<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-05647
-----------
MATTEL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-1567322
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 252-2000
---------------------------
(Former name, former address and former fiscal year,
if changed since last report) None
-----------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of registrant's common stock as of May 12, 1999:
Common Stock - $1 par value - 286,277,137 shares
<PAGE>
PART I -- FINANCIAL INFORMATION
Mattel, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C> <C>
Cash $ 50,215 $ 331,884 $ 212,454
Accounts receivable, net 880,360 987,906 983,050
Inventories 567,658 531,623 584,358
Prepaid expenses and other current assets 290,673 251,397 277,948
- --------------------------------------------------------------------------------------------------------------------
Total current assets 1,788,906 2,102,810 2,057,810
- --------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Land 34,763 28,730 35,113
Buildings 268,909 201,400 271,580
Machinery and equipment 521,478 459,892 512,225
Capitalized leases 21,406 24,485 23,271
Leasehold improvements 86,679 73,301 82,643
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933,235 787,808 924,832
Less: accumulated depreciation 387,039 350,415 375,724
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546,196 437,393 549,108
Tools, dies and molds, net 187,339 165,400 187,349
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Property, plant and equipment, net 733,535 602,793 736,457
- --------------------------------------------------------------------------------------------------------------------
Other Noncurrent Assets
Intangibles, net 1,242,380 548,957 1,264,462
Other assets 212,513 189,234 203,436
- --------------------------------------------------------------------------------------------------------------------
$3,977,334 $3,443,794 $4,262,165
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Mattel, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands, except share data) 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings $ 259,435 $ 18,204 $ 134,006
Current portion of long-term liabilities 33,401 13,577 33,518
Accounts payable 200,490 193,431 293,421
Accrued liabilities 419,895 443,253 651,013
Income taxes payable 175,535 134,284 205,253
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Total current liabilities 1,088,756 802,749 1,317,211
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Long-Term Liabilities
Senior notes 400,000 100,000 400,000
Medium-term notes 540,500 520,500 540,500
Mortgage note 42,856 43,437 43,007
Other 148,953 136,862 141,249
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Total long-term liabilities 1,132,309 800,799 1,124,756
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, Series C $1.00 par value, $125.00
liquidation preference per share, 0.8 million shares
authorized, issued and outstanding 772 772 772
Common stock $1.00 par value, 1.0 billion shares
authorized; 300.4 million shares issued 300,381 300,381 300,381
Additional paid-in capital 482,131 489,323 482,662
Treasury stock at cost; 14.2 million shares, 6.2 million
shares, and 8.8 million shares, respectively (494,007) (207,695) (495,347)
Retained earnings 1,681,937 1,480,866 1,724,677
Accumulated other comprehensive loss (214,945) (223,401) (192,947)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,756,269 1,840,246 1,820,198
- ----------------------------------------------------------------------------------------------------------------------
$3,977,334 $3,443,794 $4,262,165
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Mattel, Inc. and Subsidiaries
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
For the
Three Months Ended
---------------------------------------
March 31, March 31,
(In thousands, except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $692,116 $705,164
Cost of sales 375,379 381,246
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Gross Profit 316,737 323,918
Advertising and promotion expenses 92,051 98,081
Other selling and administrative expenses 209,414 183,791
Amortization of intangibles 13,153 7,713
Interest expense 24,858 16,392
Other expense, net 2,269 185
- ----------------------------------------------------------------------------------------------------------
(Loss) Income Before Income Taxes (25,008) 17,756
(Benefit) provision for income taxes (7,152) 5,087
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Net (Loss) Income (17,856) 12,669
Less: preferred stock dividend requirements 1,990 1,990
- ----------------------------------------------------------------------------------------------------------
Net (Loss) Income Applicable to Common Shares $(19,846) $ 10,679
==========================================================================================================
Basic (Loss) Income Per Common Share
Net (loss) income $ (0.07) $ 0.04
==========================================================================================================
Weighted average number of common shares 286,153 293,048
==========================================================================================================
Diluted (Loss) Income Per Common Share
Net (loss) income $ (0.07) $ 0.04
- ----------------------------------------------------------------------------------------------------------
Weighted average number of common and common
equivalent shares 286,153 298,164
==========================================================================================================
Dividends Declared Per Common Share $ 0.08 $ 0.07
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Mattel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------------------------
March 31, March 31,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income $ (17,856) $ 12,669
Adjustments to reconcile net (loss) income to net cash flows from operating
activities:
Depreciation 45,926 41,760
Amortization 13,582 8,078
Increase (decrease) from changes in net assets and liabilities:
Accounts receivable 76,575 96,439
Inventories 5,253 (105,785)
Prepaid expenses and other current assets (13,789) (5,781)
Accounts payable, accrued liabilities and income taxes payable (332,590) (365,098)
Other, net (7,709) (7,106)
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Net cash flows used for operating activities (230,608) (324,824)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Purchases of tools, dies and molds (27,218) (26,045)
Purchases of other property, plant and equipment (19,000) (38,848)
Proceeds from sale of other property, plant and equipment 3,291 11,379
Payment for acquisition - (11,057)
Other, net (502) (2,695)
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Net cash flows used for investing activities (43,429) (67,266)
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Cash Flows From Financing Activities:
Short-term borrowings, net 135,950 702
Exercise of stock options including related tax benefit 809 90,215
Purchase of treasury stock - (32,339)
Payment of dividends on common and preferred stock (22,952) (24,521)
Other, net (187) (1,122)
- -----------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 113,620 32,935
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Effect of Exchange Rate Changes on Cash (1,822) (3,908)
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Decrease in Cash (162,239) (363,063)
Cash at Beginning of Period 212,454 694,947
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Cash at End of Period $ 50,215 $ 331,884
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Mattel, Inc. and Subsidiaries
Notes To Consolidated Financial Information
1. The accompanying unaudited consolidated financial statements and related
disclosures have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments considered necessary for a fair
presentation of Mattel, Inc. and its subsidiaries' ("Mattel") financial
position and interim results as of and for the periods presented have been
included. Certain amounts in the financial statements for prior periods have
been reclassified to conform with the current period's presentation. Because
Mattel's business is seasonal, results for interim periods are not
necessarily indicative of those which may be expected for a full year.
2. The financial information included herein should be read in conjunction with
Mattel's consolidated financial statements and related notes in its
1998 Annual Report to Stockholders.
3. Accounts receivable are shown net of allowances for doubtful accounts of
$34.5 million (March 31, 1999), $25.2 million (March 31, 1998), and $41.2
million (December 31, 1998).
4. Inventories are comprised of the following:
<TABLE>
<CAPTION>
(In thousands) March 31, 1999 March 31, 1998 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials and work in progress $ 58,903 $ 57,283 $ 42,851
Finished goods 508,755 474,340 541,507
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$567,658 $531,623 $584,358
==============================================================================================================
</TABLE>
5. Intangibles, net include the following:
<TABLE>
<CAPTION>
(In thousands) March 31, 1999 March 31, 1998 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill, net $1,231,834 $540,626 $1,253,530
Other 10,546 8,331 10,932
- --------------------------------------------------------------------------------------------------------------
$1,242,380 $548,957 $1,264,462
==============================================================================================================
</TABLE>
6. Senior notes include the following:
<TABLE>
<CAPTION>
(In thousands) March 31, 1999 March 31, 1998 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6-3/4% due 2000 $100,000 $100,000 $100,000
6% due 2003 150,000 - 150,000
6-1/8% due 2005 150,000 - 150,000
- --------------------------------------------------------------------------------------------------------------
$400,000 $100,000 $400,000
==============================================================================================================
</TABLE>
6
<PAGE>
7. Comprehensive loss was $39.9 million at March 31, 1999 and $17.1 million at
March 31, 1998. Comprehensive income was $333.0 at December 31, 1998.
Comprehensive (loss) income is comprised of net (loss) income and currency
translation adjustments.
8. Net cash flows from operating activities include cash payments for the
following:
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------------
(In thousands) March 31, 1999 March 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $19,509 $ 6,499
Income taxes 18,311 45,686
- ------------------------------------------------------------------------------------------
</TABLE>
9. In the current quarter, the board of directors declared cash dividends of
$0.08 per common share, compared to $0.07 per common share in the first
quarter 1998.
10. Basic (loss) income per common share is computed by dividing earnings
available to common stockholders by the weighted average number of common
shares outstanding during each period. Earnings available to common
stockholders represent reported net (loss) income less preferred stock
dividend requirements.
Diluted (loss) income per common share is computed by dividing diluted
earnings available to common stockholders by the weighted average number of
common and common equivalent shares outstanding during each period. The
calculation of common equivalent shares assumes the exercise of dilutive
stock options and warrants, net of assumed treasury share repurchases at
average market prices, and conversion of dilutive preferred stock, as
applicable. Diluted earnings available to common stockholders represent
earnings available to common stockholders plus preferred stock dividend
requirements. Diluted earnings per share presented for the 1999 first
quarter is the same as basic earnings per share due to Mattel's net loss
position. Premium price stock options totaling 17.7 million and preferred
stock were excluded from the calculation of diluted earnings per share in
the 1998 first quarter because they were anti-dilutive.
11. In the 1998 fourth quarter, Mattel adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise
-------------------------------------------
and Related Information. This statement supercedes Statement of Financial
-----------------------
Accounting Standards No. 14, Financial Reporting for Segments of a Business
----------------------------------------------
Enterprise, replacing the "industry segment" approach with the "management"
----------
approach. The management approach designates the internal organization that
is used by management for making operating decisions and assessing
performance as the source of Mattel's operating segments. This statement
requires disclosure of certain information by operating segment, geographic
area and major customer.
7
<PAGE>
Mattel has one operating segment - the toy business - which includes the
design, manufacture and marketing of a broad variety of children's products
on a worldwide basis. The table below presents information by geographic
area. Revenues are attributed to countries based on location of customer.
Long-lived assets principally include net property, plant and equipment,
and goodwill.
<TABLE>
<CAPTION>
Long-Lived
(In thousands) Net Sales Assets
- ------------------------------------------------------------------------------------------
<S> <C> <C>
MARCH 31, 1999
United States $485,341 $1,287,206
Europe and Canada 170,624 209,844
Asia and Latin America 36,151 414,746
- ------------------------------------------------------------------------------------------
692,116 1,911,796
Corporate and other - 254,870
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Consolidated total $692,116 $2,166,666
==========================================================================================
MARCH 31, 1998
United States $499,820 $ 561,372
Europe and Canada 168,629 174,397
Asia and Latin America 36,715 304,465
- ------------------------------------------------------------------------------------------
705,164 1,040,234
Corporate and other - 276,440
- ------------------------------------------------------------------------------------------
Consolidated total $705,164 $1,316,674
==========================================================================================
</TABLE>
Customers accounting for more than 10% of Mattel's consolidated net sales
are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------
(In millions) March 31, 1999 March 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Toys R Us $143.7 $114.9
Wal-Mart 87.3 122.6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Mattel, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Cautionary Statement
- --------------------
Certain expectations and projections regarding the future performance of Mattel,
Inc. and its subsidiaries ("Mattel") discussed in this quarterly report are
forward-looking and are made under the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These expectations and projections are
based on currently available competitive, financial, and economic data along
with Mattel's operating plans and are subject to certain future events and
uncertainties. Forward-looking statements can be identified by the use of
forward-looking terminology, such as may, will, should, expect, anticipate,
estimate, continue, plans, intends or other similar terminology. Management
cautions you that the following factors, among others, could cause Mattel's
actual consolidated results of operations and financial position in 1999 and
thereafter to differ significantly from those expressed in forward-looking
statements:
Marketplace Risks
- - Increased competitive pressure, both domestically and internationally, which
may affect the sales of Mattel's products
- - Significant changes in the buying patterns of major customers, such as the
recent shift by some retailers to just-in-time inventory management, which
may limit Mattel's ability to accurately forecast reorders or cause a
decrease in sales after related expenses have already been incurred
- - Dependence on the timely development, introduction and customer acceptance of
new products, which may affect Mattel's ability to successfully redesign,
restyle and extend existing core products and product lines and successfully
bring new products to market
- - Possible weaknesses in economic conditions, both domestically and
internationally, which may affect the sales of Mattel's products and the
costs associated with manufacturing and distributing these products
Financial Considerations
- - Currency fluctuations, which may affect Mattel's reportable income
- - Significant changes in interest rates, both domestically and internationally,
which may affect Mattel's cost of financing both its operations and
investments
Merger-Related Risks
- - Difficulty integrating the operations of The Learning Company, Inc.
("Learning Company") into Mattel following the May 1999 merger, which may
impede Mattel's ability to achieve savings or operating synergies from the
merger
9
<PAGE>
Year 2000 Compliance
- - Potential inability of computer systems or software products used by Mattel
and/or its customers and suppliers to properly recognize and process date-
sensitive information beyond January 1, 2000, which may result in an
interruption in normal business operations of Mattel, its suppliers and
customers
Other Risks
- - Inability to achieve cost savings expected as part of restructuring
activities, which may result in higher than expected costs following such
restructurings
- - Development of new technologies, including the Internet, which may create new
risks to Mattel's ability to protect its intellectual property rights
- - Changes in laws or regulations, both domestically and internationally,
including those affecting consumer products, environmental activities or
trade restrictions, which may lead to increased costs or interruption in
normal business operations of Mattel
- - Adverse results of litigation, governmental proceedings or environmental
matters, which may lead to increased costs or interruption in normal business
operations of Mattel
- - Other factors that may be described from time to time in Mattel's filings
with the Securities and Exchange Commission
Summary
- -------
Mattel designs, manufactures, and markets a broad variety of children's products
on a worldwide basis through both sales to retailers and direct to consumers.
Mattel's business is dependent in great part on its ability each year to
redesign, restyle and extend existing core products and product lines, to design
and develop innovative new products and product lines and to expand its
marketing capability.
Mattel plans to continue to focus on its portfolio of brands that have
fundamental play patterns and have historically had worldwide appeal, have been
sustainable, and have delivered consistent profitability. Mattel's portfolio of
brands can be grouped in the following four categories:
Girls/Barbie - including Barbie(R) fashion dolls and accessories, collector
dolls, Fashion Magic(R), American Girl(R), Cabbage Patch Kids(R), and Polly
Pocket(R)
Infant and Preschool - including Fisher-Price(R), Disney preschool and plush,
Power Wheels(R), Sesame Street(R), See `N Say(R), Magna Doodle(R), View-
Master(R), and Blue's Clues(R)
Boys - including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing, and
Tyco(R) Radio Control
Entertainment - including Disney, Nickelodeon(R), games, and puzzles
Media - including Mattel Media and "Intel Play" branded technology toys
10
<PAGE>
Results of Operations
- ---------------------
Mattel's business is seasonal, and, therefore, results of operations are
comparable only with corresponding periods. The following is a percentage
analysis of operating results:
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------------------
March 31, March 31,
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100% 100%
===========================================================================================
Gross profit 45.8% 45.9%
Advertising and promotion expenses 13.3 13.9
Other selling and administrative expenses 30.3 26.1
Amortization of intangibles 1.9 1.1
Other expense, net 0.3 -
- -------------------------------------------------------------------------------------------
Operating (loss) profit - 4.8
Interest expense 3.6 2.3
- -------------------------------------------------------------------------------------------
(Loss) income before income taxes (3.6%) 2.5%
===========================================================================================
</TABLE>
Net loss for the first quarter of 1999 was $17.9 million or $0.07 per share as
compared to net income of $12.7 million or $0.04 per share in the first quarter
of 1998. Profitability in the first quarter of 1999 was negatively impacted by
higher goodwill amortization and interest costs related to the 1998 acquisitions
of Pleasant Company and Bluebird Toys PLC ("Bluebird"). Net sales in the first
quarter of 1999 were $692.1 million, a decrease of 2% in both US dollars and
local currencies from $705.2 million in 1998. Sales in the Girls category
increased 14% largely due to $44.4 million in incremental sales of American
Girl(R) resulting from the July 1998 Pleasant Company acquisition. Sales of
Barbie(R) products increased 3% worldwide and 11% domestically. Within the Boys
category, sales of Wheels products increased 27%, demonstrating continued
strength across Hot Wheels(R), Matchbox(R) and Tyco(R) Radio Control. Sales of
Entertainment products, including Disney and Nickelodeon(R), increased 8%. Sales
in the Infant and Preschool category declined 23%, largely due to last year's
success of `Tickle Me Elmo.' This decrease was partially offset by a 9% increase
in sales of core Fisher-Price products.
