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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-05647
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MATTEL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 95-1567322
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
</TABLE>
333 Continental Boulevard
El Segundo, California 90245-5012
(Address of principal executive offices)
(310) 252-2000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
(and the associated Preference Share Purchase Pacific Exchange, Inc.
Rights)
</TABLE>
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Securities registered pursuant to Section 12(g) of the Act:
(NONE)
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on March 6, 2000 was $4,228,362,307.
Number of shares outstanding of registrant's common stock, $1.00 par value,
(including 3,109,270 common shares issuable upon exchange of outstanding
exchangeable shares of Softkey Software Products Inc.) as of March 6, 2000:
425,495,578 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Mattel, Inc. 2000 Notice of Annual Meeting of Stockholders
and Proxy Statement, to be filed with the Securities and Exchange Commission
within 120 days after the close of the registrant's fiscal year (Incorporated
into Part III).
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PART I
Item 1. Business
Mattel, Inc. ("Mattel") designs, manufactures, and markets a broad variety
of family 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 successfully market those products and product lines. Mattel plans to
continue to focus on its traditional portfolio of brands which have
historically had worldwide sustainable appeal. For a description of Mattel's
portfolio of brands, see "Products--Toy Marketing."
Mattel has undertaken significant steps in recent years to augment its
portfolio of brands with additional product lines. In March 1997, Mattel
completed its merger with Tyco Toys, Inc. ("Tyco"), which at the time was the
third largest toy company in the US. As a result of the merger, Mattel added
the Matchbox(R), Tyco(R) Electric Racing, Tyco(R) Radio Control, Sesame
Street(R), Magna Doodle(R), and View Master(R) brands in their portfolio. In
July 1998, Mattel completed its acquisition of Pleasant Company, a Wisconsin-
based direct marketer of books, dolls, clothing, accessories and activity
products included under the American Girl(R) brand name. In May 1999, Mattel
merged with The Learning Company, Inc. ("Learning Company"), a developer and
publisher of a broad range of high quality branded consumer software for
personal computers sold both in North America and internationally. The merger
added the Carmen Sandiego(TM), Reader Rabbit(R), The Oregon Trail(R), National
Geographic(R), American Greetings(R), The Print Shop(R), Riven(R) and Myst(R)
brands to Mattel's portfolio. The merger was accounted for as a pooling of
interests, which means that for accounting and financial reporting purposes,
the two companies were treated as if they had always been combined.
The above acquisitions are part of a strategic plan by Mattel to better
position itself as a consumer products company that provides its core
customers--children--with products that meet their preferences in an
increasingly interactive and technology-driven world. The strategy has three
components.
First, Mattel is communicating with consumers more directly. Pleasant
Company is a premier direct marketer, using catalog and on-line sales over the
Internet as primary sales and marketing techniques. Learning Company has a
significant presence on the Internet. Mattel hopes to expand marketing of its
products through the individual sites of its world-renowned brands linked
through the nexus of Mattel.com. Through this Internet presence, Mattel.com can
showcase its brands in ways that will benefit Mattel's traditional retailers.
In addition, Mattel has worked with strategic and venture capital partners to
create stand-alone on-line ventures utilizing Learning Company assets, such as
Genealogy.com, LLC and GoodHome, LLC, in which Mattel retains an equity
interest.
The second component of Mattel's strategy is to combine its traditional and
recently acquired brands with new technologies, including software, electronic
games, interactive toys and new media. Through its integration of Learning
Company and Mattel Media into the Mattel Interactive division, Mattel has one
of the leading consumer software operations in the world. Mattel's joint
venture with Intel is focused on producing high-technology, interactive toys
that appeal to increasingly technology-oriented children and teenagers.
The third component of the strategy is the implementation of a "market by
market" approach to Mattel International. Mattel intends to grow its
international business by adapting products to local tastes, economic
conditions and price requirements. Mattel has seen the success of this approach
in the first product category for which it was implemented, the Wheels
products, which saw international sales growth of 20% in 1999. Mattel's 1999
strategic distribution agreement with Bandai Co. Ltd. ("Bandai"), the largest
toy company in Japan, to distribute Mattel products in Japan demonstrates how
this strategy may be implemented in many forms.
Mattel was incorporated in California in 1948 and reincorporated in Delaware
in 1968. Its executive offices are located at 333 Continental Boulevard, El
Segundo, California 90245-5012, telephone (310) 252-2000. Mattel maintains its
primary worldwide web site at www.mattel.com.
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Business Segments
"Mattel" refers to Mattel, Inc. and its subsidiaries as a whole, unless the
context requires otherwise. Mattel's reportable segments are separately managed
business units and include Toy Marketing, Consumer Software and Operations. The
Toy Marketing segment is divided on a geographic basis between domestic and
international. The domestic Toy Marketing segment is divided into USA Toys, US
Fisher-Price/Tyco Preschool and Other. USA Toys principally sells products in
Girls, Entertainment and Wheels categories. US Fisher-Price/Tyco Preschool
principally sells products in the Infant and Preschool categories. The Other
segment principally sells specialty products in the Girls category. The
International Toy Marketing segment sells products in all toy categories. The
Consumer Software segment consists of educational, productivity and
entertainment software products developed and sold by the Learning Company
division on a worldwide basis. The Operations segment manufactures toy
products, which are sold to the Toy Marketing segments. Products sold by the
Consumer Software segment are manufactured by third parties. For additional
information with respect to Mattel's business segment reporting, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Business Segment Results" and Note 8 to the
Consolidated Financial Statements.
Competition and Industry Background
Toy Marketing
Most of Mattel's revenues are derived from its Toy Marketing segments.
Competition in the toy industry is intense and is based primarily on price,
quality and play value. In recent years, the toy industry has experienced rapid
consolidation driven, in part, by the desire of industry competitors to offer a
range of products across a broader variety of categories. Mattel competes on a
worldwide basis with several large toy companies, including Hasbro, Inc. and
many small toy companies. Toy companies have pursued a strategy of focusing on
core product lines, which are expected to be marketed for an extended period of
time, and have historically provided relatively consistent growth in sales and
profitability. By focusing on core product lines, toy manufacturers have been
able to reduce their reliance on new product introductions and the associated
risk and volatility. The juvenile products market, in which Fisher-Price is one
of the leading companies, is more fragmented. The more significant competitors
in this area include: Century Products Company, Graco Children's Products, Inc.
and Evenflo Company, Inc.
The toy industry is also experiencing a shift toward greater consolidation
of retail distribution channels, such as large specialty toy stores and
discount retailers, including Wal-Mart, Toys R Us, Target, Kmart and Kay Bee
Toys, which have increased their overall share of the retail market. This
consolidation has resulted in an increased reliance among retailers on the
large toy companies because of their financial stability and ability to support
products through advertising and promotion and to distribute products on a
national basis. These retailers' growing acceptance of electronic data
interchange has provided toy manufacturers with an ability to more closely
monitor consumers' acceptance of a particular product or product line and has
provided retailers with the ability to more closely monitor their inventory
levels.
Over the last ten years, toy companies based in the US have expanded their
international marketing and manufacturing operations. Mattel believes a strong
international distribution system can add significantly to the sales volume of
core product lines within its international Toy Marketing segment, and extend
the life cycles of newly-developed products.
Consumer Software
The consumer software market has grown over the past few years, but
experienced a slowdown in 1999. The overall growth in this market is a result
of several major trends, including the increasing installed base of PCs in the
home, the improved multimedia capabilities of PCs and the increasing demand for
a greater number of high quality, affordably priced software applications. In
addition, consumers are exposed to software purchase opportunities from a wide
variety of sources and with increased frequency. The Internet has increased
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consumers' exposure to a variety of software products and technologies and
therefore increased their expectations for high quality multimedia educational
and reference software.
The demand for a large number and broad spectrum of value-priced software
products is having a significant impact on consumer software distribution. The
distribution of consumer software has expanded beyond traditional software
retailers and computer stores to include mass merchandisers, price clubs and
superstores. As demand for consumer software has grown with improvements in
multimedia technology, consumers have also grown more sophisticated in their
expectations for software, requiring increasingly easy to use, content rich
products. Furthermore, competition has continued to increase among new and
existing multimedia software publishers, increasing price pressure and
competition for limited retail shelf space. This competition has been
characterized by increased emphasis on channel marketing, coupon rebate
programs and advertising. As this trend continues, it will become increasingly
important for companies to achieve greater sell-through unit volumes by relying
on brand name recognition, to establish strong relationships with retailers and
to consistently launch new product offerings with state-of-the-art capabilities
and rich content.
The consumer software industry is very competitive and is characterized by
rapid changes in technology and customer requirements. Mattel competes for
retail shelf space and general consumer awareness with a number of companies
that market consumer software, including Microsoft Corporation, The Walt Disney
Company, Hasbro, Inc., IBM Corporation and Havas S.A. Mattel encounters
competition from both established companies, including the largest companies in
the industry, and new companies that may develop comparable or superior
products. In addition, the delivery of software via media other than CD-ROM,
including console cartridge and the Internet, has become increasingly
important.
In 1999, the production, assembly and distribution of consumer software
products for sale in North America, with certain exceptions (including
duplication of CD-ROM disks, school channel products and certain OEM products),
was performed primarily by two units of Bertelsmann AG. Mattel believes that
its existing production capacity is sufficient to handle anticipated increases
in volume and titles into the foreseeable future. Manufacturing and assembly of
consumer software products for sale internationally take place primarily at
third-party facilities.
Seasonality
Sales of toy products at retail are seasonal, with a majority of retail
sales occurring during the period from September through December.
Consequently, shipments of toy products to retailers are typically greater in
each of the third and fourth quarters than in the first and second quarters
combined. As the large toy retailers become more efficient in their control of
inventory levels, this seasonality increases. See "Risk Factors."
In anticipation of this seasonal increase in retail sales, Mattel
significantly increases its production in advance of the peak selling period,
resulting in a corresponding build-up of inventory levels in the first three
quarters of the year. In addition, Mattel and others in the toy industry
develop sales, advertising, promotion and merchandising programs with the
retailers to encourage them to purchase merchandise in periods other than the
peak holiday selling season. These programs, together with seasonal shipping
patterns, result in significant peaks in the third and fourth quarters in the
respective levels of inventories and accounts receivable, which result in
seasonal working capital financing requirements. See "Seasonal Financing."
In the fourth quarter of 1998, Mattel's domestic Toy Marketing segment
experienced unanticipated cutbacks in buying by toy retailers due to a shift by
these retailers to just-in-time inventory management systems. See "Risk
Factors." Under just-in-time inventory management systems, retailers are timing
reorders so that they are being filled by suppliers closer to the time of
purchase by consumers, rather than maintaining large on-hand inventories to
meet consumer demand. To respond to such shifts, Mattel took appropriate
actions to adjust its own shipping to more of a just-in-time pattern. As a
result, products that would have previously been shipped in advance of expected
consumer demand will be shipped closer to the time they are expected to be
purchased by the consumer.
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Products
Toy Marketing
Mattel's portfolio of brands can be grouped in the following four
categories:
. Girls--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, Magna Doodle(R),
View-Master(R) and Blues Clues(R);
. Wheels--including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing
and Tyco(R) Radio Control; and
. Entertainment--including Disney, Nickelodeon(R), games and puzzles.
In order to provide greater flexibility in the manufacturing and delivery of
products, and as part of a continuing effort to reduce manufacturing costs,
Mattel has concentrated production of most of its core brands in company-owned
facilities and generally uses independent contractors for the production of
non-core products and CD-ROMs.
With respect to new product introductions, Mattel's strategy is to begin
production on a limited basis until a product's initial success has been proven
in the marketplace. The production schedule is then modified to meet
anticipated demand. Mattel further limits its risk by generally having
independent contractors manufacture new product lines in order to minimize
capital expenditures associated with new product introductions. This strategy
has reduced inventory risk and significantly limited the potential loss
associated with new product introductions.
Consumer Software
The Consumer Software segment develops, publishes and markets software
products for PCs in the following categories: education, reference and
lifestyle, productivity, entertainment and Internet-related. The educational
products educate across every age, from young children to adults, striving for
recognition from retailers, parents, teachers and students as the leader in
educational and reference software. This segment's strategy is to leverage its
name brands and breadth of content by selling across a range of price points
and through multiple distribution channels.
Product Introductions
New product introductions for all segments during 1999 included:
. Intel(R)Play(TM) QX3(TM) microscope and CD-ROM
. Generation Girl(TM) Barbie(R), Millennium Princess(TM) Barbie(R), and
Barbie(R) Airplane
. My Size(TM) Kelly(R) and Kelly Club(TM) dolls,
. Nickelodeon(R) Snooze & Surprise(TM) Dil
. Hot Wheels(R) Ferrari products and Formula One die cast vehicles
. Tyco(R) RC X-Treme Cycle(TM) motorcycle
. Fisher-Price(R)Infant-to-Toddler Soothing Rocker
. Fisher-Price(R) Harley-Davidson(R) Power Wheels(R) child size motorcycle
. Fisher-Price(R) Briarberry Collection(TM)
. Educational Software CD-ROMS including Reader Rabbit(R), Clue
Finders(R), Carmen Sandiego(R), and Oregon Trail(R); Pokemon(R), Fisher
Price(R), Arthur(R), Little Bear(R) and Sesame Street(R) series;
Reference
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and Lifestyle Software CD-ROMS including Compton's Interactive
Encyclopedia, Encyclopedia Britannica, Mad Magazine and National
Geographic Magazine based products; Productivity Software CD-ROMS
including American Greetings(R), Print Shop(R) and PrintMaster(R) series
New product introductions planned for all segments during 2000 include:
. Intel(R)Play(TM) Computer Sound Morpher handheld sound recorder and CD-
ROM
. Intel(R)Play(R) Movie Creator(TM) digital video camera with editing
software
. Jewel Girl(TM) Barbie(R) doll with a redesigned athletic natural
physique with "soft" torso, wider hips, bellybutton and smaller bust and
Barbie(R) accessories such as 2000 Model Volkswagen Beetle vehicle and
Barbie(R) Rock 'N Roll Radio House(TM)
. Nickelodeon(R) Sing & Swing(TM) Angelica
. Max Steel(TM) line of high-tech designed action figures and vehicles
. Hot Wheels(R) Monster Jam(TM) WCW(TM), a line of 1:64 scale version of
United States Hot Rod Association monster trucks featuring World
Championship Wrestling(TM) decoration
. Hot Wheels(R) X-V Extreme skateboard figures and playset and electric
racing sets including X-Treme MotoCross(TM)
. Matchbox(R) Mega-Rig(R) modular vehicle playsets including themes such
as arctic submarine and jungle hovercraft
. Tyco(R) RC Speed Wrench(TM) truck with 8 interchangeable wheels
. Tyco(R) RC Racin' Ratz(TM) line of vehicles with headlights
. American Girls Collection(R) Samantha and Molly adventure CD-ROMS
. Fisher-Price(R) Intelli-Table(TM) developed with Microsoft Corporation
. Fisher-Price(R) voice controlled Robotic Puppy
. Fisher-Price(R) Jammin' Draw(TM)
. Educational Software CD-ROMS including Scooby Doo(R), Pokemon(R), Reader
Rabbit(R), Carmen Sandiego(R) and Arthur(R); Reference and
LifestyleSoftware CD-ROMS including For Dummies(R), National Geographic
and Mad Magazine based products, Productivity Software CD-ROMS including
American Greetings(R) and PrintShop(R) series; Entertainment Software
CD-ROMS including brand based products such Barbie(R), Hot Wheels(R),
Nickelodeon(R), Fisher-Price(R) and Cabbage Patch Kids(R); as well as
entertainment titles such as Pool of Radiance(TM), Earth 2150(R), Reach
For The Stars(TM) and Close Combat(R) PC, Nintendo(R)GameBoy(R) and
Sony(R) PlayStation(R) platforms
International Operations
Revenues from Mattel's international operations, including Toy Marketing and
Consumer Software, represented approximately 28% of total consolidated net
sales in 1999. Generally, products marketed internationally are the same as
those marketed domestically, although some are developed or adapted for
particular international markets. Mattel's products are sold directly in Canada
and most European, Asian and Latin American countries, and through agents and
distributors in those countries where Mattel has no direct presence. See
"Licenses and Distribution Agreements." For a description of a number of the
risks associated with Mattel's international operations, see "Risk Factors."
In 1999, Mattel entered into distribution agreements with Bandai, Japan's
largest toymaker, pursuant to which Mattel will distribute certain Bandai
products in Latin America and on a case-by-case basis in the US,
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and Bandai will distribute certain Mattel products in Japan. In 1999 and 2000,
Mattel ceased distribution through third-party distributors in Central America
and the Caribbean and will distribute products directly in those regions.
