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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MATTEL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF MATTEL, INC.]
NOTICE OF ANNUAL MEETING
and
PROXY STATEMENT
Annual Meeting of Stockholders
Manhattan Beach Marriott
1400 Parkview Avenue
Manhattan Beach, California
May 6, 1998
<PAGE>
MATTEL, INC.
333 CONTINENTAL BOULEVARD
EL SEGUNDO, CALIFORNIA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1998
The Annual Meeting of the Stockholders of MATTEL, INC. will be held
Wednesday, May 6, 1998 at 10:00 a.m., local time, in the Manhattan Ballroom of
the Manhattan Beach Marriott, 1400 Parkview Avenue, Manhattan Beach,
California, to consider and act upon the following matters:
1. The election of directors;
2. The approval of the 1997 Premium Price Stock Option Plan;
3. The approval of the Mattel Management Incentive Plan;
4. The approval of an amendment to Article Fourth of Mattel's Restated
Certificate of Incorporation;
5. The ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants for the year ending December 31, 1998;
and
6. Such other business as may properly come before the meeting or any
adjournment or postponement thereof. The Board of Directors knows of one
stockholder proposal that may be presented at the meeting and that is
described in the attached Proxy Statement.
Shares represented by properly executed proxies hereby solicited by the
Board of Directors of Mattel will be voted in accordance with instructions
specified therein. It is the intention of the Board of Directors that shares
represented by proxies which are not limited to the contrary will be voted in
favor of the election as directors of the persons named in the accompanying
Proxy Statement, for proposals 2, 3, 4 and 5 and on other matters as
recommended by the Board.
The Board of Directors has fixed the close of business on March 13, 1998 as
the record date for determination of stockholders entitled to receive notice
of, and to vote at, the meeting and any adjournment thereof.
By Order of the Board of Directors
Leland P. Smith
Secretary
El Segundo, California
March 30, 1998
IT IS DESIRABLE THAT AS LARGE A PROPORTION AS POSSIBLE OF THE STOCKHOLDERS'
INTEREST BE REPRESENTED AT THE MEETING. THEREFORE, IF YOU ARE UNABLE TO BE
PRESENT IN PERSON OR OTHERWISE REPRESENTED AT THE MEETING, YOU ARE REQUESTED
TO SIGN AND RETURN THE ENCLOSED PROXY IN ORDER THAT YOUR STOCK WILL BE
REPRESENTED.
<PAGE>
MATTEL, INC.
333 Continental Boulevard
El Segundo, California 90245
----------------
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1998
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Mattel, Inc., a Delaware
corporation ("Mattel" or the "Company"), for use at the Annual Meeting of
Stockholders (the "Meeting"), to be held at 10:00 a.m., local time, Wednesday,
May 6, 1998 in the Manhattan Ballroom of the Manhattan Beach Marriott, 1400
Parkview Avenue, Manhattan Beach, California, and at any adjournment or
postponement of such meeting. This Proxy Statement and the form of proxy to be
utilized at the Meeting were mailed or delivered to the stockholders of Mattel
on or about March 30, 1998.
RECORD DATE AND VOTING
The Board has fixed the close of business on March 13, 1998 as the record
date (the "Record Date") for the determination of the holders of common stock,
$1.00 par value per share (the "Common Stock"), and Series C Mandatorily
Convertible Redeemable Preferred Stock, $1.00 par value per share (the "Series
C Stock"), entitled to vote at the Meeting and any adjournment or postponement
thereof. As of the Record Date, there were outstanding 300,381,481 shares of
Common Stock and 771,920 shares of Series C Stock. All of the shares of Series
C Stock are held by The First National Bank of Boston as Depositary for the
holders of Series C Depositary Shares (the "Series C Depositary Shares"). Each
Series C Depositary Share represents one twenty-fifth of a share of Series C
Stock. The Series C Stock will be voted by The First National Bank of Boston
in accordance with instructions received from the holders of the Series C
Depositary Shares. Consequently, holders of Series C Depositary Shares are
entitled to direct The First National Bank of Boston with respect to 0.48876
of a vote per Series C Depositary Share, or approximately 9.4 million votes in
the aggregate.
QUORUM, CUMULATIVE VOTING AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock and Series C Stock will constitute a quorum for the transaction of
business at the Meeting. As to all matters, each stockholder is entitled to
one vote for each share of Common Stock and 12.219 votes for each share of
Series C Stock he or she holds. The holders of such shares vote together as a
single class, except under certain conditions when the holders of Series C
Stock are entitled to vote as a separate class. Abstentions and broker non-
votes (shares held by a broker or nominee which are represented at the
Meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal) are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. In the
election of directors, holders of Common Stock and Series C Stock are entitled
to elect ten directors with the ten candidates who receive the highest number
of affirmative votes being elected. Votes against a candidate and votes
withheld have no legal effect. In electing directors, stockholders have the
unconditional right to cumulate their votes and give one candidate the number
of votes equal to the number of directors to be elected multiplied by the
number of votes per share of stock held in their name or to distribute such
votes among as many candidates as they see fit. Stockholders may cumulate
their votes by writing the name or names of the nominee or nominees with
respect to whom they are withholding their votes in the space provided on the
proxy card and the shares voted will be cumulated in the manner described
above and voted for the remaining candidate or spread equally, adjusted to
whole votes, among the remaining candidates. In matters other than the
election of directors, abstentions have the effect of votes against
<PAGE>
a proposal in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes do not have any effect for purposes of
determining whether a proposal has been approved.
All proxies which are properly completed, signed and returned prior to the
Meeting will be voted. Any proxy given by a stockholder may be revoked at any
time before it is exercised by filing with the Secretary of the Company an
instrument revoking it, by delivering a duly executed proxy bearing a later
date or by the stockholder attending the Meeting and expressing a desire to
vote his or her shares in person.
Under the terms of the Deposit Agreement between the Company and The First
National Bank of Boston, all shares of Series C Stock held by The First
National Bank of Boston, as Depositary, will be voted or not voted as directed
by written instructions from the holders of Series C Depositary Shares, and
shares for which no instructions are received will be voted as abstentions. If
the enclosed voting instruction card (which is also the proxy card) is
executed and returned without instructions as to how it is to be voted, the
voting instruction card will be deemed an instruction to vote in favor of the
election as directors of the Board's nominees, for proposals 2, 3, 4 and 5,
against proposal 6 if it is presented at the Meeting and in the discretion of
the Depositary named on the voting card on the transaction of such other
business as may properly come before the Meeting or any adjournment or
postponement thereof.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Mattel's Common Stock as of February 15, 1998 by (i) each
director and nominee for director, (ii) the Chairman and Chief Executive
Officer and each of the four other most highly compensated executive officers
of Mattel and (iii) all directors and executive officers of Mattel as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER POSITION WITH THE COMPANY OF BENEFICIAL OWNERSHIP(1)
------------------------ ------------------------- --------------------------
<C> <S> <C>
John W. Amerman Director 970,087(2)
Jill E. Barad Chairman and Chief 1,759,356(2)
Executive Officer
Gary S. Baughman President, Fisher-Price 118,434(2)
Dr. Harold Brown Director 58,945(3)
Tully M. Friedman Director 16,250(3)
Joseph C. Gandolfo President, Worldwide 599,003(2)
Manufacturing
Operations and a
Director
Ronald M. Loeb Director 38,764(3)
Ned Mansour President, Corporate 272,815(2)
Operations, General
Counsel and a Director
Edward N. Ney Director 39,972(3)
William D. Rollnick Director 175,070(3)
Christopher A. Sinclair Director 16,000(3)
Bruce L. Stein President, Mattel 175,000(2)
Worldwide, Chief
Operating Officer and a
Director
John L. Vogelstein Director 536,775(3)
All Executive Officers
and Directors as a
group (19 persons) 5,152,374(4)
</TABLE>
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(1) Except as set forth below, the directors and officers named above have
sole voting power and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to community
property laws where applicable, and no director or executive officer named
above owns or controls or may be deemed to beneficially own or control 1%
or more of any class of capital stock of the Company.
(2) Includes shares of Common Stock which the following officers and directors
have the right to acquire by exercise of options within 60 days following
February 15, 1998: Amerman, 722,213; Barad, 1,444,469; Baughman, 50,000;
Gandolfo, 563,854; Mansour, 250,125; and Stein, 175,000.
(3) Includes 15,000 shares of Common Stock which may be acquired upon the
exercise of options within 60 days following February 15, 1998.
(4) The amount stated includes an aggregate of 3,609,929 shares of Common
Stock which may be acquired upon the exercise of options within 60 days
following February 15, 1998 and represents approximately 1.7% of the
outstanding shares of Common Stock.
PROPOSAL 1
ELECTION OF DIRECTORS
Ten directors are to be elected at the Meeting to serve until the next
Annual Meeting of Stockholders and until their respective successors have been
elected and qualified. In the absence of instructions to the contrary, proxies
will be voted in favor of the election of the persons listed below. In the
event that any nominee for election as director should become unavailable to
serve, it is intended that votes will be cast, pursuant to the enclosed proxy,
for such substitute nominee as may be nominated by the Company. Management has
no present knowledge that any of the persons named will be unavailable to
serve.
3
<PAGE>
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
director or nominee. None of the nominees has any family relationship to any
other nominee or to any executive officer of the Company.
INFORMATION CONCERNING NOMINEES TO THE BOARD OF DIRECTORS
Information is set forth below concerning the nominees for directors. With
the exception of Mr. Amerman and Mr. Ney who plan to resign from the Board of
Directors prior to the Meeting, all of the incumbent directors are also
nominees for election as directors. Following the resignations of Mr. Amerman
and Mr. Ney, there will be two vacancies on the Board of Directors which will
be filled in due course following the selection of suitable candidates by the
Board of Directors. All of the nominees for election as directors are also
incumbent directors. Each nominee has furnished the information as to his or
her beneficial ownership of Common Stock as of February 15, 1998 and the
nominee's principal occupation. Each nominee has consented to being named in
this Proxy Statement as a nominee for director and has agreed to serve as a
director if elected.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME OR POSITION AGE SINCE
---- -------------------- --- --------
<C> <S> <C> <C>
Jill E. Barad............... Chairman of the Board and Chief 46 1991
Executive Officer (also a
Director of Microsoft Corp. and
PIXAR Inc.)
Dr. Harold Brown............ Senior Managing Director of E.M. 70 1991
Warburg, Pincus & Co., LLC;
Counselor, Center for Strategic
and International Studies (also
a Director of International
Business Machines Corporation,
Cummins Engine Company, Alumax,
Inc., Philip Morris Companies,
Inc. and Evergreen Holdings,
Inc.)
Tully M. Friedman........... Founding Partner of Friedman & 56 1984
Fleischer, LLC, a private
investment firm (also on the
Advisory Board of Tevecap,
S.A., the Board of
Representatives of Falcon
Holding Group, L.P. and a
Director of APL Limited, Levi
Strauss & Co., McKesson
Corporation and MobileMedia
Corporation)
Joseph C. Gandolfo.......... President, Worldwide 56 1997
Manufacturing Operations
Ronald M. Loeb.............. Of Counsel to the law firm of 65 1970
Irell & Manella LLP
Ned Mansour................. President, Corporate Operations 49 1996
and General Counsel
William D. Rollnick......... Retired Chairman and a Director 66 1984
of Genstar Rental Electronics,
Inc.
Christopher A. Sinclair..... President and Chief Executive 47 1996
Officer of Quality Food Centers
(also a Director of Perdue
Farms, Inc., Quality Food
Centers and the Woolworth
Corporation)
Bruce L. Stein.............. President, Mattel Worldwide and 43 1996
Chief Operating Officer
John L. Vogelstein.......... Vice Chairman of the Board, 63 1983
President and Director of E.M.
Warburg, Pincus & Co., LLC
(also a Director of ADVO, Inc.,
Aegis Group plc, Golden Books
Family Entertainment, Inc.,
Journal Register Company, LLC,
Knoll, Inc., LCI International,
Value Health, Inc. and Vanstar
Corporation)
</TABLE>
4
<PAGE>
Except as set forth below, each of the directors has served in the capacity
indicated in the table for at least the past five years. Ms. Barad has served
as Chief Executive Officer since January 1997 and as Chairman of the Board
since October 1997. Prior to that, she served as an executive officer of
Mattel for more than five years. Mr. Friedman has served in the capacity
indicated since January 1998. Prior to that, he was a Founding Partner of
Hellman & Friedman, a private investment firm, for more than five years. Mr.
Mansour has served as the President, Corporate Operations since August 1996.
He has served as General Counsel since November 1997. Prior to that, he served
as an executive officer of Mattel for five years. Mr. Sinclair has served in
the capacity indicated since September 1996. Prior to that, he served as
Chairman and Chief Executive Officer of Pepsi-Cola Company and President and
Chief Executive Officer of PepsiCo Foods & Beverages International and Pepsi-
Cola International. Mr. Stein has served in the capacity indicated since
September 1997. Prior to that, he served as President, Mattel Worldwide,
President and Chief Executive Officer of SONY Interactive Entertainment, a
consultant to DreamWorks SKG and Mandalay Entertainment, President and Chief
Executive Officer of Marvel Entertainment Group and President of the Kenner
Products division of Hasbro, Inc.
THE BOARD OF DIRECTORS
MEETINGS AND REMUNERATION
During 1997, the Board held six meetings, and no director attended less than
75% of the aggregate of all Board meetings and of all meetings held by any
committee of the Board on which he or she served.
Non-employee members of the Board receive an annual retainer of $30,000 per
year. Each Committee Chairman receives an annual fee of $4,000 per year and
each non-employee committee member receives $1,500 per committee meeting
attended. Directors may elect to defer all or part of their directors' fees
under an arrangement which provides for the investment of such fees in Common
Stock equivalents or in interest-bearing accounts. The distribution of such
deferred amounts may be in a lump sum or installments over a period of years
commencing on or after the individual ceases to be a director of Mattel.
Pursuant to the terms of the Mattel 1996 Stock Option Plan, each new non-
employee member of the Board receives upon their initial election to the Board
options to purchase 15,000 shares of Common Stock with an exercise price equal
to the fair market value on the date of grant. The options are immediately
exercisable and expire ten years from the date of grant; provided, however,
the options terminate sixty days after the director ceases to be a member of
the Board, for whatever reason. Upon each annual re-election to the Board,
each non-employee member of the Board receives options to purchase either
5,000 or 10,000 shares of Common Stock with an exercise price equal to the
fair market value on the date of grant. To recognize continued service on the
Board, directors with five years of service or less receive options to
purchase 5,000 shares of Common Stock, and directors with more than five years
of service receive options to purchase 10,000 shares of Common Stock. The
options vest at the rate of 25% per year and expire ten years from the date of
grant; provided, however, the options terminate sixty days after the director
ceases to be a member of the Board, for whatever reason.
At a meeting held on February 5, 1998 and upon the recommendation of the
Nominations/Corporate Governance Committee, the Board adopted policies
regarding (i) non-employee Director stock ownership and (ii) non-employee
Director retention of shares purchased on exercise of stock options. Under the
policy, non-employee members of the Board will have up to five years from the
later of adoption of the policy or joining the Board to attain target minimum
levels of stock ownership. In addition, during their service on the Board,
each non-employee member of the Board must either hold his or her options to
purchase shares of Common Stock or, if exercised, must hold the underlying
shares of Common Stock until they cease to be a member of the Board.