Gross sales to customers within the US declined 2% and accounted for 68% of
consolidated sales in the first quarter of 1999 compared to 69% in 1998. Gross
sales to customers outside the US increased 1% from the year ago quarter.
Europe was up 5%, including sales increases of 25% in France and 14% in the
U.K.
11
<PAGE>
Gross profit, as a percentage of net sales, remained strong at 45.8% in first
quarter of 1999 compared to 45.9% in 1998. As a percentage of net sales,
advertising and promotion expenses fell slightly from 13.9% in 1998 to 13.3% in
1999. Other selling and administrative expenses increased from 26.1% to 30.3%.
This increase is being addressed through a business realignment, which we expect
will bring Mattel's overhead costs back in line with 1997 levels. The planned
realignment is expected to include the closure of some of Mattel's facilities
and a workforce reduction affecting over 3,000 positions, or more than 10% of
Mattel's total employment. Amortization of intangibles increased by $5.4
million, mainly due to the amortization of goodwill in connection with the 1998
acquisitions of Pleasant Company and Bluebird.
Interest expense increased $8.5 million primarily due to increased short- and
long-term borrowings to finance Mattel's 1998 acquisitions of Pleasant
Company and Bluebird.
Financial Position
- ------------------
Mattel's cash position as of March 31, 1999 was $50.2 million compared to $331.9
million as of the first quarter 1998. The $281.7 million decline was mainly due
to cash consideration paid in connection with the 1998 acquisitions of Pleasant
Company and Bluebird, partially offset by the issuance of $300.0 million in
senior notes and profitable 1998 operating results. Cash decreased by $162.2
million since December 31, 1998 primarily due to funding of operating
activities. Accounts receivable, net declined by $107.5 million from the year
ago quarter and $102.7 million from year-end, in line with the lower volume.
Inventory balances increased $36.0 million from the 1998 quarter end. On a
comparable basis, excluding Pleasant Company, inventory was down $31.5 million
from the 1998 quarter end. Since year end, inventory decreased $16.7 million as
a result of Mattel managing its production and inventory levels to be more
closely aligned with the just-in-time buying patterns of retailers. Property,
plant and equipment, net grew $130.7 million from the first quarter of 1998
mainly due to assets acquired as part of the acquisition of Pleasant Company and
investments in the expansion of Mattel's manufacturing facilities located in
Mexico. Intangibles increased $693.4 million, compared to the year-ago quarter,
to $1.24 billion due to goodwill generated from the Pleasant Company and
Bluebird acquisitions.
12
<PAGE>
Short-term borrowings increased $241.2 million compared to the 1998 quarter end
due to cash consideration paid in connection with the 1998 acquisitions of
Pleasant Company and Bluebird. Compared to 1998 year end, short-term borrowings
increased $125.4 million to support seasonal needs. Current portion of long-term
liabilities increased $19.8 million over the 1998 quarter end, primarily due to
the reclassification of $30.0 million in medium-term notes payable in 1999 from
long-term debt. Seasonal financing needs for the next twelve months are expected
to be satisfied through internally generated cash, issuance of commercial paper,
issuance of long-term debt, and use of Mattel's various short-term bank lines of
credit.
A summary of Mattel's capitalization is as follows:
<TABLE>
<CAPTION>
(In millions) March 31, 1999 March 31, 1998 Dec. 31, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Medium-term notes $ 540.5 19% $ 520.5 20% $ 540.5 18%
Senior notes 400.0 14 100.0 4 400.0 14
Other long-term debt obligations 42.9 1 54.1 2 43.0 1
- ----------------------------------------------------------------------------------------------
Total long-term debt 983.4 34 674.6 26 983.5 33
Other long-term liabilities 149.0 5 126.2 5 141.3 5
Stockholders' equity 1,756.3 61 1,840.2 69 1,820.2 62
- ----------------------------------------------------------------------------------------------
$2,888.7 100% $2,641.0 100% $2,945.0 100%
==============================================================================================
</TABLE>
Total long-term debt increased as a percentage of total capitalization compared
to the year-ago quarter, mainly due to the issuance of $300.0 million in senior
notes to finance the acquisitions of Pleasant Company and Bluebird. Medium-term
notes increased by $20.0 million due to the issuance of $50.0 million in notes,
partially offset by the reclassification of $30.0 million to current portion of
long-term debt. Mattel expects to satisfy its future long-term capital needs
through the retention of corporate earnings and the issuance of long-term debt
instruments. Stockholders' equity decreased $84.0 million since March 31, 1998,
primarily due to treasury stock purchases and dividend declarations on common
and preferred stock, partially offset by profitable 1998 operating results and
reissuance of treasury stock for the exercise of nonqualified stock options by
Mattel's employees. Stockholder's equity declined $63.9 million from year end
1998 as a result of dividend declarations on common and preferred stock and the
first quarter operating loss.
Business Combination and Related Integration and Restructuring Charge
- ---------------------------------------------------------------------
Pursuant to an Agreement and Plan of Merger, dated as of December 13, 1998, a
merger was consummated between Mattel and Learning Company on May 13, 1999. The
stock-for-stock transaction was approved by the stockholders of both companies,
after which Learning Company was merged with and into Mattel, with Mattel being
the surviving corporation. Under the terms of the merger agreement, each share
of Learning Company Series A Preferred Stock was converted into 20 shares of
Learning Company common stock just prior to the consummation of the merger. Each
outstanding share of
13
<PAGE>
Learning Company common stock was then converted into the
right to receive 1.2 shares of Mattel common stock. As a result, approximately
126 million Mattel common shares will be issued in exchange for all shares of
Learning Company common stock outstanding as of the merger date. The outstanding
share of Learning Company special voting stock was converted into the right to
receive one share of Mattel Special Voting Preferred Stock. Each outstanding
exchangeable non-voting share of Learning Company's Canadian subsidiary, Softkey
Software Products Inc., remains outstanding, but is now exchangeable into the
right to receive 1.2 shares of Mattel common stock. This transaction has been
accounted for as a pooling of interests, which means that for accounting and
financial reporting purposes, Mattel and Learning Company will treat their
companies as if they had always been combined.
On April 15, 1999, Mattel announced that as a result of the May 1999 merger with
Learning Company and a planned realignment of Mattel's operations to reduce
overhead costs, Mattel expects to incur a pre-tax charge of approximately $300
million to $350 million against results of operations during the second quarter
of 1999. Mattel also announced that the planned realignment was expected to
include the closure of some of Mattel's facilities and a workforce reduction
affecting over 3,000 positions, or more than 10% of Mattel's employees at that
time. The planned realignment will consist of consolidating some manufacturing
and distribution operations, eliminating duplicative facilities, and
terminating various distributor and licensing arrangements. Approximately $75
million of the pre-tax charge is expected to be related to merger transaction
costs, approximately $90 million is expected to be related to merger integration
costs, and approximately $135 million to $185 million is expected to be related
to Mattel restructuring costs. Of the total pre-tax charge, approximately $35
million represents non-cash asset write-downs. Mattel expects to fund this
restructuring through existing cash balances and internally generated cash from
operations. Mattel expects the combined actions to result in cost savings of
approximately $50 million in 1999 and at least $400 million over the following
three years. However, the amount of the expected cost savings are preliminary
estimates and Mattel cannot assure that its actions will result in these cost
savings. Mattel expects the restructuring activities to be substantially
complete by the second quarter of 2000.
New Internet Venture
- --------------------
On April 15, 1999, Mattel announced that it expects to initially spend
approximately $50 million to launch an Internet venture, which is expected to
result in the creation of a new subsidiary later this year, a portion of which
may be offered to the public. Mattel expects that it will be able to offset a
portion of its investment in the Internet venture with the 1999 cost savings
from the realignment discussed above. Mattel's goal is to create a premier
online destination and E-commerce site to better serve children and their
families. Mattel's strategy to reach this goal is premised on attracting
consumers to its sites by bringing together the branded proprietary content of
both Mattel and Learning Company at one "Mattel.com" Web destination.
14
<PAGE>
After merging with Learning Company, Mattel expects to have over 80 websites and
a database of approximately 25 million consumers.
Foreign Currency Risk
- ---------------------
Mattel's results of operations and cash flows can be impacted by exchange rate
fluctuations. To limit the exposure associated with exchange rate movements,
Mattel enters into foreign currency forward exchange contracts primarily to
hedge its purchase of inventory, sales and other intercompany transactions
denominated in foreign currencies. Mattel's results of operations can also be
affected by the translation of foreign revenues and earnings into US dollars.
Market risk exposures exist with respect to the settlement of foreign currency
transactions during the year because currency fluctuations cannot be predicted
with certainty. Mattel seeks to mitigate its exposure to market risk by
monitoring its currency exchange exposure for the year and partially or fully
hedging such exposure. In addition, Mattel manages its exposure through the
selection of currencies used for foreign borrowings and intercompany invoicing.
Mattel does not trade in financial instruments for speculative purposes.
Year 2000 Update
- ----------------
Many currently installed computer systems and software products, including
several used by Mattel, are coded to accept only two-digit (rather than four-
digit) entries in the date code field used to define the applicable year. In
such instances, the first two characters are assumed to be "19". Beginning in
the year 2000 or perhaps earlier if referencing a date in the year 2000, such
computer systems and software products may recognize a date using "00" as the
year 1900, rather than the year 2000, which could result in miscalculations or
system failures. To address the year 2000 issue, in early 1998 Mattel
established a project team and initiated a comprehensive plan that is designed
to assess, remediate and test Mattel's internal systems, hardware and processes,
including key operational, manufacturing and financial systems. The progress of
this plan is continually monitored and regularly reported to management. In
addition, Mattel's board of directors is regularly informed about the year 2000
issue both generally and as it may affect Mattel's business.
Mattel's internal year 2000 project team oversees all aspects of implementing
the plan. The team is comprised of staff members from the information systems
department having the requisite knowledge of Mattel's computer systems,
including all the technical aspects of the systems. Key user group designees
from business areas are included on each system team, which is guided by a
central project team. Mattel has not engaged outside consultants, technicians or
other external resources to assist in formulating and implementing the program.
15
<PAGE>
Mattel's plan adheres to a multi-step process that includes five distinct phases
of activity: (1) awareness; (2) inventory and risk assessment; (3) code and
system modification; (4) testing; and (5) business interruption and contingency
planning.
Under the first two phases of the plan, all operational, manufacturing and
financial systems were inventoried and evaluated. This inventory included all
software systems, computer hardware, facilities, and production equipment
containing or depending upon a computer chip. As a result of such evaluation,
Mattel established detailed plans and action steps required to address all
aspects of the year 2000 issue, including all code and system modifications
(phase 3). Mattel completed the awareness, inventory and code change phases of
the plan as scheduled prior to December 1998. Critical system verification and
testing (phase 4) is expected to be complete by July 1999.
Mattel initiated formal communications with each of its significant suppliers
and customers to determine the extent to which they are addressing the year 2000
issue and the effect on its business should those parties fail to adequately
address the issue. To date, Mattel has received responses from the majority of
the initial contacts. These responses have been positive and support the overall
initiatives toward achieving year 2000 compliance. Mattel is actively following-
up with those customers and suppliers failing to reply to the initial inquiry.
Due to the general uncertainty inherent in the year 2000 issue, largely
resulting from uncertainty as to the readiness of third-party suppliers and
customers, Mattel is currently unable to assess the overall impact of the year
2000 issue on its business. The risk of third-party suppliers and customers not
correcting a material year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations of such suppliers,
customers, and/or Mattel. Such failures could materially and adversely affect
Mattel's results of operations, liquidity and financial position. As a result,
during the first half of 1999 Mattel is developing contingency plans (phase 5),
which it expects to be complete by July 1999. Contingency planning is being done
on a worldwide basis by all of Mattel's business units. Each unit will
concentrate on factors external to Mattel that may adversely impact their
ability to conduct operations. Specifically, for those locations where a high
likelihood of a material failure exists, Mattel will establish revised
procedures for managing operations, including identification of alternate
suppliers and vendors whose systems are year 2000 compliant.
While there is no guarantee, management believes that Mattel's year 2000 plan
should greatly reduce its level of uncertainty about the issue and mitigate the
possibility of significant interruptions of ongoing operations. Additionally,
its global presence and broad-based manufacturing capability should provide
Mattel with numerous options to further mitigate the risk of year 2000 non-
compliance.
16
<PAGE>
As of March 31, 1999, Mattel has spent approximately $8 million and expects to
incur a total of approximately $11 million in connection with addressing the
year 2000 issue. These costs are largely due to the use of internal resources
dedicated to achieving year 2000 compliance. Costs are charged to expense as
they are incurred. Work on the year 2000 issue has not delayed any internal
projects that would have a material effect on Mattel's consolidated financial
position or results of operations. All costs of addressing the year 2000 issue
will be funded from internally generated cash.
Mattel sells software products as part of its core businesses. All software
products currently available for sale to consumers and those products previously
purchased by consumers are year 2000 compliant. Software products developed for
Mattel by third parties under development agreements have been certified as year
2000 compliant by such developers. Mattel will continue to ensure that all its
software products currently in development are year 2000 compliant.
17
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
3.0 Certificate of Designations, Preferences, Rights and Limitations
of Special Voting Preferred Stock of Mattel, Inc.
4.0 Amendment No. 1 to Rights Agreement, dated May 13, 1999, between
Mattel, Inc. and BankBoston, N.A.
11.0 Computation of Income (Loss) per Common and Common Equivalent
Share
12.0 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
27.0 Financial Data Schedule (EDGAR filing only)
99.0 Plan of Arrangement of Softkey Software Products Inc. under
Section 182 of the Business Corporations Act (Ontario)
(incorporated by reference to Exhibit 4.4 of The Learning Company,
Inc.'s Registration Statement on Form S-3, Registration No. 333-
40549)
99.1 Voting and Exchange Trust Agreement, dated as of February 4, 1994
among The Learning Company, Inc., Softkey Software Products Inc.
and R-M Trust Company, as Trustee (incorporated by reference to
Exhibit 4.3 of The Learning Company, Inc.'s Registration Statement
on Form S-3, Registration No. 333-40549)
99.2 Support Agreement, dated as of February 4, 1994 between The
Learning Company, Inc. and Softkey Software Products Inc.
(incorporated by reference to Exhibit 99.4 of Mattel, Inc.'s Form
S-4, Registration No. 333-71587)
99.3 Voting and Exchange Trust Supplement, dated as of May 12, 1999,
between Mattel, Inc., The Learning Company, Inc., Softkey Software
Products Inc. and CIBC Mellon Trust Company, as Trustee
99.4 Support Agreement Amending Agreement, dated as of May 12, 1999,
between Mattel, Inc., The Learning Company, Inc. and Softkey
Software Products Inc.
99.5 Rights Agreement, dated as of May 13, 1999, between Softkey
Software Products Inc., Mattel, Inc. and CIBC Mellon Trust
Company, as Rights Agent
(b) Reports on Form 8-K
-------------------
Mattel filed the following Current Reports on Form 8-K during the
quarterly period ended March 31, 1999:
<TABLE>
<CAPTION>
Date of Report Items Reported Financial Statements Filed
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
February 3, 1999 5 None
March 5, 1999 5,7 None
</TABLE>
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTEL, INC.
--------------------------
(Registrant)
Date: As of May 17, 1999 By: /s/ Kevin M. Farr
------------------ --------------------------
Kevin M. Farr
Senior Vice President and Corporate
Controller
19
<PAGE>
EXHIBIT 3.0
MATTEL, INC.