The strength of the US dollar relative to other currencies can significantly
affect the revenues and profitability of Mattel's international operations.
From time to time, Mattel enters into foreign currency forward exchange and
option contracts primarily as hedges of inventory purchases, sales and other
intercompany transactions denominated in foreign currencies to limit the effect
of exchange rate fluctuations on the results of operations and cash flows. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Instruments and --Foreign Currency Risk" and Note 6 to
the Consolidated Financial Statements. For financial information by geographic
area, see Note 8 to the Consolidated Financial Statements.
Product Design and Development
Toy Marketing
Through its product design and development group, Mattel regularly
refreshes, redesigns and extends existing toy product lines and develops
innovative new toy product lines. Mattel's success is dependent on its ability
to continue this activity. See "Risk Factors." Product design and development
are principally conducted by a group of professional designers and engineers
employed by Mattel.
Independent toy designers and developers bring products to Mattel and are
generally paid a royalty on the net selling price of products licensed by
Mattel. These independent toy designers may also create different products for
other toy companies.
Mattel devotes substantial resources to product design and development.
During the years ended December 31, 1999, 1998 and 1997, Mattel spent
approximately $208 million, $275 million and $246 million, respectively, in
connection with the design and development of products for the Toy Marketing
segment, exclusive of royalty payments. See Note 10 to the Consolidated
Financial Statements.
Consumer Software
Internal product development efforts related to consumer software are
designed to result in efficient and timely product introductions focusing on
"core code" development. Where possible, Mattel specifies, develops and manages
(or purchases) one base of source code from which many products are created.
Using one base of source code permits Mattel to maximize programming efficiency
because the investment of time and capital in developing the base source code
is shared among multiple products and additional programming time is minimized.
As a result, production schedules are more predictable and development costs
are lower since the underlying code for new programs has previously been tested
and debugged and the software already documented. Even with these "core codes",
Mattel must continuously update and improve the content and the technology of
its products in order to remain competitive.
In certain instances, Mattel's internally developed products contain
components that have been developed by outside developers or authors and are
licensed by Mattel. Mattel generally pays these outside developers/authors
royalties based on a percentage of net sales or on a work-for-hire basis.
Amortization of software development costs included in cost of goods sold
was $64.3 million, $20.2 million, and $12.1 million for the years ended
December 31, 1999, 1998 and 1997, respectively. See Note 1 to the Consolidated
Financial Statements.
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Advertising, Marketing and Sales
Mattel supports its product lines with extensive advertising and consumer
promotions. Advertising continues at varying levels throughout the year and
peaks during the Christmas season. Advertising includes television and radio
commercials, and magazine and newspaper advertisements. Promotions include in-
store displays, coupons, merchandising materials and major events focusing on
products and tie-ins with various consumer products companies. Separately, a
total of twenty-five BARBIE Boutiques are located in F.A.O. Schwarz toy stores,
including the "BARBIE on Madison" boutique at the F.A.O. Schwarz flagship store
in New York City. In November 1998, Mattel opened its first store, American
Girl Place(TM), in Chicago featuring children's products from Pleasant Company.
During the years ended December 31, 1999, 1998 and 1997, Mattel spent
approximately $946 million (17% of net sales), $918 million (16% of net sales),
and $846 million (16% of net sales) respectively, on worldwide advertising and
promotion.
During the year ended December 31, 1999, Mattel's two largest customers,
Wal-Mart and Toys R Us, accounted for approximately 33% of consolidated net
sales. See "Risk Factors."
Toy Marketing
Mattel's products are sold throughout the world. Products within the
domestic Toy Marketing segment are distributed directly to large retailers,
including discount and free-standing toy stores, chain stores, department
stores, other retail outlets and, to a limited extent, wholesalers. Discount
toy stores continue to increase their market share. Products within the
international Toy Marketing segment are sold directly in Canada and most
European, Asian and Latin American countries, and through agents and
distributors in those countries where Mattel has no direct presence.
Mattel has also been focusing on direct-to-consumer sales, through both its
direct-to-consumer catalogue business and by taking advantage of e-commerce
over the Internet. During 1998 and 1999, Mattel introduced websites that
support its numerous core products. Consumers can purchase many of Mattel's
products over the Internet, including Barbie(R) collector dolls, Mattel
Media(R) software products, and Hot Wheels(R) and Matchbox(R) collectibles.
Mattel believes that increasing its focus on direct-to-consumer sales will help
to maximize sales of its products and create a better balance between direct-
to-consumer sales and sales to traditional retailers. The Other segment markets
its products, including the American Girl(R) brand, via direct-to-consumer
catalogs and over the Internet.
In general, Mattel's major domestic and international customers review its
toy product lines and product concepts for the upcoming year at showings
beginning in late summer and at the American International Toy Fair in New York
in February.
Through its marketing research departments, Mattel conducts basic consumer
research and product testing and monitors demographic factors and trends. This
information assists Mattel in evaluating consumer acceptance of products,
including whether there is increasing or decreasing demand for its products.
Consumer Software
The Consumer Software segment distributes its consumer software products
through retail, direct response, on-line, OEM and school channels within North
America and through international channels throughout Europe and the Pacific
Rim.
Retail Channels. The Consumer Software segment has relationships with the
national retailers and direct distributors responsible for most of the nation's
software sales. The segment's retail distribution strategy is to foster strong
direct relationships with large retailers through a broad product offering,
active participation in channel management and innovative merchandising. For a
discussion of problems related to the Consumer Software retail channels in
1999, see "Risk Factors."
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Direct Response. The Consumer Software segment typically utilizes targeted
customer mailings highlighting specific products. Prior to a full mailing, test
mailings are conducted at different price points and marketing approaches in
order to maximize response rates from customers. This segment also sells its
products through direct mailings to potential end-users who are not part of the
installed user base using rented mailing lists. Electronic registration of
consumer software products previously sold allows this segment to collect data
from its customers that in turn provide customer leads for its direct response
business. An Internet website contains a catalog of the Consumer Software
segment's products that consumers can use to browse through the segment's
products and submit orders on-line or by telephone.
Original Equipment Manufacturers. The OEM sales strategy is to assist
hardware manufacturers and on-line services to differentiate their product
lines and to introduce Mattel's brands to new computer hardware buyers. This
segment licenses its software products to OEMs (including IBM, Apple, Compaq,
Hewlett-Packard, America On-Line and Patriot Computers), which typically
purchase products in higher volumes and at lower prices than retail stores and
distributors.
School Channel. The school channel focuses its efforts on the unique needs
of the school market through targeted and specialized marketing and services.
Products are sold directly to schools and school districts through field based
direct sales representatives, telemarketing and direct mail. Sales are also
made through authorized resellers and distributors including Educational
Resources and Ingram Micro. Through Mattel's subsidiary Learning Services Inc.,
this segment publishes an educational software catalog for teachers and schools
marketing products from most educational software publishers under the Learning
Services brand.
Operations Segment
The Operations segment manufactures toy products, either in company-owned
facilities and by independent contractors, which are sold to the Toy Marketing
segment. Products are also purchased from unrelated entities that design,
develop and manufacture the products. In order to provide greater flexibility
in the manufacture and delivery of products, and as part of a continuing effort
to reduce manufacturing costs, Mattel has concentrated production of most of
its core products in Mattel's facilities and generally uses independent
contractors for the production of non-core products and CD-ROMs. See Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Manufacturing Risk."
Mattel's primary toy manufacturing facilities are located in the states of
Kentucky and Oregon, and in Mexico, China, Indonesia, Malaysia, Thailand and
Italy. Mattel also utilizes independent contractors to manufacture products in
the US, Europe, Mexico, the Far East and Australia. To help avoid disruption of
its product supply due to political instability, civil unrest, economic
instability, changes in government policies and other risks, Mattel produces
many of its key products in more than one facility. During 1999, Mattel closed
three of its higher cost manufacturing facilities. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Restructuring and Other Charges" and Note 7 to the Consolidated Financial
Statements. Mattel believes that its existing production capacity at its toy
manufacturing facilities is sufficient to handle expected volume in the
foreseeable future.
Mattel bases its production schedules for toy products on customer orders,
modified by historical trends, results of market research and current market
information. The actual shipments of products ordered and the order
cancellation rate are affected by consumer acceptance of the product line, the
strength of competing products, marketing strategies of retailers and overall
economic conditions. Unexpected changes in these factors can result in a lack
of product availability or excess inventory in a particular product line.
All foreign countries in which Mattel's products are manufactured
(principally China, Indonesia, Malaysia and Mexico) currently enjoy "normal
trade relations" ("NTR") status under US tariff laws, which provides a
favorable category of US import duties. As a result of continuing concerns in
the US Congress regarding China's human rights policies, and disputes regarding
Chinese trade policies, including the country's inadequate protection of US
intellectual property rights, there has been, and may be in the future,
opposition to the annual
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extension of NTR status for China. In 2000, however, there will be, for the
first time, a major effort in the US Congress to pass legislation that would
make permanent China's NTR status in return for the country's expected
accession to the World Trade Organization.
The loss of NTR status for China would result in a substantial increase in
the import duty for toys manufactured in China and imported into the US and
would result in increased costs for Mattel and others in the toy industry. See
"Risk Factors." The impact of such an event on Mattel could be somewhat
mitigated by Mattel's ability to source product for the US market from
countries other than China and ship products manufactured in China to markets
outside the US. As a result, Mattel has expanded its production capacity in
other countries. Other factors, including Mattel's ability to pass along the
added costs through price increases and the pricing policies of vendors in
China, could also mitigate the impact of a loss of China's NTR status.
With the implementation of the Uruguay Round agreement effective January 1,
1995, all US duties on dolls and traditional toys were completely eliminated.
Canada also eliminated its tariffs on dolls and most toy categories in 1995,
with the exception of certain toy sets and board games that will have their
duties eliminated over ten years. Meanwhile, both the European Union and Japan
are in the process of implementing Uruguay Round tariff concessions that
reduced their tariffs on dolls by 40 percent and 15 percent, respectively, as
of January 1, 1999, and will lead to the phased elimination of their duties on
several other toy categories by January 1, 2004.
Virtually all of Mattel's raw materials are available from numerous
suppliers. Prices for resin and packaging materials began rising late 1999, and
this trend is continuing into year 2000. Mattel has long-term agreements in
place with major suppliers which allows them to only pass on their actual raw
material cost increases.
Commitments
In the normal course of business, Mattel enters into contractual
arrangements for future purchases of goods and services to ensure availability
and timely delivery, and to obtain and protect Mattel's right to create and
market certain products. Certain of these commitments routinely contain
provisions for guaranteed or minimum expenditures during the term of the
contracts. Current and future commitments for guaranteed payments reflect
Mattel's focus on expanding its product lines through alliances with businesses
in other industries.
As of December 31, 1999, the Operations segment had outstanding commitments
for 2000 purchases of inventory of approximately $92 million. Licensing and
similar agreements with terms extending through the year 2007 contain
provisions for future guaranteed minimum payments aggregating approximately
$346 million for both the Toy Marketing and Consumer Software segments. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Commitments" and Note 6 to the Consolidated Financial
Statements.
Licenses and Distribution Agreements
License agreements with third parties permit Mattel to utilize the
trademark, character or product of the licensor in its product line across all
marketing segments. Mattel's level of licensing activity has expanded in recent
years. Royalty expense during the years ended December 31, 1999, 1998 and 1997
was approximately $309 million, $234 million and $226 million, respectively.
See "Product Design and Development" and Note 6 to the Consolidated Financial
Statements.
Mattel distributes finished products that are independently designed and
manufactured. Mattel also licenses a number of its trademarks, characters and
other property rights to others for use in connection with the sale of non-toy
and other products that do not compete with Mattel's products.
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Mattel has license agreements with third parties that permit Mattel to
utilize the trademark, character, or product of the licensor in its product
line. A principal licensor is The Walt Disney Company, which licenses many of
its characters and entertainment properties for use on Mattel's products.
Mattel also has entered into license agreements with, among others: Children's
Television Workshop relating to its Sesame Street(R) properties; Viacom
International, Inc. relating to its Nickelodeon(R) properties; Ferrari Idea
S.A. for use of the Ferrari trademark; and Original Appalachian Artworks, Inc.
for Cabbage Patch Kids(R). A number of these licenses relate to product lines
that are significant to Mattel's business and operations.
In January 2000, Mattel and Warner Bros. Worldwide Consumer Products signed
a licensing agreement making Mattel the worldwide master toy licensee for the
literary characters from the Harry Potter books published by J.K. Rowling as
well as for feature film and television properties developed by Warner Bros.
Pictures featuring the Harry Potter characters. Mattel's worldwide toy
licensing agreement involves the first two Harry Potter books and theatrical
films. This agreement contains minimum royalty guarantees and has a term of
four years, provided that the second theatrical film is released prior to
January 1, 2003. If the second theatrical film is released subsequent to
January 1, 2003, the agreement will be extended to a date twelve months after
the release of the second theatrical film. Pursuant to the agreement, Mattel
issued Warner Bros. Consumer Products a stock warrant to purchase 3.0 million
shares of Mattel's common stock. This warrant became fully vested and
exercisable upon signing of the licensing agreement.
Financial Instruments
To limit the impact associated with the exposure to currency exchange rate
fluctuations, Mattel enters into foreign currency forward exchange and option
contracts primarily to hedge its purchase of inventory, sales and other
intercompany transactions denominated in foreign currencies. These contracts
are intended to fix a portion of Mattel's product cost and intercompany cash
flows, and thereby limit the effect of foreign currency fluctuations on
Mattel's results of operations and cash flows. Mattel does not trade in
financial instruments for speculative purposes.
For additional information regarding foreign currency contracts, see
"International Operations" above, Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Foreign Currency Risk", and
Note 6 to the Consolidated Financial Statements.
Seasonal Financing
Mattel's financing of seasonal working capital typically grows throughout
the first half of the year and peaks in the third or fourth quarter, when
accounts receivable are at their highest due to increased sales volume and
sales programs, and when inventories are at their highest in anticipation of
expected second half sales volume. See "Seasonality." Mattel expects to finance
its seasonal working capital requirements for the coming year by using existing
and internally generated cash, issuing commercial paper and selling certain
trade receivables under its committed revolving credit facility, and using
various short-term bank lines of credit. See "Risk Factors." In addition,
Mattel avails itself of individual short-term foreign credit lines with a
number of banks, which will be used as needed to finance seasonal working
capital requirements of certain foreign affiliates.
Mattel maintains and periodically amends or replaces an unsecured committed
revolving credit agreement with a commercial bank group that is used as the
primary source of financing the seasonal working capital requirements of its
domestic and certain foreign affiliates. The agreement in effect during 1999
consisted of a committed unsecured facility providing a total of up to $1.0
billion in seasonal financing (a five-year facility that expires in 2003).
Within the facility, up to $700.0 million was a standard revolving credit line
available for advances and backup for commercial paper issuances. Interest was
charged at various rates selected by Mattel, ranging from market commercial
paper rates to the bank reference rate. The remaining $300.0 million was
available for nonrecourse purchases of certain trade accounts receivable of
Mattel by the commercial bank group providing the credit line. The agreement
required Mattel to comply with certain financial covenants for
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consolidated debt-to-capital and interest coverage, and Mattel was in
compliance with such covenants during 1999. This agreement will continue to be
in effect during 2000. In addition, Mattel avails itself of uncommitted
domestic facilities provided by certain banks to issue short-term money market
loans.
Mattel is currently in the process of negotiating a 364 day, $400 million
companion facility to its existing $1.0 billion credit facility, with
essentially the same group of commercial banks. The terms and conditions of the
companion facility will be similar to the existing $1.0 billion facility.
Mattel expects to have the companion facility in place by the end of April
2000.
Mattel believes the amounts available under its committed revolving credit
facility, its uncommitted money market facility and its foreign credit lines
will be adequate to meet its seasonal financing requirements.
Trademarks, Copyrights, and Patents
Most of Mattel's products are sold under trademarks, trade names and
copyrights and a number of those products incorporate patented devices or
designs. Trade names and trademarks are significant assets of Mattel in that
they provide product recognition and acceptance worldwide.
Mattel customarily seeks patent, trademark or copyright protection covering
its products, and it owns or has applications pending for US and foreign
patents covering many of its products. A number of these trademarks and
copyrights relate to product lines that are significant to Mattel's business
and operations. Mattel believes its rights to these properties are adequately
protected but there can be no assurance that its rights can be successfully
asserted in the future or will not be invalidated, circumvented or challenged.
See "Risk Factors."
Mattel also licenses a number of its trademarks, characters and other
property rights to others for use in connection with the sale of non-toy and
other products that do not compete with Mattel's products.