COMMITTEES
Mattel has an Audit Committee chaired by Mr. Rollnick and including Messrs.
Friedman, Loeb and Vogelstein as members. During 1997, the Committee held six
meetings. The primary functions which the Audit Committee performs are to
review periodic financial statements and certain financial information before
publication; discuss the scope of the independent accountants' engagement and
review the independent
5
<PAGE>
accountants' performance, reports and fees; review the scope and adequacy of
Mattel's financial controls, internal audit plans and the findings of internal
audit examinations; and recommend the selection of independent accountants.
Mattel has an Executive/Finance Committee, chaired by Mr. Vogelstein and
including Messrs. Amerman, Friedman and Rollnick and Ms. Barad as members.
During 1997, the Executive/Finance Committee held three meetings. The
Executive/Finance Committee has all the powers of the Board of Directors
subject to limitations of applicable law.
Mattel has a Nominations/Corporate Governance Committee chaired by Mr. Loeb
and including Messrs. Friedman, Mansour and Vogelstein as members. During
1997, the Nominations/Corporate Governance Committee held two meetings. Its
primary function is to act on behalf of and with the concurrence of the Board
with respect to matters relating to the composition and membership of the
Board and the Board's governance responsibilities. The Nominations/Corporate
Governance Committee also works closely with the Chief Executive Officer and
other members of management to assure that the corporation is governed
effectively and smoothly. Sitting as a Nominating Committee, its primary
functions are to submit to the Board for consideration nominees for membership
to be presented to the stockholders for their election at the Annual Meeting
of Stockholders; solicit recommendations and select persons as candidates to
fill vacancies on the Board; and present to the Board its recommendations for
committee assignments.
Mattel has a Compensation/Options Committee chaired by Mr. Vogelstein and
including Messrs. Rollnick and Sinclair as members. During 1997, the
Compensation/Options Committee held seven meetings. Its primary functions are
to review compensation levels of members of management; evaluate the
performance of management and consider management succession and related
matters; and approve and oversee the various incentive plans, including the
Company's stock option plans and incentive compensation plans.
Mattel has a Foundation Committee chaired by Dr. Brown and including Messrs.
Gandolfo and Ney as members. During 1997, the Foundation Committee held four
meetings. The Foundation Committee provides direction to and approves the
budget and major expenditures for the Mattel Foundation. Funded annually from
corporate profits, the Mattel Foundation supports a variety of programs and
organizations that primarily benefit children in need.
Mattel has a Pension Committee chaired by Mr. Ney and including Messrs.
Brown and Stein. During 1997, the Pension Committee held two meetings. The
Pension Committee oversees the operation of Mattel's pension and employee
retirement plans by reviewing investment policies and financial performance,
selecting trustees and other fiduciaries and monitoring the administration of
the plans.
STOCKHOLDER NOMINATIONS FOR DIRECTORS
The Nominations/Corporate Governance Committee will consider nominee
recommendations by the stockholders. A stockholder wishing to nominate a
candidate for election to the Board at the Annual Meeting of Stockholders is
required to give written notice to the Secretary of the Company of his or her
intention to make such a nomination. The notice of nomination must be received
by the Company not less than ninety days nor more than one hundred-twenty days
prior to the meeting, or if the Company gives less than forty days' notice of
the meeting date, the notice of nomination must be received within ten days
after the meeting date is announced. The notice of nomination is required to
contain certain information about both the nominee and the stockholder making
the nomination. A nomination which does not comply with the above procedure
will be disregarded. Written notice of any such nominee should be sent to the
Secretary, Mattel, Inc., 333 Continental Boulevard, El Segundo, California
90245-5012.
6
<PAGE>
REPORT OF THE COMPENSATION/OPTIONS COMMITTEE
The following Report of the Compensation/Options Committee and the
Performance Graph shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission (the "Commission") or
subject to Regulations 14A or 14C of the Commission or the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"). Such
Report and Performance Graph shall not be deemed incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act,
notwithstanding any general incorporation by reference of this Proxy Statement
into any other document.
GENERAL
The Compensation/Options Committee (the "Committee"), a committee composed
entirely of directors who have never served as officers of the Company,
approves and oversees the Company's various incentive and stock plans, reviews
compensation levels of members of management, evaluates the performance of
management and considers management succession and related matters. In
evaluating the performance of members of management, the Committee consults
with the Chief Executive Officer except when reviewing her performance, in
which case the Committee meets independently. The Committee reviews with the
Board in detail all aspects of compensation for the senior executives,
including the five individuals named in the Summary Compensation Table (the
"Compensation Table"). The Committee met seven times during 1997.
STATEMENT ON PHILOSOPHY OF EXECUTIVE COMPENSATION
In establishing and evaluating the effectiveness of compensation programs
for executive officers, as well as other employees of the Company, the
Committee is guided by three basic principles:
. The Company must offer competitive salaries to be able to attract, retain
and motivate highly-qualified and experienced executives and other
management personnel;
. Executive cash compensation in excess of base salaries should be tied to
Company and individual performance; and
. The financial interests of the Company's senior executives should be
aligned with the financial interests of the stockholders, primarily
through stock option grants, restricted stock, the Management Incentive
Plan and the Long-Term Incentive Plan.
IMPLEMENTATION OF PHILOSOPHY
The Company has retained the services of various compensation consulting
firms to assist the Committee in connection with the performance of its
duties, including developing compensation plans to achieve this policy. These
firms provide data and advice to the Committee with respect to the
compensation paid to senior officers of the Company. In addition, they
periodically review the compensation plans in which each of the officers named
in the Compensation Table participates and report to the Committee (i) whether
the plans meet the objectives of motivating the officers to continue to
achieve the superior stockholder return the Company has experienced and (ii)
if the plans also achieve the objective of attracting and retaining qualified
officers.
In 1997, the Committee retained the services of SCA Consulting, a
compensation consulting firm, to assist the Company in developing a new annual
incentive program and a premium price stock option program. SCA Consulting
also performed a review of total compensation for the Company's senior
executives. In connection with these services, a representative of SCA
Consulting has attended Committee meetings and discussed with the Committee,
among other subjects, a competitive assessment of senior executive
compensation, long-term incentive concepts, annual incentive concepts
including financial performance measures, peer group comparisons, premium
price stock options and dilution.
7
<PAGE>
BASE SALARY
Base salaries for the Chief Executive Officer and other executive officers
are established at levels considered appropriate in light of the duties and
scope of responsibilities of each officer's position. Salaries are reviewed
periodically (typically once every eighteen months) and adjusted as warranted
to reflect continued contributions and sustained individual performance. The
Committee measures individual performance and contribution against total
annual compensation, including incentive awards, rather than base salary
alone.
MANAGEMENT INCENTIVE PLAN
Under the Company's Management Incentive Plan ("MIP"), incentive
compensation is earned based on the current year's performance as compared to
business and financial goals for the year. For 1997, these annual goals were
established by the Committee at the beginning of the period and included Cash
Flow Return on Investment ("CFROI") and operating profit, weighted 33% and
67%, respectively. CFROI is a measure of the cash flow generated by the
Company's assets and is based on a formula developed by an independent
financial consulting firm. This formula is related to the economic performance
of a company, and an increase in CFROI is strongly correlated to improvement
in stock price. In determining individual awards under the MIP, the Committee
also considers individual accomplishments. For 1997, the maximum annual
amounts that the Chief Executive Officer and the four other officers named in
the Compensation Table are eligible to receive under the MIP range from 75% to
100% of base salary. Payments under the MIP were made for 1997 to Ms. Barad
and Messrs. Baughman, Gandolfo, Mansour and Stein of $445,503, $200,000,
$154,917, $190,031 and $213,194, respectively. (For the terms of the 1998 MIP,
see "Proposal 3--Approval of the Mattel Management Incentive Plan" below.)
LONG-TERM INCENTIVE PLAN
The individuals listed in the Compensation Table participate in the
Company's Long-Term Incentive Plan (the "LTIP"). Awards under the LTIP are
based on Mattel's financial performance over a three-year performance cycle
with performance targets that relate to the long-range financial goals of the
Company. The performance targets used to determine awards under the LTIP are
based primarily on CFROI, revenue growth and earnings per share growth. Prior
to April 1 of the first year of the three-year performance period, the
Committee establishes, in writing, the level of each executive's participation
and target levels for the performance criteria which must be achieved before
incentive payments are awarded. Interim payments of performance awards for
tracking to the three-year goals are made at the end of each year. Each
interim award is paid annually in the first quarter of the following year.
Individual participation is established by the Committee at levels considered
appropriate in light of the duties and scope of responsibilities of each
officer's position. During the three-year period covered by the Compensation
Table, Mattel's Common Stock price, adjusted for stock splits, increased from
$16.08 to $37.25, a 132% increase. Payments under the LTIP were made for 1997
for awards granted in 1996 to Ms. Barad and Messrs. Baughman, Gandolfo,
Mansour and Stein of $700,000, $200,000, $270,000, $400,000 and $400,000,
respectively.
EQUITY-BASED INCENTIVE COMPENSATION
The 1996 Stock Option Plan (the "1996 Plan") authorizes the Committee to
make grants and awards of stock options, stock appreciation rights, restricted
stock and other stock-based awards. Stock options are granted with an exercise
price equal to the market price of Mattel's Common Stock on the date of grant
and generally vest over four years. This approach is designed to motivate
management to increase stockholder value over the long-term since the full
benefit of the compensation package cannot be realized unless stock price
appreciation occurs over a number of years. In determining the number of
options awarded, the Committee considers competitive practices, the duties and
scope of responsibilities of each officer's position and the amount and terms
of options already held by management.
In 1997, Messrs. Baughman, Gandolfo, Mansour and Stein were granted options
to purchase 200,000, 225,000, 550,000 and 300,000 shares of Common Stock,
respectively, pursuant to the 1996 Plan. These options
8
<PAGE>
are exercisable at the fair market value on the date of grant and vest in four
equal annual installments commencing one year and one day after the date of
grant. In 1997, Messrs. Baughman, Gandolfo, Mansour and Stein were also
granted options to purchase 1,194,182, 955,346, 1,433,019 and 1,433,019 shares
of Common Stock, respectively, pursuant to the 1997 Premium Price Stock Option
Plan (the "Plan") which are conditioned upon stockholder approval of the Plan.
The Committee first discussed the Plan on August 21, 1997 and reviewed the
Plan on October 17, 1997. Upon the recommendation of the Committee, the Board
adopted the Plan on November 6, 1997. Options granted under the Plan have
exercise prices of the greater of (i) the fair market value of the Common
Stock on the first day that fair market value is greater than or equal to 25%
($42.03 per share) or 33 1/3% ($44.83 per share) above Mattel's prior six
month average stock price on November 6, 1997 ($32.62 per share), or (ii) the
fair market value of the Common Stock on the day of stockholder approval.
Options granted under the Plan are forfeited unless (i) fair market value of
the Common Stock is greater than the premium exercise price on any trading day
before December 31, 1999 for options with a 25% premium price and December 31,
2000 for options with a 33 1/3% premium price or (ii) Mattel achieves a
fifteen percent compound earnings per share growth rate over the same periods,
respectively. Options granted under the Plan expire on December 31, 2002. Even
if vested, options granted under the Plan may not be exercised for three years
from the date of grant. Grants under the Plan are intended to replace annual
grants under the 1996 Plan for the next three years. The primary basis for the
Committee's granting of such options to Messrs. Baughman, Gandolfo, Mansour
and Stein was to recognize them as key leaders of the Company and to provide
them with strong incentive to increase Mattel's value during the term of the
options. The Committee reviewed competitive data regarding long-term incentive
levels in comparative companies and relied upon the advice of SCA Consulting
in determining the number and design of options to grant. (See "Proposal 2--
Approval of the 1997 Premium Price Stock Option Plan" below.)
The Committee believes that significant equity interests in the Company held
by the Company's management more closely align the interests of stockholders
and management. In light of this belief and effective January 1, 1995, the
Company established stock ownership guidelines for senior management. Those
executives to whom the guidelines apply have up to five years to attain target
minimum levels of stock ownership, based on an ascending scale commensurate
with their level in the Company. Compliance with these guidelines is monitored
by the Committee and, while not mandatory, will be taken into consideration at
the time future stock option grants are made.
INTERNAL REVENUE CODE SECTION 162(M)
As one of the factors in its review of compensation matters, the Committee
considers the anticipated tax treatment to the Company and to the executives
of various payments and benefits. The deductibility of some types of
compensation payments depends upon the timing of an executive's vesting or
exercise of previously granted rights. Furthermore, interpretations of and
changes in the tax laws and other factors beyond the Committee's control also
affect the deductibility of compensation. For these and other reasons, the
Committee will not necessarily limit executive compensation to that deductible
under Section 162(m) of the Internal Revenue Code. The Committee will consider
various alternatives to preserving the deductibility of compensation payments
and benefits to the extent reasonably practicable and to the extent consistent
with its other compensation objectives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In 1997, Ms. Barad earned a total compensation of $1,545,511 in salary and
short-term bonus. The Committee considers this level of compensation
appropriate in light of Ms. Barad's leadership of the world's largest toy
company. Ms. Barad's employment agreement with Mattel establishes a minimum
base salary and the minimum benefits to which she is entitled under the
compensation plans available to Mattel's executive officers. The Committee
typically reviews Ms. Barad's base salary every eighteen months. Her base
salary was not reviewed in 1997.
In 1997, Ms. Barad was granted options to purchase 825,000 shares of Common
Stock pursuant to the 1996 Plan. These options are exercisable at the fair
market value on the date of grant and vest in four equal annual installments
commencing one year and one day after the date of grant. In 1997, Ms. Barad
was also granted
9
<PAGE>
options to purchase 4,082,946 shares of Common Stock pursuant to the Plan
which are conditioned upon stockholder approval of the Plan. Options granted
under the Plan have exercise prices of the greater of (i) the fair market
value of the Common Stock on the first day that fair market value is greater
than or equal to 25% ($42.03 per share) or 33 1/3% ($44.83 per share) above
Mattel's prior six month average stock price on November 6, 1997 ($32.62 per
share), or (ii) the fair market value of the Common Stock on the day of
stockholder approval. Options granted under the Plan are forfeited unless (i)
fair market value of the Common Stock is greater than the premium exercise
price on any trading day before December 31, 1999 for options with a 25%
premium price and December 31, 2000 for options with a 33 1/3% premium price
or (ii) Mattel achieves a fifteen percent compound earnings per share growth
rate over the same periods, respectively. Options granted under the Plan
expire on December 31, 2002. Even if vested, options granted under the Plan
may not be exercised for three years from the date of grant. Grants under the
Plan are intended to replace annual grants under the 1996 Plan for the next
three years. The primary basis for the Committee's granting of such options to
Ms. Barad was to recognize her as the key leader of the Company and to provide
her with strong incentive to increase Mattel's value during the term of the
options. The Committee reviewed competitive data regarding long-term incentive
levels for CEOs in comparative companies and relied upon the advice of SCA
Consulting in determining the number and design of options to grant. (See
"Proposal 2--Approval of the 1997 Premium Price Stock Option Plan" below.)