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
SPECIAL VOTING PREFERRED STOCK
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
Mattel, Inc. (hereinafter referred to as the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, as amended, does HEREBY CERTIFY that
the following resolution has been duly adopted by the Board of Directors of the
Corporation:
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation by the provisions of the Restated
Certificate of Incorporation of the Corporation, as amended (the "Certificate
of Incorporation"), there hereby is created, out of the 3,000,000 shares of
Preferred Stock, par value $1.00 per share, of the Corporation authorized in
Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a
series of Preferred Stock of the Corporation, to be designated "Special Voting
Preferred Stock," consisting of one (1) share, which series shall have the
following voting powers, designations, preferences and relative, participating,
optional and other rights, and the following qualifications, limitations and
restrictions (in addition to the powers, designations, preferences and
relative, participating optional and other rights, and the qualifications,
limitations and restrictions, set forth in the Certificate of Incorporation
which are applicable to the Preferred Stock):
SECTION 1. DESIGNATION AND SIZE OF ISSUE; RANKING.
(A). The designation of the series of Preferred Stock shall be "Special
Voting Preferred Stock" (the "Special Voting Preferred Stock"), and the number
of shares constituting the Special Voting Preferred Stock shall be one (1)
share.
(B). Any share of Special Voting Preferred Stock which at any time has been
redeemed or otherwise reacquired by the Corporation shall, after such
redemption or other acquisition, resume the status of authorized and unissued
shares of Preferred Stock, without designation as to series until such share is
once more designated as part of a particular series by the Board of Directors.
(C). The share of Special Voting Preferred Stock shall rank senior, as to
distribution of assets upon liquidation, to the shares of Common Stock, par
value $.01 per share, of the Corporation (the "Common Stock"), and junior to
the Corporation's Series C Mandatorily Convertible Redeemable Preferred Stock
and to any future series of Preferred Stock or shares of Preference Stock, par
value $1.00 per share, of the Corporation (the "Preference Stock") issued by
the Corporation after the effectiveness of this Certificate of Designations
that by its terms ranks senior to the Special Voting Preferred Stock.
SECTION 2. VOTING RIGHTS OF SPECIAL VOTING PREFERRED STOCK.
(A). GENERAL. Except as otherwise required by law or the Certificate of
Incorporation, the holder of record of the share of Special Voting Preferred
Stock shall have a number of votes equal to the number of shares of
Exchangeable Non-Voting Shares ("Exchangeable Shares") of Softkey
<PAGE>
Software Products Inc., an Ontario corporation ("Softkey"), outstanding from
time to time which are not owned by the Corporation, any of its subsidiaries or
any person directly or indirectly controlled by or under common control of the
Corporation multiplied by the Exchange Ratio (as defined in Section 2.7(a) of
the Agreement and Plan of Merger, dated as of December 13, 1998, among the
Corporation and The Learning Company, Inc.), in each case for the election of
directors and on all matters submitted generally to a vote of stockholders of
the Corporation. For the purposes hereof, "control" (including the correlative
meanings, the terms "controlled by" and "under common control of") as applied
to any person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that person
through the ownership of voting securities, by contract or otherwise.
(B). COMMON STOCK AND SPECIAL VOTING PREFERRED STOCK IDENTICAL IN
VOTING. Except as otherwise required by law or the Certificate of
Incorporation, in respect of all matters concerning the voting of shares of
capital stock of the Corporation, the Common Stock (and any other class or
series of capital stock of the Corporation entitled to vote generally with the
Common Stock) and the Special Voting Preferred Stock shall vote as a single
class and such voting rights shall be identical in all respects.
SECTION 3. LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, and subject to any prior rights of holders of
shares of any other series of Preferred Stock or of any series of Preference
Stock, if the Special Voting Preferred Stock is then outstanding the holder
thereof shall be entitled to receive, out of the assets of the Corporation
available for distribution to its stockholders, an amount equal to $10.00
before any distribution is made on the Common Stock or on any other stock of
the Corporation ranking junior to the Special Voting Preferred Stock as to
distribution of assets on liquidation, dissolution or winding-up. After payment
of the full amount of the above liquidation preference of the outstanding share
of Special Voting Preferred Stock, the holder of the share of Special Voting
Preferred Stock shall not be entitled to any further participation in any
distribution of assets of the Corporation. For the purposes of this Section 3,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Corporation, nor the consolidation or merger of the
Corporation with or into one or more other entities, shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation.
SECTION 4. DIVIDENDS. The holder of the Special Voting Preferred Stock shall
not be entitled to receive any dividends, whether payable in cash, in property
or in shares of capital stock of the Corporation.
SECTION 5. SPECIAL VOTING PREFERRED STOCK. (A) Pursuant to the terms of that
certain Agreement and Plan of Merger dated as of December 13, 1998, between The
Learning Company, Inc. and the Corporation, one share of Special Voting
Preferred Stock is being issued to the trustee (the "Trustee") under the Voting
and Exchange Agreement made as of February 4, 1994 between The Learning
Company, Inc. (under its previous corporate name, "SoftKey International,
Inc."), and Softkey and CIBC Mellon Trust Company (under its previous name,
"The R-M Trust Company"), as supplemented by the Voting and Exchange Trust
Supplement, dated as of May 12, 1999, among the Corporation, The Learning
Company, Inc., Softkey and the Trustee, as may be amended from time to time.
(B). The holder of the share of Special Voting Preferred Stock is entitled to
exercise the voting rights attendant thereto in such manner as such holder
desires.
2
<PAGE>
(C). At such time as the Special Voting Preferred Stock has no votes attached
to it because there are no Exchangeable Shares of Softkey outstanding which are
not owned by the Corporation, any of its subsidiaries or any person directly or
indirectly controlled by or under common control of the Corporation, and there
are no shares of stock, debt, options or other agreements of Softkey which
could give rise to the issuance of any Exchangeable Shares to any person (other
than to the Corporation, any of its subsidiaries or any person directly or
indirectly controlled by or under common control of the Corporation), the
Special Voting Preferred Stock shall be redeemed in accordance with Section 7
hereof.
SECTION 6. CONVERSION OR EXCHANGE. The holder of the share of Special Voting
Preferred Stock shall not have any rights hereunder to convert such share into,
or exchange such share for, shares of any other series or class of capital
stock of the Corporation.
SECTION 7. REDEMPTION. The share of Special Voting Preferred Stock shall not
be subject to redemption, except that at such time as no Exchangeable Shares
(other than Exchangeable Shares owned by the Corporation, any of its
subsidiaries or any person directly or indirectly controlled by or under common
control of the Corporation), shall be outstanding, and there are no shares of
stock, debt, options or other agreements of Softkey which could give rise to
the issuance of any Exchangeable Shares to any person (other than to the
Corporation, any of its subsidiaries or any person directly or indirectly
controlled by or under common control of the Corporation), the Special Voting
Preferred Stock shall automatically be redeemed by the Corporation for an
amount equal to $10.00, due and payable upon such redemption.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
and attested this 12th day of May, 1999.
MATTEL, INC.
By: /s/ Ned Mansour
---------------------------------
Name: Ned Mansour
Title: President, Corporate Operations
3
<PAGE>
EXHIBIT 4.0
RIGHTS AGREEMENT
AMENDMENT NO. 1
Amendment No. 1, dated as of May 13, 1999, to the Rights Agreement
dated as of February 7, 1992 (the "Rights Agreement") between Mattel, Inc., a
Delaware corporation, (the "Company") and BankBoston, N.A., a national banking
association, formerly The First National Bank of Boston (the "Rights Agent").
WHEREAS the Board of Directors of Softkey Software Products Inc., an
Ontario corporation ("Softkey"), has authorized the issuance of one right (as
such number may be adjusted from time to time) for each Exchangeable Share of
Softkey (the "Softkey Exchangeable Shares"), each right initially representing
the right to purchase one Softkey Exchangeable Share (the "Softkey Rights");
WHEREAS, as provided in the Merger Agreement dated as of December 13,
1998 (the "Merger Agreement") between the Company and The Learning Company,
Inc., a Delaware Corporation, the Softkey Rights are intended to provide rights
to acquire additional Softkey Exchangeable Shares (or in certain circumstances
other securities) on terms substantially the same as, and having an economically
equivalent value to, the rights issued under the Rights Agreement, which confer
the right to acquire shares of common stock of the Company or preference stock
of the Company (or in certain circumstances other securities); and
WHEREAS pursuant to Section 27 of the Rights Agreement the Board of
Directors of the Company has determined that an amendment to the Rights
Agreement as set forth herein is necessary and desirable to reflect the
foregoing and the Company and the Rights Agent desire to evidence such amendment
in writing.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, the Company and the Rights Agent agree as
follows:
ARTICLE I.
AMENDMENTS TO THE RIGHTS AGREEMENT
SECTION 1.01. The definitions of "Acquiring Person" and "Beneficial Owner" in
Section 1 of the Rights Agreement are hereby amended, effective as of the date
of this Amendment, by deleting the text of such definitions in their entirety
and by replacing them with the following:
"Acquiring Person" shall mean any Person (as such term is hereinafter defined)
who or which, together with all Affiliates and Associates (as such terms are
hereinafter defined) of such Person, shall be the Beneficial Owner (as such term
is hereinafter defined) of 20% or more of the
<PAGE>
aggregate number of the Common Shares of the Company and Softkey Exchangeable
Shares then outstanding, but shall not include (a) the Company, any Subsidiary
(as such term is hereinafter defined) of the Company, any employee benefit plan
of the Company or any Subsidiary of the Company, or any entity holding Common
Shares or Softkey Exchangeable Shares for or pursuant to the terms of any such
plan or (b) the holder of the Mattel Special Voting Preferred Share (as such
term is hereinafter defined). Notwithstanding the foregoing, no Person shall
become an "Acquiring Person" as the result of an acquisition of Common Shares or
Softkey Exchangeable Shares by the Company or Softkey Exchangeable Shares by
Softkey which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% of more
of the aggregate number of Common Shares of the Company and Softkey Exchangeable
Shares then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the aggregate number of Common Shares of the
Company and Softkey Exchangeable Shares then outstanding by reason of share
acquisitions by the Company or by Softkey and shall, after such share
acquisitions by the Company or Softkey, become the Beneficial Owner of any
additional Common Shares of the Company or Softkey Exchangeable Shares, then
such Person shall be deemed to be an "Acquiring Person"; and provided further
that for purposes of this definition any Investing Person (as such term is
hereinafter defined) shall be deemed not to be the Beneficial Owner of any
Investment Shares (as such term is hereinafter defined). For purposes of the
second proviso of the foregoing sentence, "Investment Shares" shall mean Common
Shares or Softkey Exchangeable Shares beneficially owned by any person (an
"Investing Person") (i) who or which became the Beneficial Owner of such Common
Shares in connection with, or as a direct result of, the Capital Investment (as
such term is hereinafter defined) or (ii) to whom or to which such Common Shares
or Softkey Exchangeable Shares shall have been transferred from an Investing
Person who at the time of such transfer (A) was an Affiliate or Associate of
such transferee and (B) was by reason of the second proviso of the foregoing
sentence deemed not to be the Beneficial Owner of such Common Shares or Softkey
Exchangeable Shares. Notwithstanding the foregoing, if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares or Softkey
Exchangeable Shares so that such Person would no longer be an Acquiring Person
as defined pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
Notwithstanding anything in this definition of Acquiring Person to the contrary,
the phrase "then outstanding" when used in this Agreement with reference to
Softkey Exchangeable Shares shall mean the number of Softkey Exchangeable Shares
then issued and outstanding which are not owned by the Company, any of its
Subsidiaries or any person directly or indirectly controlled by or under common
control of the Company, multiplied by the Merger Exchange Ratio, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
2
<PAGE>
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exchange, retraction or redemption of Softkey Exchangeable Shares,
or upon the exercise of conversion rights, exchange rights, rights
(other than these Rights or the Softkey Rights), warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
Person of any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to
a public proxy or consent solicitation made generally to all holders
of Common Shares of the Company or Softkey Exchangeable Shares
pursuant to, or in accordance with, the applicable rules or
regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by an other
Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for
the purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of
any securities of the Company or of Softkey.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company or of Softkey, shall
mean the number of securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
SECTION 1.02. Section 1 of the Rights Agreement is hereby amended, effective as
of the date of this Amendment by adding the text of the following definitions:
"Mattel Special Voting Preferred Share" shall mean the one share of Special
Voting Preferred Stock of the Company, initially issued by the Company to and
deposited with CIBC Mellon Trust Company, as Trustee.
3
<PAGE>
"Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of
December 13, 1998, between the Company and The Learning Company, Inc., a
Delaware corporation.
"Merger Exchange Ratio" shall mean 1.2, which is the "Exchange Ratio" as defined
and determined in accordance with Section 2.7(a) of the Merger Agreement.
"Softkey" shall mean Softkey Software Products Inc., an Ontario corporation.
"Softkey Exchangeable Shares" shall mean the Exchangeable Shares in the capital
stock of Softkey.
"Softkey Rights" shall mean the right to purchase Softkey Exchangeable Shares
(or other securities) as provided in the Softkey Rights Agreement.
"Softkey Rights Agreement" shall mean the Rights Agreement dated as of May 13,
1999, between Softkey and CIBC Mellon Trust Company as Rights Agent, as amended
from time to time.
SECTION 1.03. Section 3(a) of the Rights Agreement is hereby amended, effective
as of the date of this Amendment by deleting the words "a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares (other than Common Shares of which such Person
would be deemed, pursuant to the second proviso of the second sentence of
Section 1(a) hereof, not to be the Beneficial Owner) aggregating 20% or more of
the then outstanding Common Shares" and replacing such words with the following
words "a tender or exchange offer the consummation of which would result in any
Person becoming the Beneficial Owner of Common Shares and Softkey Exchangeable
Shares (other than Common Shares and Softkey Exchangeable Shares of which such
Person would be deemed, pursuant to the second proviso of the second sentence of
Section 1(a) hereof, not to be the Beneficial Owner) aggregating 20% or more of
the Common Shares and Softkey Exchangeable Shares then outstanding" in the first
sentence.
SECTION 1.04. Section 3(c) of the Rights Agreement is hereby amended, effective
as of the date of this Amendment by adding the following sentence prior to the
first sentence of Section 3(c) of the Rights Agreement:
"Rights shall be issued in respect of all Common Shares issued or disposed of
(including, without limitation, upon disposition of Common Shares out of
treasury stock or issuance or reissuance of Common Shares out of authorized but
unissued shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date and shall
not be issued at any time after such period."
SECTION 1.05. Section 24(a) of the Rights Agreement is hereby amended,
effective as of the date of this Amendment by deleting the words "becomes the
Beneficial Owner of Common Shares (other than Common Shares of which such Person
would be deemed, pursuant to the second proviso of the second sentence of
Section 1(a) hereof, not to be the Beneficial Owner) aggregating 50% or more of
the Common Shares then outstanding" and replacing them with the
4
<PAGE>
following words "becomes the Beneficial Owner of Common Shares and Softkey
Exchangeable Shares (other than Common Shares and Softkey Exchangeable Shares of
which such Person would be deemed, pursuant to the second proviso of the second
sentence of Section 1(a) hereof not to be the Beneficial Owner) aggregating 50%
or more of the Common Shares and Softkey Exchangeable Shares then outstanding"
in the final sentence.
SECTION 1.06. Section 26 of the Rights Agreement is hereby amended, effective
as of the date of this Amendment by replacing the address for any notice or
demand authorized by the Rights Agreement to be given or made by the Company or
by the holder of any Right Certificate to or on the Rights Agent with the
following:
"BankBoston, N.A.
c/o EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021."