Consistent with industry practice in the Consumer Software segment, Mattel
does not have signed license agreements with the end-users of its software
products, and its software products do not contain mechanisms to inhibit
unauthorized copying. Instead, Mattel relies on the copyright laws to prevent
unauthorized distribution of its software. Mattel also relies on a combination
of trade secret, patent, trademark and other proprietary rights, laws and
license agreements to protect its proprietary rights. Existing copyright laws
afford only limited protection. It may be possible for unauthorized third
parties to copy Mattel's software products or to obtain and use information
Mattel regards as proprietary.
Policing unauthorized use and distribution of Mattel's software products is
difficult, and while it is difficult to determine the extent to which such use
or distribution exists, software piracy can be expected to be a persistent
problem. These problems are particularly acute in certain international markets
such as South America, the Middle East, the Pacific Rim and the Far East, and
the laws of certain countries in which Mattel's products are or may be
distributed provide less protection than those of the US.
Government Regulations
Mattel's toy products sold in the US are subject to the provisions of the
Consumer Product Safety Act, the Federal Hazardous Substances Act, the
Flammable Fabrics Act, and the Food, Drug and Cosmetics Act, and the
regulations promulgated thereunder. The Consumer Product Safety Act and the
Federal Hazardous Substances Act enable the Consumer Product Safety Commission
to exclude from the market consumer products that fail to comply with
applicable product safety regulations or otherwise create a substantial risk of
injury, and articles that contain excessive amounts of a banned hazardous
substance. The Consumer Product Safety Commission may also require the recall
and repurchase or repair by the manufacturer of articles that are banned.
Similar laws exist in some states and cities and in various international
markets. See Item 3 "Legal Proceedings."
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Fisher-Price's car seats are subject to the provisions of the National
Highway Transportation Safety Act, which enables the National Highway Traffic
Safety Administration to promulgate performance standards for child restraint
systems. Fisher-Price conducts periodic tests to ensure that its child
restraint systems meet applicable standards. A Canadian agency, Transport
Canada, also regulates child restraint systems sold for use in Canada. As with
the Consumer Product Safety Commission, the National Highway Transportation
Safety Administration and Transport Canada can require the recall and
repurchase or repair of products that do not meet their respective standards.
Mattel maintains a quality control program to ensure product safety
compliance with the various federal, state and international requirements.
Notwithstanding the foregoing, there can be no assurance that all of Mattel's
products are or will be hazard-free. Any material product recall could have a
material adverse effect on Mattel's results of operations and financial
condition and could also negatively effect Mattel's reputation and the sales of
other Mattel products.
Mattel's advertising is subject to The Children's Television Act of 1990 and
the rules promulgated by the US Federal Communications Commission as well as
laws of certain countries that place certain limitations on television
commercials during children's programming. Mattel is subject to various other
federal, state and local laws and regulations applicable to its business.
Mattel believes that it is in substantial compliance with these laws and
regulations.
Effects of Inflation
Inflation rates in the US and in major foreign countries where Mattel does
business have not had a significant impact on its results of operations or
financial condition during the three year period ended December 31, 1999. The
US Consumer Price Index increased 2.7% in 1999, 1.6% in 1998 and 1.7% in 1997.
Mattel receives some protection from the impact of inflation from high turnover
of inventories and its ability to pass on higher prices to customers.
Employees
The total number of persons employed by Mattel and its subsidiaries at any
one time varies because of the seasonal nature of its manufacturing operations.
At December 31, 1999, Mattel's total number of employees, including its
international operations, was approximately 31,000.
Risk Factors
This Risk Factors section is written to be responsive to the Securities and
Exchange Commission's "Plain English" guidelines. In this section the words
"we", "our", "ours" and "us" refer only to Mattel, Inc. and its subsidiaries
and not any other person.
Set forth below and elsewhere in this Form 10-K and in other documents we
file with Securities and Exchange Commission are important risks and
uncertainties that could cause our actual results of operations, business and
financial condition to differ materially form the results contemplated by the
forward-looking statements contained in this Form 10-K. See Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement."
We may not realize the expected benefits from the merger with Learning Company,
such as cost savings, operating efficiencies, revenue enhancements and other
synergies, due to difficulties integrating Mattel and Learning Company.
We merged with Learning Company with the expectation that the merger would
result in a number of benefits, including cost savings, operating efficiencies,
revenue enhancements and other synergies. Due to the factors explained in Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
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Operations--1999 Compared to 1998--Consolidated Results", we have not yet
realized many of the expected benefits from the merger. Our inability to
successfully integrate the operations and personnel of the companies, or any
further significant delay in achieving integration, could have a material
adverse effect on our business, financial condition and results of operations.
Integrating the operations and personnel of Mattel and Learning Company has
been a complex process, and we cannot assure you that the integration will
result in the realization of the anticipated benefits of the merger. Any
further difficulties encountered in the process of combining the companies
could cause additional disruption of the activities of our business.
Our Consumer Software segment, the Learning Company division, experienced
significant performance shortfalls in 1999 that may continue.
Our Learning Company division reported pre-tax losses of $205.5 million in
1999. The negative results were caused by a combination of factors, including:
. a decrease in sales of the division's products;
. higher proportion of sales of relatively lower priced and lower margin
products;
. greater use of rebates due to competitive pressures;
. higher price and marketing concessions to retailers; and
. increased bad debt write-offs because of certain financially troubled
distributors.
We have recently formulated a plan aimed at correcting the problems,
including:
. more strict sales control policy with distributors and retailers;
. decreased use of rebates to consumers and price and marketing
concessions to distributors and retailers;
. new divisional management;
. shifts in product mix towards higher margin products; and
. expansion into game consoles and the Internet.
There can be no assurance that the Learning Company division's results will
improve in 2000. In particular, the decrease in sales of the division's CD-ROM
products may continue. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations--1999 Compared to 1998--
Consolidated Results."
In response to industry trends, we are implementing a business strategy
emphasizing initiatives such as products incorporating software and other
interactive features, other high technology products and the use of marketing
and sales over the Internet.
We have developed a business strategy to adapt to several trends that in
recent years have combined to change the toy business. These trends include:
. increasing use of high technology;
. the advent of the Internet;
. the mass popularity of video games and hand-held electronic games; and
. the phenomenon of children outgrowing toys at younger ages, particularly
in favor of interactive and high technology products.
In response to these changes, we have increased our development of toys
which incorporate technology and interactive features, enlarged our software
business, combined our traditional brands with new play platforms and invested
in an Internet strategy. There can be no assurance that this strategy will help
us increase or maintain our sales or earnings in the future, or that our
investments in these initiatives will be profitable.
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Our business may suffer due to losses of key employees or if we fail to attract
and retain additional employees.
Recently, there has been substantial turnover in our senior management and
we are in the process of searching for a new Chief Executive Officer. Our
future success will depend to a significant extent on the continued service of
our remaining senior management and other key employees and the hiring of new
qualified employees, including a new Chief Executive Officer. In general,
competition for highly-skilled business, product development, technical and
other personnel is becoming more intense due to lower overall unemployment
rates and competition with Internet or other startup companies. Competition for
employees in the consumer and interactive software business is particularly
intense. The high market valuations, large equity positions offered to key
employees and creative talent, and the potential for rapid stock price
appreciation of Internet companies make their compensation packages attractive
to new employees as well as to employees who are already working in more mature
companies. This situation makes it difficult for us to retain and attract
senior management and other key employees to all portions of our business.
Accordingly, we expect to experience increased compensation costs that may not
be offset through either improved productivity or higher prices.
We cannot assure you that we will be successful in continuously recruiting
new personnel and in retaining existing personnel. Any significant delay in
finding a qualified Chief Executive Officer, the loss of other key employees or
our inability to attract additional qualified employees could have a material
adverse effect on our business, financial condition and results of operations.
The consumer software industry is dynamic and highly competitive, and we cannot
assure you that we will grow or maintain our market share in this market.
The process of developing software products such as those we offer is
extremely complex and is becoming more complex and expensive over time. Our
consumer software product development expense levels are based largely on
expectations regarding future sales. Accordingly, operating results would be
disproportionately adversely affected by a decrease in sales or a failure to
meet our sales expectations due to delays in new product introductions or lower
than expected demand. If we do not accurately anticipate and successfully adapt
our consumer software products to emerging platforms, environments and
technologies, or new products are not launched when planned or do not achieve
anticipated revenues, it could have a material adverse effect on our business,
financial condition and results of operations.
Rapid changes in technology, product obsolescence and advances in computer
software and hardware require us to develop or acquire new products and to
enhance our existing products on a timely basis. The consumer software
marketplace has recently experienced a higher emphasis on on-line and Internet-
related services and content tailored for this new distribution channel. To the
extent that demand increases for on-line products and content, the demand for
our existing consumer software products may decline. There can be no assurance
that we will be able to maintain market share and otherwise compete
successfully in the future, or that the market for our products will not erode.
Companies with substantial bases of intellectual property content in the
motion picture and media industries, sophisticated product marketing and
technical abilities and/or financial resources that may not need to realize an
immediate profit or return on investment have increasingly entered the consumer
software market. These competitors include: Microsoft Corporation, The Walt
Disney Company, Hasbro, Inc., IBM Corporation and Havas S.A. For example,
technology companies have begun to acquire greater access to branded content,
and content-oriented companies have begun to acquire greater technological
capabilities. To the extent that competitors achieve a performance, price or
distribution advantage, we could be adversely affected. Furthermore, increased
consolidation of the consumer software market may impact future growth
potential and performance.
There can be no assurance that we will be able to effectively compete in
existing distribution channels or new and emerging channels, such as the
Internet, cable or telephone line delivery modes.
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Consumer preferences are difficult to predict and the introduction of new
products is critical in our industry.
Our business and operating results depend largely upon the appeal of our toy
products. Our continued success in the toy industry will depend on our ability
to redesign, restyle and extend our existing core products and product lines
and to develop, introduce and gain customer acceptance of new products and
product lines. However, consumer preferences in this industry are continuously
changing and are difficult to predict. Individual products typically have short
life cycles. There can be no assurance that:
. any of our current products or product lines will continue to be popular
for any significant period of time;
. any new products and product lines introduced by us will achieve an
adequate degree of market acceptance; or
. any new products' life cycles will be sufficient to permit us to recover
development, manufacturing, marketing and other costs of the products.
A decline in the popularity of our existing products and product lines or
the failure of new products and product lines to achieve and sustain market
acceptance and to produce acceptable margins could have a material adverse
effect on our business, financial condition and results of operations.
We are involved in several litigation matters in which the outcome is uncertain
and could entail significant expense.
As described under Item 3 "Legal Proceedings", we are currently involved in
a number of litigation matters including a number of purported securities class
action claims stemming from the merger with Learning Company and the
performance of the Learning Company division in the second half of 1999. The
pending litigation against us and our directors, regardless of the outcome, may
result in substantial costs and expenses and significantly divert the attention
of our management. There can be no assurance that we will be able to achieve a
favorable settlement of the pending litigation or obtain a favorable resolution
of such litigation if it is not settled. An unfavorable resolution of the
pending litigation could have a material adverse effect on our business,
financial condition and results of operations.
Our business is dependent on our two largest customers, which together
accounted for approximately 33% of Mattel's net sales in fiscal 1999.
A small number of our customers account for a large share of our net sales.
For the year ended December 31, 1999, our two largest customers, Wal-Mart and
Toys R Us, in the aggregate accounted for approximately 33% of net sales, and
our ten largest customers in the aggregate accounted for approximately 54% of
net sales. If some of these customers were to cease doing business with us, or
to significantly reduce the amount of their purchases from us, it could have a
material adverse effect on our business, financial condition and results of
operations.
The toy business is seasonal and therefore our annual operating results will
depend, in large part, on our sales during the relatively brief holiday season.
Sales of toy products at retail are seasonal, with a majority of retail
sales occurring during the period from September through December. This
seasonality is increasing as large toy retailers become more efficient in their
control of inventory levels through the just-in-time inventory management
systems. As a result, our annual operating results will depend, in large part,
on our sales during the relatively brief holiday season. This seasonal pattern
requires significant use of working capital mainly to manufacture inventory
during the year, prior to the holiday season, and requires accurate forecasting
of demand for products during the holiday season. Failure to accurately predict
and respond to consumer demand may have a material adverse effect on our
business, financial condition and results of operations.
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Changes in our credit rating or the credit markets could increase the cost of
satisfying our long-term capital needs.
We expect to satisfy our future long-term capital needs in part through the
issuance of debt securities. For example, in 2000 we will be required to pay
back over $300 million of our currently outstanding debt securities and we
presently intend to issue new debt securities to raise the necessary funds. The
interest rate, selling price, initial offering discount or any premium offered
for our debt securities will be based on a number of factors, including:
. our ratings with major credit rating agencies;
. the prevailing interest rates being paid by other companies similar to
us; and
. the overall condition of the financial and credit markets at the time of
the initial distribution of the debt securities.
The condition of the credit markets and prevailing interest rates have
fluctuated in the past and are likely to fluctuate in the future. Fluctuations
in these factors could make it difficult for us to sell debt securities or
require us to offer higher interest rates in order to sell new debt securities.
In addition, credit rating agencies continually revise their ratings for the
companies that they follow, such as us. The credit rating agencies also
evaluate the consumer products or family entertainment industry as a whole and
may change their credit rating for us based on their overall view of our
industry. Recently, our credit rating was reduced by several credit rating
agencies and we cannot assure you that our credit rating will not continue to
be reduced. A negative change in our rating could make it more difficult for us
to sell our debt securities and require us to offer higher interest rates. If
we are required to offer higher interest rates in order to sell our new debt
securities, the increased interest costs could have an adverse effect on our
financial condition and results of operations.
Our sales and manufacturing operations outside the US subject us to risks
normally associated with international operations.
We own and operate manufacturing facilities and utilize third-party
manufacturers principally in China, Indonesia, Malaysia and Mexico. Such sales
and manufacturing operations are subject to the risks normally associated with
international operations, including:
. currency conversion risks and currency fluctuations;
. limitations, including taxes, on the repatriation of earnings;
. political instability, civil unrest and economic instability;
. greater difficulty enforcing intellectual property rights and weaker
laws protecting such rights;
. greater difficulty and expense in conducting business abroad;
. complications in complying with foreign laws and changes in governmental
policies;
. transportation delays and interruptions; and
. the imposition of tariffs.
These risks could negatively impact our international sales and
manufacturing operations, which could have a material adverse effect on our
business, financial condition and results of operations.
All foreign countries in which our products are manufactured currently enjoy
"normal trade relations" status under US tariff laws, which provides a
favorable category of US import duties. As a result of continuing concerns in
the US Congress regarding China's human rights policies, and disputes regarding
Chinese trade policies, including the country's inadequate protection of US
intellectual property rights, there has been, and
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may be in the future, opposition to the annual extension of "normal trade
relations" status for China. The loss of "normal trade relations" status for
China would result in a substantial increase in the import duty of toys
manufactured in China and imported into the US and would result in increased
costs. Such increases in import duties and costs could have a material adverse
effect on our business, financial condition and results of operations.
We are dependent on our intellectual property rights and we cannot assure you
that we will be able to successfully protect such rights.
We rely on a combination of trade secret, copyright, trademark, patent and
other proprietary rights laws to protect our rights to valuable intellectual
property related to our brands. We also rely on license and other agreements to
establish ownership rights and to maintain confidentiality. We cannot assure
you that such intellectual property rights can be successfully asserted in the
future or will not be invalidated, circumvented or challenged. Technological
developments and the Internet may create new risks to our ability to protect
our intellectual property. In addition, laws of certain foreign countries in
which our products may be sold do not protect intellectual property rights to
the same extent as the laws of the US. The failure to protect our proprietary
information and any successful intellectual property challenges or infringement
proceedings against us could have a material adverse effect on our business,
financial condition and results of operations.
We have anti-takeover provisions in place that may make it more difficult for a
third party to acquire us without our consent, which may adversely effect our
stock price.
We have in place a stockholder rights plan which provides for the issuance
of preferred stock purchase rights designed to protect our stockholders from
abusive takeover tactics by causing substantial dilution to a person or group
that attempts to acquire 15% or more of our stock on terms not approved by our
board of directors. Additionally, our board of directors can, without obtaining
stockholder approval, issue shares of preferred stock having rights, including
the right to vote as a class on any proposed change of control, that could
adversely affect the voting power of holders of our common stock. Our charter
documents also contain additional provisions intended to reduce the risk of
abusive takeover tactics, including specifying procedures for director
nominations by stockholders and submission of other proposals by stockholders
at meetings, and restricting the ability of stockholders to call special
meetings. Certain agreements to which we are a party, including loan and
employment agreements and stock option plans, contain provisions that impose
increased costs upon us in the event of a change of control. Further, we are
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits us from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the person
becomes an interested stockholder unless approval is received in a prescribed
manner. The existence of these anti-takeover provisions may make it
substantially more difficult for a third party to acquire control of us or
accumulate large blocks of our common stock, which could adversely affect our
stock price.