In setting Ms. Barad's compensation, the Committee relied heavily on its
assessment of her short-term performance and long-term ability and dedication
to enhance Mattel's value. In the short-term, Mattel reported record sales and
earnings in 1997. From January 1, 1997, the beginning of Ms. Barad's service
as Chief Executive Officer, through March 10, 1998, Mattel's market value has
increased by approximately $5.2 billion. In the last nine years, Mattel has
reported record sales and earnings. This long-term performance is further
highlighted on the five year Performance Graph following this Report, which
compares the total return of the Common Stock to the total return of the S&P
500 and the Recreation Products Group. Accordingly, Ms. Barad's total
compensation for 1997 was based on both short-term performance and the long-
term success of the Company under her leadership.
COMPENSATION/OPTIONS COMMITTEE
John L. Vogelstein (Chairman)
William D. Rollnick
Christopher A. Sinclair
10
<PAGE>
PERFORMANCE GRAPH
MATTEL, INC.
Comparison of Five Year Cumulative Total Return*
Mattel, Inc., S&P 500, and Recreation Products Group 1992 to 1997
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN* 1993 1994 1995 1996 1997
- ------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
MATTEL, INC............................. $109.85 $126.04 $194.52 $221.36 $299.69
S&P 500................................. 110.08 111.53 153.45 188.68 251.63
RECREATION PRODUCTS GROUP............... 123.09 112.73 138.83 154.61 203.03
</TABLE>
* Annual Return assumes reinvestment of dividends. Cumulative Total Return
assumes an initial investment of $100.
Recreation Products Group includes the Dow Jones Recreation Products Groups
which includes the following companies: Brunswick Corp.; Carnival Corp.; The
Walt Disney Company; Eastman Kodak Co.; Electronic Arts, Inc.; Harley
Davidson, Inc.; Hasbro Inc.; International Game Technology Corp.; King World
Productions, Inc.; Polaroid Corp.; Time Warner, Inc.; and Viacom, Inc.
11
<PAGE>
The following table sets forth information concerning total compensation
earned or paid to the Chief Executive Officer and the four most highly
compensated executive officers of the Company who served in such capacities on
December 31, 1997 for service rendered to the Company during each of the last
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------ -----------
OTHER
ANNUAL SECURITIES LTIP ALL OTHER
NAME AND BONUS COMPENSATION UNDERLYING PAYOUT COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) OPTIONS(#) ($)(1) ($)(3)
- ------------------ ---- --------- --------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jill E. Barad........... 1997 1,100,008 445,503 -- 4,907,946 9,140,408 112,949
Chairman of the Board 1996 920,199 280,000 1,809,500 300,000 420,000 78,215
and Chief Executive 1995 786,546 693,900 1,809,500 0 2,176,291 61,015
Officer
Gary S. Baughman........ 1997 367,420 1,300,000 -- 1,394,182 200,000 39,550
President
Fisher-Price(4)
Joseph C. Gandolfo...... 1997 510,016 154,917 -- 1,180,346 270,000 63,052
President 1996 470,780 0 1,809,500 75,000 162,000 46,706
Worldwide 1995 410,772 300,000 1,809,500 62,500 1,305,775 45,351
Manufacturing
Operations
Ned Mansour............. 1997 623,078 440,031 -- 1,983,019 400,000 61,417
President Corporate 1996 451,456 0 -- 225,000 240,000 43,735
Operations 1995 290,394 180,000 -- 37,500 678,229 27,775
and General Counsel
Bruce L. Stein.......... 1997 699,625 213,194 -- 1,733,019 400,000 57,398
President 1996 231,316 1,000,000 -- 400,000 240,000 21,448
Mattel Worldwide and
Chief Operating
Officer(5)
</TABLE>
- --------
(1) Amounts were earned in the years indicated. The annual bonus is generally
paid in the first quarter of the following year and interim long-term
incentive plan payouts are paid annually in the first quarter of the
following year. Bonus amount for Ms. Barad for 1996 represents an award of
a special achievement bonus for services performed in 1995 in the amount
of $280,000. Bonus amount for Mr. Mansour for 1997 includes an award of a
special achievement bonus in the amount of $250,000. $8,440,408 of the
LTIP Payout for Ms. Barad for 1997 represents the vesting on January 1,
1997 of 292,968 shares of Common Stock previously issued to her as
"restricted stock."
(2) Represents payments made in 1996 and 1995 in exchange for the cancellation
of SARs granted in 1993.
(3) 1997 amounts consist of the taxable portion of premiums on Company-
provided life insurance for Ms. Barad and Messrs. Baughman, Gandolfo,
Mansour and Stein in the amounts of $5,910, $1,920, $7,128, $3,839 and
$2,553, respectively, and contributions to the Company's Personal
Investment Plan and PIP Excess Plan to the named individuals in the
amounts of $107,039, $37,630, $55,924, $57,578 and $54,845, respectively.
(4) Commenced employment in May 1997. Mr. Baughman received a signing bonus of
$1.1 million pursuant to the terms of his employment agreement. (See
"Employment Agreements" below.)
(5) Commenced employment in August 1996. Mr. Stein received a signing bonus of
$1.0 million pursuant to the terms of his employment agreement. (See
"Employment Agreements" below.)
12
<PAGE>
The following table sets forth certain information relating to options and
SARs granted to the named executive officers in the 1997 fiscal year.
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE ($)(4)
---- ------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Jill E. Barad........... 825,000(1) 3.3% 25.75 2/6/2007 4,220,184
2,056,282(2) 8.3% 42.03 12/31/2002 9,849,591
2,026,664(3) 8.2% 44.83 12/31/2002 9,849,587
Gary S. Baughman........ 200,000(1) 0.8% 24.00 3/31/2007 960,875
601,422(2) 2.4% 42.03 12/31/2002 2,880,811
592,760(3) 2.4% 44.83 12/31/2002 2,880,814
Joseph C. Gandolfo...... 225,000(1) 0.9% 25.75 2/6/2007 1,150,959
481,138(2) 1.9% 42.03 12/31/2002 2,304,651
474,208(3) 1.9% 44.83 12/31/2002 2,304,651
Ned Mansour............. 300,000(1) 1.2% 25.75 2/6/2007 1,534,613
250,000(1) 1.0% 24.00 3/31/2007 1,191,938
721,707(2) 2.9% 42.03 12/31/2002 3,456,977
711,312(3) 2.9% 44.83 12/31/2002 3,456,976
Bruce Stein............. 300,000(1) 1.2% 25.75 2/6/2007 1,534,613
721,707(2) 2.9% 42.03 12/31/2002 3,456,977
711,312(3) 2.9% 44.83 12/31/2002 3,456,976
</TABLE>
- --------
(1) Options were granted at fair market value on the date of grant, were for a
term of ten years and vest in four equal installments commencing one year
and one day after the date of grant. Potential realizable value calculated
using a variation of the Black-Scholes pricing model based on the
following weighted-average assumptions: 5.69% risk-free rate; 3.40 year
option term derived from historical exercise patterns; 0.86% dividend
yield; 17.40% volatility factor; and the respective exercise price as set
forth in the table above.
(2) Options were granted with exercise prices of the greater of (i) the fair
market value of the Common Stock on the first day that fair market value
is greater than or equal to 25% ($42.03 per share) above Mattel's prior
six month average stock price or (ii) the fair market value of the Common
Stock on the day of stockholder approval. Options granted are forfeited
unless (i) fair market value of the Common Stock is greater than the
premium exercise price on any trading day before December 31, 1999 or (ii)
Mattel achieves a 15% compound earnings per share growth rate over the
same period. Options expire on December 31, 2002. Potential realizable
value is calculated using a variation of the Black-Scholes pricing model
based on the following assumptions: 6.33% risk-free rate; 5 year option
term; 0.86% dividend yield; 24.1% volatility factor; 41.7% risk of
forfeiture; and $42.03 exercise price.
(3) Options were granted with exercise prices of the greater of (i) the fair
market value of the Common Stock on the first day that fair market value
is greater than or equal to 33 1/3% ($44.83 per share) above Mattel's
prior six month average stock price or (ii) the fair market value of the
Common Stock on the day of stockholder approval. Options granted are
forfeited unless (i) fair market value of the Common Stock is greater than
the premium exercise price on any trading day before December 31, 2000 or
(ii) Mattel achieves a 15% compound earnings per share growth rate over
the same period. Options expire on December 31, 2002. Potential realizable
value is calculated using a variation of the Black-Scholes pricing model
based on the following assumptions: 6.33% risk-free rate; 5 year option
term; 0.86% dividend yield; 24.1% volatility factor; 36.6% risk of
forfeiture; and $44.83 exercise price.
(4) The actual value, if any, an executive may realize will depend upon the
excess of the stock price over the exercise price on the date the option
is exercised, so there is no assurance that the value realized by the
executive will be at or near the amount shown.
The following table shows exercises and values of options and SARs held by
the named executive officers.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT FY-END SARS AT FY-END
SHARES ACQUIRED VALUE ------------------------- -------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jill E. Barad........... 0 0 1,395,548 5,269,664 28,892,677 14,712,290
Gary S. Baughman........ 0 0 0 1,394,182 0 2,650,000
Joseph C. Gandolfo...... 0 0 575,049 1,267,846 12,360,977 3,952,500
Ned Mansour............. 0 0 209,765 2,170,519 4,278,693 9,242,000
Bruce L. Stein.......... 0 0 100,000 2,033,019 1,112,500 6,787,500
</TABLE>
- --------
(1) The value of underlying securities is determined at exercise date or year-
end, as the case may be, minus the exercise price or base price of "in-
the-money" options.
13
<PAGE>
RETIREMENT PLANS
The Company adopted the Mattel, Inc. Amended and Restated Supplemental
Executive Retirement Plan (the "SERP") effective May 1, 1996. Under the SERP,
a vested participant shall be entitled to a yearly benefit for his or her
lifetime beginning at age sixty based on (i) Final Average Compensation, (the
average annual compensation during the final three years of employment), and
(ii) years of service (up to a maximum of fifteen). A participant vests upon
completing five years of service and attaining age fifty-five. The
compensation used in determining Final Average Compensation under the SERP is
the participant's base salary plus bonus paid under the Company's Management
Incentive Plan. At December 31, 1997, Final Average Compensation under the
SERP for Messrs. Baughman, Gandolfo, Mansour and Stein was $550,000, $665,833,
$567,156 and $678,246, respectively, and the years of service with the Company
were 3, 7, 19 and 1.4, respectively. Ms. Barad's employment agreement with the
Company states that whenever she shall become eligible to receive benefits
under the SERP, such benefits shall be 35% of the average of the final three
years of annual base salary plus the average of the greatest two of the five
most recent annual MIP bonuses received by her. Calculated as of December 31,
1997, her estimated annual benefit that would be payable under the SERP upon
retirement would be $597,255. The SERP benefit is computed as a lifetime
payment and is not reduced for Social Security.
The following table shows the estimated annual benefit that would be payable
to participants in the SERP at age sixty.
<TABLE>
<CAPTION>
APPROXIMATE ANNUAL RETIREMENT BENEFITS RETIRING AT AGE 60
----------------------------------------------------------
FINAL AVERAGE
COMPENSATION 5 YEARS OF SERVICE 10 YEARS OF SERVICE 15 YEARS OF SERVICE
------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
$ 500,000 $41,667 $ 83,333 $125,000
600,000 50,000 100,000 150,000
700,000 58,333 116,667 175,000
800,000 66,667 133,333 200,000
</TABLE>
EMPLOYMENT AGREEMENTS
Mattel has entered into employment agreements with the executive officers
named in the Summary Compensation Table in order to assure the continued
service of such persons. Each of the agreements are identical, except as
further specified below or in the paragraphs that follow that relate to each
such person's individual agreement. Such agreements generally provide a three-
year term of employment of the executives, five in the case of Ms. Barad, for
salaries at the amounts set forth in the Summary Compensation Table and in
their respective employment agreements. The termination date of each agreement
is automatically extended by one month on the first day of each month during
the period of employment. The agreements also provide for the executive's
participation in various incentive and employee benefit plans as may be in
effect from time to time with respect to executives employed by Mattel,
including but not limited to the MIP, the LTIP, any of the Company's stock
option plans and retirement plans, as well as other benefit plans and programs
available to executive officers and employees generally. Mattel may terminate
the executive's employment for Cause (as defined in the agreements), if a
majority, consisting of at least two-thirds of the non-management members, of
the Board, determines that "Cause" exists. The executive may terminate his or
her employment at any time for Good Reason (as defined in the agreements).
"Good Reason" includes, among other things, any change in duties, authority or
responsibility of the executive which is inconsistent with the executive's
position as described in his or her respective agreement and any requirement
by Mattel that the executive be based outside of Los Angeles, without the
executive's consent. If the executive's employment is terminated for Cause or
if the executive terminates his or her employment without Good Reason, Mattel
shall pay the executive his or her full Base Salary (as defined in the
agreements) through the termination date at the then effective rate. The
agreements also provide for certain benefits in the event of termination of
employment by death or disability. If Mattel
14
<PAGE>
terminates the executive's employment other than for Cause or Disability (as
defined in the agreements) or the executive terminates his or her employment
for Good Reason (in each case, other than within 18 months following a Change
of Control (as defined in the agreements)), (i) Mattel shall pay to the
executive a lump sum consisting of: (A) the executive's Base Salary through
the termination date at the then effective rate; (B) a current year prorated
MIP bonus; (C) an LTIP payment reflective of the executive's participation in
the three-year plan; and (D) three (five, for Ms. Barad) times the sum of
(x) the executive's annual Base Salary at the then effective rate and (y) the
Average Annual Bonus (as defined in the agreements), but without proration;
(ii) unexpired options granted to the executive under Mattel's stock option
plans, which options have been granted for more than six months, shall become
immediately exercisable, and the executive shall have a period of 90 days
following the termination date to exercise all exercisable options; (iii)
Mattel shall reimburse the executive for any expenses incurred which would
have been payable by the Company had the executive not been terminated; (iv)
until the earlier of (x) the third anniversary of the termination date or (y)
the date the executive accepts other employment, Mattel shall provide to the
executive certain employee benefits at Mattel's expense; and (v) credit shall
be given for three years of service (in addition to actual service) and for
three years of attained age to be added to the executive's actual age for
purposes of computing any service and age-related benefits for which the
executive is eligible under Mattel's plans and programs. If, within 18 months
following a Change of Control (as defined in the agreements), the executive
terminates his or her employment for Good Reason or Mattel or the surviving
entity terminates the executive's employment other than for Cause or
Disability, Mattel shall pay to the executive a lump sum consisting of (A) the
executive's Base Salary through the termination date at the then effective
rate; (B) an amount equal to the prorated MIP bonus; (C) a prorated LTIP
payment for the current year; (D) three (five, for Ms. Barad) times the sum of
(x) the executive's annual Base Salary at the then effective rate and (y) the
Maximum Annual Bonus (as defined in the agreements), but without proration;
and (E) the full term payout for the three-year period of the LTIP (two times
the full term payment, for Ms. Barad); as well as certain other benefits. If,
with respect to payments made by the Company due to a Change of Control, the
executive is subject to the payment of excise tax under Section 4999 of the
Code, the Company will pay such executive an additional amount so as to place
the executive in the same after-tax position such executive would have been in
had such excise tax not applied.
