the debentures including the absence of subordination,
term, timing of payments and general market conditions, but excluding any
adjustments for liquidity or the riskiness of the contingencies with respect to
the debentures. Accordingly, we have determined the comparable yield to be 8.24%
compounded semiannually.
We are required to provide to U.S. Holders, solely for United States
federal income tax purposes, a schedule of the projected amounts of payments on
the debentures. This schedule must produce the comparable yield. Our
determination of the projected payment schedule for the debentures includes
estimates for payments of contingent interest and an estimate for a payment at
maturity taking into account the conversion feature. U.S. Holders may obtain the
projected payment schedule by submitting a written request for it to us at the
address set forth in "Where You Can Find More Information."
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the debentures for
United States federal income tax purposes. The actual amounts payable to U.S.
Holders of the debentures will be different from the amounts included on the
schedule of projected payments.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE DEBENTURES
If a U.S. Holder receives actual payments with respect to the debentures in
a taxable year that in the aggregate exceed the total amount of projected
payments for that taxable year, the U.S. Holder will incur
39
a "net positive adjustment" equal to the amount of such excess. The U.S. Holder
will treat the "net positive adjustment" as additional interest income for the
taxable year. For this purpose, the payments in a taxable year include the fair
market value of property (including common stock) received in that year.
If a U.S. Holder receives actual payments with respect to the debentures in
a taxable year that in the aggregate are less than the amount of the projected
payments for that taxable year, the U.S. Holder will incur a "net negative
adjustment" equal to the amount of such deficit. This adjustment will (a) reduce
the U.S. Holder's interest income on the debentures for that taxable year, and
(b) to the extent of any excess after the application of (a), give rise to an
ordinary loss to the extent of the U.S. Holder's interest income on the
debentures during prior taxable years, reduced to the extent such interest was
offset by prior net negative adjustments.
SALE, EXCHANGE, CONVERSION OR REDEMPTION
Generally, the sale or exchange of a debenture, or the redemption of a
debenture for cash, will result in taxable gain or loss to a U.S. Holder. In
addition, as described above, our calculation of the comparable yield and the
schedule of projected payments for the debentures includes the receipt of common
stock upon conversion of a debenture into shares of our common stock as a
contingent payment with respect to the debentures. Accordingly, we intend to
treat the receipt of our common stock by a U.S. Holder upon the conversion of a
debenture, or upon the redemption of a debenture where we elect to pay the
redemption price in shares of our common stock, as a contingent payment. As
described above, holders are generally bound by our determination of the
comparable yield and the schedule of projected payments. Under this treatment,
such a conversion or redemption also will result in taxable gain or loss to the
U.S. Holder. The amount of gain or loss on a taxable sale, exchange, conversion
or redemption will equal the difference between (a) the amount of cash plus the
fair market value of any other property received by the U.S. Holder, including
the fair market value of any common stock received, and (b) the U.S. Holder's
adjusted tax basis in the debentures. A U.S. Holder's adjusted tax basis in a
debenture on any date generally will equal the U.S. Holder's original purchase
price for the debentures, increased by any original issue discount previously
accrued by the U.S. Holder (determined without regard to any positive or
negative adjustments to interest accruals described above), and decreased by the
amount of any projected payments on the debentures projected to have been made
through that date. Gain recognized upon a sale, exchange, conversion or
redemption of a debenture generally will be treated as ordinary interest income;
any loss will be ordinary loss to the extent of interest previously included in
income, and thereafter, capital loss (which will be long-term if the debenture
is held for more than one year). The deductibility of net capital losses is
subject to limitations.
A U.S. Holder's tax basis in shares of our common stock received upon a
conversion of a debenture or upon a holder's exercise of a put right that we
elect to pay in shares of our common stock will equal the then current fair
market value of such common stock. The U.S. Holder's holding period for the
shares of our common stock received will commence on the date of conversion or
redemption.
PURCHASERS OF DEBENTURES AT A PRICE OTHER THAN THE ADJUSTED ISSUE PRICE
A U.S. Holder that purchases debentures in the secondary market for an
amount that differs from the adjusted issue price of the debentures at the time
of purchase will be required to accrue interest income on the debentures in the
same manner as a U.S. Holder that purchased debentures in the initial offering.