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Executive Officers of the Registrant
The current executive officers of Mattel, all of whom are appointed annually
by the board of directors and serve at the pleasure of the board, are as
follows:
<TABLE>
<CAPTION>
Executive
Officer
Name Age Position Since
---- --- -------------------------------------- ---------
<C> <C> <S> <C>
Ronald M. Loeb......... 67 Acting Chief Executive Officer and a
Director of Mattel, Inc. 2000
Pleasant T. Rowland.... 59 Vice Chairman of the Board of Mattel,
Inc. and President, Pleasant Company 1998
Matthew C. Bousquette.. 41 President, Boys/Entertainment 1999
Adrienne Fontanella.... 41 President, Girls/Barbie 1999
Neil B. Friedman....... 52 President, Fisher-Price Brands 1999
Bernard Stolar......... 53 President, Mattel Interactive 2000
Joseph C. Gandolfo..... 57 President, Worldwide Manufacturing
Operations and a Director of Mattel,
Inc. 1990
Ned Mansour............ 51 President, Mattel, Inc. and a Director
of Mattel, Inc. 1992
Kevin M. Farr.......... 42 Chief Financial Officer 1996
William Stavro......... 60 Senior Vice President and Treasurer 1993
Robert Normile......... 40 Senior Vice President, General Counsel
and Secretary 1999
</TABLE>
Mr. Loeb has been acting Chief Executive Officer since February 2000 and a
member of the Board of Directors since 1970. He is currently Senior Vice
President and General Counsel of Williams-Sonoma, Inc., a consumer products
company. Mr. Loeb is a retired partner of the law firm of Irell & Manella LLP.
Ms. Rowland has been Vice Chairman of the Board of Mattel, Inc. and
President, Pleasant Company since July 1998. Ms. Rowland has been President of
Pleasant Company since 1986 when she founded that company.
Mr. Bousquette has been President, Boys/Entertainment since March 1999. From
May 1998 to March 1999, he was Executive Vice President and General Manager-
Boys Toys. From 1995 to 1998, he was General Manager. He joined Mattel in
December 1993 as Senior Vice President-Marketing for Activity Toys, and had
previously worked for Mattel from 1984 to 1988 in Boys Toys marketing.
Ms. Fontanella has been President, Girls/Barbie since March 1999. From
November 1998 to March 1999, she was General Manager and Senior Vice President-
Worldwide Barbie Licensing and Collectibles. From February to November 1998,
she was Senior Vice-President-Worldwide Barbie Licensing New Ventures. She
joined Mattel in May 1996 as Vice President. Prior to joining Mattel, she held
senior positions within the cosmetics industry, including chairman of January
Productions from 1995 to 1996.
Mr. Friedman has been President, Fisher-Price Brands since March 1999. From
August 1996 to March 1999, he was President-Tyco Preschool. For more than five
years prior to that time, he was President of MCA/Universal Merchandising,
Executive Vice President and Chief Operating Officer of Lionel Leisure, Inc.,
and President of Aviva/Hasbro.
Mr. Stolar has been President, Mattel Interactive since January 2000. From
July 1996 to August 1999, he served as President and Chief Operating Officer of
Sega of America, Inc., a consumer electronics company. From April 1994 until
July 1996, he was Executive Vice President of Sony Computers of America, a
consumer electronics company.
Mr. Gandolfo has been President, Worldwide Manufacturing Operations since
April 1990 and a member of the Board of Directors since May 1997.
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Mr. Mansour has been President, Mattel, Inc. since June 1999 and a member of
the Board of Directors since August 1996. From August 1996 to June 1999, he was
President, Corporate Operations. He was General Counsel from November 1997
until April 1999. From April 1991, he served in several senior managerial
positions at Mattel, including President, Mattel-USA, Chief Administrative
Officer and Secretary.
Mr. Farr has been Chief Financial Officer since February 2000. From
September 1996 to February 2000, he was Senior Vice President and Corporate
Controller. From June 1993 to September 1996, he served as Vice President, Tax.
Prior to that he served as Senior Director, Taxes from August 1992 to June
1993.
Mr. Normile has been Senior Vice President, General Counsel and Secretary
since March 1999. He served as Vice President, Associate General Counsel and
Secretary from July 1998 to March 1999. From August 1994 to March 1999, he
served as Assistant General Counsel and Assistant Secretary. From June 1992 to
August 1994, he served as Assistant General Counsel. Prior to that, he was
associated with the law firms of Latham & Watkins and Sullivan & Cromwell.
Mr. Stavro has been Senior Vice President and Treasurer since May 1995. From
November 1993 to May 1995, he was Vice President & Treasurer. From March 1992
to November 1993, he was Vice President & Assistant Treasurer. Prior to that he
was Assistant Treasurer for more than five years.
Item 2. Properties
Mattel owns its corporate headquarters in El Segundo, California, consisting
of 335,000 square feet, which is subject to a $43.0 million mortgage, and an
adjacent 55,000 square foot office building. Mattel also leases buildings in El
Segundo consisting of approximately 250,000 square feet, which are primarily
used for its design and development and audio visual departments. Fisher-Price
owns its headquarters facilities in East Aurora, New York, consisting of
approximately 390,000 square feet. Pleasant Company owns its headquarters
facilities in Middleton, Wisconsin, consisting of approximately 395,000 square
feet.
Mattel maintains sales offices in California, Illinois, New York, North
Carolina and Texas, and warehouse and distribution facilities in California,
Kentucky and Texas. Mattel owns a computer facility in Phoenix, Arizona.
Internationally, Mattel has its principal offices and/or warehouse space in
Australia, Brazil, Canada, France, Germany, Hong Kong, Italy, Mexico, The
Netherlands, Spain, and the United Kingdom. Mattel's principal manufacturing
facilities are located in China, Indonesia, Italy, Malaysia, Mexico, Thailand
and the US. See "Manufacturing."
Most of Mattel's facilities are occupied under leases and, for the most
part, are fully utilized, although excess manufacturing capacity exists from
time to time based on product mix and demand. With respect to leases that are
scheduled to expire during the next twelve months, Mattel may negotiate new
lease agreements, renew leases or utilize alternative facilities. See Note 6 to
the Consolidated Financial Statements.
Item 3. Legal Proceedings
Power Wheels(R) Recall and Related Matters
On October 22, 1998, Mattel announced that Fisher-Price, in cooperation with
the Consumer Product Safety Commission, would conduct a voluntary recall
involving up to 10 million battery-powered Power Wheels(R) ride-on vehicles.
The recall did not result from any serious injury, and involves the replacement
of electronic components that may overheat, particularly when consumers make
alterations to the product. The recall involves vehicles sold nationwide since
1984 under nearly 100 model names. Additionally, Fisher-Price has been notified
by the Consumer Product Safety Commission that the Commission is considering
whether Fisher-Price may be subject to a fine for delayed reporting of the
facts underlying the recall.
In the third quarter of 1998, Mattel recognized a $38.0 million pre-tax
charge related to the recall. During the second and fourth quarters of 1999,
Mattel recognized additional pre-tax charges totaling $20.0 million related to
the recall.
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Greenwald Litigation and Related Matters
On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC 025
008) against Mattel in Superior Court of the State of California, County of Los
Angeles. Ms. Greenwald is a former employee whom Mattel terminated in July
1995. Her complaint sought $50 million in general and special damages, plus
punitive damages, for breach of oral, written and implied contract, wrongful
termination in violation of public policy and violation of California Labor
Code Section 970. Ms. Greenwald claimed that her termination resulted from
complaints she made to management concerning general allegations that Mattel
did not account properly for sales and certain costs associated with sales and
more specific allegations that Mattel failed to account properly for certain
royalty obligations to The Walt Disney Company. On December 5, 1996, Mattel's
motion for summary adjudication of Ms. Greenwald's public policy claim was
granted. On March 7, 1997, Mattel filed a motion for summary judgment on the
remaining causes of action. On December 9, 1997, Mattel's motion for summary
judgment of Ms. Greenwald's remaining claims was granted. On February 4, 1998,
Ms. Greenwald appealed from the dismissal of her suit. The appeal has been
fully briefed, and a hearing took place on March 3, 2000. Mattel intends to
continue to defend the action vigorously, including the appeal.
Toys R Us and Related Matters
On October 2, 1997, the Attorney General of the State of New York filed in
the United States District Court, Eastern District of New York (Case No. CV 97
5714), an action against Toys R Us, Mattel and certain other toy manufacturers
alleging that the defendants had violated federal antitrust laws and entered
into vertical and horizontal arrangements that had the effect of restricting
sales to the warehouse clubs. The attorneys general from forty-three other
states, the District of Columbia and the Commonwealth of Puerto Rico joined
this action. Following the filing of the New York action, a series of private
treble damage class actions under the federal antitrust laws were filed in
various federal district courts. The parties later agreed to have these related
actions transferred to the Eastern District of New York to be consolidated by
the Judicial Panel on Multiple Litigation before Nina Gershon, United States
District Judge. Private class actions were also filed in state courts in
Alabama, California, and New Jersey, asserting claims under state antitrust
law. These state court actions were coordinated with the federal court actions.
Subsequent mediation efforts resulted in a Settlement Agreement and Release
as to Mattel, Inc., Fisher-Price, and Tyco, effective April 6, 1999. Pursuant
to the terms of the Settlement Agreement and Release, Mattel agreed to make a
cash payment and a toy contribution, both of which were made in the fourth
quarter of 1999. As a result of a dispute between the parties as to the
selection of the toys to be contributed, Mattel negotiated a Supplemental Toy
Contribution Agreement and made a supplemental toy contribution in December
1999. Final Judgment and Order of Dismissal was entered by Judge Gershon on
February 17, 2000 that effectively dismissed with prejudice the claims asserted
by the state and private federal and state court plaintiffs, including the
claims of any person represented in either a parens patriae or private class
capacity.
Litigation Related to Business Combination
On December 16, 21, and 23, 1998, several stockholders of the legal entity
The Learning Company, Inc. that merged into Mattel ("Old Learning Company")
filed six separate purported class action complaints in the Court of Chancery
of the State of Delaware in and for New Castle County against Old Learning
Company and Old Learning Company's board of directors for alleged breaches of
fiduciary duties in connection with the May 1999 merger. The six complaints
were consolidated. The consolidated complaint named Mattel as an additional
defendant, claiming that Mattel aided and abetted the alleged breaches of
fiduciary duty. On March 9, 2000, the plaintiffs filed a notice and order of
dismissal dismissing the action without prejudice. Upon approval by the court,
the consolidated action will be formally dismissed.
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<PAGE>
Litigation Related to Learning Company Earnings Shortfall
Following Mattel's announcement on October 4, 1999 that it expected an
earnings shortfall at its Learning Company division in the third quarter of
1999, several of Mattel's shareholders filed purported class action complaints
in the United States District Court for the Central District of California, the
United States District Court for the Southern District of New York and the
United States District Court for Massachusetts naming Mattel and certain of its
officers and directors as defendants. The complaints generally allege, among
other things, that the defendants made false or misleading statements that
artificially inflated the price of Mattel's common stock by overstating the
revenues and net income of Mattel, including its Learning Company division, and
by falsely representing that the May 1999 Learning Company acquisition would be
immediately accretive to Mattel's 1999 and 2000 financial results.
Two of the purported class action complaints are brought on behalf of the
former stockholders of Broderbund Software, Inc. ("Broderbund") who acquired
shares of Old Learning Company in exchange for their Broderbund common stock in
connection with the Old Learning Company-Broderbund merger on August 31, 1998.
Mattel has been named as a defendant as the successor-in-interest to Old
Learning Company. The complaints generally allege that that the Old Learning
Company-Broderbund Registration Statement on Form S-4 filed on or about July
14, 1998 in connection with the merger was materially false.
On November 23, 1999, Mattel (along with other defendants named in the
federal securities lawsuits) filed a motion and brief before the Judicial Panel
on Multidistrict Litigation seeking to transfer all of the federal actions to
the United States District Court for the Central District of California for
Coordinated or Consolidated Pretrial Proceedings. On March 3, 2000, the
Judicial Panel on Multidistrict Litigation granted Mattel's motion.
In addition, a Mattel stockholder filed a derivative complaint on behalf and
for the benefit of Mattel in the Superior Court of the State of California,
County of Los Angeles. The complaint alleges that Mattel's directors breached
their fiduciary duties, wasted corporate assets and grossly mismanaged Mattel
in connection with Mattel's acquisition of Learning Company and seeks both
monetary and injunctive relief. On February 10, 2000, the court sustained
defendants' demurrer and dismissed the complaint with leave to amend.
Mattel believes the lawsuits are without merit and intends to defend them
vigorously.
Environmental
Fisher-Price. Fisher-Price has executed a consent order with the State of
New York involving a remedial action/feasibility study for one of its
manufacturing plants. Currently, Fisher-Price is negotiating an additional
consent order which will outline the specific clean up strategy for the site.
Mattel anticipates that the New York State Department of Environmental Quality
will issue their Record of Decision in March 2000. The ultimate liability
associated with this cleanup presently is estimated to be less than $1,425,000,
approximately $1,030,500 of which has been incurred through December 31, 1999.
Beaverton, Oregon. Mattel operates a manufacturing facility on a leased
property in Beaverton, Oregon that was acquired as part of the Tyco merger. In
March 1998, samples of groundwater used by the facility for process water and
drinking water disclosed elevated levels of certain chemicals, including
trichloroethylene. Mattel immediately closed the water supply and self-reported
the sample results to the Oregon Department of Environmental Quality and the
Oregon Health Division. Mattel also implemented a community outreach program to
employees, former employees and surrounding landowners.
In November 1998, Mattel and another potentially responsible party entered
into a consent order with the Oregon Department of Environmental Quality to
conduct a remedial investigation/feasibility study at the property, to propose
an interim remedial action measure and to continue the community outreach
program. In the second quarter of 1999, Mattel recorded a $14.0 million pre-tax
charge for environmental remediation costs related to this property, based on
the completion and approval of the remediation plan and feasibility study.
22
<PAGE>
General
Mattel is also involved in various other litigation and legal matters,
including claims related to intellectual property, product liability and labor,
which Mattel is addressing or defending in the ordinary course of business.
Management believes that any liability which may potentially result upon
resolution of such matters will not have a material adverse effect on Mattel's
business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
23
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
For information regarding the markets in which Mattel's common stock, par
value $1.00 per share, is traded, see the cover page hereof. Information
regarding the high and low closing prices of the common stock for the last two
calendar years is incorporated herein by reference to the Consolidated
Financial Statements filed with this report. See Item 14 of Part IV.
As of March 6, 2000, Mattel had approximately 52,000 holders of record of
its common stock.
Mattel paid dividends on its common stock of $0.07 per share in January 1998
and $0.08 per share in April, July and October 1998 and January and April 1999.
Mattel paid dividends on its common stock of $0.09 per share in July and
October 1999. The payment of dividends on common stock is at the discretion of
Mattel's board of directors and is subject to customary limitations.
Item 6. Selected Financial Data
The following table sets forth for the periods indicated the selected
consolidated financial data for Mattel. This information should be read in
conjunction with the Consolidated Financial Statements included elsewhere
herein and in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected consolidated balance sheet
data as of December 31, 1997, 1996 and 1995 and the selected consolidated
financial data for the years ended December 31, 1996 and 1995 are derived from
audited Consolidated Financial Statements not included herein. The selected
consolidated financial data for the years ended December 31, 1999, 1998 and
1997 and as of December 31, 1999 and 1998 are derived from audited Consolidated
Financial Statements included elsewhere herein.