Ms. Barad entered into an Amended and Restated Employment Agreement, dated
as of January 1, 1997, which supersedes previous employment agreements between
Ms. Barad and Mattel. Under the agreement, Ms. Barad is to receive a base
salary at least equal to the salary in effect on the date of the agreement.
Ms. Barad is deemed currently vested in the SERP; provided, however, that Ms.
Barad's eligibility to receive benefits under the SERP shall be postponed
until she attains age 55. Whenever Ms. Barad shall become eligible to receive
benefits under the SERP, such benefits shall be 35% of the average of the
final three years of annual base salary plus the average of the greatest two
of the five most recent annual MIP bonuses received by her. Under the
agreement, Ms. Barad received a grant of 825,000 stock options in February
1997 and is entitled to receive, commencing with the first quarter of 1998,
additional annual option grants in amounts greater than those granted to any
other Mattel executive and for a minimum of 300,000 shares of Common Stock.
Under the agreement, the provisions in a previous employment agreement
relating to a home mortgage loan shall remain in effect (subject to extension
or modification by Mattel), except that if Ms. Barad's employment is
terminated for reasons other than for Cause by Mattel or for Good Reason by
Ms. Barad, or in connection with a Change of Control (as such terms are
defined in the Agreement), the principal amount of the loan and all accrued
unpaid interest shall be forgiven. Under the agreement, Mattel is obligated to
implement a split dollar life insurance plan in which Ms. Barad shall have a
basic fixed death benefit of not less than $5,000,000 paid for by Mattel. Such
benefit shall vest upon the earlier of age 55 or Ms. Barad's termination for
reasons other than for Cause by Mattel or for Good Reason by Ms. Barad, or in
connection with a Change of Control. Under the agreement, Ms. Barad is
entitled to a loan in the amount of the lesser of $4,236,000 or the actual
amount of the federal and California income tax and applicable Medicare
withholding tax incurred by her in connection with the vesting of
292,968 shares of Common Stock previously granted to her as "restricted
stock." The loan is secured by the 292,968 shares of Common Stock and is
payable in full, including accrued interest, on May 19, 2000; provided,
however, that if the Common Stock trades on the New York Stock Exchange for
any twenty consecutive trading days during the term of the loan at a per share
price of $45 or more, then the entire unpaid principal balance and
15
<PAGE>
accrued but unpaid interest thereon shall be forgiven by the Company. The loan
was made to Ms. Barad instead of her selling shares of Common Stock to pay the
tax liability, encouraging Ms. Barad's enhanced ownership of Common Stock. The
provision in the employment agreement relating to payments due Ms. Barad in
the event that Mattel terminates her employment other than for Cause or
Disability or Ms. Barad terminates her employment for Good Reason differs from
the other employment agreements described in this section in that the portion
of the payments relating to the MIP bonus and the LTIP payment have been
modified to provide for greater overall compensation to Ms. Barad, and a new
provision providing for a full term payment for the three year period of the
LTIP has been added. The agreement provides that she shall be employed as a
senior advisor to the Company on terms substantially similar to those
described above for a period of two years following the termination of Ms.
Barad's employment by reason of Retirement (as defined in the agreement).
Mr. Baughman entered into an Employment Agreement, dated as of May 5, 1997.
Under the agreement, Mr. Baughman is to receive a base salary at least equal
to the salary in effect on the date of the agreement. The agreement provides
that Mr. Baughman will be the next employee of Mattel duly appointed and
slated for election to the Board. The agreement provides that Mr. Baughman be
paid a hiring bonus of $1.1 million in a lump sum no later than ten days
following the commencement of his employment by the Company; provided,
however, that Mr. Baughman will be obligated to promptly repay the hiring
bonus if he voluntarily resigns from the Company to join a competitor within
one year of joining the Company. The agreement provides that Mr. Baughman
shall participate in the 1996-1998 LTIP on a full term, non-prorated basis,
with the exception of the 1996 interim payment which has already been
disbursed, and guarantees Mr. Baughman a 1997 MIP award of not less than
$200,000. Under the agreement, Mattel agreed to grant Mr. Baughman options to
purchase 200,000 shares of Common Stock upon commencement of employment and an
aggregate of options to purchase 500,000 shares of Common Stock over the
initial three years of his employment. Under the agreement, Mr. Baughman was
granted credit for time served as an executive at Tyco Toys, Inc. for purposes
of the SERP and other Mattel benefit programs.
Mr. Gandolfo entered into an Amended and Restated Employment Agreement,
dated as of September 9, 1996, which supersedes a prior employment agreement,
dated as of November 11, 1993. Under the current agreement, Mr. Gandolfo is to
receive a Base Salary at least equal to the salary in effect on the date of
the agreement.
Mr. Mansour entered into an Amended and Restated Employment Agreement, dated
as of July 29, 1996, which supersedes a previous employment agreement, dated
as of November 11, 1993. Under the current agreement, Mr. Mansour is to
receive a base salary at least equal to the salary in effect on the date of
the agreement. In consideration of Mr. Mansour's agreement to waive and
renounce any and all rights and benefits under the 1990 Supplemental Executive
Retirement Plan, Mr. Mansour shall become vested in the SERP upon attaining
age 50; provided, however, that Mr. Mansour's eligibility to receive benefits
under the SERP shall be postponed until he attains age 55. Under the
agreement, Mattel agreed to grant 150,000 stock options to Mr. Mansour on the
date of the agreement under the 1990 Non-Qualified Stock Option Plan; and in
both January 1997 and January 1998, grant 150,000 stock options under the
stock option plan in effect at that time.
Mr. Stein entered into an Employment Agreement, dated as of December 20,
1996, which supersedes a prior employment agreement with Mattel dated as of
August 8, 1996. Pursuant to the agreement, Mr. Stein will receive a Base
Salary at a biweekly rate of $23,847 until February 3, 1997 and $27,308
thereafter. Mr. Stein will also receive a signing bonus of $1,000,000. In
addition, Mattel will provide to Mr. Stein a loan in the principal amount of
$1,000,000, which loan shall be due and payable three years from the date the
loan is made, with interest to accrue annually at LIBOR plus twenty-five basis
points and payable upon maturity; provided that, if Mr. Stein is terminated
for Cause (as defined in the agreement) by Mattel, the loan shall become due
and payable, including interest accrued, 90 days after such termination date;
provided further that, if Mr. Stein's employment is terminated for reasons
other than for Cause by Mattel, for Good Reason by Mr. Stein, or in connection
with a Change of Control (as such terms are defined in the agreement), the
principal amount of the loan and all accrued unpaid interest shall be
forgiven. Mattel shall, upon the date of Mr. Stein's hire, grant Mr. Stein
400,000 stock options under the 1990 Non-Qualified Stock Option Plan; and in
each of January 1997 and January 1998, grant Mr. Stein 150,000 stock options
under the operative non-qualified stock option plan in effect at that time.
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CERTAIN TRANSACTIONS
The law firm of Irell & Manella LLP, to which Mr. Loeb is of counsel,
provided legal services to the Company during 1997.
During 1997, the Company made payments in the aggregate of $691,750 to
Electronic Catalogue Network ("ECN") for the production of a BARBIE
infomercial and royalties based on resulting product sales. Thomas Barad, the
husband of Jill Barad, Mattel's Chairman of the Board and Chief Executive
Officer, beneficially owns a 50% interest in ECN.
On November 1, 1994, Mattel loaned $3.0 million at 4.12% per annum, (the
short-term applicable federal rate for the month of September 1994), to Ms.
Barad for the purchase of a home pursuant to the terms of her employment
agreement. The loan is secured by a first deed of trust on the home and was
payable in full on November 1, 1997. On January 1, 1997, the maturity date of
the loan was extended to May 20, 2000, and the interest rate of the loan was
increased to 6.1% per annum (the medium-term applicable federal rate for the
month of January 1997). (See "Employment Agreements" above.)
On May 29, 1997, Mattel loaned $4.2 million at 6.1% per annum (the medium-
term applicable federal rate for the month of May 1997) to Ms. Barad pursuant
to the terms of her employment agreement and in connection with the vesting of
292,968 shares of Common Stock that had previously been issued to Ms. Barad as
"restricted stock." The loan is secured by the 292,968 shares of Common Stock
and is payable in full, including accrued interest, on May 19, 2000; provided,
however, that if the Common Stock trades on the New York Stock Exchange for
any twenty consecutive trading days during the term of the loan at a per share
price of $45 or more, then the entire unpaid principal balance and accrued but
unpaid interest thereon shall be forgiven by the Company. The loan was made to
Ms. Barad instead of her selling shares of Common Stock to pay the tax
liability, encouraging Ms. Barad's enhanced ownership of Common Stock. (See
"Employment Agreements" above.)
On August 19, 1996, Mattel loaned $1.0 million at 6.125% per annum, (one
year LIBOR plus twenty-five basis points), to Mr. Stein pursuant to the terms
of his employment agreement. Interest and principal are payable in full on
August 19, 1999. (See "Employment Agreements" above.)
Mr. Amerman entered into an Employment Agreement, dated as of September 23,
1996, which supersedes a prior employment agreement with Mattel dated as of
November 11, 1993. The new agreement became effective on January 1, 1997. The
new agreement provides that Mr. Amerman serve as the Senior Advisor to the CEO
of the Company from January 1, 1997 through December 31, 1998. For the term of
the agreement, Mr. Amerman will receive a Base Salary at the bi-weekly rate of
$42,308.00. In addition to the Base Salary, Mr. Amerman will participate in
the MIP and LTIP and in all retirement plans of Mattel and will be entitled to
certain other benefits. If Mattel terminates Mr. Amerman's employment other
than for Cause or Mr. Amerman terminates his employment for Good Reason (as
such terms are defined in the agreement), (i) Mattel shall pay to Mr. Amerman
a lump sum constituting the balance of the bi-weekly salary payments which
would have been paid to Mr. Amerman through December 31, 1998 had he continued
in the employ of Mattel; (ii) Mattel shall pay to Mr. Amerman any unpaid MIP
bonus awards due to Mr. Amerman based on Mattel's corporate performance for
the 1997 and 1998 MIP years; (iii) Mattel shall pay to Mr. Amerman an LTIP
payment reflective of Mr. Amerman's participation in the three-year plan;
(iv) unexpired options granted to Mr. Amerman under Mattel's stock option
plans, which options have been granted for more than 6 months, shall become
immediately exercisable, and Mr. Amerman shall have a period of 90 days
following the termination date to exercise all exercisable options; (v) Mattel
shall reimburse Mr. Amerman for any expenses incurred which would have been
payable by the Company had Mr. Amerman's employment not been terminated; and
(vi) Mattel shall provide to Mr. Amerman at Mattel's expense certain life-long
benefits under the Company's employee benefit plans and certain fringe
benefits until December 31, 2001. Mr. Amerman's employment agreement contains
no change of control provisions.
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PROPOSAL 2
APPROVAL OF THE 1997 PREMIUM PRICE STOCK OPTION PLAN
Upon the recommendation of the Compensation/Options Committee of the Board
(the "Committee"), the Board adopted the 1997 Premium Price Stock Option Plan
(the "Plan") on November 6, 1997. The Committee first discussed the Plan on
August 21, 1997 and reviewed the Plan on October 17, 1997. The Board
recommends that the stockholders vote to approve the Plan for the reasons set
forth below.
The Plan is designed to align the interests of Mattel's senior management
and its stockholders and to motivate Mattel's senior management to provide
superior returns for its stockholders.
When approved by the stockholders of the Company, the Plan will be in
addition to the Company's most recent stock option plan, the Mattel 1996 Stock
Option Plan, which was approved by the stockholders in May 1996. Grants under
the Plan are intended to replace annual grants to the recipients under the
1996 Plan for the next three years. If a recipient's employment agreement with
the Company requires that the recipient receive option grants under the 1996
Plan over that three year period, any such employment agreement will be
amended to reflect that grants under the Plan will satisfy the Company's
obligation to make such grants under the 1996 Plan.
The Committee has recommended adoption of the Plan. In the opinion of the
Committee and of the Board of Directors, it is in the best interests of the
Company and its stockholders to provide, through the Plan, an enhanced
incentive compensation program designed to enable the Company to attract,
retain and reward key employees through performance-based incentives in shares
of Common Stock.
SUMMARY OF THE PLAN
The Plan is administered by the Committee. The Plan authorizes the Committee
to grant (i) nonqualified stock options to purchase Common Stock at exercise
prices in excess of the fair market value on the date of grant (an "Option")
and (ii) tandem limited stock appreciation rights which are granted in tandem
with Options (a "TLSAR", and collectively with an Option, a "Grant") to key
employees of the Company and its subsidiaries who may meaningfully influence
Mattel's long-term stockholder value ("Participants"). The maximum number of
shares of Common Stock for which Grants may be awarded under the Plan is 20
million. The Committee first discussed the Plan on August 21, 1997 and
reviewed the Plan on October 17, 1997. Upon the recommendation of the
Committee, the Board adopted the Plan on November 6, 1997. The Plan shall be
effective when approved by the Company's stockholders. The Plan shall
terminate on December 31, 2002, except with respect to Grants then
outstanding. In the event of a stock split, stock dividend or similar change
affecting the Company's Common Stock, the Committee may authorize appropriate
adjustments in the number of shares that may be issued or transferred in the
future and in the number of shares and price of all outstanding Grants made
before such event. If shares under a Grant are not issued or transferred,
those shares would again be available for inclusion in future Grants. On
March 10, 1998, the closing price of Company's Common Stock on the New York
Stock Exchange was $44.87.
AWARDS UNDER THE PLAN
Options. Options granted under the Plan are nonqualified stock options and
have exercise prices of the greater of (i) the fair market value of the Common
Stock on the first day that fair market value is greater than or equal to 25%
($42.03 per share) or 33 1/3% ($44.83 per share) above Mattel's prior six
month average stock price or (ii) the fair market value of the Common Stock on
the day of stockholder approval. Options granted under the Plan are forfeited
unless (i) fair market value of the Common Stock is greater than the premium
exercise price on any trading day before December 31, 1999 for options with a
25% premium price and December 31, 2000 for options with a 33 1/3% premium
price or (ii) Mattel achieves a fifteen percent compound earnings per share
growth rate over the same periods, respectively. Even if vested, options
granted under the Plan may not be exercised for three years from the date of
grant and expire on December 31, 2002.
On February 27, 1998, fair market value of the Common Stock was $42.31,
exceeding the 25% premium price of $42.03 for the first time since November 6,
1997, the date of grant. On March 10, 1998, fair market
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value of the Common Stock was $44.87, exceeding the 33 1/3% premium price of
$44.83 for the first time since November 6, 1997, the date of grant.
Accordingly, the Options granted under the Plan on November 6, 1997 have
vested, subject to stockholder approval of the Plan at the Meeting, and the
exercise prices for such Options shall be $42.31 for the 25% premium price
Options and $44.87 for the 33 1/3% premium price Options unless the fair
market value on the date of stockholder approval is greater.
