Schedule 14a information


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NameSchedule 14a information
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between the ages of sixty-five and seventy-two, the number of annual payments

will not exceed the retired director's years of service. Upon a Change of

Control, as defined in the Retirement Plan, directors and retired directors are

entitled to lump-sum payments equal to the present value of their benefits under

the Retirement Plan.
Under the Stock Option Plan for Non-employee Directors (the "Director

Plan"), approved by shareholders on May 11, 1994, each Non-employee Director

then in office received on May 11, 1994, each Non-employee Director who joined

the Board after May 11, 1994 received upon becoming a director, and any new

Non-employee Director will receive upon becoming a director, a one-time grant of

a nonqualified, nontransferable ten year option to purchase 11,250 shares of

Common Stock at 110% of the fair market value per share of Common Stock on the

date of grant. The options become exercisable at a rate of 20% per year

commencing on the first anniversary of the date of grant, except that

exercisability will be accelerated upon a participant ceasing to be a member of

the Board because of permanent disability, death, retirement at or after age

seventy-two or after a Change of Control, as defined in the Director Plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's wholly owned subsidiary, Hasbro Canada Corporation ("Hasbro

Canada"), leases its manufacturing and warehouse facilities from Central Toy

Manufacturing Inc. ("CTM"), a real estate corporation which is 25% owned by the

estate of Merrill Hassenfeld, a former Chief Executive Officer and director of

the Company. Sylvia K. Hassenfeld, a director of the Company, is executrix and a

beneficiary of the estate of Merrill Hassenfeld. Total rent paid by Hasbro

Canada to CTM for the leases of offices and warehouse facilities in 2001 was

approximately $589,000 Canadian (approximately $373,000 U.S.). During 2000, the

leases were renewed for a three year term ending on January 31, 2004 at rentals

of approximately $579,000, $589,000 and $599,000 Canadian for the three years,

respectively. In management's opinion, these leases are on terms at least as

favorable as would otherwise presently be obtainable from unrelated parties.

Hasbro Canada has the option to renew for two additional three-year terms at

fair market rental. If the parties cannot agree, the fair market rental would be

determined by appraisal. Hasbro Canada has a right of first refusal to purchase

the premises unless it indicates its intention not to renew the leases. The

premises are subject to a first mortgage held by a financial institution

securing a loan to CTM with a balance at March 12, 2002 of approximately

$147,590 Canadian, with a due date of July 1, 2002. The leases provide that,

until January 31, 2003, should such loan not be renewed, extended or replaced,

Hasbro Canada would advance on behalf of the shareholders of CTM, other than the

estate of Merrill Hassenfeld, the amount necessary to pay off 75% of the loan

and 75% of all operating expenses until sale or lease of the premises or

refinancing of the loan. CTM would be obligated to repay the advance no later

than January 31, 2003, which would be secured by a first mortgage on the

premises but would be nonrecourse individually to such shareholders. CTM agreed

that all cash flow from the premises (including sale, lease and refinancing)

will be used to pay the then existing loan and any Hasbro Canada advances. It is

anticipated that the existing CTM loan will be fully paid at maturity on July 1,

2002 and therefore that Hasbro Canada will not be called upon to make any

advances.
Bear, Stearns & Co. Inc. provides investment banking and related services

to the Company. In 2001, these services included repurchasing, on behalf of the

Company, approximately $250 million in outstanding principal amount of the

Company's long-term debt using proceeds from the Company's offering of 2.75%

convertible senior debentures and cash on hand. E. John Rosenwald, Jr., a

director of the Company, is a director and Vice Chairman of Bear, Stearns & Co.,

Inc.
Lucas Licensing Ltd. ("Licensing") and Lucasfilm Ltd. ("Film") own in the

aggregate 15,750,000 exercisable warrants to purchase Common Stock which were

obtained in arms-length negotiations with the Company in connection with the

Company's obtaining of certain rights. The Common Stock subject to such warrants

would, if all warrants were fully exercised, constitute approximately 8.3% of

the Company's outstanding shares. Accordingly, under SEC Rule 13d-3, George W.