Selected Financial Data
<TABLE>
<CAPTION>
For the Year Ended December 31(a)
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands, except per share and percentage
information)
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales............... $5,514,950 $5,621,207 $5,455,547 $5,064,860 $4,708,452
Gross profit............ 2,601,040 2,913,303 2,819,660 2,590,078 2,292,309
% of net sales........ 47.2% 51.8% 51.7% 51.1% 48.7%
Operating profit(b)..... 40,866 520,100 113,828 315,827 614,541
% of net sales........ 0.7% 9.3% 2.1% 6.2% 13.1%
Income (loss) before
income taxes and
extraordinary item..... (110,743) 391,632 1,216 188,898 506,243
(Benefit) provision for
income taxes........... (28,370) 185,579 179,327 166,936 197,246
Income (loss) before
extraordinary item..... (82,373) 206,053 (178,111) 21,962 308,997
Extraordinary item--loss
on early retirement of
debt................... -- -- (4,610) -- --
Net income (loss)....... (82,373) 206,053 (182,721) 21,962 308,997
Income (Loss) Per Common
Share(c):
Income (loss) before
extraordinary item
Basic................. (0.21) 0.51 (0.51) 0.04 0.88
Diluted............... (0.21) 0.47 (0.51) 0.04 0.86
Net income (loss)
Basic................. (0.21) 0.51 (0.52) 0.04 0.88
Diluted............... (0.21) 0.47 (0.52) 0.04 0.86
Dividends Declared Per
Common Share(c)........ 0.35 0.31 0.27 0.24 0.19
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
As of Year End(a)
-----------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Financial Position:
Cash and marketable
securities............. $ 275,024 $ 469,213 $ 883,903 $ 811,284 $ 715,440
Accounts receivable,
net.................... 1,270,005 1,150,051 1,253,343 1,033,066 926,626
Inventories............. 544,296 644,270 468,226 463,212 429,110
Total assets............ 5,127,022 5,147,385 4,512,843 4,607,008 4,394,801
Short-term borrowings... 369,549 199,006 52,618 53,924 76,443
Long-term liabilities... 1,346,811 1,333,548 1,110,722 1,121,350 1,266,079
Stockholders' equity.... 1,962,687 2,170,803 1,933,338 2,109,787 1,897,176
</TABLE>
- --------
(a) Consolidated financial information for all periods presented has been
restated retroactively for the effects of the May 1999 merger with Learning
Company, accounted for as a pooling of interests. Consolidated financial
information for 1995-1997 has been restated retroactively for the effects
of the March 1997 merger with Tyco, accounted for as a pooling of
interests.
(b) Represents income from operations before interest expense and (benefit)
provision for income taxes.
(c) Per share data reflect the retroactive effect of stock splits distributed
to stockholders in March 1996 and January 1995, and the mergers with
Learning Company and Tyco in 1999 and 1997, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Summary
The following discussion should be read in conjunction with Mattel's
consolidated financial statements and notes thereto, and the information
included elsewhere herein. This discussion and the accompanying consolidated
financial statements and notes thereto have been prepared to reflect the
retroactive effect of Mattel's merger with Learning Company in May 1999. The
merger was accounted for as a pooling of interests, which means that for
accounting and financial reporting purposes and the discussion herein, the two
companies are treated as if they have always been combined.
Mattel designs, manufactures, and markets a broad variety of family 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
successfully market those products and product lines. Mattel plans to continue
to focus on its portfolio of traditional brands which have historically had
worldwide sustainable appeal. The recent acquisitions of Pleasant Company and
Learning Company are part of Mattel's strategic plan to better position itself
as a consumer products company that provides its core customers--children--with
products that meet their preferences in an increasingly interactive and
technology-driven world. The strategy has three components: first, Mattel is
communicating with consumers more directly. Second, Mattel is combining its
traditional and recently acquired brands with new technologies, including
software, electronic games, interactive toys and new media. Through its
integration of Learning Company and Mattel Media into the Mattel Interactive
division, Mattel has one of the leading consumer software operations in the
world. Mattel's joint venture with Intel is focused on producing high-
technology, interactive toys that appeal to increasingly technology-oriented
children and teenagers. Third, Mattel is implementing a "market by market"
approach to Mattel International. Mattel intends to grow its international
business by adapting products to local tastes, economic conditions and price
requirements.
Mattel's portfolio of brands can be grouped in the following categories:
. Girls--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)
25
<PAGE>
. Wheels--including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing and
Tyco(R) Radio Control
. Entertainment--including Disney, Nickelodeon(R), games and puzzles
. Consumer Software--including Reader Rabbit(R), Carmen Sandiego(TM), The
Oregon Trail(R), Myst(R) and The Print Shop(R)
Results of Operations
The following is a percentage analysis of operating results for the past
three years:
<TABLE>
<CAPTION>
For the Year
--------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
===== ===== =====
Gross profit......................................... 47.2% 51.8% 51.7%
Advertising and promotion expenses................... 17.2 16.3 15.5
Other selling and administrative expenses............ 21.6 20.3 18.6
Amortization of intangibles.......................... 1.7 2.3 8.9
Restructuring and other charges...................... 6.3 2.8 6.3
Charge for incomplete technology..................... -- 1.0 0.4
Other income, net.................................... (0.3) (0.2) (0.1)
----- ----- -----
Operating profit..................................... 0.7 9.3 2.1
Interest expense..................................... 2.7 2.3 2.1
----- ----- -----
Income (loss) before income taxes and extraordinary
item................................................ (2.0)% 7.0% -- %
===== ===== =====
</TABLE>
1999 Compared to 1998
Consolidated Results
Net loss for 1999 was $82.4 million or $0.21 per diluted share as compared
to net income of $206.1 million or $0.47 per diluted share in 1998. The 1999
results were negatively impacted by restructuring and other charges totaling
$346.0 million, approximately $265 million after-tax or $0.64 per diluted
share, related to the Mattel restructuring plan, the merger and integration of
Learning Company, and other nonrecurring charges. See "Restructuring and Other
Charges." Additionally, Mattel's 1999 results were negatively impacted by the
results of operations of its Learning Company division, which reported a pre-
tax loss of $205.5 million for the full year 1999. The 1998 results of
operations were negatively impacted by nonrecurring charges, including an
incomplete technology write-off of $56.8 million related to the acquisition of
Mindscape, Inc. in March 1998, restructuring and other charges of $113.3
million related to 1998 acquisitions and one-time charges of $44.0 million in
connection with the voluntary recall of Power Wheels(R) ride-on vehicles and a
Toys R Us-related antitrust litigation settlement. Total 1998 nonrecurring
charges of approximately $163 million after-tax impacted the earnings by $0.39
per diluted share.
The negative results of the Learning Company division in 1999 were
attributable to a number of factors. In 1999, Learning Company experienced a
decrease in sales of CD-ROM products at retail and a higher proportion of sales
of relatively lower priced and lower margin products. During the second half of
1999, Learning Company was in the process of revising its distribution channel
arrangements. These changes in distribution terms combined with the general
weakness in the CD-ROM market resulted in increased product returns.
Significant price and promotional competition caused the Learning Company
division to incur higher than anticipated price concessions and marketing
expenses, including increased use of rebate programs, price protection and
advertising. In addition, increased bad debt reserves of approximately $56
million, including $35 million related to one of Learning Company's major
distributors, contributed to its operating loss.
26
<PAGE>
In 2000, Mattel will attempt to improve the results of its Learning Company
division by reducing the number of software products it develops and sells,
decreasing the length of its software product development cycle and eliminating
a number of its lower margin software titles. In addition, Mattel has
implemented a more strict sales control policy with its distributors and
retailers and plans to decrease the use of rebates to consumers and price and
marketing concessions to distributors and retailers. Mattel intends to focus on
areas where potential growth opportunities exist, including expansion of its
interactive products to new platforms such as game consoles and the Internet,
as well as increased sales in the international markets. Mattel also plans to
continue its strategy of creating stand-alone on-line ventures utilizing
Learning Company assets, such as Genealogy.com, LLC and GoodHome, LLC, in which
Mattel retains an equity interest, and will consider strategic dispositions,
licensing agreements and other similar transactions. In 1999 and 2000, Mattel
replaced the senior management at its Learning Company division. There can be
no assurance that the Learning Company division's results will improve as a
result of Mattel's efforts.
Mattel is also currently undertaking a comprehensive review of its entire
interactive business to identify additional opportunities to improve operating
productivity and realize costs savings. Following this review, Mattel expects
to incur pre-tax reorganizational charges totaling approximately $75 million to
$100 million in the first quarter of 2000. These charges are designed to
streamline the infrastructure, product development cycle and operations of
Mattel Interactive.
Net sales for 1999 were $5.5 billion, a decrease of 2% from $5.6 billion in
1998. Sales to customers within the US remained relatively flat and accounted
for 72% and 71% of consolidated net sales in 1999 and 1998, respectively. Sales
to customers outside the US were down 6%, including an unfavorable foreign
exchange effect of approximately $22 million due to the generally stronger US
dollar relative to 1998. At comparable foreign exchange rates, sales
internationally declined by 4%, partially due to unfavorable industry-wide
trends, especially the shift amongst European retailers to just-in-time
inventory management. Mattel plans to grow its international business by
adapting products to local tastes, economic conditions and price requirements.
To accomplish this goal, Mattel continues to work on an extensive market-
specific strategy aimed at improving sales of its core product lines in
international markets. In addition, Mattel's September 1999 distribution
agreement with Bandai, the largest toy company in Japan, to distribute certain
Mattel products in Japan is also part of Mattel's strategy for international
growth and market penetration.
Sales in the Girls category decreased 3% largely due to declines in
Barbie(R) and Cabbage Patch Kids(R) products, partially offset by incremental
sales of American Girl(R) products resulting from the Pleasant Company
acquisition. Pleasant Company was acquired in July 1998 and therefore the
results of operations for 1998 only reflect six months of results. Sales in the
Infant and Preschool category declined 3%, largely attributable to last year's
success of Sesame Street(R) products, including "Tickle Me Elmo' and decreased
sales of Disney's Winnie the Pooh(R) products, partially offset by an increase
in sales of core Fisher-Price(R) and Power Wheels(R) products. Sales in the
Wheels category grew 6%, demonstrating continued strength in Hot Wheels(R),
Matchbox(R), and Tyco(R) Radio Control. Sales in the Entertainment category,
including Disney and Nickelodeon(R), increased 11% largely due to this year's
success of toys associated with Disney's feature motion picture "Toy Story II".
Sales of Learning Company consumer software products decreased 8%, mainly due
to a decrease in sales of CD-ROM products at retail and a higher proportion of
sales of relatively lower priced and lower margin products. This decrease was
partially offset by an increase in licensing revenues of approximately $50
million largely generated from licensing agreements, including Genealogy.com,
LLC in the third quarter of 1999 and GoodHome, LLC in the second quarter of
1999. Mattel views e-commerce and licensing transactions to be a significant
source of potential revenues for its Learning Company division and intends to
continue to attempt to leverage the value of its Internet properties through
joint ventures, licensing and other similar transactions.
Gross profit, as a percentage of net sales, was 47.2% in 1999, down from
51.8% in 1998, largely due to lower profit margins at Learning Company.
Excluding the Learning Company division, gross profit was 47.8% in 1999, down
1.6 percentage points from 1998 mainly due to overall change in product mix,
higher ocean freight costs and slightly higher product costs due to
strengthening currencies in countries where Mattel manufactures its products.
As a percentage of net sales, advertising and promotion expenses increased
nearly
27
<PAGE>
one percentage point to 17.2% mainly as a result of higher rebates offered to
consumers on Learning Company products and increased marketing expenses
incurred to promote certain Learning Company titles. Excluding the Learning
Company division, advertising as a percentage of net sales was 15.4%, a
decrease of 1.6 percentage points over 1998. Other selling and administrative
expenses increased from 20.3% of net sales in 1998 to 21.6% of net sales in
1999, primarily due to increased Learning Company bad debt expense.
Amortization of intangibles decreased by $37.8 million, mainly as a result of
completed amortization of intangibles related to certain Learning Company's
acquisitions, partially offset by higher amortization resulting from 1998
acquisitions.
Interest expense increased $23.1 million, primarily due to increased short-
and long-term borrowings to fund Learning Company's cash requirements and to
finance Mattel's 1998 acquisitions.
Business Segment Results
Mattel's reportable segments are separately managed business units and
include Toy Marketing, Consumer Software and Operations. The Toy Marketing
segment is divided on a geographic basis between domestic and international.
The domestic Toy Marketing segment is further divided into USA Toys, US Fisher-
Price/Tyco Preschool and Other. USA Toys principally sells products in the
Girls, Entertainment and Wheels categories. US Fisher-Price/Tyco Preschool
principally sells products in the Infant and Preschool categories. The Other
segment principally sells specialty products in the Girls category. The
International Toy Marketing segment sells products in all toy categories. The
Consumer Software segment consists of educational, productivity and
entertainment software products developed and sold by Learning Company on a
worldwide basis. The Operations segment manufactures toy products, which are
sold to the Toy Marketing segments. Additional financial information regarding
Mattel's business segments can be found in Note 8 to the Consolidated Financial
Statements.
The USA Toys segment sales reached $2.2 billion, consistent with 1998. This
segment achieved these results through increased sales of Barbie(R),
Entertainment and Wheels products. The US Fisher-Price/Tyco Preschool segment
sales grew by 4% mainly due to increased sales of core Fisher-Price(R) and
Power Wheels(R) products, partially offset by lower sales of Tyco Preschool
products as a result of last year's success of Sesame Street(R) products,
including "Tickle Me Elmo'. Sales in the Other segment increased by 24% due to
incremental sales resulting from the July 1998 acquisition of Pleasant Company.
The International Toy Marketing segment sales decrease of 7% was partially
attributable to the unfavorable foreign exchange effect due to the generally
stronger US dollar relative to 1998 and unfavorable industry-wide trends,
especially the shift by European retailers to just-in-time inventory
management. Mattel expects this trend to continue worldwide. By brand, the
International Toy Marketing segment experienced lower sales of Barbie(R) and
Infant and Preschool products, partially offset by sales increases in Wheels
and Entertainment products. The Consumer Software segment sales decreased 8%,
mainly due to a decrease in sales of CD-ROM products at retail and a higher
proportion of sales of relatively lower priced and lower margin products.
Operating profit in the USA Toys and International Toy Marketing segments
declined by 7% and 28%, respectively. The decline in operating profit in each
of these segments was largely attributable to lower sales volume and
unfavorable shift in product mix, partially offset by lower advertising costs.
The US Fisher-Price/Tyco Preschool segment operating profit increased 8%,
largely due to a favorable shift in product mix and lower advertising and
overhead spending to support the Fisher-Price(R) product line. The Other
segment operating profit declined by 73%, largely due to incremental
amortization and overhead expenses resulting from the July 1998 acquisition of
Pleasant Company. The Consumer Software segment realized an operating loss of
$205.5 million in 1999 compared to a profit of $114.3 million in 1998. The
negative results of the Learning Company division in 1999 were attributable to
a number of factors. In 1999, Learning Company experienced a decrease in sales
of CD-ROM products at retail and a higher proportion of sales of relatively
lower priced and lower margin products. During the second half of 1999,
Learning Company was in the process of revising its distribution channel
arrangements. These changes in distribution terms combined with the general
weakness in the CD-ROM market resulted in increased product returns.
Significant price and promotional competition
28
<PAGE>
caused Learning Company to incur higher than anticipated price concessions and
marketing expenses, including increased use of rebate programs, price
protection and advertising. In addition, increased bad debt reserves of
approximately $56 million, including $35 million related to one of Learning
Company's major distributors, contributed to its operating loss.
1998 Compared to 1997
Consolidated Results
Net income for 1998 was $206.1 million or $0.47 per diluted share as
compared to a loss of $182.7 million or $0.52 per diluted share in 1997.
Profitability for 1998 was negatively impacted by nonrecurring charges,
including an incomplete technology write-off of $56.8 million related to the
acquisition of Mindscape, Inc. in March 1998, restructuring and other charges
of $113.3 million related to 1998 acquisitions and one time charges of $44.0
million in connection with the voluntary recall of Power Wheels(R) ride-on
vehicles and a Toys R Us-related antitrust litigation settlement. Total 1998
nonrecurring charges of approximately $163 million after tax impacted earnings
by $0.39 per diluted share. Profitability for 1997 was impacted by
restructuring and other charges of $343.6 million related to the Mattel
restructuring plan, the merger and integration of Tyco, and other Learning
Company merger charges. The 1997 results also included an incomplete technology
write-off of $20.3 million related to products being developed by Creative
Wonders L.L.C., Parsons Technology Inc., and Living Books and an extraordinary
charge of $4.6 million after-tax for the early retirement of debt assumed as
part of the Tyco merger. Total 1997 nonrecurring charges of approximately
$286.2 million after-tax impacted earnings by $0.77 per diluted share.
Net sales for 1998 reached $5.6 billion, an increase of 3% from $5.5 billion
in 1997. Sales to customers within the US increased 6% and accounted for 71%
and 69% of consolidated net sales in 1998 and 1997, respectively. Sales to
customers outside the US were down 4%, including an unfavorable foreign
exchange effect due to the generally stronger US dollar relative to 1997.