TLSARs. The Committee may grant TLSARs in combination with an underlying
Option under the Plan. A TLSAR is a right to receive a payment in cash, shares
of Common Stock or any combination thereof with respect to a specified number
of shares of Common Stock equal to the excess of the fair market value of the
Common Stock on the date the right is exercised over the fair market value of
the Common Stock on the date the right was granted or the date of stockholder
approval of the Plan, whichever is higher. A TLSAR shall become exercisable
only immediately upon the occurrence of a Change of Control (as defined in the
Plan) and generally expires upon expiration of the underlying Option.
CERTAIN FEDERAL TAX CONSEQUENCES
Under current federal income tax laws, the grant of Options will have no
federal income tax consequences to the Company or to the recipient at the time
of the grant. Upon exercise of an Option, the recipient will recognize as
ordinary income the excess of the fair market value of the shares over the
exercise price paid therefor. Such income will be subject to withholding, and
the Company generally will be entitled to a corresponding deduction in the
same amount that the recipient recognizes as ordinary income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized
by the holder will generally be capital gain or loss. Upon exercise of a
TLSAR, the recipient will recognize ordinary income, and the Company will be
entitled to a corresponding deduction, equal to the cash and fair market value
of shares payable upon such exercise.
Under Internal Revenue Code Section 162(m), the allowable federal income tax
deduction for compensation paid to certain employees is limited to no more
than $1 million per year for a covered employee. However, Section 162(m)
provides an exception from this limitation for certain "performance based"
compensation if various requirements are satisfied. The Plan is intended to
comply with Section 162(m) of the Code, thereby preserving the Company's
deduction for any compensation paid to its executive officers.
OTHER INFORMATION
The Board may amend the Plan as it deems advisable. The maximum number of
shares of Common Stock for which Grants may be awarded to a single Participant
in any three consecutive calendar years is 4.5 million. Employees who will
participate in the Plan in the future and the amounts of their allotments are
to be determined by the Committee subject to any restrictions outlined above.
During 1997, the Committee approved, subject to stockholder approval, the
awards as set forth in the table below:
NEW PLAN BENEFITS
1997 PREMIUM PRICE STOCK OPTION PLAN
<TABLE>
<CAPTION>
PREMIUM PRICE OPTIONS
--------------------------
VALUE OF NUMBER OF
SHARES SHARES
NAME AND POSITION GRANTED ($)(4) GRANTED (#)
----------------- -------------- -----------
<S> <C> <C>
Jill E. Barad................................. 9,849,591 2,056,282(1)
Chairman of the Board and Chief Executive
Officer 9,849,587 2,026,664(2)
Gary S. Baughman.............................. 2,880,811 601,422(1)
President, Fisher-Price 2,880,814 592,760(2)
Joseph C. Gandolfo............................ 2,304,651 481,138(1)
President, Worldwide Manufacturing Operations 2,304,651 474,208(2)
Ned Mansour................................... 3,456,977 721,707(1)
President, Corporate Operations and General
Counsel 3,456,976 711,312(2)
Bruce L. Stein................................ 3,456,977 721,707(1)
President, Mattel Worldwide and Chief
Operating Officer 3,456,976 711,312(2)
All Current Executive Officers as a Group (11
persons)..................................... 61,413,354 12,728,826(3)
All Other Key Employees (14 persons).......... 23,507,422 4,872,261(3)
</TABLE>
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- --------
(1) Options were granted with exercise prices of the greater of (i) the fair
market value of the Common Stock on the first day that fair market value
is greater than or equal to 25% ($42.03 per share) above Mattel's prior
six month average stock price or (ii) the fair market value of the Common
Stock on the day of stockholder approval. Options granted are forfeited
unless (i) fair market value of the Common Stock is greater than the
premium exercise price on any trading day before December 31, 1999 or (ii)
Mattel achieves a 15% compound earnings per share growth rate over the
same period. Options expire on December 31, 2002. Potential realizable
value is calculated using a variation of the Black-Scholes pricing model
based on the following assumptions: 6.33% risk-free rate; 5 year option
term; 0.86% dividend yield; 24.1% volatility factor; 41.7% risk of
forfeiture; and $42.03 exercise price.
(2) Options were granted with exercise prices of the greater of (i) the fair
market value of the Common Stock on the first day that fair market value
is greater than or equal to 33 1/3% ($44.83 per share) above Mattel's
prior six month average stock price or (ii) the fair market value of the
Common Stock on the day of stockholder approval. Options granted are
forfeited unless (i) fair market value of the Common Stock is greater than
the premium exercise price on any trading day before December 31, 2000 or
(ii) Mattel achieves a 15% compound earnings per share growth rate over
the same period. Options expire on December 31, 2002. Potential realizable
value is calculated using a variation of the Black-Scholes pricing model
based on the following assumptions: 6.33% risk-free rate; 5 year option
term; 0.86% dividend yield; 24.1% volatility factor; 33.6% risk of
forfeiture; and $44.83 exercise price.
(3) The terms of the Options granted and the calculation of potential
realizable value are as set forth in notes (1) and (2) above.
(4) The actual value, if any, an executive may realize will depend upon the
excess of the stock price over the exercise price on the date the option
is exercised, so there is no assurance that the value realized by the
executive will be at or near the amount shown.
The full text of the Plan is attached as Exhibit A to this Proxy Statement.
The Board of Directors believes that the Plan is a valuable aid to the Company
in its efforts to attract and retain key employees. Approval of the Plan
requires the affirmative vote of a majority of shares of Common Stock and
Series C Stock in person or represented by proxy and entitled to vote at the
Meeting.
SUCH APPROVAL IS RECOMMENDED BY THE BOARD OF DIRECTORS AND MANAGEMENT. IT IS
IN THE BEST INTERESTS OF MATTEL AND ITS STOCKHOLDERS TO PROVIDE, THROUGH THE
1997 PREMIUM PRICE STOCK OPTION PLAN, AN INCENTIVE COMPENSATION PROGRAM THAT
ENABLES MATTEL TO ALIGN THE INTERESTS OF MATTEL'S SENIOR MANAGEMENT AND ITS
STOCKHOLDERS AND TO MOTIVATE MATTEL'S SENIOR MANAGEMENT TO PROVIDE SUPERIOR
RETURNS FOR ITS STOCKHOLDERS.
PROPOSAL 3
APPROVAL OF THE MATTEL MANAGEMENT INCENTIVE PLAN
The Board of Directors, including the Committee which is composed of
disinterested directors, has approved and recommends for stockholder approval,
the Mattel Management Incentive Plan. The Management Incentive Plan, which has
been in effect since 1974 and was last approved by the Company's stockholders
in 1994, has as its principal objective achieving annual financial performance
targets. An annual incentive program is a core component of compensation
programs. It reinforces "pay for performance" and is necessary to ensure
competitive pay packages. In light of Mattel's significant stockholder returns
which have substantially outperformed those of the peer group companies and
the S&P 500, as reflected in the Performance Graph, the Board has determined
that it is in the best interests of the Company to continue the Management
Incentive Plan.
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DESCRIPTION OF THE MATTEL MANAGEMENT INCENTIVE PLAN
Under Mattel's Management Incentive Plan ("MIP"), certain key employees of
Mattel may receive incentive compensation based upon the achievement of
specific performance targets of Mattel during the year, and the accomplishment
by such key employees of certain division, affiliate, business unit or
individual performance objectives and otherwise satisfactory performance. The
performance targets used to determine payments under the MIP are based on net
operating profit after taxes less charge on total capital ("NOPAT"). NOPAT is
a measure of profits generated by the Company's assets after taking into
account the cost of capital employed to generate these profits, and is based
on a formula developed by an independent financial consulting firm. This
formula measures the economic performance of a company, and is strongly
correlated to improvement in stock price. Each year, the Committee
establishes, in writing, specific targets which must be achieved before
incentive payments are generated and maximum levels which provide a ceiling on
the total amount payable under the MIP. The Committee also establishes
participation guidelines. Under the terms of the MIP, eligible participants
include officers of the Company and its subsidiaries and other employees of
the Company or its subsidiaries at or above a specific salary grade that are
determined by the Committee to have a measurable impact on the Company's
financial results. An individual's level of award is based on corporate,
division, affiliate or business unit results, position in the Company and
individual performance. At the present time, approximately 1,000 employees are
eligible to participate in the MIP.
The MIP is administered by the Committee which includes only directors who
are considered outside directors for purposes of Section 162(m) of the
Internal Revenue Code (the "Code"). Under the terms of the MIP, the Committee
retains discretion, subject to plan limits, to modify the performance
objectives to take into account the effect of unforeseen or extraordinary
events and accounting changes. However, the Committee cannot change the
performance objectives as they apply to the Chief Executive Officer of Mattel
and the four other most highly compensated executives ("Covered Employees") if
the effect of such change is to increase the compensation those individuals
would otherwise receive. The maximum annual amounts that Covered Employees are
eligible to receive under the MIP ranges from 75% to 150% of base salary. (The
maximum dollar amount that could be awarded to a Covered Employee in 1998
would be $2.0 million.) The Covered Employees will be those named each year in
the Summary Compensation Table.
The performance objectives for the year 1998 have been established in
writing by the Committee and include achieving a specific target NOPAT. The
class of eligible participants has been selected, as well as their level of
participation. Participants include the Covered Employees. Payments of
performance awards are determined at the end of each year and usually paid in
the first quarter of the following year. If the performance objectives are
satisfied, the Committee will certify in writing, prior to the payment of any
performance award, that such objectives were satisfied. If cumulative bonuses
exceed the available pool, all bonuses are reduced proportionately. If
cumulative bonuses are less than the available pool, the excess is returned to
profit. Amounts payable under the MIP for the year 1998 cannot be determined
until completion of the performance period. See "Bonus" in the "Summary
Compensation Table" for amounts paid under the MIP in the prior three years.
The approval by stockholders of the MIP is required in order to exclude
compensation payable under the MIP to the Covered Employees from the deduction
limitations imposed by Section 162(m) of the Code. If the stockholders do not
approve the MIP, the Committee will not make payments to such individuals and
will consider other alternatives. Approval of the MIP requires the affirmative
vote of a majority of shares of Common Stock and Series C Stock in person or
represented by proxy and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MATTEL
MANAGEMENT INCENTIVE PLAN.
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PROPOSAL 4
APPROVAL OF AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
On February 5, 1998, the Board of Directors adopted a resolution amending,
subject to stockholder approval at the Meeting, Article Fourth of the
Company's Amended and Restated Certificate of Incorporation to increase the
number of shares of authorized Common Stock from 600,000,000 to 1,000,000,000
shares (the "Amendment"). A copy of the Amendment is incorporated as Exhibit B
attached to this Proxy Statement. The additional shares would have the same
rights and privileges as the shares of Common Stock presently outstanding. As
of February 15, 1998, (i) 300,381,481 shares of Common Stock were outstanding,
(ii) an aggregate of 40,614,754 shares of Common Stock were reserved for
issuance pursuant to stock option plans, (iii) an aggregate of 3,751,431
shares of Common Stock were reserved for issuance upon exercise of warrants,
(iv) an aggregate of 10,479,052 shares of Common Stock were reserved for
issuance upon conversion of preferred stock and (v) 244,773,282 shares of
Common Stock were authorized, unissued and unreserved.
The Board of Directors believes it is desirable to have the additional
authorized shares of Common Stock available for possible future financing
transactions, stock dividends or splits and other general corporate purposes.
Mattel's Board of Directors distributed a five-for-four stock split in
November 1991, a three-for-two stock split in June 1992, a five-for-four stock
split in January 1994, a five-for-four stock split in January 1995 and a five-
for-four stock split in February 1996. As of the date hereof, the Company has
no plans, arrangements or understandings which would require the issuance of
any of the additional authorized shares.
It should be noted that any issuance of additional shares of Common Stock
could be disadvantageous to existing stockholders since such issuance might
serve to dilute their percentage interest in the Company. Holders of Common
Stock do not have preemptive rights to purchase any additional shares of
Common Stock which may be issued. The Company would not be required to obtain
stockholder approval to issue authorized but unissued shares of Common Stock,
unless required to do so by applicable law or the rules of any stock exchange
on which the Company's shares may be listed, such as the New York Stock
Exchange.
It should also be noted that the authorized but unissued shares of Common
Stock, if issued, could be used by incumbent management to make more
difficult, and thereby discourage, an attempt to acquire control of the
Company even though stockholders of the Company may deem such an acquisition
desirable. For example, the shares could be privately placed with purchasers
who might support the Board of Directors in opposing a hostile takeover bid.
The issuance of the new shares could also be used to dilute the stock
ownership and voting power of a third party seeking to remove directors,
replace incumbent directors, accomplish certain business combinations or
alter, amend or repeal provisions of the Company's Amended and Restated
Certificate of Incorporation. To the extent that it impedes any such attempts,
the issuance of shares following the Amendment may serve to perpetuate
existing management.
The Amendment does not alter the Company's present ability to issue up to
3,000,000 shares of preferred stock in such series with such special rights
(including voting rights), preferences, restrictions, qualifications, and
limitations as the Board of Directors may designate. The Company would not be
required to obtain approval of the holders of Common Stock to issue authorized
but unissued shares of preferred stock, unless required to do so by applicable
law or the rules of any stock exchange on which the Company's shares may be
listed, such as the New York Stock Exchange. The Board of Directors could use
its authority to make such designations and to issue preferred stock in a
manner that would create impediments or to otherwise discourage persons in
attempting to gain control of the Company.
The affirmative votes of a majority of the outstanding shares of Common
Stock and Series C Stock are required for approval of the Amendment. If the
proposed Amendment is approved by the stockholders, the Company intends to
promptly effect the Amendment by filing an appropriate amendment to the
Amended and Restated Certificate of Incorporation with the State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED INCREASE IN THE
AUTHORIZED COMMON STOCK OF THE COMPANY.
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PROPOSAL 5
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has served as the Company's independent accountants
since their appointment for fiscal 1975. The Board of Directors, on the
unanimous recommendation of the Audit Committee, has selected Price Waterhouse
LLP as Mattel's independent accountants for the year ending December 31, 1998.
Representatives of Price Waterhouse LLP are expected to be present at the
Meeting to respond to questions and will have an opportunity to make a
statement if they desire to do so.
Audit services of Price Waterhouse LLP for 1997 included the examination of
the consolidated financial statements, services related to filings with the
Securities and Exchange Commission, and the performance of limited reviews of
Mattel's quarterly unaudited financial information.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
THE YEAR ENDING DECEMBER 31, 1998.
PROPOSAL 6
STOCKHOLDER PROPOSAL REGARDING EXECUTIVE COMPENSATION
The United Paperworkers International Union, beneficial owner of 126 shares
of Common Stock, whose address is P.O. Box 1475, Nashville, Tennessee, 37202
has notified the Company in writing that it intends to introduce at the
Meeting the resolution which appears below. The resolution and a related
supporting statement are followed by the recommendation of the Board of
Directors. The Board of Directors disclaims any responsibility for the content
of the proposal and for the statement made in support thereof, which are
presented as received from the stockholder.
RESOLVED, that the shareholders of Mattel, Inc. recommend the Board of
Directors adopt executive compensation policies which reward executives for
enforcing standards ensuring that Mattel and its suppliers employ no child
labor in the manufacture of Mattel toys and observe all applicable laws and
standards protecting employees' wages, benefits, health, safety, and working
conditions.