A U.S. Holder must also reasonably allocate any difference between the adjusted
issue price and the U.S. Holder's basis in the debentures to daily portions of
interest or projected payments over the remaining term of the debentures. If the
purchase price of the debentures is greater than the adjusted issue price, the
amount of the difference allocated to a daily portion of interest or to a
projected payment is treated as a "negative adjustment" on the day the daily
portion accrues or the payment is made, respectively. If the purchase price of
the debentures is less than the adjusted issue price, the amount of the
difference allocated to a daily portion of interest or to a projected payment is
treated as a "positive adjustment" on the day the daily portion accrues or the
payment is made, respectively. Any such negative or positive adjustment will
decrease or increase, respectively, the U.S. Holder's adjusted tax basis in the
debentures.
40
Certain U.S. Holders will receive Forms 1099-OID reporting interest
accruals on their debentures. Those forms will not reflect the effect of any
positive or negative adjustments resulting from the U.S. Holder's purchase of
debentures in the secondary market at a price different from adjusted issue
price of the debentures on the date of purchase. U.S. Holders are urged to
consult their tax advisors as to whether, and how, such adjustments should be
taken into account in determining their interest accruals with regard to the
debentures.
DISTRIBUTIONS ON COMMON STOCK
If a U.S. Holder converts the debentures into shares of our common stock,
in general, distributions on the shares of our common stock that are paid out of
our current or accumulated earnings and profits, as defined for United States
federal income tax purposes, will constitute dividends and will be includible in
income by a holder and taxable as ordinary income when received or accrued, in
accordance with that holder's method of accounting for United States federal
income tax purposes. If a distribution exceeds our current and accumulated
earnings and profits, the excess will be treated first as a tax-free return of
the U.S. Holder's investment, up to the U.S. Holder's basis in the shares of our
common stock. Any remaining excess will be treated as capital gain.
CONSTRUCTIVE DIVIDENDS
An adjustment in the conversion rate of the debentures, or a failure to
adjust the conversion rate, may in certain circumstances be treated as a taxable
dividend to holders of the debentures or of our common stock. For example, if at
any time we make a distribution of property to our stockholders that would be
taxable to the stockholders as a dividend for United States federal income tax
purposes and, in accordance with the anti-dilution provisions of the debentures,
the conversion rate of the debentures is increased, such increase may be deemed
to be the payment of a taxable dividend to holders of the debentures. An
increase in the conversion rate in the event of distribution of our evidences of
indebtedness or our assets or an increase in the event of an extraordinary cash
dividend will generally result in deemed dividend treatment to holders of the
debentures, but an increase in the event of stock dividends or the distribution
of rights to subscribe for our common stock generally will not. If an event
occurs that dilutes the interests of the holders of the debentures and the
conversion price is not adjusted, the resulting increase in the proportionate
interest of our holders of common stock could be treated as a taxable dividend
to such stockholders.
TREATMENT OF NON-U.S. HOLDERS
The rules governing United States federal income taxation of Non-U.S.
Holders are complex and no attempt will be made in this prospectus to provide
more than a brief description of such rules. Non-U.S. Holders should consult
with their tax advisors to determine the effect of United States federal, state,
local and foreign income tax laws, as well as treaties, with regard to an
investment in the debentures and shares of our common stock, including any
reporting requirements.
PAYMENTS MADE WITH RESPECT TO THE DEBENTURES
The 30% United States federal withholding tax will not apply to any payment
to a Non-U.S. Holder of principal or interest (including amounts taken into
income as interest under the accrual rules described above under "Treatment of
U.S. Holders" and amounts attributable to the shares of our common stock
received upon a conversion of the debentures) on debentures, provided that: (i)
the Non-U.S. Holder does not own, actually or constructively, 10% or more of the
total combined voting power of our common stock, (ii) the Non-U.S. Holder is not
a controlled foreign corporation related, directly or indirectly, to us through
stock ownership; (iii) the Non-U.S. Holder is not a bank which acquired the
debentures in consideration for an extension of credit made pursuant to a loan
agreement entered into in the ordinary course of business; (iv) our common stock
is actively traded within the meaning of Section 871(h)(4)(C)(v)(I) of the
Internal Revenue Code; and (v) either (a) the beneficial owner of debentures
certifies to us or our paying agent on IRS Form W-8BEN or an appropriate
substitute form,
41
under penalties of perjury, that it is not a United States person and provides
its name, address and certain other information or (B) the beneficial owner
holds its debentures through certain foreign intermediaries or certain foreign
partnerships and such holder satisfies certain certification requirements.