SECTION 1.07. Section 27 of the Rights Agreement is hereby amended, effective
as of the date of this Amendment by deleting the second sentence thereof and
replacing it with the following sentence:
"Without limiting the foregoing, the Company may at any time prior to such time
as any Person becomes an Acquiring Person amend this Agreement to lower the
thresholds set forth in Sections 1(a) and 3(a) to not less than the greater of
(i) the sum of .001% and the percentage obtained by dividing (A) the number of
Common Shares and Exchangeable Shares then beneficially owned by the Person
(other than (I) the Company, (II) any Subsidiary of the Company, (III) any
employee benefit plan of the Company or any Subsidiary of the Company, (IV) any
entity holding Common Shares or Exchangeable Shares for or pursuant to the terms
of any such plan or (V) E.M. Warburg, Pincus & Co., Inc., a Delaware
corporation, and its Affiliates and Associates) then known to the Company to be
the holder of the largest number of Common Shares and Exchangeable Shares
(excluding, for purposes of calculating any Person's beneficial ownership under
this clause (A), any Common Shares and Exchangeable Shares of which such Person
would be deemed, pursuant to the second proviso of the second sentence of
Section 1(a) hereof, not to be the Beneficial Owner) by (B) the number of Common
Shares and Exchangeable Shares then outstanding and (ii) 10%."
SECTION 1.08. Exhibit C to the Rights Agreement is hereby amended and restated
in its entirety, effective as of the date of this Agreement, as set forth in
Exhibit C attached hereto.
ARTICLE II.
MISCELLANEOUS
SECTION 2.01. Except to the extent amended by or inconsistent with this
Amendment No. 1 the Company and the Rights Agent hereby ratify and reconfirm the
Rights Agreement in its entirety.
SECTION 2.02. Except as otherwise provided herein, capitalized terms not
defined herein
5
<PAGE>
shall have the meanings set forth in the Rights Agreement.
SECTION 2.03. This Amendment No. 1 may be executed in any number of
counterparts, each of which so executed shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 2.04. This Amendment No. 1 shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
(signature page follows)
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be duly executed as of the day and year first above written.
MATTEL, INC.
By: /s/ Ned Mansour
----------------------------------
Name: Ned Mansour
Title: President, Corporate Operations
BANKBOSTON, N.A.
By: /s/ Carol Mulvey-Eori
----------------------------------
Name: Carol Mulvey-Eori
Title: Administration Manager
S-1
<PAGE>
Exhibit C
---------
SUMMARY OF RIGHTS TO PURCHASE PREFERENCE SHARES
On February 7, 1992, the Board of Directors of Mattel, Inc. (the
"Company") declared a dividend of one preference share purchase right (a
"Right") for each outstanding share of common stock, par value $1.00 per share
(the "Common Shares"), of the Company. The dividend is payable on February 17,
1992 (the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series E Junior Participating Preference Stock, par value $.01 per
share (the "Preference Shares"), of the Company at a price of $150 per one one-
hundredth of a Preference Share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement
dated as of February 7, 1992, as amended by Amendment No. 1 to the Rights
Agreement dated as of May 13, 1999 (collectively, the "Rights Agreement")
between the Company and BankBoston, N.A., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 20% or more of the
outstanding Common Shares and exchangeable non-voting shares (the "Exchangeable
Shares") of Softkey Software Products Inc., the Company's Canadian subsidiary or
(ii) 10 business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Common Shares and Exchangeable Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
C-1
<PAGE>
The Rights are not exercisable until the Distribution Date. The
Rights will expire on February 17, 2002 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of Preference Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preference Shares, (ii) upon the grant to holders of the Preference Shares of
certain rights or warrants to subscribe for or purchase Preference Shares at a
price, or securities convertible into Preference Shares with a conversion price,
less than the then-current market price of the Preference Shares or (iii) upon
the distribution to holders of the Preference Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Preference Shares) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preference Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preference Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preference Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preference Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each
Preference Share will have 100 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preference Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preference Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preference
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. In the event that any person or
group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than
C-2
<PAGE>
Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
Common Shares having a market value of two times the exercise price of the
Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares and Exchangeable Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by such person or group
which will have become void), in whole or in part, at an exchange ratio of one
Common Share, or one one-hundredth of a Preference Share (or of a share of a
class or series of the Company's preference stock having equivalent rights,
preferences and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preference Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preference
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preference Shares on the last trading day prior to the date
of exercise.
At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
Common Shares and Exchangeable Shares then known to the Company to be
beneficially owned by any person or group of affiliated or associated persons
(other than (a) the Company, (b) any subsidiary of the Company, (c) any employee
benefit plan of the Company or any subsidiary of the Company, (d) any entity
holding Common Shares or Exchangeable Shares for or pursuant to the terms of any
such plan or (e) E.M. Warburg, Pincus & Co., Inc., a Delaware corporation, and
its affiliates and associates) and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights.
For the purpose of calculating the various percentage ownership
thresholds contained in the Rights Agreement, shares issued in connection with
the capital investment approved by the Company's shareholders at the 1984 Annual
Meeting and still owned by the original owner, or owned by certain qualified
transferees, are excluded from the amount deemed to be beneficially owned by
such persons. However, if such original owner or qualified transferee becomes a
member of a group with certain other persons, such shares will be included
C-3
<PAGE>
in the amount attributable to, and will be deemed to be beneficially owned by,
such other persons.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
February 10, 1992. A copy of Amendment No. 1 to the Rights Agreement has been
filed with the Securities and Exchange Commission as an Exhibit to a
Registration Statement on Form 8-A/A dated May 13, 1999. A copy of the Rights
Agreement (including Amendment No. 1 to the Rights Agreement) is available free
of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-4
<PAGE>
EXHIBIT 11.0
(Page 1 of 2)
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF (LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
BASIC
- -----
Net (loss) income $(17,856) $12,669
Less: Dividends on convertible preferred stock (1,990) (1,990)
-------- -------
Net (loss) income applicable to common shares $(19,846) $10,679
======== =======
Applicable Shares for Computation of (Loss) Income per Share:
Weighted average common shares outstanding 286,153 293,048
======== =======
Basic (Loss) Income Per Common Share:
Net (loss) income per common share $(0.07) $0.04
======== =======
</TABLE>
<PAGE>
EXHIBIT 11.0
(Page 2 of 2)
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF (LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
DILUTED
- -------
Net (loss) income $(17,856) $12,669
Less: Dividends on convertible preferred stock (1,990) (1,990)
-------- -------
Net (loss) income applicable to common shares $(19,846) $10,679
======== =======
Applicable Shares for Computation of (Loss) Income per Share:
Weighted average common shares outstanding 286,153 293,048
Weighted average common equivalent shares arising from:
Dilutive stock options - 4,422
Assumed conversion of Series C convertible preferred stock - -
Disney warrant - 29
Stock subscription warrants - 665
-------- -------
Weighted average number of common and common
equivalent shares 286,153 298,164
======== =======
Diluted (Loss) Income Per Common Share:
Net (loss) income per common share $(0.07) $0.04
======== =======
</TABLE>
<PAGE>
EXHIBIT 12
(PAGE 1 0F 2)
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,(a)
------------------------ -------------------------------------------------------------
March 31, March 31,
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED
CHARGES:
Income (loss) before income taxes,
cumulative effect of changes in
accounting principles and
extraordinary items $(25,008) $17,756 $465,063 $425,082 $536,756 $504,668 $362,157
Less (plus) minority interest and
undistributed income (loss)
of less-than-majority-owned
affiliates, net 256 (5) (165) (144) 303 (36) (649)
Add:
Interest expense 24,858 16,392 110,833 90,130 100,226 102,983 87,071
Appropriate portion of rents(b) 3,831 3,947 16,262 17,665 19,527 19,450 16,224
-------- ------- -------- --------- -------- -------- --------
Earnings available for fixed charges $ 3,937 $38,090 $591,993 $532,733 $656,812 $627,065 $464,803
======== ======= ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 24,858 $16,392 $110,833 $ 90,130 $100,226 $102,983 $ 87,071
Capitalized interest 36 - 993 991 1,789 693 285
Appropriate portion of rents(b) 3,831 3,947 16,262 17,665 19,527 19,450 16,224
-------- -------- -------- --------- -------- -------- --------
Fixed charges $ 28,725 $20,339 $128,088 $108,786 $121,542 $123,126 $103,580
======== ======= ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 0.14 X 1.87 X 4.62 X 4.90 X 5.40 X 5.09 X 4.49 X
======== ======= ======== ======== ======== ======== ========
</TABLE>
(a) The ratio of earnings to fixed charges for 1994 through 1997 has been
restated for the effects of the March 1997 merger of Tyco Toys, Inc.
("Tyco") into Mattel, which was accounted for as a pooling of interests.
(b) Portion of rental expenses which is deemed representative of an interest
factor, not to exceed one-third of total rental expense.
<PAGE>
EXHIBIT 12
(Page 2 of 2)
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Amounts in thousands, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,(a)
------------------------ -------------------------------------------------------------
March 31, March 31,
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED
CHARGES:
Income (loss) before income taxes,
cumulative effect of changes in
accounting principles and
extraordinary items $(25,008) $17,756 $465,063 $425,082 $536,756 $504,668 $362,157
Less (plus) minority interest and
undistributed income (loss)
of less-than-majority-owned
affiliates, net 256 (5) (165) (144) 303 (36) (649)
Add:
Interest expense 24,858 16,392 110,833 90,130 100,226 102,983 87,071
Appropriate portion of rents(b) 3,831 3,947 16,262 17,665 19,527 19,450 16,224
-------- ------- -------- -------- -------- -------- --------
Earnings available for fixed charges $ 3,937 $38,090 $591,993 $532,733 $656,812 $627,065 $464,803
======== ======= ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 24,858 $16,392 $110,833 $ 90,130 $100,226 $102,983 $ 87,071
Capitalized interest 36 - 993 991 1,789 693 285
Dividends - Series B preferred stock - - - 2,537 3,406 3,200 2,157
Dividends - Series C preferred stock 1,990 1,990 7,960 7,968 3,985 - -
Dividends - Series F preference stock - - - - - 3,342 4,689
Appropriate portion of rents(b) 3,831 3,947 16,262 17,665 19,527 19,450 16,224
-------- ------- -------- -------- -------- -------- --------
Fixed charges $ 30,715 $22,329 $136,048 $119,291 $128,933 $129,668 $110,426
======== ======= ======== ======== ======== ======== ========
Ratio of earnings to combined fixed
charges and preferred stock dividends 0.13 X 1.71 X 4.35 X 4.47 X 5.09 X 4.84 X 4.21 X
======== ======== ======== ======== ======== ======== ========
</TABLE>
(a) The ratio of earnings to combined fixed charges and preferred stock
dividends for 1994 through 1997 has been restated for the effects of the
March 1997 merger of Tyco into Mattel, which was accounted for as a pooling
of interests.
(b) Portion of rental expenses which is deemed representative of an interest
factor, not to exceed one-third of total rental expense.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MATTEL
INC.'S BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 50,215
<SECURITIES> 0
<RECEIVABLES> 914,892
<ALLOWANCES> 34,532
<INVENTORY> 567,658
<CURRENT-ASSETS> 1,788,906
<PP&E> 1,120,574
<DEPRECIATION> 387,039
<TOTAL-ASSETS> 3,977,334
<CURRENT-LIABILITIES> 1,088,756
<BONDS> 983,356
0
772
<COMMON> 300,381
<OTHER-SE> 1,455,116
<TOTAL-LIABILITY-AND-EQUITY> 3,977,334
<SALES> 692,116
<TOTAL-REVENUES> 692,116
<CGS> 375,379
<TOTAL-COSTS> 375,379
<OTHER-EXPENSES> 316,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,858
<INCOME-PRETAX> (25,008)
<INCOME-TAX> (7,152)
<INCOME-CONTINUING> (17,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,856)
<EPS-PRIMARY> (0.07)<F1>
<EPS-DILUTED> (0.07)<F1>
<FN>
<F1>Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and Diluted
Earnings per Share as required by Statement of Financial Accounting Standards
No. 128 "Earnings per Share."
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.3
VOTING AND EXCHANGE TRUST SUPPLEMENT
THIS VOTING AND EXCHANGE TRUST SUPPLEMENT is made as of the 12th day of May,
1999,
B E T W E E N :
MATTEL, INC.
a corporation governed by the laws of
the State of Delaware,
(hereinafter referred to as "Mattel"),
OF THE FIRST PART,
- and -
THE LEARNING COMPANY, INC.
a corporation governed by the laws of
the State of Delaware,
(hereinafter referred to as "TLC"),
OF THE SECOND PART,
- and -
SOFTKEY SOFTWARE PRODUCTS INC.,
a corporation governed by the laws of
the Province of Ontario,
(hereinafter referred to as "Softkey"),
OF THE THIRD PART,
- and -
CIBC MELLON TRUST COMPANY,
a trust company incorporated under
the laws of Canada,
(hereinafter referred to as the "Trustee"),
OF THE FOURTH PART.
<PAGE>
WHEREAS TLC (under its predecessor name, "Softkey International Inc."),
Softkey and the Trustee (under its predecessor name, "The R-M Trust Company")
entered into a voting and exchange trust agreement made as of the 4th day of
February, 1994 (the "Original Trust Agreement") relating to the granting of (i)
voting rights in TLC to holders of Exchangeable Shares and (ii) certain rights
in favour of such holders to require TLC to purchase all or part of the
Exchangeable Shares held by such holders;
AND WHEREAS, pursuant to, among other things, the Exchangeable Share
Provisions, the Exchangeable Shares are currently exchangeable, on a one-for-
one basis, for shares of common stock in the capital of TLC;
AND WHEREAS pursuant to an agreement and plan of merger dated as of December
13, 1998 between Mattel and TLC (the "Merger Agreement"), it is proposed that
TLC merge with and into Mattel (the "Merger") with the result that, pursuant to
the Merger Agreement and in accordance with the Delaware General Corporation
Law, (i) the outstanding shares of common stock in the capital of TLC will be
changed and converted into and represent the right to receive shares of common
stock in the capital of Mattel and (ii) the separate corporate existence of TLC
will cease and Mattel will continue as the surviving corporation and will
succeed to and assume all of the rights and obligations of TLC, including
without limitation the rights and obligations of TLC under the Original Trust
Agreement;
AND WHEREAS, following the Merger and pursuant to, among other things, the
Exchangeable Share Provisions, the Exchangeable Shares will be exchangeable for
shares of common stock in the capital of Mattel, on the basis of 1.2 shares of
Mattel common stock per Exchangeable Share (being the Exchange Ratio as that
term is defined herein);
AND WHEREAS, pursuant to Articles 11 and 12 of the Original Trust Agreement,
as a result of the Merger the Original Trust Agreement must be amended,
modified and supplemented as necessary in order that it applies with full force
and effect, mutatis mutandis, to the shares of common stock in the capital of
Mattel following the Merger and the parties to the Original Trust Agreement are
required to execute and deliver this voting and exchange trust supplement
giving effect to and evidencing such necessary amendments and modifications;
AND WHEREAS Mattel and TLC propose to complete the Merger pursuant to the
Merger Agreement and in accordance with the Delaware General Corporation Law
immediately following the execution and delivery of this voting and exchange
trust supplement by the parties hereto;
AND WHEREAS the board of directors of each of TLC and Softkey is of the
opinion that the amendments and modifications to be effected hereby are not
inconsistent with the Original Trust Agreement, are necessary and desirable in
light of the Merger and will not be prejudicial to the interests of the holders
of the Exchangeable Shares;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledge by each of the parties hereto, the
parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 "Hereto", "herein", "hereunder", "hereof" and similar expressions refer
to this voting and exchange trust supplement and not to any particular article,
section or other portion hereof and include any and every instrument
supplemental or ancillary hereto.
2
<PAGE>
1.2 The division of this voting and exchange trust supplement into articles
and sections is for convenience of reference only and shall not affect the
construction or interpretation of this voting and exchange trust supplement.
1.3 All terms contained in this voting and exchange trust supplement,
including the recitals hereto, which are defined in the Original Trust
Agreement shall, for the purposes hereof, have the meanings given to such terms
in the Original Trust Agreement unless otherwise defined herein or unless the
context otherwise specifies or requires.