STOCKHOLDER'S SUPPORTING STATEMENT
We believe an important measure of executive compensation should be the
extent to which top executives ensure the company and its suppliers observe
fair labor standards in the production of the company's products. Given
Mattel's position as the world's leading producer of children's toys, we
believe it especially crucial that our executives make certain the company and
its suppliers do not employ child labor in the manufacture of Mattel products.
There is considerable evidence of growing public concern over inhumane
working conditions in factories making goods for import to the U.S. Indeed,
Mattel has been the subject of embarrassing news media disclosures about
working conditions at factories operated by the company and its overseas
suppliers. A December 1996 feature of NBC's Dateline news program charged that
a Mattel supplier in Indonesia employed children as young as thirteen to sew
clothes for Barbie. According to Dateline, some of these children worked
seven-hour shifts until 11:00 p.m., even though Indonesian law prohibits
children that age from working at night. In July 1997, a front-page story in
the Wall Street Journal reported that workers at a Barbie factory in China
often worked twelve-hour shifts and seven-day weeks, with only one day off
each month and no overtime pay. Three teenagers working at this Mattel factory
told the Journal they lived twelve to a room, and that the company's canteen
often served meat with bristle on it. Reports such as these can be devastating
to the company's reputation among the parents and children who buy Mattel
products, and could negatively impact performance. The negative effect of such
publicity could be magnified by contrasting abusive working conditions in the
company's overseas
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facilities with the generous compensation levels paid to top executives. In
1996 Mattel paid two executives, John Amerman and Jill Barad, a combined total
of over $29 million in salaries, bonuses, and gains from their stock options.
In our view, merely having policies in place nominally forbidding child
labor or other abusive labor practices is not enough to ensure that such
standards are enforced. We believe the company's executive compensation
policies should provide incentives for executives to ensure that appropriate
labor standards are observed in the manufacture of Mattel toys. We urge you to
vote for this resolution.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On November 20, 1997, Mattel announced the adoption of its "Global
Manufacturing Principles," which is a code of conduct for production
facilities and contract manufacturers worldwide. At the same time, Mattel
announced the development by Dr. S. Prakash Sethi of Baruch College, City
University of New York, an international expert on corporate governance and
ethics, of a worldwide independent audit and monitoring system for the Global
Manufacturing Principles. The Company believes that it is the first multi-
national consumer products company to commit to independent third party
auditing and monitoring of its facilities on a global basis.
The Global Manufacturing Principles reflect Mattel's belief that the safety
and fair treatment of the people who manufacture Mattel products is equally
important as the safety and quality of the products Mattel produces. Mattel's
policy, among other provisions, states that no one under the age of sixteen be
allowed to work in any facility that produces its products, prohibits the use
of forced or prison labor in such facilities and establishes minimum standards
for the working environment of such facilities.
Prior to publicly announcing the Global Manufacturing Principles, Mattel
completed a full audit of nine of its owned-and-operated as well as virtually
all of its approximately 300 primary contractor manufacturing facilities
around the world. As a result, Mattel was able to validate a complete absence
of either child or forced labor conditions in the locations that were audited.
However, relationships with six contractor facilities were terminated--one in
Indonesia for its inability to confirm the ages of its employees and five in
China for refusing to meet various other standards mandated by the Global
Manufacturing Principles. A total of fifteen additional contractor facilities
currently face potential termination if Mattel's inspectors find they have not
implemented recommended changes in a timely manner. Other facilities in
various parts of the world were found to require work-environment and other
improvements in order to comply fully with Mattel's Global Manufacturing
Principles, but all have agreed to corrective actions and an implementation
timeline. Mattel will have completed its audit of all of Mattel's
international owned-and-operated manufacturing facilities by May 1998 and its
audit of all of Mattel's domestic owned-and-operated manufacturing facilities
by September 1998.
As part of the effort described above, Mattel is currently working with Dr.
Sethi to design an ongoing independent monitoring program headed by a fully
autonomous panel of commissioners that will select a percentage of Mattel's
manufacturing facilities for annual audits and monitor compliance with the
Global Manufacturing Principles. Dr. Sethi has already toured several of
Mattel's facilities in China, Indonesia and Malaysia and is in the process of
selecting the members of the independent panel. Dr. Sethi is expected to be
present at the Meeting to respond to questions and will have an opportunity to
make a statement if he wishes to do so. While Mattel is in agreement with the
principles underlying the proponent's stockholder resolution, it believes that
the Company's current commitment to and progress in implementing the Global
Manufacturing Principles demonstrates that the adoption of executive
compensation policies specifically tied to enforcing these standards is
unnecessary.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL, AND, UNLESS
A STOCKHOLDER GIVES INSTRUCTIONS ON THE PROXY CARD TO THE CONTRARY, THE
APPOINTEES NAMED THEREON INTEND SO TO VOTE.
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STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 Annual Meeting of
Stockholders must be received by the Company not later than November 30, 1998.
Such proposals should be addressed to the Secretary of the Company.
ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS
The Company's By-Laws require advance notice for any business to be brought
before a meeting of stockholders. In general, for business to be brought
before an annual meeting by a stockholder, written notice of the stockholder
proposal must be received by the Secretary of the Company not less than ninety
days nor more than one hundred-twenty days prior to the meeting, or if the
Company gives less than forty days' notice of the meeting date, written notice
of the stockholder proposal must be received within ten days after the meeting
date is announced. The stockholder's notice to the Secretary must contain a
brief description of the business to be brought before the meeting and the
reasons for conducting such business at the meeting, as well as certain other
information. Written notice of any such stockholder proposal should be sent to
the Secretary, Mattel, Inc., 333 Continental Boulevard, El Segundo, California
90245-5012.
PRINCIPAL STOCKHOLDERS
As of March 1, 1998, the only persons known by the Company to own
beneficially or that may be deemed to own beneficially more than 5% of the
Company's Common Stock or Series C Depositary Shares were:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------- ------------------- -------------------- --------
<C> <S> <C> <C>
Common Stock Oppenheimer Capital 27,787,291(1) 9.6%
Oppenheimer Tower
World Financial Center
New York, NY 10281
Depositary Shares, Angelo Gordon & Co. LLP 1,595,800(2) 8.3%
Series C Preferred Stock 245 Park Avenue
New York, NY 10167
Depositary Shares, D.E. Shaw Investments, 1,396,800(3) 7.2%
Series C Preferred Stock L.P. 120 West 45th
Street
New York, NY 10036
</TABLE>
- --------
(1) As reported on a Schedule 13G dated February 27, 1998 and filed with the
Securities and Exchange Commission by Oppenheimer Capital. The Schedule
13G states that Oppenheimer Capital and certain of its affiliates may be
deemed to share the voting and dispositive powers with respect to such
shares of Common Stock.
(2) As reported in a Schedule 13G dated February 10, 1998 and filed with the
Securities and Exchange Commission by Angelo Gordon & Co. LLP, John M.
Angelo ("Angelo") and Michael L. Gordon ("Gordon"). The Schedule 13G
states that Angelo and Gordon may be deemed to share the voting and
dispositive powers with respect to Series C Depositary Shares owned by
Angelo Gordon & Co. LLP.
(3) As reported in a Schedule 13G dated February 13, 1998 and filed with the
Securities and Exchange Commission by D.E Shaw Investments, L.P.
("InvLP"), D.E. Shaw Securities, L.P. ("SecLP") and David E. Shaw
("Shaw"), the amount shown includes 1,047,600 shares of Series C
Depositary Shares owned by SecLP. The Schedule 13G states that Shaw may be
deemed to share the voting and dispositive powers with respect to Series C
Depositary Shares owned by InvLP and SecLP. Shaw expressly disclaims any
shared voting and dispositive powers.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and certain of its officers, and persons who own more than 10
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership of such securities with the
Commission. Officers, directors and greater than 10 percent stockholders are
required to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of all Section 16(a) forms received
by it, or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that during the year
ended December 31, 1997, all filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with,
except that Mr. Ney filed one late report covering three transactions.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
As of the date of this Proxy Statement, the Board of Directors knows of no
other business that will be presented by management for consideration at the
Meeting. If any other business properly comes before the Meeting, the proxy
holders intend to vote the proxies as recommended by the Board.
ANNUAL REPORT (FORM 10-K)
THE COMPANY UNDERTAKES, ON WRITTEN REQUEST AND WITHOUT CHARGE, TO PROVIDE
EACH PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED WITH A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES. COPIES OF EXHIBITS NOT INCLUDED IN THE FORM 10-K ARE
ALSO AVAILABLE, ON WRITTEN REQUEST, AT THE COMPANY'S COST THEREFOR. REQUESTS
SHOULD BE ADDRESSED TO MATTEL, INC., 333 CONTINENTAL BOULEVARD, EL SEGUNDO,
CALIFORNIA 90245-5012, ATTENTION: SECRETARY.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by Mattel. It is contemplated
that proxies will be solicited principally through the use of the mail, but
officers and regular employees of Mattel may solicit proxies personally or by
telephone, telegraph or special letter. Such officers and employees shall
receive no additional compensation in connection with such efforts.
In addition, the Company has retained Georgeson & Co., Inc. to assist in
connection with the solicitation of proxies from stockholders whose shares are
held in nominee name by various brokerage firms. The cost of such solicitation
is estimated to be $8,000 plus out-of-pocket costs and expenses.
Mattel will reimburse banks, brokerage houses and other custodians, nominees
and fiduciaries for their reasonable expenses in forwarding proxy materials to
the beneficial owners of the shares held by them.
By Order of the Board of Directors
Leland P. Smith
Secretary
El Segundo, California
March 30, 1998
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EXHIBIT A
MATTEL, INC. 1997 PREMIUM PRICE STOCK OPTION PLAN
SECTION 1. PURPOSE, BACKGROUND, AND GENERAL DESCRIPTION
1.1 PURPOSE. The purpose of the Mattel Premium Price Stock Option Plan
("Plan") is to align the interests of the senior management and the
shareholders of Mattel, Inc. ("Mattel") and to motivate Mattel senior
management to provide superior returns for Mattel shareholders. This Plan is
also intended to attract, motivate, and retain key executives of the highest
quality.
1.2 BACKGROUND. The Board adopted this Plan on November 6, 1997 and the
Committee made Initial Grants at that time, subject to stockholder approval.
This Plan is in addition to the "Amended and Restated Mattel 1996 Stock Option
Plan." The Committee has the power and sole discretion to determine under
which Plan Options are to be granted.
1.3 GENERAL DESCRIPTION. This Plan authorizes the following forms of Grants:
(a) Options to purchase shares of Mattel's Common Stock at Exercise Prices
in excess of the Fair Market Value on the Grant Date. Such Options shall be
subject to forfeiture if defined levels of performance are not met within a
specified period of time.
(b) Tandem Limited Stock Appreciation Rights. These rights are granted in
tandem with Options and become exercisable only upon a Change in Control.
SECTION 2. DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings set
forth below.
2.1 "Board" means the Board of Directors of Mattel, Inc.
2.2 "Change in Control" means the occurrence of any of the following:
(a) The "Distribution Date," as that term is defined in Section 1(h) of the
Company's Rights Agreement dated February 7, 1992, as it may be amended from
time to time. The definition of "Distribution Date" contained in the Company's
Rights Agreement shall continue to apply, notwithstanding the expiration or
termination of that agreement; or
(b) The date (during any period of two (2) consecutive calendar years) that
individuals who at the beginning of such period constituted the Company's
Board of Directors, cease for any reason (other than natural causes, including
death, disability, or retirement) to constitute a majority thereof; or
(c) The date the stockholders of the Company approve:
(A) A plan of complete liquidation of the Company;
(B) An agreement for the sale or disposition of all or substantially
all of the assets of the Company; or
(C) A merger, consolidation, or reorganization of the Company with or
involving any other corporation, other than a merger, consolidation, or
reorganization that would result in the voting stock of the Company
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting stock of the
surviving entity) at least eighty percent (80%) of the combined voting
power of the stock that is outstanding immediately after the merger,
consolidation, or reorganization, unless the Board of Directors of the
Company determines by a majority vote prior to the merger,
consolidation, or reorganization that no Change in Control will occur
as a result of such transaction.
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2.3 "Code" means the Internal Revenue Code of 1986, as amended. Reference to
any specific section of the Code shall be deemed to be a reference to any
successor provision.
2.4 "Committee" means the Compensation/Options Committee of the Board, or
such other committee of the Board that is designated by the Board to
administer the Plan. In the event that one or more members of the Committee do
not comply with the eligibility requirements of Rule 16b-3 or Code Section
162(m), then the entire Board may serve as the Committee for purposes of this
Plan.
2.5 "Common Stock" means the common stock of Mattel, Inc., $1.00 par value
per share, or any security issued in substitution, exchange, or in lieu
thereof.
2.6 "Company" means Mattel, Inc., a Delaware corporation, or any successor
corporation. Except where the context indicates otherwise, the term "Company"
shall include its Parent and Subsidiaries.
2.7 "Compound Annual Growth in Earnings Per Share" means the Company's
Earnings Per Share for the calendar year ending on the Start Date compounded
annually by the applicable percentage over a specified period of time.
2.8 "Disability" means that there is a determination to that effect under
the group long-term disability plan of the Company and the Participant is also
approved for permanent disability benefits by the Social Security
Administration. However, in no event will a Participant be considered to be
disabled for purposes of this Plan if the Participant's incapacity is a result
of intentionally self-inflicted injuries (while sane or insane), alcohol or
drug abuse, or a criminal act for which the Participant is convicted or to
which the Participant pleads guilty or nolo contendere.
2.9 "Earnings Per Share" means the "diluted earnings per share" of Mattel
Common Stock, as calculated according to the standards set forth in the
"Statement of Financial Accounting Standards No. 128," issued by the Financial
Accounting Standards Board in February 1997 (effective for earnings reports
after December 1997) and reported on an annual basis.
2.10 "Effective Date" means the date on which this Plan is approved by the
affirmative vote of a majority of shares of Mattel Common Stock represented in
person or by proxy and entitled to vote at a stockholders meeting at which
such approval of the Plan is requested.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
2.12 "Exercise Date" means the first date on which an Option or TLSAR may be
exercised.
2.13 "Exercise Price" means (i) the price (as set forth in Sections 8.1, 8.2
and 8.3) at which a share of Common Stock may be purchased by a Participant
pursuant to the exercise of an Option and (ii) the price of a share of Common
Stock set forth under Section 11 below for a TLSAR.
2.14 "Fair Market Value" means, unless a different method or value is
determined by the Committee, the closing price of the Common Stock as reported
on the New York Stock Exchange Composite Tape for that day, or, if the New
York Stock Exchange is closed on that day, the next preceding day on which the
New York Stock Exchange was open.
2.15 "Future Grant" means any Option granted under this Plan after the
Initial Grants made on November 6, 1997.
2.16 "Grant" means the award of an Option and a related TLSAR.
2.17 "Grant Agreement" means the written agreement setting forth the terms
and provisions applicable to each Grant.
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2.18 "Grant Date" means the date on which the Grant of an Option and related
TLSAR were approved by the Committee.
2.19 "Initial Grant" means those Options whose Grant Date is November 6,
1997.