If the Non-U.S. Holder cannot satisfy the requirements described above,
payments of interest (including amounts taken into income under the accrual
rules described above under "Treatment of U.S. Holders" and amounts attributable
to our common stock received upon a conversion of the debentures) will be
subject to the 30% United States federal withholding tax unless the Non-U.S.
Holder provides us with a properly executed (1) IRS Form W-8BEN (or successor
form) claiming an exemption from or reduction in withholding under an applicable
tax treaty or (2) IRS Form W-8ECI (or successor form) stating that interest paid
on the debentures is not subject to withholding tax because it is effectively
connected with the Non-U.S. Holder's conduct of a trade or business in the
United States.
If a Non-U.S. Holder of the debentures is engaged in a trade or business in
the United States, and if interest on the debentures is effectively connected
with the conduct of such trade or business, the Non-U.S. Holder, although exempt
from the withholding tax discussed in the preceding paragraphs if it provides a
properly executed IRS Form W-8 ECI, will generally be subject to United States
federal income tax on interest and on any gain realized on the sale, exchange or
conversion of the debentures on a net basis in the same manner as if it were a
U.S. Holder.
In addition, if such Non-U.S. Holder is a foreign corporation, such
Non-U.S. Holder may be subject to a branch profits tax equal to 30% (or such
lower tax rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments.
SALE OR EXCHANGE OF DEBENTURES OR COMMON STOCK
A Non-U.S. Holder will not generally be subject to United States federal
income or withholding tax with respect to gain upon the sale, exchange or other
disposition (other than a conversion or a redemption) of the debentures or
shares of our common stock, unless: (1) the income or gain is "U.S. trade or
business income," which means income or gain that is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business, or, in the case of a
treaty resident, attributable to a permanent establishment or a fixed base, in
the United States; (2) such Non-U.S. Holder is an individual who is present in
the United States for 183 days or more in the taxable year of disposition and
certain other conditions are met; (3) such Non-U.S. Holder is subject to tax
pursuant to the provisions of the Internal Revenue Code applicable to certain
United States expatriates; or (4) in the case of an amount which is attributable
to original issue discount, the Non-U.S. Holder does not meet the conditions for
exemption from United States federal withholding tax described above.
U.S. trade or business income of a Non-U.S. Holder will generally be
subject to United States federal income tax on a net basis in the same manner as
if it were realized by a U.S. Holder. A Non-U.S. Holder that realizes U.S. trade
or business income with respect to the debentures or common stock should consult
its tax advisors as to the treatment of such income or gain. In addition, U.S.
trade or business income of a Non-U.S. Holder that is a corporation may be
subject to a branch profits tax at a rate of 30%, or such lower rate provided by
an applicable income tax treaty.
DISTRIBUTIONS ON COMMON STOCK
A Non-U.S. Holder of shares of our common stock will generally be subject
to United States federal income or withholding tax at a 30% rate (or lower rate
provided under any applicable income tax treaty) on distributions by us with
respect to our common stock that are treated as dividends. Except to the extent
that an applicable tax treaty otherwise provides, a Non-U.S. Holder generally
will be taxed in the same manner as a U.S. Holder on dividends that are
effectively connected with the Non-U.S. Holder's conduct of a trade or business
in the United States, and a Non-U.S. Holder that is a corporation may also be
subject to a United States branch profits tax at a 30% rate or such lower rate
as may be specified in an applicable income tax treaty.
42
BACK-UP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS
Payments of interest or dividends made by us on, or the proceeds of the
sale or other disposition of, the debentures or shares of our common stock may
be subject to information reporting and United States federal backup withholding
tax if the recipient of such payment fails to supply an accurate taxpayer
identification number or otherwise fails to comply with applicable United States
information reporting or certification requirements. Any amount withheld from a
payment to an U.S. Holder under the backup withholding rules is allowable as a
credit against the holder's United States federal income tax, provided that the
required information is furnished to the IRS.