ARTICLE 2
ISSUE OF MATTEL SPECIAL VOTING SHARE
2.1 Immediately upon the Merger becoming effective under the Delaware General
Corporation Law, (a) Mattel shall issue to and deposit with the Trustee one
share of special voting preferred stock, U.S.$1.00 par value per share, of
Mattel (the "Mattel Special Voting Stock") to be thereafter held of record by
the Trustee as trustee for and on behalf of, and for the use and benefit of,
the Beneficiaries and in accordance with the provisions of the Original Trust
Agreement as amended, modified and supplemented by this voting and exchange
trust supplement, and (b) the Trustee shall surrender to Mattel the certificate
formerly representing the one outstanding share of special voting stock, par
value U.S.$1.00 per share, of TLC.
ARTICLE 3
AMENDMENTS TO ORIGINAL TRUST AGREEMENT
The Original Trust Agreement is hereby amended, modified and supplemented,
immediately upon the Merger becoming effective under the Delaware General
Corporation Law, as follows:
3.1 Section 1.1 of the Original Trust Agreement is hereby amended, modified
and supplemented as follows:
(a) by deleting the words "Boston, Massachusetts" in the definition of
"Business Day" and replacing them with the words "Los Angeles,
California";
(b) by deleting the definition of "Current Market Price" and replacing it
with the following:
" "Current Market Price" means, in respect of a Mattel Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
bid and asked prices of Mattel Common Shares during a period of 20
consecutive trading days ending not more than five trading days before
such date on the New York Stock Exchange or, if the Mattel Common
Shares are not then listed on the New York Stock Exchange, on such
other stock exchange or automated quotation system on which the Mattel
Common Shares are listed or quoted, as the case may be, as may be
selected by the Board of Directors for such purpose; provided, however,
that if in the opinion of the Board of Directors the public
distribution or trading activity of Mattel Common Shares during such
period does not create a market which reflects the fair market value of
a Mattel Common Share, then the Current Market Price of a Mattel Common
Share shall be determined by the Board of Directors based upon the
advice of such qualified independent financial advisers as the Board of
Directors of Mattel may deem to be appropriate, and provided further
that any such selection, opinion or determination by the Board of
Directors shall be conclusive and binding."
3
<PAGE>
(c) by adding the following definition after the definition of "Current
Market Price":
" "Exchange Ratio" means 1.2."
(d) by adding the following definitions after the definition of "List":
" "Mattel" means Mattel, Inc., a corporation governed by the laws of
the State of Delaware, and any successor thereto.
"Mattel Common Shares" means the shares of common stock in the capital
of Mattel (together with the accompanying rights, if any, to purchase
shares of Series E Junior Participating Preference Stock, par value
U.S. $0.01 per share, in the capital of Mattel, subject to adjustment
as contemplated by such rights) and any other securities into which
such shares may be changed or converted."
(e) by deleting the word "Parent" in each of the definitions of "Parent
Consent", "Parent Meeting" and "Parent Successor" and replacing it with
the word "Mattel" in each such definition;
(f) by deleting the definition of "Support Agreement" and replacing it with
the following definition:
" "Support Agreement" means that certain support agreement made as of
the 4th day of February 1994 between Softkey International Inc. (a
predecessor corporate name of The Learning Company, Inc.) and the
Corporation, as amended by that certain amending agreement made as of
the 12th day of May 1999 between Mattel, The Learning Company, Inc. and
the Corporation."
(g) by deleting the words "The R-M Trust Company" in the definition of
"Trustee" and replacing them with the words "CIBC Mellon Trust Company";
(h) by deleting the definition of "Voting Share" and replacing it with the
following:
" "Voting Share" means the one share of special voting preferred stock,
U.S. $1.00 par value, of Mattel, issued by Mattel to and deposited with
the Trustee, which entitles the holder of record to a number of votes
at meetings of holders of Mattel Common Shares equal to the product of
(i) the number of Exchangeable Shares outstanding from time to time
other than Exchangeable Shares held by Mattel, its subsidiaries or any
person directly or indirectly controlled by or under common control of
Mattel, multiplied by (ii) the Exchange Ratio."
3.2 Each reference in Articles 1 to 14, inclusive, of the Original Trust
Agreement to "the Parent" is hereby deleted and replaced with "Mattel".
3.3 Each reference in Articles 1 to 14, inclusive, of the Original Trust
Agreement to "Parent Common Shares" is hereby deleted and replaced with "Mattel
Common Shares".
3.4 Each reference in Articles 11 and 12 of the Original Trust Agreement to
"Parent Successor" is hereby deleted and replaced with "Mattel Successor".
3.5 Section 3.1 of the Original Trust Agreement is hereby amended, modified
and supplemented by deleting the first two sentences thereof.
4
<PAGE>
3.6 Section 4.2 of the Original Trust Agreement is hereby deleted and
replaced with the following:
"4.2 Number of Votes. With respect to all meetings of shareholders of
Mattel at which holders of Mattel Common Shares are entitled to vote
(a "Mattel Meeting") and with respect to all written consents sought
by Mattel from its shareholders including the holders of Mattel Common
Shares (a "Mattel Consent"), each Beneficiary shall be entitled to
instruct the Trustee to cast and exercise such number of votes
comprised in the Voting Rights equal to the product (rounded down to
the nearest one-hundredth of a share) of (i) the aggregate number of
Exchangeable Shares owned of record by such Beneficiary on the record
date established by Mattel or by applicable law for such Mattel
Meeting or Mattel Consent, as the case may be, multiplied by (ii) the
Exchange Ratio (the "Beneficiary Votes"), in respect of each matter,
question or proposition to be voted on at such Mattel Meeting or to be
consented to in connection with such Mattel Consent."
3.7 Section 5.4 of the Original Trust Agreement is hereby deleted and
replaced with the following:
"5.4 Purchase Price. The purchase price payable by Mattel for the
Exchangeable Shares to be purchased by Mattel from each Beneficiary
under the Exchange Right shall be the sum of:
(a) (i) the Current Market Price of a Mattel Common Share on the
last Business Day prior to the day of closing of the purchase
and sale of such Exchangeable Shares under the Exchange
Right, multiplied by (ii) the number of Exchangeable Shares
to be purchased from such Beneficiary under the Exchange
Right, multiplied by (iii) the Exchange Ratio; and
(b) the full amount of all dividends declared and unpaid on such
Exchangeable Shares to be so purchased (provided that if the
record date for any such declared and unpaid dividends occurs
on or after the day of closing of such purchase and sale the
purchase price shall not include any amounts in respect of
such declared and unpaid dividends).
The purchase price for such Exchangeable Shares so purchased from each
Beneficiary under the Exchange Right shall be satisfied as follows:
(c) in respect of the portion of the purchase price described in
paragraph (a) above, by Mattel issuing and delivering or
causing to be delivered to the Trustee, on behalf of such
Beneficiary, (i) a number of Mattel Common Shares, rounded
down to the nearest whole number of Mattel Common Shares,
equal to (x) such portion of the purchase price divided by
(y) the Current Market Price of a Mattel Common Share on the
last Business Day prior to the day of closing of the purchase
and sale of such Exchangeable Shares under the Exchange Right
and (ii) a cheque in payment of the fractional Mattel Common
Share, if any, resulting from the calculation in (i) above
(before any such rounding) in an amount equal to the
corresponding fractional amount of the Current Market Price
of a Mattel Common Share on the last Business Day prior to
the day of closing of the purchase and sale of such
Exchangeable Shares under the Exchange Right; and
5
<PAGE>
(d) in respect of the portion of the purchase price described in
paragraph (b) above, by Mattel issuing and delivering or
causing to be delivered to the Trustee, on behalf of such
Beneficiary, a cheque in payment of such declared and unpaid
dividends.
In connection with each exercise of the Exchange Right, Mattel
will provide to the Trustee an Officer's Certificate setting
forth the calculation of the purchase price for the Exchangeable
Shares so purchased thereunder."
3.8 Section 5.11 of the Original Trust Agreement is hereby amended, modified
and supplemented by adding the words ", multiplied by the Exchange Ratio" after
the words "time to time" in the fifth and seventh lines of such section.
3.9 Paragraph (c) of section 5.12 of the Original Trust Agreement is hereby
amended, modified and supplemented by deleting the second and third sentences
thereof and replacing them with the following:
"To effect such automatic exchange, Mattel shall purchase all
Exchangeable Shares outstanding on the fifth Business Day prior to the
Liquidation Event Effective Date held by each Beneficiary, and each
such Beneficiary shall sell all Exchangeable Shares held by it at such
time, for a purchase price equal to the sum of:
(a) (i) the Current Market Price of a Mattel Common Share on the
fifth Business Day prior to the Liquidation Event Effective
Date, multiplied by (ii) the number of Exchangeable Shares to
be purchased from such Beneficiary pursuant to such automatic
exchange, multiplied by (iii) the Exchange Ratio; and
(b) the full amount of all dividends declared and unpaid on such
Exchangeable Shares to be so purchased.
The purchase price for such Exchangeable Shares so purchased from each
Beneficiary pursuant to such automatic exchange shall be satisfied as
follows:
(c) in respect of the portion of the purchase price described in
paragraph (a) above, by Mattel issuing and delivering or
causing to be delivered to such Beneficiary (i) a number of
Mattel Common Shares, rounded down to the nearest whole
number of Mattel Common Shares, equal to (x) such portion of
the purchase price divided by (y) the Current Market Price of
a Mattel Common Share on the fifth Business Day prior to the
Liquidation Event Effective Date and (ii) a cheque in payment
of the fractional Mattel Common Share, if any, resulting from
the calculation in (i) above (before any such rounding) in an
amount equal to the corresponding fractional amount of the
Current Market Price of a Mattel Common Share on the fifth
Business Day prior to the Liquidation Event Effective Date;
and
(d) in respect of the portion of the purchase price described in
paragraph (b) above, by Mattel issuing and delivering or
causing to be delivered to such Beneficiary a cheque in
payment of such declared and unpaid dividends.
In connection with such automatic exchange, Mattel will provide
to the Trustee an Officer's Certificate setting forth the
calculation of the purchase price for the Exchangeable Shares so
purchased pursuant thereto."
6
<PAGE>
3.10 Section 6.1 of the Original Trust Agreement is hereby amended, modified
and supplemented by deleting the words "Parent Special Voting Stock" in the
second line of such section and replacing them with the words "special voting
preferred stock, U.S. $1.00 par value, of Mattel".
3.11 Section 12.4 of the Original Trust Agreement is hereby amended, modified
and supplemented by adding the words ", notwithstanding the provisions of
section 12.1 hereof," after the words "changed and" in the third last line of
section 12.4.
3.12 Paragraphs (a), (b) and (c) of section 14.3 of the Original Trust
Agreement are hereby deleted and replaced with the following:
(a) if to Mattel or the Corporation, c/o Mattel at:
333 Continental Boulevard
El Segundo, CA 90245-5012
U.S.A.
Attention: General Counsel
Telecopy: (310) 252-3671
(b) if to the Trustee at:
320 Bay Street
P.O. Box 1
Toronto, Ontario
M5H 4A6
Attention: Assistant Vice President, Client Services
Telecopy: (416) 643-5570
ARTICLE 4
ASSUMPTION OF OBLIGATIONS
4.1 Mattel hereby confirms, covenants and agrees that, immediately upon the
Merger becoming effective under the Delaware General Corporation Law, Mattel
has succeeded to the position of TLC under the Original Trust Agreement as
amended, modified and supplemented hereby and, without limitation of the
foregoing, that it has assumed liability for all moneys payable and property
deliverable under the Original Trust Agreement as amended, modified and
supplemented hereby, and that it will pay and deliver or cause to be delivered
all such moneys and property and will observe and perform all the covenants and
obligations of TLC under the Original Trust Agreement as amended, modified and
supplemented hereby.
ARTICLE 5
GENERAL
5.1 This voting and exchange trust supplement is supplementary to and amends
and modifies the Original Trust Agreement as herein set forth. Immediately upon
the Merger becoming effective under the Delaware General Corporation Law, the
Original Trust Agreement shall thereafter be read in conjunction with this
voting and exchange trust supplement and the Original Trust Agreement and this
voting and exchange trust supplement shall be deemed for all purposes to be a
part of the Original Trust Agreement and shall have effect so far as is
practicable as if all the provisions of the Original Trust Agreement and this
voting and exchange trust supplement were contained in one instrument.
7
<PAGE>
5.2 This voting and exchange trust supplement and the Original Trust
Agreement constitute the entire agreement between the parties relating to the
subject matter hereof and thereof. This voting and exchange trust supplement
supersedes all prior agreements and understandings of the parties, whether oral
or written, including the Original Trust Agreement, with respect to the
portions of the Original Trust Agreement hereby amended, modified and
supplemented. There are no general or specific representations, warranties or
other agreements by or among the parties in connection with the entering into
of this voting and exchange trust supplement or the subject matter hereof
except as specifically set forth herein.
5.3 This voting and exchange trust supplement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same instrument.
5.4 This voting and exchange trust supplement shall be construed and enforced
in accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
5.5 Mattel agrees that any action or proceeding arising out of or relating to
this voting and exchange trust supplement may be instituted in the courts of
Ontario, waives any objection which it may now or hereafter have to the venue
of any such action or proceeding, irrevocably submits to the jurisdiction of
the said courts in any such action or proceeding, agrees to be bound by any
judgment of the said courts and not to seek, and hereby waives, any review of
the merits of any such judgment by the courts of any other jurisdiction and
hereby appoints Softkey at its registered office in the Province of Ontario as
Mattel's attorney for service of process.
5.6 This voting and exchange trust supplement shall be binding upon and enure
to the benefit of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF the parties hereto have executed this voting and exchange
trust supplement as of the date first referred to above.
MATTEL, INC.
By: /s/ Robert Normile
_________________________________
Robert Normile
__________________________________
THE LEARNING COMPANY, INC.
By: /s/ R. Scott Murray
_________________________________
R. Scott Murray
__________________________________
SOFTKEY SOFTWARE PRODUCTS INC.
By: /s/ R. Scott Murray
_________________________________
R. Scott Murray
__________________________________
CIBC MELLON TRUST COMPANY
By: /s/ Warren Jansen
__________________________________
Warren Jansen
__________________________________
By: /s/ Susan Clough
__________________________________
Susan Clough
__________________________________
8
<PAGE>
EXHIBIT 99.4
SUPPORT AGREEMENT AMENDING AGREEMENT
THIS AMENDING AGREEMENT is made as of the 12th day of May, 1999,
BETWEEN:
MATTEL, INC.
a corporation governed by the laws of
the State of Delaware,
(hereinafter referred to as "Mattel"),
OF THE FIRST PART,
--and--
THE LEARNING COMPANY, INC.
a corporation governed by the laws of
the State of Delaware,
(hereinafter referred to as "TLC"),
OF THE SECOND PART,
--and--
SOFTKEY SOFTWARE PRODUCTS INC.,
a corporation governed by the laws of
the Province of Ontario,
(hereinafter referred to as "Softkey"),
OF THE THIRD PART.