Lucas, Jr., as owner, director and an officer of Film and Licensing, may be

deemed to own approximately 8.3% of the Company's outstanding shares. See

"Voting Securities and Principal Holders" thereof. Since the beginning of fiscal

2001, the Company paid an aggregate of approximately $6.2 million in royalties

to Licensing pursuant to license agreements entered into at arms length in the

ordinary course of business.
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN

AMONG HASBRO, S&P 500 AND RUSSELL 1000

CONSUMER DISCRETIONARY ECONOMIC SECTOR(1)
The following graph tracks an assumed investment of $100 on the start dates

indicated below in the Company's Common Stock, the S&P 500 Index and the Russell

1000 Consumer Discretionary Economic Sector, assuming full reinvestment of

dividends and no payment of brokerage or other commissions or fees. Past

performance is not necessarily indicative of future performance.
[PERFORMANCE GRAPH]

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

1996 1997 1998 1999 2000 2001

----------------------------------------------------------------------------------------------
Hasbro $100 $122 $134 $110 $ 66 $103

S&P 500 $100 $123 $161 $192 $172 $152

Russell 1000 Consumer

Discretionary Economic

Sector $100 $131 $175 $228 $162 $168
---------------

(1) While the information for Hasbro and S&P is as of the last trading day in

Hasbro's fiscal year, the data for the Russell Sector is as of the last

trading day in the calendar year.
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REPORT OF THE

COMPENSATION AND STOCK OPTION COMMITTEE

OF THE BOARD OF DIRECTORS
2001 COMPENSATION POLICIES WITH RESPECT TO EXECUTIVE OFFICERS
The general goal of the Compensation and Stock Option Committee (the

"Committee") with respect to the compensation of executive officers (including

those named in the summary compensation table that follows) is that the Company

provide competitive compensation and benefits that:
- attract and retain capable executives who are important to the success of

the Company,
- reward them for performance,
- provide them with a strong incentive to increase shareholder value, and
- accomplish the foregoing in as fair, understandable and cost-effective a

manner as possible.
The Committee is composed solely of persons who are both "Non-Employee

Directors," as defined in Rule 16b-3 of the rules and regulations of the

Securities and Exchange Commission, and "outside directors", as defined in

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Executive compensation during 2001 included base salary, annual management

incentive bonuses and stock options. On occasion, restricted stock is also used

as a reward and retention mechanism, but no restricted stock grants were made to

executive officers in 2001. In authorizing and approving cash compensation and

equity awards for executive officers (other than the Chief Executive Officer),

the Committee relies upon the recommendations of the Chief Executive Officer and

considers available market information.
Base salaries for new executive officers are initially determined by

evaluating the responsibilities of the position held, the experience of the

individual and the competitive marketplace for comparable executive talent.

Subsequent yearly adjustments are made only in the event of changes in duties

and responsibilities or lack of competitiveness with prevailing market

conditions. Base salaries are generally targeted to correspond with

approximately the 75th percentile of salaries paid by other consumer non-durable

products companies surveyed in Hewitt Executive Total Compensation Measurement,

prepared by Hewitt Associates, LLP and Towers Perrin's 2001 Executive

Compensation Databank, whose participants partially overlap with the companies

included in the Russell 1000 Consumer Discretionary Economic Sector (the

"Russell Sector") set forth in the preceding stock performance graph. Except in

cases of changes in responsibility or adjustments to bring salaries in line with

market conditions, there were no increases in base salaries of senior management

in 2001.
Approximately 1,330 employees, including certain executive officers, were

awarded management incentive bonuses with respect to fiscal 2001. Corporate and

business unit performance objectives were established at the beginning of the

year. Except with respect to the Chief Executive Officer and the President and

Chief Operating Officer, corporate performance was measured with a combination

of four performance criteria and targets for each such criterion. The four

corporate performance criteria were earnings per share, net revenues, return on

invested capital and cash as a percentage of net revenue. Business unit

objectives were based on pre-tax profits and revenues for such unit. Corporate

and business unit performance objectives were determined on the basis of a

budget review carried out by senior management with respect to each business

unit which forms the basis for the operating plan prepared by senior management

and approved by the Board in February of each year.
The bonus eligibility of the Company's Chief Executive Officer, Mr.