NON-U.S. HOLDERS
A Non-U.S. Holder may be required to comply with certification procedures
to establish that the holder is not a U.S. person in order to avoid backup
withholding tax requirements with respect to our payments of principal and
interest, including cash payments in respect of original issue discount on the
debentures, or the proceeds of the sale or other disposition of the debentures.
In addition, we must report annually to the IRS and to each Non-U.S. Holder the
amount of any dividends paid to, and the tax withheld with respect to, such
holder, regardless of whether any tax was actually withheld. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
TAX EVENT
The modification of the terms of the debentures by us upon a Tax Event
could possibly alter the amount and timing of income recognition by the holders
with respect to the payments of interest due after the option exercise date.
Holders should consult their tax advisors regarding the United States
federal, state, local and foreign tax consequences of an investment in the
debentures and whether an investment in the debentures is advisable in light of
the agreed upon tax treatment and the Holder's particular tax situation.
43
SELLING SECURITYHOLDERS
We originally issued the debentures in a private placement in November
2001. The debentures were resold by the initial purchasers to qualified
institutional buyers under Rule 144A under the Securities Act. Selling
securityholders may offer and sell the debentures and the underlying common
stock pursuant to this prospectus.
The following table sets forth information as of May 23, 2002 about the
principal amount of debentures and the underlying common stock, beneficially
owned by each selling securityholder who has provided us with a completed
questionnaire, that may be offered using this prospectus.
Unless otherwise described below, to our knowledge, no selling
securityholder nor any of its affiliates has held any position or office with,
been employed by or otherwise has had any material relationship with us or our
affiliates during the three years prior to the date of this prospectus.
Unless otherwise indicated below, no selling securityholder has indicated
to us that it owned any shares of our common stock prior to the registration of
the debentures.
A selling securityholder may offer all or some portion of the debentures
and shares of the common stock issuable upon conversion of the debentures.
Accordingly, no estimate can be given as to the amount or percentage of
debentures or our common stock that will be held by the selling securityholders
upon termination of sales pursuant to this prospectus. In addition, the selling
securityholders identified below may have sold, transferred or disposed of all
or a portion of their debentures since the date on which they provided the
information regarding their holdings in transactions exempt from the
registration requirements of the Securities Act.
PRINCIPAL AMOUNT
OF DEBENTURES
OWNED BEFORE PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
THE OFFERING AND DEBENTURES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------- ------------- ------------------- --------------
Aventis Pension Master Trust........ $ 505,000 * 23,379 *
Bank of America Pension Plan(3)..... $ 2,000,000 * 92,592 *
Barclays Global Investors
Limited(3)........................ $ 1,000,000 * 46,296 *
Boilermaker -- Blacksmith Pension
Trust............................. $ 2,100,000 * 97,222 *
CALAMOS(R) Convertible Fund --
CALAMOS(R) Investment Trust....... $ 7,000,000 2.80% 324,074 *
CALAMOS(R) Convertible Growth and
Income Fund -- CALAMOS(R)
Investment Trust.................. $ 6,100,000 2.44% 282,407 *
CALAMOS(R) Convertible Portfolio --
CALAMOS(R) Advisors Trust......... $ 210,000 * 9,722 *
CALAMOS(R) Market Neutral Fund --
CALAMOS(R) Investment Trust....... $10,000,000 4.00% 462,963 *
Canyon Capital Arbitrage Master
Hedge Fund, Ltd. ................. $ 9,000,000 3.60% 416,666 *
Canyon MAC 18 Ltd. (RMF)............ $ 2,100,000 * 97,222 *
Canyon Value Realization Fund
(Cayman), Ltd. ................... $12,300,000 4.92% 569,444 *
CFFX, LLC(4)........................ $ 2,000,000 * 92,592 *
Citi SAM Fund Ltd. ................. $ 4,800,000 1.92% 222,222 *