WHEREAS TLC (under its predecessor name, "Softkey International Inc.") and
Softkey entered into a support agreement made as of the 4th day of February,
1994 (the "Original Support Agreement") making certain provisions and
establishing certain procedures relating to certain of Softkey's obligations in
respect of its Exchangeable Shares;
AND WHEREAS, pursuant to, among other things, the Share Provisions, the
Exchangeable Shares are currently exchangeable, on a one-for-one basis, for
shares of common stock in the capital of TLC;
AND WHEREAS pursuant to an agreement and plan of merger dated as of December
13, 1998 between Mattel and TLC (the "Merger Agreement"), it is proposed that
TLC merge with and into Mattel (the "Merger") with the result that, pursuant to
the Merger Agreement and in accordance with the Delaware General Corporation
Law, (i) the outstanding shares of common stock in the capital of TLC will be
changed and converted into and represent the right to receive shares of common
stock in the capital of Mattel and (ii) the separate corporate existence of TLC
will cease and Mattel will continue as the surviving corporation and will
succeed to and assume all of the rights and obligations of TLC, including
without limitation the rights and obligations of TLC under the Original Support
Agreement;
<PAGE>
AND WHEREAS, following the Merger and pursuant to, among other things, the
Share Provisions, the Exchangeable Shares will be exchangeable for shares of
common stock in the capital of Mattel, on the basis of 1.2 shares of Mattel
common stock per Exchangeable Share (being the Exchange Ratio, as that term is
defined in and as such ratio is determined pursuant to the Merger Agreement);
AND WHEREAS, pursuant to section 2.7 of the Original Support Agreement, the
Board of Directors of Softkey has determined that the changes to be made to, or
in the rights of the holders of, the Exchangeable Shares simultaneously with
the Merger are the same as or economically equivalent to those changes to be
made to, or in the rights of the holders of, the shares of common stock of TLC
in connection with the Merger;
AND WHEREAS, pursuant to section 3.2 of the Original Support Agreement, as a
result of the Merger the Original Support Agreement must be amended and
modified as necessary in order that it applies with full force and effect,
mutatis mutandis, to the shares of common stock in the capital of Mattel
following the Merger and the parties to the Original Support Agreement are
required to execute and deliver this amending agreement giving effect to and
evidencing such necessary amendments and modifications;
AND WHEREAS Mattel and TLC propose to complete the Merger pursuant to the
Merger Agreement and in accordance with the Delaware General Corporation Law
immediately following the execution and delivery of this amending agreement by
the parties hereto;
AND WHEREAS, pursuant to section 3.5 of the Original Support Agreement, the
parties wish to make certain amendments and modifications to the Original
Support Agreement not inconsistent therewith and to, among other things,
correct certain clerical mistakes in the Original Support Agreement;
AND WHEREAS the board of directors of each of TLC and Softkey is of the
opinion that the amendments and modifications to be effected hereby will not be
prejudicial to the interests of the holders of the Exchangeable Shares;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 "Hereto", "herein", "hereunder", "hereof" and similar expressions refer
to this amending agreement and not to any particular article, section or other
portion hereof and include any and every instrument supplemental or ancillary
hereto.
1.2 The division of this amending agreement into articles and sections is for
convenience of reference only and shall not affect the construction or
interpretation of this amending agreement.
1.3 All terms contained in this amending agreement, including the recitals
hereto, which are defined in the Original Support Agreement shall, for the
purposes hereof, have the meanings given to such terms in the Original Support
Agreement unless otherwise defined herein or unless the context otherwise
specifies or requires.
2
<PAGE>
ARTICLE 2
AMENDMENTS TO ORIGINAL SUPPORT AGREEMENT
The Original Support Agreement is hereby amended and modified, immediately
upon the Merger becoming effective under the Delaware General Corporation Law,
as follows:
2.1 Section 1.1 of the Original Support Agreement is hereby amended and
modified by adding the following sentence to the end of such section: "For all
purposes hereof, "Mattel" means Mattel, Inc., a corporation governed by the
laws of the State of Delaware, and any successor thereto, and "Mattel Common
Shares" means the shares of common stock in the capital of Mattel (together
with the accompanying rights, if any, to purchase shares of Series E Junior
Participating Preference Stock, par value U.S. $0.01 per share, in the capital
of Mattel, subject to adjustment as contemplated by such rights) and any other
securities into which such shares may be changed or converted."
2.2 Section 1.4 of the Original Support Agreement is hereby amended and
modified by deleting the words "Boston, Massachusetts" and replacing them with
the words "Los Angeles, California".
2.3 Each reference in Articles 2 and 3 of the Original Support Agreement to
"the Parent" is hereby deleted and replaced with "Mattel".
2.4 Section 2.7 of the Original Support Agreement is hereby amended and
modified as follows:
(a) by deleting the words "; provided that, for greater certainty, the
above restrictions shall not apply to any securities issued or
distributed by the Parent in order to give effect to and to
consummate the Spinnaker-WordStar-SoftKey Transaction in the manner
contemplated by, and in accordance with, the Combination Agreement"
in section 2.7(a); and
(b) by deleting the words "; provided that, for greater certainty, the
above restrictions shall not apply to any action taken by the
Parent in order to give effect to and to consummate the Spinnaker-
WordStar-SoftKey Transaction in the manner contemplated by, and in
accordance with, the Combination Agreement" in section 2.7(b).
2.5 Each reference in Articles 2 and 3 of the Original Support Agreement to
"Parent Common Shares" is hereby deleted and replaced with "Mattel Common
Shares".
2.6 The word "above" in the second to last line of section 2.7(d)(ii) and in
the second to last line of section 2.7(d)(iii) of the Original Support
Agreement is hereby deleted and, in each case, replaced with the word "below".
2.7 Section 3.2 of the Original Support Agreement is hereby amended and
modified by adding the words ", notwithstanding the provisions of section 3.4,"
after the words "changed and" in the second to last line of section 3.2.
3
<PAGE>
2.8 Sections 3.9(a) and (b) of the Original Support Agreement are hereby
deleted and replaced with the following:
(a) if to Mattel or Softkey, c/o Mattel at:
333 Continental Boulevard
El Segundo, CA 90245-5012,
U.S.A.
Attention: General Counsel
Telecopy: (310) 252-3671
ARTICLE 3
ASSUMPTION OF OBLIGATIONS
3.1 Mattel hereby confirms, covenants and agrees that, immediately upon the
Merger becoming effective under the Delaware General Corporation Law, Mattel
has succeeded to the position of TLC under the Original Support Agreement as
amended and modified hereby and, without limitation of the foregoing, that it
has succeeded to and assumed and is bound by all of the benefits, rights,
liabilities, covenants and obligations of TLC under the Original Support
Agreement as amended and modified hereby.
ARTICLE 4
GENERAL
4.1 This amending agreement is supplementary to and amends and modifies the
Original Support Agreement as herein set forth. Immediately upon the Merger
becoming effective under the Delaware General Corporation Law, the Original
Support Agreement shall thereafter be read in conjunction with this amending
agreement and the Original Support Agreement and this amending agreement shall
have effect so far as is practicable as if all the provisions of the Original
Support Agreement and this amending agreement were contained in one instrument.
4.2 This amending agreement and the Original Support Agreement constitute the
entire agreement between the parties relating to the subject matter hereof and
thereof. This amending agreement supersedes all prior agreements and
understandings of the parties, whether oral or written, including the Original
Support Agreement, with respect to the portions of the Original Support
Agreement hereby amended and modified. There are no general or specific
representations, warranties or other agreements by or among the parties in
connection with the entering into of this amending agreement or the subject
matter hereof except as specifically set forth herein.
4.3 This amending agreement may be executed in several counterparts, each of
which when so executed shall be deemed to be an original, and such counterparts
together shall constitute one and the same instrument.
4.4 This amending agreement shall be construed and enforced in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein.
4.5 Mattel agrees that any action or proceeding arising out of or relating to
this amending agreement may be instituted in the courts of Ontario, waives any
objection which it may now or hereafter have to the venue of any such action or
proceeding, irrevocably submits to the jurisdiction
4
<PAGE>
of the said courts in any such action or proceeding, agrees to be bound by any
judgment of the said courts and not to seek, and hereby waives, any review of
the merits of any such judgment by the courts of any other jurisdiction and
hereby appoints Softkey at its registered office in the Province of Ontario as
Mattel's attorney for service of process.
4.6 This amending agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have executed this amending agreement
as of the date first referred to above.
MATTEL, INC.
By: /s/ Robert Normile
_________________________________
Robert Normile
__________________________________
THE LEARNING COMPANY, INC.
By: /s/ R. Scott Murray
_________________________________
R. Scott Murray
__________________________________
SOFTKEY SOFTWARE PRODUCTS INC.
By: /s/ R. Scott Murray
_________________________________
R. Scott Murray
__________________________________
5
<PAGE>
EXHIBIT 99.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SOFTKEY SOFTWARE PRODUCTS INC.,
MATTEL, INC.
and
CIBC MELLON TRUST COMPANY,
as Rights Agent
Rights Agreement
Dated as of May 13, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.
----
<S> <C> <C>
Section 1. Certain Definitions...................................................................... 1
Section 2. Appointment of Rights Agent.............................................................. 3
Section 3. Issue of Right Certificates.............................................................. 3
Section 4. Form of Right Certificates............................................................... 4
Section 5. Countersignature and Registration........................................................ 5
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed,
Lost or Stolen Right Certificates....................................................... 5
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights............................ 6
Section 8. Cancellation and Destruction of Right Certificates....................................... 6
Section 9. Availability of Exchangeable Shares...................................................... 7
Section 10. Exchangeable Shares Record Date.......................................................... 7
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights....................... 8
Section 12. Certificate of Adjusted Purchase Price or Number of Shares............................... 13
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power..................... 13
Section 14. Fractional Rights and Fractional Shares.................................................. 13
Section 15. Rights of Action......................................................................... 14
Section 16. Agreement of Right Holders............................................................... 15
Section 17. Right Certificate Holder Not Deemed a Stockholder........................................ 15
Section 18. Concerning the Rights Agent.............................................................. 15
Section 19. Merger or Consolidation or Change of Name of Rights Agent................................ 16
Section 20. Duties of Rights Agent................................................................... 16
Section 21. Change of Rights Agent................................................................... 18
Section 22. Issuance of New Right Certificates....................................................... 19
Section 23. Redemption............................................................................... 19
Section 24. Exchange................................................................................. 20
Section 25. Notice of Certain Events................................................................. 20
Section 26. Notices.................................................................................. 21
Section 27. Supplements and Amendments............................................................... 22
Section 28. Successors............................................................................... 22
Section 29. Benefits of this Agreement............................................................... 22
Section 30. Severability............................................................................. 23
Section 31. Governing Law............................................................................ 23
Section 32. Counterparts............................................................................. 23
Section 33. Descriptive Headings..................................................................... 23
</TABLE>
Exhibit A--Form of Right Certificate
Exhibit B--Summary of Rights to Purchase Exchangeable Shares
Exhibit C--Mattel Rights Agreement
i
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of May 13, 1999, between Softkey Software Products Inc.,
an Ontario corporation (the "Company"), Mattel, Inc., a Delaware corporation
("Mattel"), and CIBC Mellon Trust Company, a trust company incorporated under
the laws of Canada (the "Rights Agent").
The Board of Directors of the Company has authorized the issuance of one
Exchangeable Share purchase right (a "Right") for each Exchangeable Share (as
hereinafter defined) of the Company outstanding as of the Close of Business
(as defined below) on the Effective Date (as hereinafter defined) (the "Record
Date"), each Right representing the right to purchase one Exchangeable Non-
Voting Share of the Company (an "Exchangeable Share"), and has further
authorized and directed the issuance of one Right with respect to each
Exchangeable Share that shall become outstanding between the Record Date and
the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date (as such terms are hereinafter defined), in each case, upon
the terms and subject to the conditions herein set forth.
As provided in the Agreement and Plan of Merger dated as of December 13,
1998 (the "Merger Agreement"), between Mattel and The Learning Company, Inc.,
a Delaware corporation, the Rights are intended to provide rights to acquire
additional Exchangeable Shares (or in certain circumstances other securities)
on terms substantially the same as, and having an economically equivalent
value to, the Mattel Rights (as hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For the purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall have the meaning ascribed to that term in the
Mattel Rights Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights or the Mattel Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be
1
<PAGE>
deemed the Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such security
arises solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made generally to
all holders of Exchangeable Shares pursuant to, and in accordance with,
applicable rules and regulations; or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities) for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to Section 1(c)(ii)(B)) or
disposing of any securities of the Company or of Mattel.
Notwithstanding anything in this definition of Beneficial Ownership
to the contrary, the phrase "then outstanding", when used with
reference to a Person's Beneficial Ownership of securities of the
Company, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to
own beneficially hereunder. Any person who owns Exchangeable Shares
shall be deemed to beneficially own the maximum number of Mattel Common
Shares issuable to such holder upon the exchange, retraction or
redemption of all such Exchangeable Shares at the measurement date.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in both the City of Toronto and the
Commonwealth of Massachusetts or the State of California are authorized
or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., New York
City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean the
Exchangeable Shares of the Company or any other shares of capital stock
of the Company or of Mattel into which the Exchangeable Shares may be
reclassified or changed or exchanged. "Common Shares" when used with
reference to any Person other than the Company shall mean the capital
stock (or equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning ascribed to that term in the
Mattel Rights Agreement.
(h) "Exchangeable Share" shall have the meaning set forth in the
introductory paragraph of this Rights Agreement.
(i) "Effective Date" shall mean May 13, 1999.
(j) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(k) "Mattel Common Shares" shall mean the shares of common stock, par value
U.S. $1.00 per share, of Mattel.
(l) "Mattel Preference Shares" shall mean shares of Series E Junior
Participating Preference Stock, par value U.S. $.01 per share, of
Mattel having the rights and preferences set forth in the Form of
Certificate of Designations attached to the Mattel Rights Agreement as
Exhibit A.
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(m) "Mattel Rights" shall mean the Rights as defined in the Mattel Rights
Agreement.
(n) "Mattel Rights Agreement" shall mean the Rights Agreement dated as of
February 7, 1992 between Mattel and The First National Bank of Boston,
as Rights Agent, as amended from time to time, attached as Exhibit "C"
hereto.
(o) "Merger Agreement" shall have the meaning set forth in the second
introductory paragraph of this Rights Agreement.
(p) "Merger Exchange Ratio" shall mean 1.2 which is the "Exchange Ratio" as
defined and determined in accordance with Section 2.7(a) of the Merger
Agreement.
(q) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such
entity.
(r) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(s) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Exchangeable Shares) in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment.
The Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable subject to the approval of the Rights Agent, which
approval shall not be unreasonably withheld.
Section 3. Issue of Right Certificates.
(a) Until the Distribution Date, (x) the Rights will be evidenced (subject
to the provisions of Section 3(b) hereof) by the certificates for
Exchangeable Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer
of the associated Exchangeable Shares. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record registered holder of
Exchangeable Shares as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit A
hereto (a "Right Certificate"), evidencing one Right for each
Exchangeable Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send (and the Rights Agent, will, if requested, send) a copy of a
Summary of Rights to Purchase Exchangeable Shares, in substantially the
form of Exhibit B hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each registered holder of Exchangeable Shares
as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Company. With respect to
certificates for Exchangeable Shares outstanding as of the Record Date,
until the Distribution Date, the associated Rights will be evidenced by
such certificates registered in the names of the holders thereof
together with a
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copy of the Summary of Rights. Until the Distribution Date (or the
earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Exchangeable Shares
outstanding on the Record Date, with or without a copy of the Summary of
Rights, shall also constitute the transfer of the Rights associated with
the Exchangeable Shares represented thereby.
(c) Certificates for Exchangeable Shares which become outstanding after the
Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between
Softkey Software Products Inc., Mattel, Inc. and CIBC Mellon
Trust Company, dated as of May 13, 1999 (the "Rights
Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the registered
office of Softkey Software Products Inc. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Softkey Software
Products Inc. will mail to the holder of this certificate a
copy of the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances, as set
forth in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the
Exchangeable Shares represented by such certificates shall be evidenced
by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated
with the Exchangeable Shares represented thereby. In the event that the
Company or Mattel or any subsidiary of Mattel or any Person directly or
indirectly controlled by or under common control of Mattel beneficially
owns, purchases or otherwise acquires any Exchangeable Shares prior to
the Distribution Date, for so long as such Exchangeable Shares are
beneficially owned by any such entity or Person, any Rights associated
with such Exchangeable Shares shall be deemed cancelled and retired and
such entity or Person shall not be entitled to exercise any Rights
associated with such Exchangeable Shares. Certificates for Exchangeable
Shares which become outstanding after the Record Date, but prior to the
earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall evidence one Right for each Exchangeable Share
evidenced thereby, notwithstanding the absence of the foregoing
legend.