Sales in the Girls category decreased 4% largely due to a 14% decline in
Barbie(R) products, as a result of high retail inventory levels entering 1998
and domestic toy retailers shift to a just-in-time buying pattern. As a result
of the Pleasant Company acquisition in July 1998, the American Girl(R) brand
contributed $213.2 million in sales, which helped to partially offset the
decline in Barbie(R). Sales in the Infant and Preschool category decreased 3%,
largely attributable to declines in Sesame Street(R) and Fisher-Price(R)
products, partially offset by an increase in Disney's Winnie the Pooh(R). Sales
in the Wheels category grew 21%, reflecting growth in both Hot Wheels(R) and
Matchbox(R) vehicles and playsets. Sales in the Entertainment category, which
includes Disney and Nickelodeon(R), increased 14% largely due to the 1998
introduction of toys associated with the feature motion pictures "A Bug's Life"
and "The Rugrats Movie". Sales of Learning Company consumer software products
increased 35%, mainly due to the acquisition of Mindscape, Inc. which added
$188.1 million to 1998 sales, introduction of new software titles such as The
ClueFinders(TM) 4th Grade Adventures, Arthur's(R) Computer Adventures, and
upgraded products.
Gross profit as a percentage of net sales remained relatively constant at
51.8% compared to 51.7% in 1997. As a percentage of net sales, advertising and
promotion expenses increased approximately one percentage point to 16.3%, and
selling and administrative expenses increased 1.7 percentage points to 20.3%.
Both ratios increased relative to 1997 as a result of unanticipated cutbacks in
buying by domestic toy retailers due to a continuing shift by these retailers
to just-in-time inventory management. To respond to such shifts, Mattel took
appropriate actions to adjust its own shipping to more of a just-in-time
pattern. As a result, toy products that would have previously been shipped in
December of 1998 were shipped closer to the time that they were purchased by
the consumer. Amortization of intangibles decreased by $357.5 million, mainly
as a result of completed amortization of intangibles related to certain
Learning Company's acquisitions, partially offset by amortization resulting
from the 1998 acquisitions of Pleasant Company, Sofsource, Inc., Bluebird Toys
PLC ("Bluebird") and Mindscape, Inc.
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<PAGE>
Interest expense increased $15.9 million primarily due to increased short-
and long-term borrowings to finance the 1998 acquisitions of Pleasant Company
and Bluebird, partially offset by the repurchase of certain of the 5 1/2%
Senior Notes of Learning Company.
Other income, net increased $8.3 million, mainly due to an $11.1 million
gain realized on sale of investments.
Business Segment Results
The USA Toys segment sales were down 5% in 1998 compared to 1997, largely
due to lower sales of Barbie(R) products, as a result of high retail inventory
levels entering 1998 and domestic toy retailers shift to a just-in-time buying
pattern. This decrease was partially offset by increased sales of Wheels and
Entertainment products. The US Fisher-Price/Tyco Preschool segment sales
declined by 13% due to decreased sales of Sesame Street(R) and Fisher-Price(R)
products. Sales in the Other segment increased to $256.1 million in 1998 from
$58.3 million in 1997 due to American Girl(R) sales generated from the July
1998 acquisition of Pleasant Company. The International Toy Marketing segment
sales decreased 1% due to lower sales of Barbie(R) products, partially offset
by stronger sales of Wheels and Infant/Preschool products. Consumer Software
segment sales increased 35%, mainly due to the acquisition of Mindscape, Inc.
which added $188.1 million to 1998 net sales, introduction of new software
titles such as The ClueFinders(TM) 4th Grade Adventures and Arthur's(R)
Computer Adventures, and upgraded products.
Operating profit in the USA Toys and International Toys Marketing segments
declined by 27% and 29%, respectively. The decline in operating profit in each
of these segments was largely attributable to lower sales volume and
unfavorable shift in product mix. The US Fisher-Price/Tyco Preschool segment
operating profit increased 11%, driven by improved profitability in the Fisher-
Price(R) product line, partially offset by unfavorable shift in product mix of
Tyco Preschool products. The Other segment operating profit increased to $20.2
million in 1998 from $7.3 million in 1997 mainly due to the July 1998
acquisition of Pleasant Company. The Consumer Software segment realized profit
of $114.3 million in 1998 compared to a loss of $312.5 million in 1997, largely
due to increased sales and lower amortization.
Income Taxes
The effective income tax rate for 1999 was 25.6%, favorably impacted by
domestic losses incurred by Learning Company, and by income earned in foreign
jurisdictions taxed at lower rates. This represents a substantial reduction
from 1998 and 1997, during which the effective income tax rates were in excess
of the US federal tax rate of 35%. The reduction in the tax rate is the result
of a decrease in the amount of non-deductible items, particularly the write-off
of incomplete technology and other non-deductible expenses incurred in
connection with business acquisitions, that unfavorably impacted the 1998 and
1997 tax rates.
Pre-tax losses from US operations as a percentage of the consolidated pre-
tax income was less than the sales to US customers as a percentage of the
consolidated gross sales. This difference results from operating losses,
amortization of intangibles and corporate headquarters expenses incurred in the
US that decreased US pre-tax income, and foreign profits related to sales
ultimately made to US customers.
Financial Position
Mattel's cash position was $275.0 million, compared to $469.2 million as of
the end of 1998. Cash decreased $194.2 million primarily due to the payment of
restructuring and integration costs related to the Learning Company merger,
repayment of Learning Company's credit lines and the termination of Learning
Company's receivable factoring facilities. Accounts receivable, net increased
by $120.0 million to $1,270.0 million at year end 1999 principally due to the
cancellation of Learning Company's receivable factoring facilities. Inventories
decreased by $100.0 million to $544.3 million at year end 1999, reflecting
Mattel's shift to just-in-time production and shipping programs, partially
offset by higher Learning Company
30
<PAGE>
inventory. Prepaid expenses and other current assets decreased by $41.1 million
to $330.7 million at year end 1999, primarily due to the reclassification of
certain deferred income tax assets related to operating losses to noncurrent
assets, partially offset by higher prepaid royalties and software development
costs. Property, plant and equipment, net decreased $13.6 million to $749.5
million at year end 1999 largely due to asset writedowns related to the 1999
restructuring. Intangibles, net decreased $91.3 million to nearly $1.4 billion
at year end 1999, mainly due to goodwill amortization. Other noncurrent assets
increased by $299.9 million to $564.2 million at year end 1999, principally due
to increased noncurrent deferred tax assets related to operating losses.
Short-term borrowings increased $170.5 million compared to 1998 year end,
primarily due to the funding of Learning Company's cash requirements.
A summary of Mattel's capitalization is as follows:
<TABLE>
<CAPTION>
As of Year End
-------------------------------
1999 1998
------------ ------------
(In millions, except
percentage information)
<S> <C> <C> <C> <C>
Senior notes................................. $ 601.0 18% $ 601.0 17%
Medium-term notes............................ 540.5 17 540.5 16
Other long-term debt obligations............. 42.4 1 43.0 1
-------- --- -------- ---
Total long-term debt......................... 1,183.9 36 1,184.5 34
Other long-term liabilities.................. 162.9 5 149.1 4
Stockholders' equity......................... 1,962.7 59 2,170.8 62
-------- --- -------- ---
$3,309.5 100% $3,504.4 100%
======== === ======== ===
</TABLE>
Total long-term debt remained approximately the same at year end 1999
compared to year end 1998. Although $301.0 million of the senior notes are
maturing in 2000, they have been classified as long term in the consolidated
balance sheet at December 31, 1999 since management has the ability and intent
to repay these obligations upon maturity with proceeds from the issuance of
other long-term debt instruments. Despite the recent rating agency downgrades
of Mattel's long-term debt, Mattel's long-term debt rating continues to be
investment grade and the downgrades are not expected to impact Mattel's ability
to access the capital markets to implement the refinancing. However, the rating
agency downgrades will have a negative impact on the pricing spread over the
Treasury rates and could cause Mattel to pay a slightly higher interest rate on
the issued debt than it otherwise would have paid. See Item 1 "Risk Factors."
Mattel expects to satisfy its future long-term capital needs through the
retention of corporate earnings and the issuance of long-term debt instruments.
In November 1998, Mattel filed its current universal shelf registration
statement allowing it to issue up to $400.0 million of debt and equity
securities, all of which was available to be issued as of December 31, 1999.
Stockholders' equity of $2.0 billion at year end 1999 decreased $208.1 million
from year end 1998, primarily due to dividend declarations on common and
preferred stock, Mattel's net loss position due to restructuring and other
nonrecurring charges, treasury stock purchases and unfavorable effect of
currency translation adjustments, partially offset by cash received from
exercise of employee stock options.
Liquidity and Capital Resources
Mattel's primary sources of liquidity over the last three years have been
cash on hand at the beginning of the year, cash flows generated from
operations, long-term debt issuances and short-term seasonal borrowings.
Operating activities generated cash flows of $58.6 million during 1999,
compared to $571.7 million in 1998 and $503.4 million in 1997. The decrease in
cash flows from operating activities in 1999 is largely due to the negative
impact of Learning Company's results.
Mattel invested its cash flows during the last three years mainly in the
acquisitions of Pleasant Company, Sofsource, Inc., Bluebird and Mindscape,
Inc., additions to tooling in support of new products, and construction of new
manufacturing facilities.
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<PAGE>
Mattel received cash flows from its short-term borrowings, which was
primarily used to support operating activities. Mattel also received cash flows
from the issuance of Senior Notes in 1998, and Medium-Term Notes and Softkey
warrants in 1998 and 1997. Cash received from these debt issuances was used to
fund the 1998 acquisitions of Pleasant Company, Mindscape, Inc. and Bluebird,
to retire higher-cost debt and to support operating activities. In 1999, Mattel
repaid $30.0 million of its Medium-Term Notes. In 1998, Mattel repaid the long-
term debt and mortgage note assumed as part of the Pleasant Company
acquisition. In 1997, Mattel redeemed the 10 1/8% Notes assumed as part of the
acquisition of Tyco and repaid its 6 7/8% Senior Notes upon maturity. Cash was
also spent during the last three years to purchase treasury stock to provide
shares for issuance under Mattel's employee stock option plans and the exercise
of outstanding warrants. In addition, over the last three years, Mattel has
consistently increased cash payments for dividends on its common stock. The
payment of any dividends in the future is at the discretion of Mattel's board
of directors.
Seasonal Financing
Mattel expects to finance its seasonal working capital requirements for the
coming year by using existing and internally generated cash, issuing commercial
paper and selling certain trade receivables under its commited revolving credit
facility and using various short-term bank lines of credit. Mattel's domestic
committed unsecured credit facility provides up to a total of $1.0 billion in
short-term borrowings from a commercial bank group. This facility provides for
up to $700.0 million in advances and backup for commercial paper issuances, and
up to an additional $300.0 million for nonrecourse purchases of certain trade
accounts receivable by the bank group over the next three years. Under its
domestic credit facility, Mattel is required to meet financial covenants for
consolidated debt-to-capital and interest coverage. Currently Mattel is in
compliance with such covenants.
Mattel is currently in the process of negotiating a 364 day, $400 million
companion facility to its existing $1.0 billion credit facility, with
essentially the same group of commercial banks. The terms and conditions of the
companion facility will be similar to the existing $1.0 billion credit
facility. Mattel expects to have the companion facility in place by the end of
April 2000.
Mattel also expects to have approximately $370 million of individual short-
term foreign credit lines with a number of banks available in 2000, which will
be used as needed to finance seasonal working capital requirements of certain
foreign affiliates.
Business Combinations
Mattel and Learning Company completed the following business combinations
during the last three years. Each transaction has been accounted for as a
pooling of interests, which means the companies involved in the transaction are
treated as if they had always been combined for accounting and financial
reporting purposes.
In May 1999, Mattel completed its merger with Leaning Company, after which
Learning Company was merged with and into Mattel, with Mattel being the
surviving corporation. Each share of Learning Company Series A Preferred Stock
was then converted into 20 shares of Learning Company common stock immediately
prior to the consummation of the merger. Pursuant to the merger agreement, each
outstanding share of Learning Company common stock was converted into 1.2
shares of Mattel common stock upon consummation of the merger. As a result,
approximately 126 million Mattel common shares were 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
one share of Mattel Special Voting Preferred Stock. Each outstanding
exchangeable share of Learning Company's Canadian subsidiary, Softkey Software
Products Inc., remains outstanding, but upon consummation of the merger became
exchangeable for 1.2 shares of Mattel common stock.
In August 1998, Learning Company completed its merger with Broderbund, a
publisher and developer of consumer software for the home and school market.
Under the merger agreement, each outstanding share of
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<PAGE>
Broderbund common stock was converted into 0.80 shares of Learning Company
common stock and resulted in the issuance of approximately 17 million shares of
Learning Company common stock.
In March 1997, Mattel completed its merger with Tyco. Under the merger
agreement, each Tyco common stockholder received 0.48876 shares of Mattel
common stock for each share of Tyco common stock outstanding, which resulted in
the issuance of approximately 17 million Mattel common shares. Tyco restricted
stock units and stock options outstanding as of the merger date were exchanged
for approximately 0.6 million Mattel common shares. In addition, each share of
Tyco Series B and Series C preferred stock was converted into like Mattel
preferred stock.
Learning Company also merged with Palladium Interactive, Inc. and P.F.
Magic, Inc. in 1998 and TEC Direct, Inc., Microsystems Software, Inc., Skills
Bank Corporation and Learning Company Services, Inc. in 1997, each of which
were accounted for as poolings of interests. The consolidated financial
statements have not been retroactively restated for the results of operations
and financial position of these companies as the effect of each acquisition
individually and in the aggregate on Learning Company's balance sheet and
results of operations was less than three percent.
Acquisitions
Mattel and Learning Company acquired the following companies during the
years ended December 31, 1998 and 1997. Each of these acquisitions was
accounted for using the purchase method of accounting. The results of
operations of the acquired companies have been included in Mattel's
consolidated financial statements from their respective dates of acquisition.
Intercompany accounts and transactions between the acquired companies and
Mattel, as applicable, have been eliminated.
<TABLE>
<CAPTION>
Method of (Assets)/Liabilities Incomplete
Month Price Payment Assumed Intangibles Technology
------- ------ ---------- -------------------- ----------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
1998
Pleasant Company........ July $715.0 Cash $(25.0) $690.0 $ --
Bluebird Toys PLC....... June 80.0 Cash (20.0) 60.0 --
Sofsource, Inc. ........ June 45.0 Stock 6.7 36.8 14.9
Mindscape, Inc. ........ March 152.6 Cash/stock 6.4 119.0 40.0
1997
Creative Wonders,
L.L.C. ................ October $ 37.8 Cash $ 7.3 $ 44.0 $ 1.1
Parsons Technology...... August 31.0 Cash (11.7) 9.3 10.0
</TABLE>
The acquisition price includes investment advisor and other directly-related
expenses, as applicable. The portion of the purchase price allocated to
incomplete technology was charged to expense in the year of acquisition.
Mattel also made other minor acquisitions during the last three years which
were accounted for using the purchase method. These acquisitions resulted in
the issuance of 0.4 million shares of common stock in the year ended December
31, 1997.
New Venture
In the third quarter of 1999, Mattel executed stock purchase and
distribution agreements with Bandai, the largest toy company in Japan. In the
purchase agreement, Mattel acquired approximately five percent of the
outstanding common stock of Bandai. The distribution agreements allow Bandai to
distribute certain Mattel products in Japan, while Mattel was granted the right
to distribute certain Bandai products in Latin America. Mattel and Bandai will
discuss other distribution opportunities in the U.S. on a case-by-case basis.
33
<PAGE>
Restructuring and Other Charges
In 1999 Mattel incurred restructuring and other nonrecurring charges
totaling $346.0 million, approximately $265 million after-tax or $0.64 per
diluted share.
During the first quarter of 1999, Mattel incurred a nonrecurring pre-tax
charge of $3.9 million, largely related to the restructuring and integration of
acquisitions made by its Learning Company division in the fourth quarter of
1998.
During the second quarter of 1999, Mattel completed its merger with Learning
Company and finalized a previously announced plan of restructuring and
integration. These actions, along with other one-time events, resulted in a
nonrecurring pre-tax charge against operations of $345.0 million. In the fourth
quarter of 1999, Mattel incurred an additional $23.5 million charge relating to
its restructuring and integration plan and other one-time charges which had
previously not met the requirement for accrual. In addition, Mattel reversed
$26.4 million of the second quarter charge based on lower than anticipated
costs and revisions to previous estimates. The impact of these new developments
combined with the initial second quarter charge resulted in a full year
nonrecurring charge of $342.1 million. Of the pre-tax restructuring and
integration charges totaling $307.0 million, approximately $132 million was
spent in 1999, $111 million is expected to be spent in 2000 and the remaining
$64 million represents non-cash charges. Total cash outlay is expected to be
funded from existing cash balances and internally generated cash flows from
operations.