City of Albany Pension Plan......... $ 180,000 * 8,333 *
City of Knoxville Pension System.... $ 335,000 * 15,509 *
Clarica Life Insurance
Co. -- U.S. ...................... $ 515,000 * 23,842 *
44
PRINCIPAL AMOUNT
OF DEBENTURES
OWNED BEFORE PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
THE OFFERING AND DEBENTURES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------- ------------- ------------------- --------------
Consulting Group Capital Markets
Funds............................. $ 500,000 * 23,148 *
DeAM Convertible Arbitrage Fund..... $ 3,700,000 1.48 171,296 *
Delta Pilots Disability and
Survivorship Trust................ $ 675,000 * 31,250 *
Deutsche Banc Securities Inc.(4) ... $22,875,000 9.15% 1,059,027 *
Dorinco Reinsurance Company......... $ 1,200,000 * 55,555 *
Drury University.................... $ 85,000 * 3,935 *
First Union International Capital
Markets Inc. ..................... $ 6,000,000 2.40% 277,777 *
First Union Securities Inc. ........ $32,820,000 13.13% 1,519,444 *
Gaia Offshore Master Fund Ltd. ..... $ 2,150,000 * 99,537 *
Genesee County Employees'
Retirement System................. $ 975,000 * 45,138 *
Greek Catholic Union of the USA..... $ 95,000 * 4,398 *
H. K. Porter Company, Inc. ......... $ 50,000 * 2,314 *
HFR CA Select Fund.................. $ 550,000 * 25,462 *
IMF Convertible Fund................ $ 800,000 * 37,037 *
Investcorp -- SAM Fund Ltd. ........ $ 4,200,000 1.68% 194,444 *
Jackson County Employees' Retirement
System............................ $ 175,000 * 8,101 *
JMG Convertible Investments, LP. ... $ 5,500,000 2.20% 254,629 *
Kettering Medical Center Funded
Depreciation Account.............. $ 125,000 * 5,787 *
Knoxville Utilities Board Retirement
System............................ $ 300,000 * 13,888 *
Lancer Securities Cayman Ltd. ...... $ 300,000 * 13,888 *
Louisiana Workers' Compensation
Corporation....................... $ 515,000 * 23,842 *
Lyxor Master Fund................... $ 350,000 * 16,203 *
Macomb County Employees' Retirement
System............................ $ 500,000 * 23,148 *
NMS Services (Cayman) Inc........... $ 2,000,000 * 92,592 *
NORCAL Mutual Insurance Company..... $ 400,000 * 18,518 *
Palladin Securities LLC............. $ 1,000,000 * 46,296 *
Peoples Benefit Life Insurance
Company Teamsters................. $13,000,000 5.20% 601,851 *
Prisma Foundation................... $ 80,000 * 3,703 *
Quattro Fund, Ltd. ................. $ 5,875,000 2.35% 271,990 *
Rhapsody Fund, LP. ................. $ 7,000,000 2.80% 324,074 *
Salomon Smith Barney Inc.(5)........ $ 2,000,000 * 92,592 *
San Diego County Employees
Retirement Association............ $ 2,000,000 * 92,592 *
SCI Endowment Care Common Trust
Fund -- First Union............... $ 65,000 * 3,009 *
45
PRINCIPAL AMOUNT
OF DEBENTURES
OWNED BEFORE PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
THE OFFERING AND DEBENTURES COMMON STOCK THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------- ------------- ------------------- --------------
SCI Endowment Care Common Trust
Fund -- National Fiduciary
Services.......................... $ 225,000 * 10,416 *
SCI Endowment Care Common Trust
Fund -- Suntrust.................. $ 125,000 * 5,787 *
SG Cowen Securities Corporation..... $ 440,000 * 20,370 *
Southdown Pension Plan.............. $ 210,000 * 9,722 *
Southern Farm Bureau Life Insurance
Company........................... $ 1,100,000 * 50,925 *
SPT................................. $ 2,500,000 1.00% 115,740 *
St. Albans Partners Ltd. ........... $ 6,000,000 2.40% 277,777 *
Sturgeon Limited.................... $ 465,000 * 21,527 *
TD Securities (USA) Inc............. $ 2,500,000 1.00% 115,740 *
The Dow Chemical Company Employees'
Retirement Plan................... $ 4,000,000 1.60% 185,185 *
The Fondren Foundation.............. $ 125,000 * 5,787 *
TQA Master Fund, Ltd. .............. $ 3,000,000 1.20% 138,888 *
TQA Master Plus Fund, Ltd. ......... $ 2,000,000 * 92,592 *
Union Carbide Retirement Account.... $ 2,100,000 * 97,222 *
United Food and Commercial Workers
Local 1262 and Employers Pension
Fund.............................. $ 950,000 * 43,981 *
Value Realization Fund, L.P. ....... $ 6,600,000 2.64% 305,555 *
Vopak USA Inc., Retirement Plan
(f.k.a. Van Waters & Rogers Inc.