Section 4. Form of Right Certificates. The Right Certificates (and the forms
of election to purchase Exchangeable Shares and of assignment to be printed on
the reverse thereof) shall be substantially the same as Exhibit A hereto and
may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of Exchangeable Shares as shall be set
forth therein at the
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price per Exchangeable Share set forth therein (the "Purchase Price"), but the
number of such Exchangeable Shares and the Purchase Price shall be subject to
adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the Company by
the Chairman of the Board of Directors, the President, any of the Vice
Presidents, the Treasurer or the Controller of the Company, either
manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or
by facsimile signature. The Right Certificates shall be countersigned
(manually or by facsimile signature in a manner satisfactory to the
Company) by the Rights Agent and shall not be valid for any purpose
unless countersigned. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of
the Company before countersignature by the Rights Agent and issuance
and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the Person who signed
such Right Certificates had not ceased to be such officer of the
Company; and any Right Certificate may be signed on behalf of the
Company by any Person who, at the actual date of execution of such
Right Certificate, shall be a proper officer of the Company to sign
such Right Certificate, although at the date of the execution of this
Rights Agreement by any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders
of the Right Certificates, the number of Rights evidenced on its face
by each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Section 14 hereof, at any time after the
Close of Business on the Distribution Date, and at or prior to the
Close of Business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates (other
than Right Certificates representing Rights that have become void
pursuant to Section 11(a)(ii) hereof or that have been exchanged
pursuant to Section 24 hereof) may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of
Exchangeable Shares as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined
or exchanged at the office or agency of the Rights Agent designated for
such purpose. Thereupon the Rights Agent shall countersign and deliver
to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the
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Company's request, reimbursement to the Company and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to
the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in
part, upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the
Rights Agent at the office or agency of the Rights Agent designated for
such purpose, together with payment of the Purchase Price for each
Exchangeable Share as to which the Rights are exercised, at any time
which is both after the Distribution Date and prior to the earliest of
(i) the Close of Business on February 17, 2002 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), or (iii) the time at which
such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each Exchangeable Share purchasable pursuant to
the exercise of a Right shall initially be an amount equal to U.S. $150
multiplied by the Merger Exchange Ratio, and shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) of this Section 7.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Exchangeable Shares to be
purchased and an amount equal to any applicable transfer tax required
to be paid by the holder of such Right Certificate in accordance with
Section 9 hereof by certified check, cashier's check or money order
payable to the order of the Company, the Rights Agent shall thereupon
promptly (i) requisition from any transfer agent of the Exchangeable
Shares certificates for the number of Exchangeable Shares to be
purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, (ii) when appropriate,
requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by
such holder, (iv) when appropriate, after receipt, deliver such cash to
or upon the order of the registered holder of such Right Certificate,
and (v) tender to the Company all payments received on exercise of
Rights.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall
be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right
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Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Right Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Exchangeable Shares.
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Exchangeable Shares
or any Exchangeable Shares held in its treasury, the number of
Exchangeable Shares that will be sufficient to permit the exercise in
full of all outstanding Rights in accordance with Section 7 hereof.
(b) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Exchangeable Shares delivered upon
exercise of Rights shall, at the time of delivery of the certificates
for such Exchangeable Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
non-assessable shares.
(c) The Company further covenants and agrees that it will pay when due and
payable any and all United States and Canadian federal, state and
provincial transfer taxes and charges which may be payable in respect
of the issuance or delivery of the Right Certificates or of any
Exchangeable Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a Person
other than, or the issuance or delivery of certificates for the
Exchangeable Shares in a name other than that of, the registered holder
of the Right Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates for Exchangeable Shares upon
the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the
time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
Section 10. Exchangeable Shares Record Date. Each Person in whose name any
certificate for Exchangeable Shares is issued and registered upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Exchangeable Shares represented thereby on, and such certificate shall
be dated, the date upon which the Right Certificate evidencing such Rights was
duly surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Exchangeable Shares transfer books of the
Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Exchangeable Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder
of Exchangeable Shares for which the Rights shall be exercisable, including,
without limitation, any right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled
to receive any notice of any proceedings of the Company, except as provided
herein.
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Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Exchangeable Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Exchangeable Shares payable in
Exchangeable Shares, (B) subdivide the outstanding Exchangeable Shares,
(C) combine the outstanding Exchangeable Shares into a smaller number
of Exchangeable Shares or (D) issue any shares of its capital stock in
a reclassification of the Exchangeable Shares (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Exchangeable
Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification;
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, (A) the Company shall provide notice
thereof to the Rights Agent, including the name of the Acquiring Person
and any Associates and Affiliates of the Acquiring Person known to the
Company, and (B) each holder of a Right (other than any Rights that are
or were acquired or beneficially owned by any Acquiring Person or by
any Associate or Affiliate of any Acquiring Person) shall thereafter
have a right to receive, upon exercise thereof at a price equal to the
then current Purchase Price multiplied by the number of Exchangeable
Shares for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of such number of Exchangeable
Shares, such other number of Exchangeable Shares of the Company as
shall equal the result obtained by (x) multiplying the then current
Purchase Price by the number of Exchangeable Shares for which a Right
is then exercisable and dividing that product by (y) 50% of the then
current per share market price of the Exchangeable Shares (determined
pursuant to Section 11(d) hereof) on the date of the occurrence of such
event. From and after the occurrence of such event, any Rights that are
or were acquired or beneficially owned by an Acquiring Person (or any
Associate or Affiliate of any Acquiring Person) shall be void and any
holder of such Rights shall thereafter have no right to exercise such
Rights under any provision of this Agreement. No Right Certificate
shall be issued pursuant to Section 3 that represents Rights
beneficially owned by an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be
void pursuant to the preceding sentence or any Associate or Affiliate
thereof or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights Agent for
transfer to an Acquiring Person whose Rights would be void pursuant to
the preceding sentence or any Associate or Affiliate thereof shall be
cancelled. In the event that any Person shall become an Acquiring
Person and any Rights shall then be outstanding, the Company shall not
take any action which would eliminate or diminish the benefits intended
to be afforded by the Rights.
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The Rights Agent shall not be under any responsibility to ascertain the
existence of facts as to whether any Rights are or were acquired or
owned or beneficially owned by an Acquiring Person (or any Associate or
Affiliate or nominee of any Acquiring Person) or transferred to
an Acquiring Person (or any Associate or Affiliate or nominee of any
Acquiring Person) but shall proceed only upon receipt of a written
notice from the Company.
(iii) In the event that there shall not be sufficient Exchangeable
Shares issued but not outstanding or authorized but unissued to permit
the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company shall take all such action as may be
necessary to authorize additional Exchangeable Shares for issuance upon
exercise of the Rights.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Exchangeable Shares entitling
them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Exchangeable Shares (or shares
having the same rights, privileges and preferences as the Exchangeable
Shares ("equivalent exchangeable shares")) or securities convertible
into Exchangeable Shares or equivalent exchangeable shares at a price
per Exchangeable Share or equivalent exchangeable share (or having a
conversion price per share, if a security convertible into Exchangeable
Shares or equivalent exchangeable shares) less than the then current
per share market price of the Exchangeable Shares (determined pursuant
to Section 11(d) hereof) on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Exchangeable
Shares and equivalent exchangeable shares outstanding on such record
date plus the number of Exchangeable Shares and equivalent exchangeable
shares which the aggregate offering price of the total number of
Exchangeable Shares and/or equivalent exchangeable shares so to be
offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current
market price and the denominator of which shall be the number of
Exchangeable Shares and equivalent exchangeable shares outstanding on
such record date plus the number of additional Exchangeable Shares
and/or equivalent exchangeable shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be paid in
a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent.
Exchangeable Shares and equivalent exchangeable shares owned by or held
for the account of the Company or Mattel (or any subsidiary thereof or
any person directly or indirectly controlled by or under common control
of Mattel) shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be
the Purchase Price which would then be in effect if such record date
had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Exchangeable Shares (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly
cash dividend or a dividend payable in Exchangeable Shares) or
subscription rights or warrants (excluding those referred to in Section
11(b) hereof), the Purchase Price to be in effect after such
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record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price of
the Exchangeable Shares (determined pursuant to Section 11(d) hereof) on
such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent) of the
portion of the assets or evidences of indebtedness so to be distributed
or of such subscription rights or warrants applicable to one
Exchangeable Share and the denominator of which shall be such current
per share market price (determined pursuant to Section 11(d) hereof) of
the Exchangeable Shares. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted
to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of
this Section 11(d)(i)) on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the 30
consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event
that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or
(B) any subdivision, combination or reclassification of such Security
and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such
cause, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of
such Security. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the Security is not listed or admitted
to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or such other system then in use, or, if on any such
date the Security is not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of
Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on
any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Exchangeable Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the
Exchangeable Shares are not publicly traded, the "current per share
market price" of the Exchangeable Shares shall be conclusively deemed
to be an amount equal to (A) the current per share market price of the
Mattel Common Shares as determined
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pursuant to Section 11(d)(i) (appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the
date hereof), multiplied by (B) the Merger Exchange Ratio. If neither
the Mattel Common Shares nor the Exchangeable Shares are publicly held
or so listed or traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason
of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent or
to the nearest one ten-thousandth of an Exchangeable Share or of any
other share or security as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section
11 shall be made no later than the earlier of (i) three years from the
date of the transaction which requires such adjustment or (ii) the date
of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than
Exchangeable Shares, thereafter the number of such other shares so
receivable upon exercise of any Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Exchangeable Shares
contained in Section 11 (a) through (c), inclusive, and the provisions
of Sections 7, 9, 10 and 13 with respect to the Exchangeable Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the
right to purchase, at the adjusted Purchase Price, the number of
Exchangeable Shares purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11 (i), upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase
Price, that number of Exchangeable Shares (calculated to the nearest
one ten-thousandth of an Exchangeable Share) obtained by
(i) multiplying (x) the number of shares covered by a Right immediately
prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Exchangeable Shares purchasable upon the
exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number
of Exchangeable Shares for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number
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of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in
substitution and replacement of the Right Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for
herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of Exchangeable Shares issuable upon the exercise of the Rights,
the Right Certificates theretofore and thereafter issued may continue
to express the Purchase Price and the number of Exchangeable Shares
which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Exchangeable
Shares or other shares of capital stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Exchangeable
Shares or other such shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the Exchangeable Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise over and
above the Exchangeable Shares and other capital stock or securities of
the Company if any, issuable upon such exercise on the basis of the
Purchase Price in effect prior to such adjustment; provided, however,
that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall
determine to be advisable in order that any consolidation or
subdivision of the Exchangeable Shares, issuance wholly for cash of any
Exchangeable Shares at less than the current market price, issuance
wholly for cash of Exchangeable Shares or securities which by their
terms are convertible into or exchangeable for Exchangeable Shares,
dividends on Exchangeable Shares payable in Exchangeable Shares or
issuance of rights, options or warrants referred to herein above in
Section 11(b), hereafter made by the Company to holders of its
Exchangeable Shares shall not be taxable to such stockholders.
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Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the
Exchangeable Shares a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof. The Rights Agent shall be fully protected in acting and relying on any
such certificate and on any adjustment therein contained and shall not be
deemed to have knowledge of any such adjustment unless and until it shall have
received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event, directly or indirectly, at any time after any Person has
become an Acquiring Person, (a) Mattel shall consolidate with, or merge with
and into, any other Person, (b) any Person shall consolidate with Mattel or
merge with and into Mattel and Mattel shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part of
the Mattel Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or Mattel) or cash or any other property, or
(c) Mattel shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning power to Mattel
and its Subsidiaries (taken as a whole) to any other Person other than Mattel
or one or more of its wholly-owned Subsidiaries, then, and in each such case,
proper provision shall be made so that (i) each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of Exchangeable Shares for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Exchangeable Shares,
such number of Common Shares of such other Person (including Mattel, as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of
Exchangeable Shares for which a Right is then exercisable and dividing that
product by (B) 50% of the then current per share market price of the Common
Shares of such other Person (determined pursuant to the Section 11(d) hereof)
on the date of consummation of such consolidation, merger, sale or transfer;
(ii) the issuer of such Common Shares shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of Mattel pursuant to this Agreement (iii) the term
"Mattel" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof)
in connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise
of the Rights. Mattel shall not consummate any such consolidation, merger, sale
or transfer unless prior thereto the Company, Mattel and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. Mattel shall not enter into any transaction of the kind referred to
in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be
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paid to the registered holders of the Right Certificates with regard to
which such fractional Rights would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value
of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price for any day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted
to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-
the-counter market, as reported by NASDAQ or such other system then in
use or, if any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date
no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Exchangeable
Shares upon exercise of the Rights or to distribute certificates which
evidence fractional Exchangeable Shares. In lieu of fractional
Exchangeable Shares, the Company shall pay to the registered holders of
Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current
market value of one Exchangeable Share. For the purposes of this
Section 14(b), the current market value of an Exchangeable Share shall
be the closing price of an Exchangeable Share (as determined pursuant
to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares
upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered
holders of the Exchangeable Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Exchangeable Shares),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Exchangeable Shares),
in his own behalf and for his own benefit, may enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, and
may otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate and in
this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Agreement.
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Section 16. Agreement of Right Holders. Every holder of a Right, by accepting
the same, consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the associated Exchangeable Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only in the registry books of the Rights Agent if surrendered at the
office or agency of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the Person in whose
name the Right Certificate (or, prior to the Distribution Date, the
associated Exchangeable Shares certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right
Certificates or the associated Exchangeable Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Rights Agent shall have any liability to any holder of
a Right or to any other Person as a result of the Company's or the
Rights Agent's inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or
by a government, regulatory or administrative agency or commission, or
any statute, rule, regulation or executive order promulgated or enacted
by any governmental authority, prohibiting or otherwise restraining
performance of such obligation.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Exchangeable Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions thereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees
and other disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties hereunder
(including the reasonable fees and disbursements of any expert retained
by the Rights Agent). The Company also agrees to indemnify the Rights
Agent for, and to hold it harmless against any loss, liability or
expense, incurred without negligence, bad faith or willful misconduct
on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of
this Agreement,
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including legal costs and expenses, which right to indemnification will
survive the termination of this Agreement or the resignation or removal
of the Rights Agent.
(b) The Rights Agent shall be protected and shall incur no liability for,
in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Exchangeable Shares or for other
securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by
it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons, or otherwise
upon the advice of counsel as set forth in Section 20 hereof.