2.20 "Initial Grant #1" means those Options under the Initial Grant which
have a first set of performance criteria under this Plan, as described in
Section 9.5.2 below.
2.21 "Initial Grant #2" means those Options under the Initial Grant which
have a second set of performance criteria under this Plan, as described in
Section 9.5.3 below.
2.22 "Insider" means a person or entity that is subject to the provisions of
Section 16 of the Exchange Act.
2.23 "Option" means an option to purchase Common Stock.
2.24 "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of the corporations
(other than the Company) owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, as determined in accordance with the rules of Code
Section 424(e).
2.25 "Participant" means a person who has received a Grant.
2.26 "Plan" means the "Mattel, Inc. 1997 Premium Price Stock Option Plan,"
as it may be amended from time to time.
2.27 "Restricted Stock" means share of Common Stock that are subject to
restrictions on ownership.
2.28 "Retirement" means a Severance where the Participant had previously
attained the age of fifty-five (55) and completed five (5) years of service
(as determined in accordance with the terms of the Mattel, Inc. Personal
Investment Plan).
2.29 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act and as amended from time to time.
2.30 "Severance" means, with respect to a Participant, the termination of
his or her provision of services to the Company as an employee, whether by
reason of death, disability, resignation, dismissal, or any other reason. A
Participant will not be considered to have incurred a Severance because of a
transfer of employment between the Company and a Subsidiary or a Parent (or
vice versa).
2.31 "Start Date" means the date from which a performance criteria required
prior to the exercise of an Option is measured.
2.32 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain,
as determined in accordance with the rules of Code Section 424(f).
2.33 "Tandem Limited Stock Appreciation Right" or "TLSAR" means a right
granted pursuant to Section 12 below to receive a payment in cash, shares of
Common Stock or any combination thereof with respect to a specified number of
shares of Common Stock equal to the excess of the Fair Market Value of the
Common Stock on the date the right is exercised over the Exercise Price.
2.34 "Trading Day" means a day on which a share of Common Stock is publicly
traded on the New York Stock Exchange, or any successor to the New York Stock
Exchange.
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SECTION 3. ADMINISTRATION
3.1 COMMITTEE. This Plan shall be administered by the Committee. The Board
may remove members from, or add members to, the Committee at any time. The
Committee shall be composed of individuals selected in a manner that complies
with Rule 16b-3 and with Code Section 162(m).
3.2 COMMITTEE MEETINGS. The Committee may conduct its meetings in person or
by telephone. One-third ( 1/3rd) of the members of the Committee shall
constitute a quorum, and any action shall constitute the action of the
Committee if it is authorized by a majority of the members present at any
meeting or by all of the members in writing without a meeting.
3.3 INTERPRETATION OF PLAN. The Committee is authorized to interpret this
Plan and to adopt rules and procedures relating to the administration of this
Plan. All actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties.
3.4 MODIFICATIONS TO PLAN. Subject to the limitations of Sections 12.2 and
12.5 below, the Committee is expressly authorized to make such modifications
to this Plan as well as to the Options and Tandem Limited Stock Appreciation
Rights granted hereunder as are necessary to effectuate the intent of this
Plan as a result of any changes in the tax, accounting, or securities laws
treatment of Participants and the Plan.
3.5 DELEGATION OF RESPONSIBILITIES. The Committee may delegate its
responsibilities to others under such conditions and limitations as it may
prescribe, except that the Committee may not delegate its authority with
regard to the granting of Options to Insiders, except to the extent permitted
by Rule 16b-3.
SECTION 4. DURATION
4.1 EFFECTIVE DATE. This Plan was approved by the Board on November 6, 1997
and shall be effective when approved by the stockholders in the manner
provided in Section 2.10. Grants to Participants shall be effective only if
the stockholders approve this Plan.
4.2 PLAN TERMINATION. This Plan shall terminate on December 31, 2002, except
with respect to Options and TLSARs then outstanding.
SECTION 5. NUMBER OF SHARES SUBJECT TO THIS PLAN
5.1. NUMBER OF SHARES. The maximum number of shares of Common Stock for
which Grants may be awarded under the Plan shall be 20,000,000.
5.2. NET ADDITIONAL SHARES. In the event that a Participant pays part or all
of the exercise price of an Option in the form of Common Stock, only the net
additional shares issued (i.e., the number of shares issued in excess of the
number of shares surrendered) will be taken into account for purposes of the
limitations of Section 5.1 above.
5.3. LAPSED GRANTS. Upon the expiration, termination or cancellation of an
outstanding Option which shall not have been exercised in full (except due to
failure to meet the performance criteria established for the exercise of the
Option pursuant to Section 9.5 or 9.6 below), the shares of Common Stock
remaining unissued under the Option shall again become available for use under
this Plan. Any shares subject to an Option which terminates due to failure to
meet the performance criteria established for exercise of the Option shall not
be available to be the subject of another Grant.
5.4 ADJUSTMENTS. In the event of a stock split, stock dividend,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares, or similar change affecting Common Stock, the Committee shall
authorize such adjustments as it may deem appropriate with respect to:
(a) The number and/or kind of shares covered by each outstanding Option
and/or TLSAR;
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(b) The aggregate number and/or kind of shares for which Options and/or
TLSARs may be granted under this Plan; and
(c) The Exercise Price per share in respect of each outstanding Option
and/or TLSAR.
The Committee may also make such adjustments in the event of a spinoff (or
other distribution) of Company assets to stockholders, other than normal cash
dividends. Except as set forth above in this Section 5.4, no issuance by the
Company of shares of stock of any class, or securities convertible into, or
options or warrants to purchase shares of any class of stock, shall affect,
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock subject to any Grant.
SECTION 6. ELIGIBILITY
6.1 MATTEL EMPLOYEES. Key employees who may meaningfully influence Mattel's
long-term shareholder value are eligible to receive Grants under this Plan.
Such employees may include the senior executives at Mattel, as well as other
senior managers who participate in the Mattel LTIP program. The Committee
shall have the power and complete discretion to select those eligible
employees who are to receive a Grant.
6.2 EMPLOYEES ACQUIRED BY MERGER. In the event that the Company acquires
another entity by merger or otherwise, the Committee may authorize the
issuance of Grants to the individuals performing services for the acquired
entity in substitution for stock options previously granted to those
individuals in connection with their performance of services for the acquired
entity upon such terms and conditions as the Committee shall determine.
SECTION 7. GRANT OF OPTIONS
7.1 NUMBER. The maximum number of shares of Common Stock for which Grants
may be awarded to a single Participant in any three consecutive calendar years
is 4,500,000.
7.2 FORM. Options to purchase shares of Common Stock at Exercise Prices in
excess of the Fair Market Value on the Grant Date shall be granted under this
Plan on such terms and in such form as the Committee may approve, which shall
not be inconsistent with the provisions of this Plan, but which need not be
identical from Option to Option.
7.3 GRANT AGREEMENT. The Grant Agreement shall specify the Exercise Price,
the expiration date of the Option, the number of shares of Common Stock to
which the Option pertains, any conditions to exercise the Option, and such
other conditions as the Committee, in its sole discretion, shall determine.
7.4 INITIAL GRANTS. Subject to shareholder approval, the Committee has
granted Options described in this Plan as Initial Grant #1 and Initial Grant
#2. The Grant Date for these Initial Grants is November 6, 1997; the Start
Date is December 31, 1997; and the Effective Date is the date of stockholder
approval of this Plan.
SECTION 8. EXERCISE PRICE OF OPTIONS
8.1 EXERCISE PRICE OF INITIAL GRANT #1. The Exercise Price of the Options
under Initial Grant #1 shall be (i) the Fair Market Value on the first Trading
Day on or after the date hereof that Fair Market Value is greater than or
equal to $42.03 per share, which is 25% above the Average Stock Price of the
Common Stock for the six month period immediately preceding the Grant Date of
the Initial Grant or (ii) the Fair Market Value on the Effective Date,
whichever is higher.
8.2 EXERCISE PRICE OF INITIAL GRANT #2. The Exercise Price of the Options
under Initial Grant #2 shall be (i) the Fair Market Value on the first Trading
Day on or after the date hereof that Fair Market Value is greater than or
equal to $44.83 per share, which is 33 1/3% above the Average Stock Price of
the Common Stock for the six month period immediately preceding the Grant Date
of the Initial Grant or (ii) the Fair Market Value on the Effective Date,
whichever is higher.
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8.3 EXERCISE PRICE OF FUTURE GRANTS. The Exercise Price of Future Grants of
Options under this Plan shall be determined by the Committee, provided that
the Exercise Price shall represent an appropriate premium over the Fair Market
Value of a share of Common Stock on the Grant Date, as determined by the
Committee in its sole discretion.
SECTION 9. EXERCISE OF OPTIONS
9.1 WHOLE NUMBERS OF SHARES. Options shall be exercisable only for whole
numbers of shares of Common Stock.
9.2 FORM OF PAYMENT. Options are exercised by payment of the full amount of
the purchase price to the Company. The payment shall be in the form of cash or
such other forms of consideration as the Committee shall deem acceptable, such
as the surrender of outstanding shares of Common Stock owned by the person
exercising the Option or by withholding shares that would otherwise be issued
upon the exercise of the Option. If the payment is made by means of the
surrender of Restricted Stock, a number of shares issued upon the exercise of
the Option equal to the number of shares of Restricted Stock surrendered shall
be subject to the same restrictions as the Restricted Stock that was
surrendered. The Committee may also authorize the exercise of Options by the
delivery to the Company or its designated agent of an irrevocable written
notice of exercise form together with irrevocable instructions to a broker-
dealer to sell or margin a sufficient portion of the shares of Common Stock
and to deliver the sale or margin loan proceeds directly to the Company to pay
the Exercise Price of the Option.
9.3 EXERCISE IN THE EVENT OF DISABILITY. In the event of the Disability of
the Participant, an Option held by the Participant may be exercised (to the
extent that the Option is then exercisable) by his or her conservator, agent
under durable power of attorney, or trustee of any trust holding the Option.
9.4 EXERCISE IN THE EVENT OF DEATH. In the event of the death of the
Participant, an Option held by the Participant may be exercised (to the extent
that the Option is then exercisable) by his or her administrator, executor,
personal representative, or trustee of a trust holding the Option, or other
person to whom the Option has been transferred by means of the laws of descent
and distribution.
9.5 EXERCISABILITY OF INITIAL GRANTS. Each Option granted under the Initial
Grant shall become exercisable in accordance with this Section 9.5.
9.5.1 HOLDING PERIOD. No Option may be exercised before the third
anniversary of the Grant Date, or November 6, 2000.
9.5.2 INITIAL GRANT #1. Each Option granted under Initial Grant #1 shall
become exercisable on November 6, 2000, provided that one of the following
performance criteria has been met on or before the second anniversary of the
Start Date, that is on or before December 31, 1999. If neither of these
performance criteria is met, each Option granted under Initial Grant #1 shall
be forfeited on December 31, 1999.
(a) STOCK PRICE. The Fair Market Value of the Common Stock has been equal
to or greater than the Exercise Price for one Trading Day on or after the
date hereof, but not later than December 31, 1999.
(b) EARNINGS PER SHARE. The Earnings Per Share of Mattel Common Stock for
calendar year 1999 is equal to or greater than 132.25% of the Earnings Per
Share of Mattel Common Stock for calendar year 1997, which represents a 15%
Compound Annual Growth in Earnings Per Share over the two year period from
the Start Date to December 31, 1999.
9.5.3 INITIAL GRANT #2. Each Option granted under Initial Grant #2 shall
become exercisable on or after November 6, 2000, provided that one of the
following performance criteria has been met on or before the third anniversary
of the Start Date, that is on or before December 31, 2000. If neither of these
performance criteria is met, each Option granted under Initial Grant #2 shall
be forfeited on December 31, 2000.
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(a) STOCK PRICE. The Fair Market Value of the Common Stock has been equal
to or greater than the Exercise Price for one Trading Day on or after the
date hereof, but not later than December 31, 2000.
(b) EARNINGS PER SHARE. The Earnings Per Share of Mattel Common Stock for
calendar year 2000 is equal to or greater than 152.09% of the Earnings Per
Share of Mattel Common Stock for calendar year 1997, which represents a 15%
Compound Annual Growth in Earnings Per Share over the three year period
from the Start Date to December 31, 2000.
9.5.4 PERCENT OF SHARES SUBJECT TO OPTION THAT MAY BE PURCHASED ON
EXERCISE DATE. The number of shares subject to Options under the Initial Grant
that may be purchased on or after the Exercise Date depends on the duration of
a Participant's employment with Mattel, provided one of the performance
criteria for the Option has been met.
9.5.4.1 CONTINUOUS EMPLOYMENT. If the Participant is employed with
Mattel from the Grant Date through November 6, 2000, then 100% of the shares
subject to the Option may be purchased on or after the Exercise Date, provided
one of the performance criteria for the Option has been met prior to the date
of Severance. Except as provided in Section 9.5.4.2, if the Participant incurs
a Severance between November 6, 2000 and December 31, 2000, the only
performance criteria which may be met for Initial Grant #2 is that set forth
in Section 9.5.3(a), and the performance criteria set forth in Section
9.5.3(b) would not apply.
9.5.4.2 EARLY SEVERANCE. If a Participant incurs a Severance on account
of death, Disability, or Retirement before December 31, 2000, then a pro-rated
portion of the shares subject to the Option may be purchased on or after the
Exercise Date, provided one of the performance criteria for the Option has
been met. The pro-rated portion shall be calculated based on the Participant's
number of full months of employment with Mattel, measured from the Grant Date
to the earlier of the date of the Severance or November 6, 2000, divided by
36, and the remaining shares subject to the Option shall be forfeited. If a
Participant incurs a Severance for any reason other than death, Disability, or
Retirement before November 6, 2000, then the Option shall be forfeited in its
entirety. This Section shall not apply if a Participant incurs a Severance
subsequent to a Change in Control.
9.5.4.3 CHANGE IN CONTROL. If a Participant incurs a Severance for any
reason subsequent to a Change in Control, 100% of the shares subject to an
Option may be purchased pursuant to Section 9.5.5, provided one of the
performance criteria for the Option has been met.
9.5.5 SPECIAL RULE FOR A CHANGE IN CONTROL. In the event of a Change in
Control, an Option which has not previously been forfeited may be exercised
for the percent of the shares which remain subject to purchase as set forth in
Section 9.5.4 as soon as an applicable performance criterion for the Option as
set forth in Section 9.5.2 or 9.5.3 is met.
9.6 FUTURE GRANTS. An Option under any Future Grant shall be exercisable at
such time or times and be subject to such terms and conditions as may be
determined by the Committee in its sole discretion.
SECTION 10. TERMINATION OF OPTIONS
10.1 INITIAL GRANT. The termination of Options under the Initial Grant shall
be determined in accordance with this Section 10.1.
10.1.1 Except to the extent the terms of an Option require its prior
termination, each Option from the Initial Grant shall terminate on the
earliest of the following dates:
(a) If the Participant continues to be employed at Mattel, a date which
is five (5) years from the Start Date of the Option, that is December 31,
2002.
(b) The date on which the Option may no longer become exercisable due to
failure to meet any of the performance criteria established for exercise of
the Option pursuant to Section 9.5.