Retirement Plan).................. $ 500,000 * 23,148 *
Yield Strategies Fund I, LP......... $ 4,000,000 1.60% 185,185 *
Yield Strategies Fund II, LP........ $ 4,000,000 1.60% 185,185 *
Zazove Convertible Arbitrage Fund,
L.P. ............................. $ 500,000 * 23,148 *
Zazove Hedged Convertible Fund
L.P. ............................. $ 2,300,000 * 106,481 *
Zazove Income Fund L.P. ............ $ 1,850,000 * 85,648 *
Zurich Institutional Benchmarks
Master Fund Ltd. ................. $ 1,700,000 * 78,703 *
Zurich Institutional Benchmarks
Management........................ $ 1,825,000 * 84,490 *
Unknown(6).......................... $22,980,000 9.19% 1,063,888 *
---------------
* Less than 1%
(1) Assumes conversion of all of the holder's debentures at an initial
conversion rate of 46.2963 shares of common stock per $1,000 principal
amount of the debentures. However, this conversion rate will be subject to
adjustment as described under "Description of Debentures -- Conversion
Rights." As a result, the amount of common stock issuable upon conversion of
the debentures may increase or decrease in the future.
(2) Calculated based on 173,154,348 shares of common stock outstanding as of May
22, 2002. In calculating this amount, we treated as outstanding that number
of shares of common stock issuable upon conversion of all of that particular
holder's debentures. However, we did not assume the conversion of any other
holder's debentures.
(3) The selling securityholder is an affiliate of, or an investment fund or plan
managed by an affiliate of, an initial purchaser of the debentures in
November 2001. The selling securityholder has represented to us that it
purchased the debentures in the ordinary
46
course of business and, at the time of purchase, it had no agreement or
understanding, directly or indirectly, with any person to distribute the
debentures.
(4) The selling securityholder has identified itself as a registered
broker-dealer and, accordingly, an underwriter.
(5) The selling securityholder served as an initial purchaser of the debentures
in November 2001 and is deemed an underwriter under the Securities Act of
1933, as amended.
(6) The name "Unknown" represents the remaining selling securityholders for whom
we have not received a completed questionnaire. We are unable to provide the
names of these securityholders because the debentures held by these
securityholders are currently evidenced by a global note which has been
deposited with DTC and registered in the name of Cede & Co. as DTC's
nominee.
If, after the date of this prospectus, a securityholder notifies us
pursuant to the registration agreement of its intent to dispose of debentures
pursuant to the registration statement, we will file a post-effective amendment
to the registration statement to include this information.
47
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the debentures and
the underlying common stock offered by this prospectus. The debentures and the
underlying common stock may be sold from time to time to purchasers:
- directly by the selling securityholders; or
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from
the selling securityholders or the purchasers of the debentures and the
underlying common stock (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of
those customary in the types of transactions involved).
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the debentures and the underlying common
stock may be deemed to be "underwriters." As a result, any profits on the sale
of the underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any such broker-dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
If the selling securityholders were deemed to be underwriters, the selling
securityholders may be subject to certain statutory liabilities as underwriters
under the Securities Act.
If the debentures and the underlying common stock are sold through
underwriters or broker-dealers, the selling securityholders will be responsible
for underwriting discounts or commissions or agent's commissions.