The restructuring and integration plan, expected to be substantially
complete by June 2000, provides for the consolidation and realignment of
Mattel's operations. The plan was aimed at leveraging global resources in areas
of manufacturing, marketing and distribution, eliminating duplicative functions
worldwide and achieving improved operating efficiencies. The plan, which was
designed to reduce product costs and overhead spending and recognize synergy
savings, resulted in actual cost savings of approximately $40 million in 1999.
Mattel expects savings of approximately $350 million over the next three years.
The realized cost savings for 1999 and beyond is lower than the previously
estimated savings of approximately $50 million and $400 million, respectively,
largely due to not realizing the revenue synergies with Learning Company. These
savings are net of anticipated incremental integration related spending of
approximately $12 million. This incremental spending includes approximately $3
million for capital investment at existing manufacturing facilities as well as
network consolidation, and charges for the relocation of employees and movement
of equipment, employee transition/training, and manufacturing start-up costs.
The following are the major restructuring and integration initiatives:
. Consolidation of the Infant and Preschool businesses;
. Consolidation of the domestic and international back-office functions;
. Consolidation of direct marketing operations;
. Realignment of the North American sales force;
. Termination of various international distributor contracts; and
. Closure of three higher cost manufacturing facilities.
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<PAGE>
Components of the restructuring and other nonrecurring charges, including
related adjustments, are as follows:
<TABLE>
<CAPTION>
Adjustments Balance
----------------- Total Amounts Dec. 31,
Plan (Credits) Charges Charges Incurred 1999
---- --------- ------- ------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Severance and other
compensation.................. $108 $(13) $18 $113 $ (30) $ 83
Distributor, license and other
contract terminations......... 57 (2) -- 55 (45) 10
Writedown of assets............ 42 (2) -- 40 (40) --
Lease termination costs........ 22 (4) -- 18 -- 18
---- ---- --- ---- ----- ----
Total restructuring costs and
asset writedowns............ 229 (21) 18 226 (115) 111
Merger-related transaction and
other costs................... 86 (5) -- 81 (76) 5
Other nonrecurring charges..... 30 -- 5 35 (16) 19
---- ---- --- ---- ----- ----
Total restructuring, asset
writedowns and other
charges..................... $345 $(26) $23 $342 $(207) $135
==== ==== === ==== ===== ====
</TABLE>
In the fourth quarter of 1999, Mattel adjusted its restructuring and
integration plan and other nonrecurring charges, resulting in a net reduction
of approximately $3 million. The credits to the restructuring plan of
approximately $26 million were mainly due to Mattel's recent decision not to
close certain of its marketing offices and one of its manufacturing facilities.
The remaining credits include other changes in estimates and lower than
anticipated costs compared to the previous estimates for completed components
of the plan. Approximately 900 employees will not be terminated as a result
these changes.
The fourth quarter restructuring charge of approximately $18 million relates
to the termination of an additional 150 Learning Company employees at its
domestic offices. This action was taken to further consolidate the operations
of Learning Company's domestic offices. The fourth quarter other nonrecurring
charge relates to a $4.0 million increase to the reserve for the October 1998
recall of Mattel's Power Wheels(R) vehicles and a $1.1 million additional
charge related to the Toys R Us-related antitrust litigation settlement.
A description of the components of the restructuring and other nonrecurring
charges is as follows:
Severance and other compensation costs relate to the termination of
approximately 3,300 employees around the world. Approximately 2,300 of these
employees are hourly workers located in certain of Mattel's manufacturing
facilities, of which approximately 2,200 were employed in the manufacturing
facility in Kuala Lumpur, which ceased operations in September 1999. The
remainder of the work force reductions consists of downsizing sales and
marketing groups in the US, Europe and Asia-Pacific regions as well as the
elimination of duplicate administrative personnel following the consolidation
of back-office functions, the majority of which are in Europe. As of December
31, 1999, approximately $30 million had been paid to nearly 2,700 terminated
employees. Cash severance payments will extend beyond the completion of the
workforce reductions due to the severance payment options available to affected
employees.
Mattel terminated its sponsorship agreements related to certain attractions
for a total cost of $37.5 million, inclusive of the writeoff of related
capitalized costs. The cash portion of this charge was paid as of July 1999.
Mattel also recognized a $17.5 million charge, mainly related to settlements
for termination of certain foreign distributor agreements in conjunction with
the realignment of its sales and distribution network.
Mattel's restructuring plan resulted in the impairment of certain long-lived
assets related to the operations being closed. The sum of the undiscounted
future cash flows of these assets was not sufficient to cover the carrying
amount of these assets. As a result, these long-lived assets were written down
to fair market value and will be depreciated over their remaining useful lives.
Fair value of the impaired assets was determined by either third-party
appraisals or past experience in disposing of similar assets. Buildings and, to
the extent possible, equipment will be sold while the remainder of the impaired
assets will be abandoned when taken out of service.
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<PAGE>
Nearly all of the revenue-generating activities related to these assets will
continue as a result of more effective utilization of other assets. A
significant portion of the fixed asset writedowns is concentrated in the
Operations and Learning Company segments. In addition, other asset writeoffs
include approximately $10 million of goodwill related to a recently acquired
software business, which was closed following the merger with Learning Company.
Lease termination costs include penalties imposed upon canceling existing
leases and future obligations under long-term rental agreements at facilities
being vacated following the merger and realignment.
Merger-related transaction costs consist of investment banking fees, legal,
accounting and printing costs, registration fees and other costs recognized in
connection with the merger. Also included in this amount are the contractual
change of control payments arising from the merger. The majority of all merger-
related transaction costs were paid during the second quarter of 1999.
Other nonrecurring charges principally include an additional $20.0 million
related to the October 1998 recall of Mattel's Power Wheels vehicles and $14.0
million for environmental remediation costs related to a manufacturing facility
on a leased property in Beaverton, Oregon, based on the completion and approval
of the remediation plan and feasibility study.
Mattel is currently undertaking a comprehensive review of its entire
interactive business to identify additional opportunities to improve operating
productivity and realize costs savings. Following this review, Mattel expects
to incur pre-tax reorganizational charges totaling approximately $75 million to
$100 million in the first quarter of 2000. These charges are designed to
streamline the infrastructure, product development cycle and operations of
Mattel Interactive. Additionally, compensation expense of approximately $50
million, including forgiveness of certain executive loans, will be incurred in
the first quarter of 2000 related to the recent departure of certain senior
executives.
Litigation
Power Wheels(R) Recall and Related Matters
On October 22, 1998, Mattel announced that Fisher-Price, in cooperation with
the Consumer Product Safety Commission, would conduct a voluntary recall
involving up to 10 million battery-powered Power Wheels(R) ride-on vehicles.
The recall did not result from any serious injury, and involves the replacement
of electronic components that may overheat, particularly when consumers make
alterations to the product. The recall involves vehicles sold nationwide since
1984 under nearly 100 model names. Additionally, Fisher-Price has been notified
by the Consumer Product Safety Commission that the Commission is considering
whether Fisher-Price may be subject to a fine for delayed reporting of the
facts underlying the recall.
In the third quarter of 1998, Mattel recognized a $38.0 million pre-tax
charge related to the recall. During the second and fourth quarters of 1999,
Mattel recognized additional pre-tax charges totaling $20.0 million related to
the recall.
Greenwald Litigation and Related Matters
On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC 025
008) against Mattel in Superior Court of the State of California, County of Los
Angeles. Ms. Greenwald is a former employee whom Mattel terminated in July
1995. Her complaint sought $50 million in general and special damages, plus
punitive damages, for breach of oral, written and implied contract, wrongful
termination in violation of public policy and violation of California Labor
Code Section 970. Ms. Greenwald claimed that her termination resulted from
complaints she made to management concerning general allegations that Mattel
did not account properly for sales and certain costs associated with sales and
more specific allegations that Mattel failed to account properly for certain
royalty obligations to The Walt Disney Company. On December 5, 1996, Mattel's
motion for summary adjudication of Ms. Greenwald's public policy claim was
granted. On March 7, 1997, Mattel filed a motion for summary judgment on the
remaining causes of action. On December 9, 1997, Mattel's motion for summary
judgment of Ms. Greenwald's remaining claims was granted. On February 4, 1998,
Ms. Greenwald
36
<PAGE>
appealed from the dismissal of her suit. The appeal has been fully briefed, and
a hearing took place on March 3, 2000. Mattel intends to continue to defend the
action vigorously, including the appeal.
Toys R Us and Related Matters
On October 2, 1997, the Attorney General of the State of New York filed in
the United States District Court, Eastern District of New York (Case No. CV 97
5714), an action against Toys R Us, Mattel and certain other toy manufacturers
alleging that the defendants had violated federal antitrust laws and entered
into vertical and horizontal arrangements that had the effect of restricting
sales to the warehouse clubs. The attorneys general from forty-three other
states, the District of Columbia and the Commonwealth of Puerto Rico joined
this action. Following the filing of the New York action, a series of private
treble damage class actions under the federal antitrust laws were filed in
various federal district courts. The parties later agreed to have these related
actions transferred to the Eastern District of New York to be consolidated by
the Judicial Panel on Multiple Litigation before Nina Gershon, United States
District Judge. Private class actions were also filed in state courts in
Alabama, California, and New Jersey, asserting claims under state antitrust
law. These state court actions were coordinated with the federal court actions.
Subsequent mediation efforts resulted in a Settlement Agreement and Release
as to Mattel, Inc., Fisher-Price, and Tyco, effective April 6, 1999. Pursuant
to the terms of the Settlement Agreement and Release, Mattel agreed to make a
cash payment and a toy contribution, both of which were made in the fourth
quarter of 1999. As a result of a dispute between the parties as to the
selection of the toys to be contributed, Mattel negotiated a Supplemental Toy
Contribution Agreement and made a supplemental toy contribution in December
1999. Final Judgment and Order of Dismissal was entered by Judge Gershon on
February 17, 2000 that effectively dismissed with prejudice the claims asserted
by the state and private federal and state court plaintiffs, including the
claims of any person represented in either a parens patriae or private class
capacity.
Litigation Related to Business Combination
On December 16, 21, and 23, 1998, several stockholders of the legal entity
The Learning Company, Inc. that merged into Mattel ("Old Learning Company")
filed six separate purported class action complaints in the Court of Chancery
of the State of Delaware in and for New Castle County against Old Learning
Company and Old Learning Company's board of directors for alleged breaches of
fiduciary duties in connection with the May 1999 merger. The six complaints
were consolidated. The consolidated complaint named Mattel as an additional
defendant, claiming that Mattel aided and abetted the alleged breaches of
fiduciary duty. On March 9, 2000, the plaintiffs filed a notice and order of
dismissal dismissing the action without prejudice. Upon approval by the court,
the consolidated action will be formally dismissed.
Litigation Related to Learning Company Earnings Shortfall
Following Mattel's announcement on October 4, 1999 that it expected an
earnings shortfall at its Learning Company division in the third quarter of
1999, several of Mattel's shareholders filed purported class action complaints
in the United States District Court for the Central District of California, the
United States District Court for the Southern District of New York and the
United States District Court for Massachusetts naming Mattel and certain of its
officers and directors as defendants. The complaints generally allege, among
other things, that the defendants made false or misleading statements that
artificially inflated the price of Mattel's common stock by overstating the
revenues and net income of Mattel, including its Learning Company division, and
by falsely representing that the May 1999 Learning Company acquisition would be
immediately accretive to Mattel's 1999 and 2000 financial results.
37
<PAGE>
Two of the purported class action complaints are brought on behalf of the
former stockholders of Broderbund who acquired shares of Old Learning Company
in exchange for their Broderbund common stock in connection with the Old
Learning Company-Broderbund merger on August 31, 1998. Mattel has been named as
a defendant as the successor-in-interest to Old Learning Company. The
complaints generally allege that that the Old Learning Company-Broderbund
Registration Statement on Form S-4 filed on or about July 14, 1998 in
connection with the merger was materially false.
On November 23, 1999, Mattel (along with other defendants named in the
federal securities lawsuits) filed a motion and brief before the Judicial Panel
on Multidistrict Litigation seeking to transfer all of the federal actions to
the United States District Court for the Central District of California for
Coordinated or Consolidated Pretrial Proceedings. On March 3, 2000, the
Judicial Panel on Multidistrict Litigation granted Mattel's motion.
In addition, a Mattel stockholder filed a derivative complaint on behalf and
for the benefit of Mattel in the Superior Court of the State of California,
County of Los Angeles. The complaint alleges that Mattel's directors breached
their fiduciary duties, wasted corporate assets and grossly mismanaged Mattel
in connection with Mattel's acquisition of Learning Company and seeks both
monetary and injunctive relief. On February 10, 2000, the court sustained
defendants' demurrer and dismissed the complaint with leave to amend.
Mattel believes the lawsuits are without merit and intends to defend them
vigorously.
Environmental
Fisher-Price. Fisher-Price has executed a consent order with the State of
New York involving a remedial action/feasibility study for one of its
manufacturing plants. Currently, Fisher-Price is negotiating an additional
consent order which will outline the specific clean up strategy for the site.
Mattel anticipates that the New York State Department of Environmental Quality
will issue their Record of Decision in March 2000. The ultimate liability
associated with this cleanup presently is estimated to be less than $1,425,000,
approximately $1,030,500 of which has been incurred through December 31, 1999.
Beaverton, Oregon. Mattel operates a manufacturing facility on a leased
property in Beaverton, Oregon that was acquired as part of the Tyco merger. In
March 1998, samples of groundwater used by the facility for process water and
drinking water disclosed elevated levels of certain chemicals, including
trichloroethylene. Mattel immediately closed the water supply and self-reported
the sample results to the Oregon Department of Environmental Quality and the
Oregon Health Division. Mattel also implemented a community outreach program to
employees, former employees and surrounding landowners.
In November 1998, Mattel and another potentially responsible party entered
into a consent order with the Oregon Department of Environmental Quality to
conduct a remedial investigation/feasibility study at the property, to propose
an interim remedial action measure and to continue the community outreach
program. In the second quarter of 1999, Mattel recorded a $14.0 million pre-tax
charge for environmental remediation costs related to this property, based on
the completion and approval of the remediation plan and feasibility study.
General
Mattel is also involved in various other litigation and legal matters,
including claims related to intellectual property, product liability and labor,
which Mattel is addressing or defending in the ordinary course of business.
Management believes that any liability which may potentially result upon
resolution of such matters will not have a material adverse effect on Mattel's
business, financial condition or results of operations.
Commitments
In the normal course of business, Mattel enters into contractual
arrangements for future purchases of goods and services to ensure availability
and timely delivery, and to obtain and protect Mattel's right to create and
market certain products. These arrangements include commitments for future
inventory purchases and royalty
38
<PAGE>
payments. Certain of these commitments routinely contain provisions for
guaranteed or minimum expenditures during the term of the contracts.
As of December 31, 1999, the Operations segment had outstanding commitments
for 2000 purchases of inventory of approximately $92 million. Licensing and
similar agreements with terms extending through the year 2007 contain
provisions for future guaranteed minimum payments aggregating approximately
$346 million.
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 and option
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.
Mattel's foreign currency forward exchange contracts that were used to hedge
firm foreign currency commitments as of December 31, 1999 and 1998 are shown in
the following table.
These contracts generally mature within 18 months from the date of
execution. Contracts outstanding at year-end mature during the next 13 months.
All contracts are against the US dollar and are maintained by reporting units
with a US dollar functional currency, with the exception of the Indonesian
rupiah contracts that are maintained by an entity with a rupiah functional
currency.
39
<PAGE>
For the purchase of foreign currencies, fair value reflects the amount,
based on dealer quotes, that Mattel would pay at maturity for contracts
involving the same currencies and maturity dates, if they had been entered into
as of year-end 1999 and 1998. For the sale of foreign currencies, fair value
reflects the amount, based on dealer quotes, that Mattel would receive at
maturity for contracts involving the same currencies and maturity dates, if
they had been entered into as of year-end 1999 and 1998. The differences
between the fair value and the contract amounts are expected to be fully offset
by foreign currency exchange gains and losses on the underlying hedged
transactions.