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(c) If the Participant incurs a Severance for reasons of death,
Disability, or Retirement, a date which is five (5) years from Start Date
of the Option, that is December 31, 2002.
(d) If the Participant incurs a Severance for reasons other than death,
Disability, or Retirement at a time when the Option was already exercisable
under Section 9.5, then a date which is 90 days after the date of
Severance.
(e) If the Participant incurs a Severance for reasons other than death,
Disability, or Retirement at a time before the Option was exercisable under
Section 9.5, then the date of Severance.
An Option shall also terminate on such date as the Committee may determine
upon a Change in Control if the Committee determines that such event will make
it impossible in the future to meet any of the performance criteria for
exercise of the Option.
10.1.2 SPECIAL RULE FOR EXERCISE OF TLSAR. Notwithstanding Section 10.1.1,
an Option shall terminate on the date on which the TLSAR related to the Option
is exercised with respect to the same percent of shares subject to Option as
the percent of shares subject to the related TLSAR which were exercised.
10.2 FUTURE GRANTS. An Option under any Future Grant shall terminate at such
time or times and be subject to such terms and conditions as may be determined
by the Committee in its sole discretion.
SECTION 11. TANDEM LIMITED STOCK APPRECIATION RIGHTS
11.1 GRANT OF TLSARS. The Committee has the power and sole discretion to
grant Tandem Limited Stock Appreciation Rights ("TLSARs") in conjunction with
Options granted under this Plan.
11.2 EXERCISE AND PAYMENT OF TLSARS. Upon the exercise of a TLSAR, the
Participant shall be entitled to receive payment from the Company equal to the
amount determined by multiplying (a) times (b):
(a) The amount by which the Fair Market Value of a share of Common Stock
on the date of exercise exceeds the Exercise Price.
(b) The number of shares of Common Stock with respect to which the TLSAR
is exercised.
Each TLSAR shall be paid in cash, provided that if any such payment would
cause a Change in Control transaction to be ineligible for pooling of
interests accounting under APB No. 16, which transaction but for such payment
otherwise would have been eligible to receive such accounting treatment, any
TLSAR shall be paid in shares of Common Stock having a Fair Market Value equal
to the cash amount foregone.
Each TLSAR shall be exercisable only for whole numbers of shares of Common
Stock. In the event of the Disability or death of a Participant, TLSARs shall
be exercised in the same manner as provided for Options in Sections 9.3 and
9.4. If a Participant incurs a Severance prior to a Change in Control, a TLSAR
shall be forfeited with respect to the same percent of shares subject to the
TLSAR as the percent of shares subject to the related Option which were
forfeited on account of such Severance pursuant to Section 9.5.4.2.
11.3 TLSARS ISSUED TO INSIDERS. TLSARs issued to Insiders may only be
exercised in accordance with Rule 16b-3.
11.4 TLSARS GRANTED IN THE INITIAL GRANT. Each TLSAR granted under the
Initial Grant shall be governed in accordance with the provisions of this
Section 11.4.
11.4.1. NUMBER OF TLSARS. TLSARs granted under the Initial Grant are
granted in tandem with each Option granted. The number of TLSARs granted in
conjunction with each Option shall be determined by the Committee and shall be
set forth in the Grant Agreement.
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11.4.2 EXERCISE PRICE. The Exercise Price of each TLSAR shall equal the
Fair Market Value of a share of Common Stock on (i) the Grant Date or (ii) the
Effective Date, whichever Fair Market Value is higher.
11.4.3 EXERCISE DATE. Each TLSAR which has not otherwise terminated under
Section 11.4.4 shall become exercisable immediately upon the occurrence of a
Change in Control.
11.4.4 TERMINATION DATE. A TLSAR shall terminate on the earliest of the
following dates:
(a) The date on which the related Option is exercised, with respect to
the same percent of shares subject to the TLSAR as the percent of the
shares subject to the related Option which were exercised.
(b) The date on which the related Option is terminated, as provided in
Section 10.1.1(a), (b), (c), (d) or (e), unless the TLSAR is exercisable on
such date.
(c) The last day of the period of 60 consecutive days which begins on the
date of the Change in Control.
11.5 FUTURE TLSARS. The Committee has the power and sole discretion to
determine the terms and conditions of any grant of TLSARs under any Future
Grant, provided that the Exercise Price shall not be less than the Fair Market
Value of a share of Common Stock on the Grant Date.
SECTION 12. OTHER PROVISIONS
12.1 PARTICIPANT ELECTIONS. Pursuant to such rules and procedures as may be
prescribed by the Committee, Participants may enter into arrangements to defer
the receipt of income that would otherwise be recognized by the Participant
under the Plan.
12.2 MODIFICATION OF GRANTS. The Committee may modify an existing Option or
TLSAR, including the right to:
(a) Accelerate the right to exercise it;
(b) Extend or renew it; or
(c) Cancel it and issue a new Option or TLSAR.
However, no modification may be made to an Option or TLSAR that would impair
the rights of the Participant holding the Option or TLSAR without his or her
consent. Whether a modification of an existing Option or TLSAR granted to an
Insider will be treated as a new Option or TLSAR for purposes of Section 16 of
the Exchange Act will be determined in accordance with Rule 16b-3.
12.3 NON-TRANSFERABILITY OF GRANTS. Except to the extent specified in the
Grant Agreement, Options and TLSARs will be exercisable only by the
Participant. Options and TLSARs are not assignable or transferable except by
will or the laws of descent and distribution or pursuant to such rules and
procedures as may be adopted by the Committee. The Committee may prescribe
such rules and procedures as it deems appropriate regarding the transfer of
Options and TLSARs, taking into account the impact of Section 16 of the
Exchange Act, the need to register shares under the Securities Act of 1933,
and applicable State Blue Sky Laws.
12.4 CANCELLATION OF GRANTS. Except as otherwise provided in the Grant, the
Committee may cancel any unexpired, unpaid, or deferred Grant at any time if
the Participant does not comply with all of the terms of the Grant and the
following conditions.
(a) A Participant shall not render services for any organization or
engage directly or indirectly in any business that, in the judgment of the
Chief Executive Officer of the Company or other senior officer designated
by the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization
or business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For Participants whose employment has terminated,
the
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<PAGE>
judgment of the Chief Executive Officer shall be based on the Participant's
position and responsibilities while employed by the Company, the
Participant's post-employment responsibilities and position with the other
organization or business, the extent of past, current and potential
competition or conflict between the Company and the other organization or
business, the effect on the Company's customers, suppliers and competitors
of the Participant assuming the post-employment position and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be free, however, to
purchase as an investment or otherwise, stock or other securities of such
organization or business so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does
not represent a substantial investment to the Participant or a greater than
five percent (5%) equity interest in the organization or business.
(b) A Participant shall not, without prior written authorization from the
Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material, as those
terms are used in the Company's Employee Patent and Confidence Agreement,
relating to the business of the Company, acquired by the Participant either
during or after employment with the Company.
(c) A Participant, pursuant to the Company's Employee Patent and
Confidence Agreement, shall disclose promptly and assign to the Company all
right, title, and interest in any invention or idea, patentable or not,
made or conceived by the Participant during employment by the Company,
relating in any manner to the actual or anticipated business, research, or
development work of the Company and shall do anything reasonably necessary
to enable the Company to secure a patent where appropriate in the United
States and in foreign countries.
(d) Upon exercise, payment, or delivery pursuant to an Option or TLSAR
(hereafter referred to as an "Award"), the Participant shall certify on a
form acceptable to the Committee that he or she is in compliance with the
terms and conditions of the Plan. Failure to comply with the provisions of
paragraph (a), (b) or (c) of this Section 12.4 prior to, or during the six
(6) months after, any exercise, payment or delivery pursuant to an Award
may, at the Committee's discretion, cause such exercise, payment or
delivery to be rescinded. The Company shall notify the Participant in
writing of any such rescission within two (2) years after such exercise,
payment or delivery. Within ten (10) days after receiving such a notice
from the Company, the Participant shall pay to the Company the amount of
any gain realized or payment received as a result of the rescinded
exercise, payment, or delivery pursuant to an Award. Such payment shall be
made either in cash or by returning to the Company the number of shares of
Common Stock that the Participant received in connection with the rescinded
exercise, payment, or delivery.
12.5 AMENDMENTS AND TERMINATION. The Board may at any time amend or
terminate this Plan. However, no amendment or termination of the Plan may
impair the rights of a Participant holding a Grant without his or her consent.
12.6 TAX WITHHOLDING.
(a) WITHHOLDING REQUIREMENTS. The Company shall have the right to take such
actions as may be necessary to satisfy its tax withholding obligations
relating to the operation of this Plan.
(b) USE OF COMMON STOCK. If Common Stock is used to satisfy the Company's
tax withholding obligations, the stock shall be valued at its Fair Market
Value when the tax withholding is required to be made.
12.7 NO ADDITIONAL RIGHTS.
(a) Neither the adoption of this Plan nor the granting of any Option or
TLSAR shall:
(i) Affect or restrict in any way the power of the Company to undertake
any corporate action otherwise permitted under applicable law; or
(ii) Confer upon any Participant the right to continue performing
services for the Company, nor shall it interfere in any way with the right
of the Company to terminate the services of any Participant at any time,
with or without cause.
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(b) No Participant shall have any rights as a stockholder with respect to
any shares covered by a Grant until the date a certificate for such shares has
been issued to the Participant following the exercise of an Option.
12.8 SECURITIES LAW RESTRICTIONS.
(a) No securities shall be issued under this Plan unless the Committee shall
be satisfied that the issuance will be in compliance with applicable federal
and state securities laws.
(b) The Committee may require certain investment (or other) representations
and undertakings in connection with the issuance of securities in connection
with the Plan in order to comply with applicable law.
(c) Certificates for shares of Common Stock delivered under this Plan may be
subject to such restrictions as the Committee may deem advisable. The
Committee may cause a legend to be placed on the certificates to refer to
those restrictions.
12.9 INDEMNIFICATION. To the maximum extent permitted by law, the Company
shall indemnify each member of the Committee and of the Board, as well as any
other employee of the Company with duties under this Plan, against losses and
expenses (including any amount paid in settlement) reasonably incurred by the
individual in connection with any claims against the individual by reason of
the performance of the individual's duties under this Plan, unless the losses
or expenses are due to the individual's gross negligence or lack of good
faith. The Company will have the right to select counsel and to control the
prosecution or defense of the suit. The Company will not be required to
indemnify any person for any amount incurred through any settlement unless the
Company consents in writing to the settlement.
12.10 GOVERNING LAW. This Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware.
To signify its adoption of this Plan, the Company has caused its execution.
Mattel, Inc.,
a Delaware Corporation
/s/ Alan Kaye
_____________________________________
Senior Vice President, Human
Resources
Date: February 27, 1998
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EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MATTEL, INC.
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
----------------
Mattel, Inc. (the "Corporation"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST. At a meeting of the Board of Directors of the Corporation duly called
and held on February 5, 1998, resolutions were duly adopted setting forth a
proposed amendment to the Restated Certificate of Incorporation of the
Corporation, declaring such amendment to be advisable and directing that such
amendment be submitted to the stockholders of the Corporation for approval at
its Annual Meeting of Stockholders to be held on May 6, 1998. Such resolutions
recommended that the first paragraph of Article FOURTH of the Restated
Certificate of Incorporation of the Corporation be amended and restated in its
entirety as follows:
"FOURTH. The Company is authorized to issue a total of one billion, twenty
three million (1,023,000,000) shares of all classes of stock. Of such total
number of authorized shares of stock, one billion (1,000,000,000) shares are
Common Stock, each of which shares of Common Stock has a par value of
One Dollar ($1.00), three million (3,000,000) shares of Preferred Stock, each
of which shares of Preferred Stock has a par value of One Dollar ($1.00), and
twenty million (20,000,000) shares of Preference Stock, each of which shares
of Preference Stock has a par value of one cent ($0.01)."
SECOND. At the Annual Meeting of Stockholders of the Corporation duly called
and held on May 6, 1998, the affirmative vote of a majority of the votes
permitted to be cast by the holders of the outstanding shares of the
Corporation's common stock, par value $1.00 per share, and the Corporation's
Series C Preferred Stock, par value $1.00 per share, was obtained in favor of
such amendment with respect to Article FOURTH.
THIRD. Said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
In Witness Whereof, Mattel, Inc. has caused this Certificate of Amendment to
be signed by Ned Mansour, its President, Corporate Operations and General
Counsel and attested by Leland P. Smith, its Assistant General Counsel and
Secretary, this 6th day of May 1998.
/s/ Ned Mansour
-------------------------------------
Ned Mansour
President, Corporate Operations
And General Counsel
Attest:
/s/ Leland P. Smith
- ------------------------------------------
Leland P. Smith
Assistant General Counsel and Secretary
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<PAGE>
DETACH HERE
MATTEL, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS MAY 6, 1998
JILL E. BARAD, NED MANSOUR and JOHN L. VOGELSTEIN, or any of them, each with
power of substitution, are hereby appointed proxies to represent and vote as
designated hereon all shares of Common Stock and Series C Preferred Stock of
Mattel, Inc. which the undersigned would be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held in the Manhattan Ballroom of
the Manhattan Beach Marriott, 1400 Parkview Avenue, Manhattan Beach, California,
at 10:00 a.m. on the 6th day of May, 1998, or any adjournment thereof, with all
powers the undersigned would possess if personally present.
Election of all Directors listed below:
Nominees:
Jill E. Barad, Harold Brown, Tully M. Friedman,
Joseph C. Gandolfo, Ronald M. Loeb, Ned Mansour,
William D. Rollnick, Christopher A. Sinclair,
Bruce L. Stein and John L. Vogelstein.
SEE REVERSE SIDE. If you wish to vote in accordance with the Board of Director's
recommendations, just sign on the reverse side. You need not mark any boxes.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE]
[ SIDE ]
<PAGE>
DETACH HERE
Please mark
[_] votes as in
this example.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE ENCLOSED
ENVELOPE.
- ------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSALS 1,2,3,4 AND 5.
- ------------------------------------------
1. Election of directors (named on reverse).
FOR WITHHELD
[_] ALL [_] FROM ALL
NOMINEES NOMINEES
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE BELOW
[_] ______________________________________
For all nominees except as noted above
2. Approval of the 1997 Premium Price FOR AGAINST ABSTAIN
Stock Option Plan. [_] [_] [_]
3. Approval of the Mattel Management FOR AGAINST ABSTAIN
Incentive Plan. [_] [_] [_]
4. Approval of an amendment to Article FOR AGAINST ABSTAIN
Fourth of Mattel's Restated Certificate [_] [_] [_]
of Incorporation.
5. Ratification of the selection of Price FOR AGAINST ABSTAIN
Waterhouse LLP as the Company's [_] [_] [_]
independent accountants for the year
ending December 31, 1998.
----------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST PROPOSAL 6.
----------------------------------------
6. Approval of stockholder proposal FOR AGAINST ABSTAIN
regarding Executive Compensation. [_] [_] [_]
7. TO CONSIDER AND ACT UPON SUCH OTHER
BUSINESS MATTERS OR PROPOSALS AS MAY
PROPERLY COME BEFORE THE MEETING.
Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
Signature:______________________________________ Date:________________________
Signature:______________________________________ Date:________________________