The debentures and the underlying common stock may be sold in one or more
transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
debentures and underlying common stock may be listed or quoted at the
time of the sale, including the New York Stock Exchange in the case of
the common stock;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market;
- through the writing of options, whether or not the options are listed on
an options exchange;
- through the distribution of the securities by any selling securityholder
to its partners, members or stockholders; or
- through any combination of the above.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with the sales of the debentures and the underlying common
stock or otherwise, the selling securityholders may enter into hedging
transactions with broker-dealers. These broker-dealers may in turn engage in
short sales of the debentures and the underlying common stock in the course of
hedging their positions. The selling securityholders may also sell the
debentures and the underlying common stock short and deliver debentures and the
underlying common stock to close out short positions, or loan or
48
pledge debentures and the underlying common stock to broker-dealers that in turn
may sell the debentures and the underlying common stock.
The selling securityholders may pledge or grant a security interest in some
or all of the debentures and the underlying common stock owned by them and, if
any selling securityholders default in the performance of such secured
obligations, the pledgees or secured parties may offer and sell the relevant
debentures and underlying common stock pursuant to this prospectus.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the debentures and the underlying
common stock by the selling securityholders. There can be no assurance that any
selling securityholders will sell any or all of the debentures and the
underlying common stock pursuant to this prospectus. In addition, the selling
securityholders may transfer or donate the debentures and the underlying common
stock by other means not described in this prospectus.
Our common stock trades on the New York Stock Exchange under the symbol
"HAS." We do not intend to apply for listing of the debentures on any securities
exchange or for quotation through NASDAQ. Accordingly, no assurance can be given
as to the development of liquidity or any trading market for the debentures.
Any debentures or underlying common stock covered by this prospectus that
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be
sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the debentures and the underlying common stock by
the selling securityholders and any such other person. In addition, Regulation M
of the Exchange Act may restrict the ability of any person engaged in the
distribution of the debentures and the underling common stock to engage in
market-making activities with respect to the particular debentures and
underlying common stock being distributed for a period of up to five business
days prior to the commencement of such distribution. This may affect the
marketability of the debentures and the underlying common stock and the ability
of any person or entity to engage in market-making activities with respect to
the debentures and the underlying common stock.
Pursuant to the registration agreement that has been filed as an exhibit to
this registration statement, we and the selling securityholders will each
indemnify the other against certain liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection with
these liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the debentures and the underlying common
stock to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
49
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our SEC filings are
available over the Internet at the SEC's web site at http://www.sec.gov. You may
also read and copy any document we file with the SEC at its public reference
facility:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549. Please call 1-800 SEC-0330 for further information on the
operations of the public reference facilities and copying charges. Our SEC
filings are also available at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We incorporate by reference in this prospectus the following documents
filed by us with the SEC:
- Our Annual Report on Form 10-K for the fiscal year ended December 30,
2001;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002;
- Our Current Reports on Form 8-K dated February 7, 2002 and April 22,
2002; and
- Our Registration Statement on Form 8-A as filed with the SEC on June 4,
1999.
Any statement made in a document incorporated by reference or deemed
incorporated herein by reference is deemed to be modified or superseded for
purposes of this prospectus if a statement contained in this prospectus or in
any other subsequently filed document which also is incorporated or deemed
incorporated by reference herein modifies or supersedes that statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus. We also incorporate by
reference all documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the termination
of this offering.
Statements made in this prospectus or in any document incorporated by
reference in this prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the documents incorporated by reference, each such statement
being qualified in all material respects by such reference.
We will provide a copy of these filings and any exhibits specifically
incorporated by reference in these filings and a copy of the indenture and
registration agreement referred to herein at no cost by request (written or
oral) directed to us at the following address and telephone number: Hasbro,
Inc., 1027 Newport Avenue, Pawtucket, Rhode Island, 02862, Attention: Investor
Relations, or by telephone to Investor Relations at (401) 431-8697.
50
VALIDITY OF SECURITIES
The validity of the debentures and the common stock issuable upon
conversion will be passed on for us by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Hasbro as of December 30, 2001 and
December 31, 2000 and for each of the fiscal years in the three-year period
ended December 30, 2001 incorporated by reference in this prospectus have been
audited by KPMG LLP, independent certified public accountants, as stated in
their reports thereon.
51
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$250,000,000
HASBRO, INC.
2.75% CONVERTIBLE SENIOR DEBENTURES DUE 2021
AND
11,574,075 SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE DEBENTURES
[HASBRO INC. LOGO]
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PROSPECTUS
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MAY 30, 2002
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