Hassenfeld, and the Company's President and Chief Operating Officer, Mr.

Verrecchia, was determined pursuant to the Company's 1999 Senior Management

Annual Performance Plan (the "Annual Performance Plan"). Under the Annual

Performance Plan, the Committee designates a "Net Earnings" (as defined in the

Annual Performance Plan) performance goal for the Company for the year, which is

based on the operating plan approved by the Board in February of that year. Mr.

Verrecchia's target bonus under the Annual Performance Plan was 65% of base

salary. Mr. Verrecchia received no bonus pursuant to the Annual Performance Plan

for 2001 because less than 80% of the Net Earnings target was met during the

year. With respect to executive officers below the President

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and Chief Operating Officer level, target bonuses in 2001 ranged from 45% to 60%

of base salary. The management incentive bonuses for executive officers deemed

to have corporate-wide responsibility were generally based 100% on corporate

performance. The management incentive bonuses for those individuals deemed to

have business unit responsibility (which include Messrs. Goldner and Wilson),

were generally weighted 40% for corporate performance and 60% for business unit

performance. In all cases, the bonuses earned could be subject to adjustment

downward to as low as 0% and upward by a factor of up to an additional 50%,

based on individual performance against specified management objectives. In

fiscal 2001, corporate performance met the percentage of target performance that

would yield a partial, but not full, target bonus. Certain business units

exceeded their performance criteria, while others either partially satisfied

their criteria to generate a partial bonus, or failed to achieve a percentage of

target performance sufficient to earn any bonus for business unit performance.

In all cases, the bonuses for corporate and business unit performance were

reviewed by the Committee and adjusted to reflect the individual performance of

the executive in question.
In 2001, non-qualified stock options were granted to executive officers

pursuant to the Company's employee stock option plans. The Committee granted

individual options to executive officers in order to provide an incentive to

motivate and retain those individuals who are important to the Company's future

success. Stock options are designed to align the interests of executives with

those of shareholders, since the executives can only benefit from the options if

there is price appreciation in the Common Stock after the date of grant. Stock

options granted under this program, which included options granted to executive

officers in 2001, generally vest annually over the three-year period following

the date of grant. All stock options granted in 2001 had an exercise price equal

to at least the fair market value of the Common Stock on the date of grant. The

number of stock options previously awarded and outstanding for each executive

officer was reviewed and considered by the Committee in determining the size of

any executive's stock option award, which was allocated on the basis of

individual potential, responsibility and performance.
In March 2000, subject to shareholder approval of required amendments to

the Company's Stock Incentive Performance Plan, which approval was obtained in

May 2000, the Committee established a long term incentive program (the "LTIP")

for selected members of senior management, including certain executive officers,

pursuant to which awards of restricted stock could be made, contingent upon the

achievement of specified financial performance goals. Based on the financial

performance of the Company, no restricted stock awards were made pursuant to the

LTIP during 2001.
2001 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
As set forth in the accompanying tables, Mr. Hassenfeld's salary of

$1,005,900 for 2001 represented no increase from his 2000 salary. He received no

management incentive bonus with respect to 2001 because less than 80% of the

"Net Earnings" target was met under the Annual Performance Plan. In 2001 he was

granted options (with three year vesting) to purchase 200,000 shares of Common

Stock, 100,000 of which were at the market price as of the date of grant, and

100,000 of which were granted at 120% of that market price. All compensation

decisions regarding Mr. Hassenfeld were made by the Committee, without the

participation of Mr. Hassenfeld or other executive officers of the Company. The

Committee believes that the options granted in 2001 were appropriate incentives
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