(c) The Company shall inform the Rights Agent in a reasonably timely manner
of events which may materially affect the administration of this
Agreement by the Rights Agent and, at any time upon request, shall
provide to the Rights Agent an incumbency certificate certifying the
then current officers of the Company.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the
Rights Agent or any successor Rights Agent shall be a party, or any
corporation succeeding to the stock transfer or corporate trust powers
of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any
of the parties hereto; provided, that such corporation would be
eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor
Rights Agent shall succeed to the agency created by this Agreement, any
of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the
Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name
of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and in case at that time any of the Right Certificates
shall not have been countersigned, the Rights Agent may countersign
such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may retain and consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in
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accordance with such opinion and the Rights Agent may also consult with
such other experts as the Rights Agent shall consider necessary or
appropriate, acting reasonably, to properly carry out its duties and
obligations under this Agreement (at the expense of the Company) and the
Rights Agent shall be entitled to act and rely in good faith on the
advice of any such expert.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate
signed by any of the Chairman of the Board of Directors, the President,
any Vice President, the Treasurer, the Controller or the Secretary of
the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
Right Certificates or in the certificates for Common Shares or
Exchangeable Shares (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are
and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate; (except its
countersignature thereof); nor shall it be responsible for any breach
by the Company of any covenant or condition contained in this Agreement
or in any Right Certificate; nor shall it be responsible for any change
in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 11(a) (ii) hereof) or any adjustment in the terms
of the Rights (including the manner, method or amount thereof) provided
for in Sections 3, 11, 13, 23 and 24, or the ascertaining of the
existence of facts that would require any such change or adjustment
(except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate furnished pursuant to
Section 12, describing such change or adjustment); nor shall it by any
act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any Exchangeable Shares to be
issued pursuant to this Agreement or any Right Certificate or as to
whether any Exchangeable Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered
all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept written
instructions with respect to the performance of its duties hereunder
from any person reasonably believed by the Rights Agent to be one of
the Chairman of the Board of Directors, the President, any Vice
President, the Secretary, the Controller or the Treasurer of the
Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be
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liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Company may, at the
option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and
the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for
any action taken by, or omission of, the Rights Agent in accordance with
a proposal included in any such application on or after the date
specified in such application (which date shall not be less than five
Business Days after the date any officer of the Company actually
receives such application, unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent
shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as
though it were not Rights Agent under this Agreement. Nothing herein
shall preclude the Rights Agent from acting in any other capacity for
the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct
of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment
thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
30 days' notice in writing mailed to the Company and to each transfer agent of
the Exchangeable Shares by registered or certified mail, and to the holders of
the Right Certificates by first-class mail. The Company may remove the Rights
Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Exchangeable Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, within such notice, submit his
Right Certificate for inspection by the Company), then the resigning Rights
Agent or registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent at the
Company's expense. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a trust company organized and doing
business under the laws of Canada or any province of Canada, in good standing,
having an office in the Province of Ontario, which is authorized under the
laws of the Province of Ontario to exercise corporate trust or stock transfer
powers and is subject to supervision or examination by federal or provincial
authority and which has (together with its Affiliates) at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with
the same powers,
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rights, duties and responsibilities as if it had been originally named as
Rights Agent without further act or deed; but the predecessor Rights Agent
shall upon payment in full of any outstanding amounts owing by the Company to
the Rights Agent under this Agreement, deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. Not later than the effective date of any such appointment the Company
shall file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Exchangeable Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company shall, simultaneously with any
order by the Board of Directors of Mattel pursuant to Section 24 of the
Mattel Rights Agreement, order the redemption of all but not less than
all the then outstanding Rights at a per Right redemption price equal
to U.S. $.01 multiplied by the Merger Exchange Ratio appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights shall be made effective at such time, on such
basis and with such conditions as are imposed by the Board of Directors
of Mattel in connection with the redemption of the Mattel Rights
pursuant to Section 24 of the Mattel Rights Agreement.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23
(or at such later time as the Board of Directors may establish for the
effectiveness of such redemption), and without any further action and
without any notice, the right to exercise the Rights will terminate and
the only right thereafter of the holders of Rights shall be to receive
the Redemption Price. The Company shall promptly give public notice of
any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice
of redemption to all the holders of the then outstanding Rights at
their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books
of the transfer agent for the Exchangeable Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption
shall state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any
time except (i) in the manner specifically set forth in this Section 23
or in Section 24 hereof or (ii) in connection with the purchase of
Exchangeable Shares prior to the Distribution Date.
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Section 24. Exchange.
(a) Simultaneously with the action by the Board of Directors of Mattel to
exercise its option to exchange the Mattel Rights pursuant to Section
24 of the Mattel Rights Agreement, the then outstanding and exercisable
Rights (which shall not include Rights that have become void pursuant
to the provisions of Section 11 (a) (ii) hereof) shall be automatically
and mandatorily exchanged in the same proportion and under the same
terms and conditions as the Mattel Rights are exchanged pursuant to
Section 24 of the Mattel Rights Agreement, for Exchangeable Shares at
an exchange ratio of one Exchangeable Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio").
(b) Immediately upon the exchange of any Rights pursuant to paragraph (a)
of this Section 24 and without any further action and without notice,
the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number
of Exchangeable Shares equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly
give public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company promptly shall mail a notice of
any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such
notice of exchange shall state the method by which the exchange of the
Exchangeable Shares for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of
Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Exchangeable Shares
issued but not outstanding or authorized but unissued to permit an
exchange of Rights as contemplated in accordance with this Section 24,
the Company shall take all such action as may be necessary to authorize
additional Exchangeable Shares for issuance upon exchange of the
Rights.
(d) The Company shall not be required to issue fractions of Exchangeable
Shares or to distribute certificates which evidence fractional
Exchangeable Shares. In lieu of such fractional Exchangeable Shares,
the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Exchangeable Shares
would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole Exchangeable Share. For
the purposes of this paragraph (d), the current market value of a whole
Exchangeable Share shall be the closing price of an Exchangeable Share
(as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case Mattel shall give notice to the holders of Mattel Rights
pursuant to Section 25(a) of the Mattel Rights Agreement or in case the
Company shall propose (i) to pay any dividend payable in stock of any
class to the holders of its Exchangeable Shares or to make any other
distribution to the holders of its Exchangeable Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its
Exchangeable Shares rights or warrants to
20
<PAGE>
subscribe for or to purchase any additional Exchangeable Shares or
shares of stock of any class or any other securities, rights or options,
(iii) to effect any reclassification of its Exchangeable Shares (other
than a reclassification involving only the subdivision of outstanding
Exchangeable Shares), (iv) to effect any consolidation or merger into or
with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to, any other Person,
(v) to effect the liquidation, dissolution or winding up of the Company,
or (vi) to declare or pay any dividend on the Exchangeable Shares
payable in Exchangeable Shares or to effect a subdivision, combination
or consolidation of the Exchangeable Shares (by reclassification or
otherwise than by payment of dividends in Exchangeable Shares), then, in
each such case, Mattel or the Company, as the case may be, shall give to
each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record
date for the purposes of such stock dividend, or distribution of rights
or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up is to
take place and the date of participation therein by the holders of the
Mattel Common Shares and/or Mattel Preference Shares or the Exchangeable
Shares, as the case may be, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i)
or (ii) of Section 25 of the Mattel Rights Agreement or clause (i) or
(ii) above at least 10 days prior to the record date for determining
holders of the securities for purposes of such action, and in the case
of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by
the holders of the securities, whichever shall be the earlier.
(b) In case any event described in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to the
Rights Agents and each holder of a Right Certificate, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which
notice shall describe such event and the consequences of such event to
holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
if to the Company:
Softkey Software Products Inc.
133 Continental Boulevard
El Segundo, California 90245-5012
Attention: Secretary
if to Mattel:
Mattel, Inc.
133 Continental Boulevard
El Segundo, California 90245-5012
Attention: Secretary
21
<PAGE>
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or Mattel or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company and Mattel) as follows:
CIBC Mellon Trust Company
320 Bay Street
P.O. Box 1
Toronto, Ontario M5H 4A6
Attention: Assistant Vice President
Client Services
Notices or demands authorized by this Agreement to be given or made by the
Company or Mattel or the Rights Agent to the holder of any Right Certificate
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company. Any notice or demand given or made in accordance
with this Section 26 shall be deemed given, whether or not the holder actually
receives the notice.
Section 27. Supplements and Amendments. The Company may from time to time,
with the approval of a majority of the Board of Directors, supplement or amend
this Agreement without the approval of any holders of Right Certificates in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
or to make any other provisions with respect to the Rights which the Company
may deem necessary or desirable, any such supplement or amendment to be
evidenced by a writing signed by the Company, Mattel and the Rights Agent;
provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Notwithstanding any
other provision hereof, (a) the Rights Agent's consent must be obtained
regarding any amendment or supplement pursuant to this Section 27 which alters
the Rights Agent's rights or duties, (b) if any provision of the Mattel Rights
Agreement is supplemented or amended, the Company shall supplement or amend
this Rights Agreement as soon as practicable in substantially the same manner
(unless such supplement or amendment shall be in violation of the laws of the
Province of Ontario or the federal laws of Canada applicable therein) and (c)
except pursuant to clause (b) above, no provision of this Rights Agreement
shall be supplemented or amended (except to cure any ambiguity or to correct or
supplement any provision contained herein which may be inconsistent with any
provision of the Mattel Rights Agreement or the laws of the Province of Ontario
and the federal laws of Canada applicable therein).
Section 28. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company, Mattel or the Rights Agent shall bind and
inure to the benefit or their respective successors and assign hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, Mattel, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Exchangeable Shares) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, Mattel, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Exchangeable Shares).
22
<PAGE>
Section 30. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the Province
of Ontario and for all purposes shall be governed by and construed in
accordance with the laws of such Province applicable to contracts to be made
and performed entirely within such Province.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provision hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
SOFTKEY SOFTWARE PRODUCTS INC.
By: /s/ R. Scott Murray
---------------------------------
Name: R. Scott Murray
Title: Chief Financial Officer,
Vice President and Treasurer
MATTEL, INC.
By: /s/ Robert Normile
---------------------------------
Name: Robert Normile
Title: Senior Vice President,
General Counsel and
Secretary
CIBC MELLON TRUST COMPANY, as Rights
Agent
By: /s/ Warren Jansen
---------------------------------
Name: Warren Jansen
Title:
By: /s/ Susan Clough
---------------------------------
Name: Susan Clough
Title:
23
<PAGE>
EXHIBIT A
FORM OF RIGHT CERTIFICATE
Certificate No. R- Rights
NOT EXERCISABLE AFTER FEBRUARY 17, 2002 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION FOR AN AMOUNT
PER RIGHT EQUAL TO U.S. $.01 MULTIPLIED BY THE MERGER EXCHANGE RATIO
AND TO EXCHANGE ON TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
SOFTKEY SOFTWARE PRODUCTS INC.
This certifies that , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of May 13, 1999 (the "Rights Agreement"), between Softkey
Software Products Inc., an Ontario Corporation (the "Company"), Mattel Inc., a
Delaware corporation ("Mattel"), and CIBC Mellon Trust Company, a trust
company incorporated under the laws of Canada (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City
time, on February 17, 2002 at the office or agency of the Rights Agent
designated for such purpose, or of its successor as Rights Agent, one fully
paid non-assessable exchangeable share in the capital stock of the Company
(the "Exchangeable Shares"), at a purchase price per Exchangeable Share equal
to U.S. $150 multiplied by the Merger Exchange Ratio (the "Purchase Price"),
upon presentation and surrender of this Right Certificate with the form of
Election to Purchase duly executed. The number of Rights evidenced by this
Right Certificate (and the number of Exchangeable Shares which may be
purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of May 13, 1999, based on
the Exchangeable Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of Exchangeable Shares which may
be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the
rights, limitation of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates.
Capitalized terms not defined herein shall have the meanings set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the registered
office of the Company and the above-mentioned office or agency of the Rights
Agent. The Company will mail to the holder of this Right Certificate a copy of
the Rights Agreement without charge after receipt of a written request
therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates
of like tenor and date evidencing Rights entitling the holder to purchase a
like aggregate number of Exchangeable Shares as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right
A-1
<PAGE>
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Right Certificate (i) may be redeemed by the Company at a redemption price
per Right equal to U.S. $.01 multiplied by the Merger Exchange Ratio or (ii)
may be exchanged by the Company in whole or in part for Exchangeable Shares.
No fractional Exchangeable Shares will be issued upon the exercise or
exchange of any Right or Rights evidenced hereby, but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Exchangeable
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote upon any
matter submitted to stockholders of the Company or Mattel at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in the Rights Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised or exchanged as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal. Dated as of .
SOFTKEY SOFTWARE PRODUCTS INC.
By: _________________________________
CIBC MELLON TRUST COMPANY, as Rights
Agent
By: _________________________________
A-2
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such holder desires to transfer the
Right Certificate.)
FOR VALUE RECEIVED ___________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ________________________
_____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, or a commercial bank or trust company.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement).
_____________________________________
Signature
- --------------------------------------------------------------------------------
A-3
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE--Continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the Right
Certificate.)
To SOFTKEY SOFTWARE PRODUCTS INC.
The undersigned hereby irrevocably elects to exercise Rights
represented by this Right Certificate to purchase the Exchangeable Shares
issuable upon the exercise of such Rights and requests that certificates for
such Exchangeable Shares be issued in the name of:
Please insert social insurance
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social insurance
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
________________________________________________________________________________
Dated: ________________________
-------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, or a commercial bank or trust company.
A-4
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE--Continued
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement).
_____________________________________
Signature
________________________________________________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event that the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement) and such Assignment
or Election to Purchase will not be honored.
A-5
<PAGE>
Exhibit B
SOFTKEY SOFTWARE PRODUCTS INC.
SUMMARY OF RIGHTS TO PURCHASE
EXCHANGEABLE SHARES
On May 7, 1999, the Board of Directors of Softkey Software Products Inc. (the
"Company") authorized the issuance of one exchangeable share purchase right (a
"Right") for each outstanding exchangeable share (the "Exchangeable Shares") of
the Company. Rights were issued on May 13, 1999 (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one Exchangeable Share of the Company at a price
per Exchangeable Share equal to U.S. $150 multiplied by 1.2 (which is the
Merger Exchange Ratio, as defined in the Rights Agreement) (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated as of May 13, 1999 (the "Rights Agreement")
between the Company, Mattel, Inc. ("Mattel") and CIBC Mellon Trust Company, as
Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 20% or more of the aggregate
number of the shares of common stock, par value U.S. $1.00 per share of Mattel
(the "Mattel Common Shares") and Exchangeable Shares then outstanding or (ii)
10 business days (or such later date as may be determined by action of the
Board of Directors of Mattel prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the aggregate number of Mattel Common Shares and
Exchangeable Shares then outstanding (the earlier of such dates being called
the "Distribution Date"), the Rights will be evidenced, with respect to any of
the Exchangeable Share certificates outstanding as of the Record Date, by such
Exchangeable Share certificates with a copy of this Summary of Rights. For
purposes of the foregoing, the number of Exchangeable Shares outstanding will
mean 1.2 multiplied by the number of Exchangeable Shares then issued and
outstanding which are not owned by Mattel, any of its subsidiaries or any
person controlled by Mattel.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with
and only with the Exchangeable Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Exchangeable Share certificates
issued after the Record Date upon transfer or new issuance of Exchangeable
Shares will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for Exchangeable Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Exchangeable Shares represented by such
certificates. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Exchangeable Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The rights are not exercisable until the Distribution Date. The Rights will
expire on February 17, 2002 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
B-1
<PAGE>
The Purchase Price payable, and the number of Exchangeable Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Exchangeable Shares, (ii) upon the grant to holders of the Exchangeable Shares
of certain rights or warrants to subscribe for or purchase Exchangeable Shares
at a price, or securities convertible into Exchangeable Shares with a
conversion price, less than the then-current market price of the Exchangeable
Shares or (iii) upon the distribution to holders of the Exchangeable shares of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends in Exchangeable Shares)
or of subscription rights or warrants (other than those referred to above).
In the event that, after a person or group has become an Acquiring Person,
Mattel is acquired in a merger or other business combination transaction or 50%
or more of Mattel's consolidated assets or earnings power are sold, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Exchangeable Shares
having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the Mattel Common
Shares and Exchangeable Shares outstanding, the Board of Directors of Mattel
may take certain actions which, if taken, will result in the automatic and
mandatory exchange of the Rights (other than Rights owned by such person or
group which will have become void), in whole or in part, at an exchange ratio
of one Exchangeable Share per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional Exchangeable Shares will be issued and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Exchangeable Shares on the last trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company shall, simultaneously with any order by the Mattel
Board of Directors to redeem the Mattel Rights, order the redemption of the
Rights in whole, but not in part, at a price per Right equal to U.S. $.01
multiplied by 1.2 (the "Redemption Price"). The redemption of the Rights shall
be made effective at such time, on such basis and with such conditions as are
imposed by the Board of Directors of Mattel in connection with the redemption
of the Mattel Rights. Immediately upon any redemption of the Rights, the right
to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights except that from and
after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the
interests of the holders of the Rights. If any provision of the Mattel Rights
Agreement (as defined in the Rights Agreement) is supplemented or amended, the
Company is required to
B-2
<PAGE>
supplement or amend the Rights Agreement in substantially the same manner, and
the Rights Agreement generally is not otherwise permitted to be supplemented or
amended.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a holder of Exchangeable Shares or Mattel Common Shares, including, without
limitation, the right to vote or to receive dividends.
A copy of the Rights Agreement is available free of charge from the Company.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.
B-3