<TABLE>
<CAPTION>
Buy Sell
------------------------------- -------------------------------
Weighted Weighted
Contract Average Fair Contract Average Fair
Amount Contract Rate Value Amount Contract Rate Value
-------- ------------- -------- -------- ------------- --------
(In thousands of US dollars)
<S> <C> <C> <C> <C> <C> <C>
1999
Euro.................... $ 92,445 1.01 $ 90,922 $253,096 1.05 $244,448
British pounds
sterling............... 6,316 1.61 6,332 16,679 1.65 16,433
Canadian dollar......... 7,604 1.45 7,619 40,679 .68 41,498
Japanese yen............ -- -- -- 19,412 116 19,557
Australian dollar....... -- -- -- 8,438 .64 8,661
Swiss franc............. 14,893 1.58 14,798 -- -- --
Indonesian rupiah....... 19,455 7,676 20,998 -- -- --
Singapore dollar........ -- -- -- 4,066 1.68 4,091
Thai bhat............... 3,990 39.59 4,207 -- -- --
-------- -------- -------- --------
$144,703 $144,876 $342,370 $334,688
======== ======== ======== ========
1998
German mark............. $ 19,119 1.67 $ 18,984 $144,660 1.68 $145,688
Italian lira............ 20,014 1,764.00 21,155 68,358 1,660.00 67,950
Hong Kong dollar........ 55,829 8.02 57,790 -- -- --
French franc............ 27,435 5.62 27,536 9,105 5.82 9,479
British pounds
sterling............... 6,548 0.60 6,415 66,856 0.61 66,950
Canadian dollar......... 16,144 1.55 16,545 18,794 1.46 18,119
Spanish peseta.......... 5,625 142.30 5,577 2,899 148.23 2,997
Dutch guilder........... 5,079 1.89 5,050 8,086 1.96 8,342
Japanese yen............ -- -- -- 12,501 116.00 12,759
Australian dollar....... 4,988 1.66 5,268 21,610 1.58 21,732
Belgian franc........... -- -- -- 11,641 35.46 11,871
Swiss franc............. 18,341 1.37 18,251 -- -- --
Mexican peso............ -- -- -- 22,000 10.02 21,956
Indonesian rupiah....... 10,000 15,720.50 19,183 -- -- --
Singapore dollar........ -- -- -- 3,962 1.64 3,943
Brazilian real.......... -- -- -- 2,500 1.25 2,554
-------- -------- -------- --------
$189,122 $201,754 $392,972 $394,340
======== ======== ======== ========
</TABLE>
Manufacturing Risk
Mattel owns and operates manufacturing facilities and utilizes third-party
manufacturers throughout Asia, primarily in China, Indonesia, Malaysia and
Thailand. A risk of political instability and civil unrest exists in these
countries, which could temporarily or permanently damage Mattel's manufacturing
operations located there. Mattel's business, financial position and results of
operations would be negatively impacted by a significant disruption to its
manufacturing operations or suppliers.
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<PAGE>
Effects of Inflation
Inflation rates in the US and in major foreign countries where Mattel does
business have not had a significant impact on its results of operations or
financial position during the three years ended December 31, 1999. The US
Consumer Price Index increased 2.7% in 1999, 1.6% in 1998 and 1.7% in 1997.
Mattel receives some protection from the impact of inflation from high turnover
of inventories and its ability to pass on higher prices to consumers.
Year 2000 Update
To address the year 2000 issue, in early 1998 Mattel established an in-house
project team and initiated a comprehensive plan to assess, remediate and test
Mattel's internal systems, hardware and processes, including key operational,
manufacturing and financial systems. The plan also included steps to verify
that all key third-party suppliers and customers were taking measures to ensure
their own readiness and timely implementation. All phases of the year 2000
readiness plan were completed as scheduled. To date, Mattel has not experienced
any year 2000 issues with its internal operating systems or with its third
party customers and suppliers. In addition, Mattel did not experience any loss
in revenues due to the year 2000 issue.
All software products currently available for sale to consumers and under
development are year 2000 compliant. However, several discontinued products
sold in the past may not operate as intended on certain computers due to the
year 2000 issue.
As of December 31, 1999, Mattel spent a total of approximately $13 million
in connection with addressing the year 2000 issue. Any additional charges are
expected to be minimal. These costs were largely due to the use of internal
resources dedicated to achieving year 2000 compliance, and were charged to
expense as incurred. All costs of addressing the year 2000 issue were funded
from internally generated cash.
Although unlikely given that Mattel has not experienced any year 2000 issues
to date, there can be no assurance that any future unforeseen year 2000 issues
or year 2000 issues relating to possibly non-compliant software products will
not materially adversely affect Mattel's results of operations, liquidity and
financial position or adversely affect Mattel's relationships with customers,
vendors or others.
Euro Conversion
On January 1, 1999, a single currency called the euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union adopted
the euro as their common legal currency on that date. Fixed conversion rates
between these countries' existing currencies, "legacy currencies", and the euro
were established on that date. The legacy currencies are scheduled to remain
legal tender in these participating countries through July 1, 2002. During the
transition period, parties may settle transactions using the euro or a
participating country's legacy currency.
Certain of Mattel's European facilities adopted the euro as their functional
currency in 1999. The cost of system modifications to accommodate the euro was
not material to Mattel's results of operations. Based on currently available
information, the euro conversion has not had a material adverse impact on
Mattel's business or financial condition.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at fair value. It also
requires that gains or losses resulting from changes in the values of those
derivatives be accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. Mattel is required to adopt this statement
for its fiscal year beginning January 1, 2001. Management believes the adoption
of this statement will not have a material impact on Mattel's financial
position or results of operations.
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<PAGE>
Cautionary Statement
Certain written and oral statements made or incorporated by reference from
time to time by Mattel or its representatives in this Form 10-K, other filings
or reports with the Securities and Exchange Commission, press releases,
conferences, or otherwise, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Mattel is including
this Cautionary Statement to make applicable and take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 for
any such forward-looking statements. Forward-looking statements include any
statement that may predict, forecast, indicate, or imply future results,
performance, or achievements, and forward-looking statements can be identified
by the use of terminology such as "believe," "anticipate," "expect,"
"estimate," "may," "will," "should," "project," "continue," "plans," "aims,"
"intends," "likely," or other words or phrases of similar terminology.
Management cautions you that forward-looking statements involve risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statements. For a discussion of some of the factors that may
cause actual results to differ materially from those suggested by forward-
looking statements, please read carefully the information under Item 1 "Risk
Factors" on pages 13 to 18 of this Form 10-K. In addition to the Risk Factors
and other important factors detailed herein and from time to time in other
reports filed by Mattel with the Securities and Exchange Commission, including
Forms 8-K, 10-Q and 10-K, the following important factors could cause actual
results to differ materially from those suggested by any forward-looking
statements.
. Marketplace Risks
--Increased competitive pressure, both domestically and internationally,
which may negatively affect the sales of Mattel's products
--Changes in public and consumer taste, which may negatively affect
Mattel's toy and consumer software business
--Significant changes in the play patterns of children, whereby they are
increasingly attracted to more developmentally advanced products at
younger ages, which may affect brand loyalty and the perceived value of
and demand for Mattel's products
--Possible weaknesses in economic conditions, both domestically and
internationally, which may negatively affect the sales of Mattel's
products and the costs associated with manufacturing and distributing
these products
. Financing Considerations
--Currency fluctuations, which may affect Mattel's reportable income
--Significant changes in interest rates, both domestically and
internationally, which may negatively affect Mattel's cost of financing
both its operations and investments
. Other Risks
--Inability to successfully complete licensing and e-commerce deals in a
timely fashion, which may reduce Mattel's ability to realize the full
value of its intellectual property rights
--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 the Internet, consumer products or
environmental activities or trade restrictions, which may lead to
increased costs or interruption in normal business operations of Mattel
--Current and future litigation, governmental proceedings or
environmental matters, which may lead to increased costs or interruption
in normal business operations of Mattel
--Labor disputes, which may lead to increased costs or disruption of any
of Mattel's operations
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<PAGE>
The risks included herein and in Item 1 "Risk Factors" are not exhaustive.
Other sections of this Form 10-K may include additional factors which could
materially and adversely impact Mattel's business, financial condition and
results of operations. Moreover, Mattel operates in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for management to predict all such risk factors on Mattel's
business, financial condition or results of operations or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on forward-
looking statements as a prediction of actual results.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report. See
Item 14 of Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required under this Item relating to members of Mattel's board
of directors is incorporated by reference herein from its 2000 Notice of Annual
Meeting of Stockholders and Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after December 31, 1999. The information
with respect to the executive officers of Mattel appears under the heading
"Executive Officers of the Registrant" in Part I herein.
Item 11. Executive Compensation
The information required under this Item is incorporated by reference herein
from Mattel's 2000 Notice of Annual Meeting of Stockholders and Proxy Statement
to be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this Item is incorporated by reference herein
from Mattel's 2000 Notice of Annual Meeting of Stockholders and Proxy Statement
to be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999.
Item 13. Certain Relationships and Related Transactions
The information required under this Item is incorporated by reference herein
from Mattel's 2000 Notice of Annual Meeting of Stockholders and Proxy Statement
to be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements of Mattel, Inc.
<TABLE>
<S> <C>
Report of Independent Accountants..................................... F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998.......... F-2
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997................................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997.................................... F-6
Notes to Consolidated Financial Statements............................ F-8
</TABLE>
2. Financial Statement Schedule for the years ended December 31, 1999, 1998
and 1997(1)
Schedule II--Valuation and Qualifying Accounts and Allowances
3. Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K)
<TABLE>
<C> <S>
2.0 Agreement and Plan of Merger, dated as of December 13, 1998, between
Mattel and The Learning Company, Inc. (incorporated by reference to
Exhibit 2.1 of Mattel's Current Report on Form 8-K, dated December 15,
1998)
3.0 Restated Certificate of Incorporation of Mattel (incorporated by
reference to Exhibit 3.0 to Mattel's Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 001-05647)
3.1 Certificate of Amendment of Restated Certificate of Incorporation of
Mattel (incorporated by reference to Exhibit B to Mattel's Proxy
Statement dated March 23, 1996)
3.2 Certificate of Amendment of Restated Certificate of Incorporation of
Mattel (incorporated by reference to Exhibit B to Mattel's Proxy
Statement dated March 30, 1998)
3.3* By-laws of Mattel, as amended to date
3.4 Certificate of Designations, Preferences, Rights and Limitations of
Special Voting Preferred Stock of Mattel (incorporated by reference to
Exhibit 3.0 to Mattel's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999)
4.0 Rights Agreement, dated as of February 7, 1992, between Mattel and The
First National Bank of Boston, as Rights Agent (incorporated by
reference to Exhibit 1 to Mattel's Registration Statement on Form 8-A,
dated February 12, 1992)
4.1 Amendment No. 1 to Rights Agreement, dated as of May 13, 1999, between
Mattel and BankBoston, N.A. (incorporated by reference to Exhibit 4 to
Mattel's Registration Statement on Form 8-A/A dated May 13, 1999)
4.2 Amendment No. 2 to Rights Agreement, dated as of November 4, 1999,
between Mattel and BankBoston, N.A. (incorporated by reference to
Exhibit 4.3 to Mattel's Registration Statement on Form 8-A/A dated
November 12, 1999)
4.3 Specimen Stock Certificate with respect to Mattel's Common Stock
(incorporated by reference to Mattel's Current Report on Form 8-A, dated
February 28, 1996)
4.4 Indenture dated as of February 15, 1996 between Mattel and Chase Trust
Company of California, as Trustee (incorporated by reference to Exhibit
4.1 to Mattel's Current Report on Form 8-K dated April 11, 1996)
</TABLE>
- --------
(1) All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
notes thereto.
45
<PAGE>
<TABLE>
<C> <S>
4.5 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 Learning Company's Registration Statement on Form S-
3, Registration No. 333-40549)
4.6 Voting and Exchange Trust Agreement, dated as of February 4, 1994 among
Learning Company, Softkey Software Products Inc. and R-M Trust Company,
as Trustee (incorporated by reference to Exhibit 4.3 to Learning
Company's Registration Statement on Form S-3, Registration
No. 333-40549)
4.7 Support Agreement, dated as of February 4, 1994 between Learning Company
and Softkey Software Products Inc. (incorporated by reference to
Exhibit 99.4 of Mattel's Form S-4, Registration No. 333-71587)
4.8 Voting and Exchange Trust Supplement dated as of May 12, 1999 between
Mattel, Learning Company, Softkey Software Products Inc. and CIBC
Mellon Trust Company, as Trustee (incorporated by reference to Exhibit
99.3 of Mattel's Quarterly Report of Form 10-Q for the quarterly period
ended March 31, 1999)
4.9 Support Agreement Amending Agreement dated as of May 12, 1999 between
Mattel, Learning Company and Softkey Software Products Inc.
(incorporated by reference to Exhibit 99.4 of Mattel's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999)
4.10 Rights Agreement dated as of May 13, 1999 between Softkey Software
Products Inc., Mattel and CIBC Mellon Trust Company, as Trustee
(incorporated by reference to Exhibit 99.5 of Mattel's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999)
4.11 Warrant to Purchase Shares of Common Stock of Mattel, Inc., dated as of
June 27, 1996 (incorporated by reference to Exhibit 4.6 to Mattel's
Annual Report on Form 10-K for the year ended December 31, 1998)
(Mattel has not filed certain long-term debt instruments under which the
principal amount of securities authorized to be issued does not exceed
10% of its total assets. Copies of such agreements will be provided to
the Securities and Exchange Commission upon request.)
10.0 Second Amended and Restated Credit Agreement dated as of March 11, 1998
among Mattel, the Banks named therein and Bank of America National
Trust and Savings Association, as Agent (incorporated by reference to
Exhibit 99.0 to Mattel's Current Report on Form 8-K dated August 21,
1998)
10.1 Receivables Purchase Agreement dated as of March 11, 1998 among Mattel,
Mattel Factoring, Inc., the Banks named therein and NationsBank of
Texas, N.A., as Agent (incorporated by reference to Exhibit 99.1 to
Mattel's Current Report on Form 8-K dated August 21, 1998)
10.2 Distribution Agreement dated November 12, 1997 among Mattel, Morgan
Stanley & Co. Incorporated and Credit Suisse First Boston Corporation
(incorporated by reference to Exhibit 1.0 to Mattel's Current Report on
Form 8-K dated November 12, 1997)
Executive Compensation Plans and Arrangements of Mattel
10.3 Form of Indemnity Agreement between Mattel and its directors and certain
of its executive officers (incorporated by reference to Exhibit B to
Notice of Annual Meeting of Stockholders of Mattel dated March 24,
1987)
10.4 Amended and Restated Employment Agreement dated January 1, 1997 between
Mattel and Jill E. Barad (incorporated by reference to Exhibit 10.0 to
Mattel's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997)
10.5 Amended and Restated Employment Agreement dated July 29, 1996 between
Mattel and Ned Mansour (incorporated by reference to Exhibit 10.13 to
Mattel's Annual Report on Form 10-K for the year ended December 31,
1996)
10.6* Executive Employment Agreement dated January 31, 2000 between Mattel and
Adrienne Fontanella
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.7* Loan Agreement dated October 29, 1999 between Mattel and Adrienne
Fontanella
10.8* Amendment to Employment Agreement and Stock Option Grant Agreements
between Mattel and Adrienne Fontanella
10.9* Executive Employment Agreement dated January 31, 2000 between Mattel
and Matthew C. Bousquette
10.10* Loan Agreement dated October 29, 1999 between Mattel and Matthew C.
Bousquette
10.11* Amendment to Employment Agreement and Stock Option Grant Agreements
between Mattel and Matthew C. Bousquette
10.12* Executive Employment Agreement dated January 31, 2000 between Mattel
and Neil B. Friedman
10.13* Loan Agreement dated October 29, 1999 between Mattel and Neil B.
Friedman
10.14* Amendment to Employment Agreement and Stock Option Grant Agreements
between Mattel and Neil B. Friedman
10.15 Mattel, Inc. Management Incentive Plan (incorporated by reference to
Exhibit 10.15 to Mattel's Annual Report on Form 10-K for the year
ended December 31, 1995)
10.16* Amendment No. 1 to Mattel, Inc. Management Incentive Plan.
10.17 Mattel, Inc. Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.16 to Mattel's Annual Report on Form 10-K for the year
ended December 31, 1995)
10.18 Amended and Restated Mattel Long-Term Incentive Plan (incorporated by
reference to Appendix A to Mattel's Proxy Statement dated April 26,
1999)
10.19* Amendment No. 1 to Amended and Restated Mattel Long-Term Incentive Plan
10.20 Mattel, Inc. Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.12 to Mattel's Annual Report
on Form 10-K for the year ended December 31, 1998)
10.21 Mattel, Inc. Amended & Restated Supplemental Executive Retirement Plan
as of May 1, 1996 (incorporated by reference to Exhibit 10.2 to
Mattel's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996)
10.22* Amendment No. 1 to Mattel, Inc. Amended & Restated Supplemental
Executive Retirement Plan
10.23 Mattel, Inc. Deferred Compensation Plan (incorporated by reference to
Exhibit 10.14 to Mattel's Annual Report on Form 10-K for the year
ended December 31, 1998)
10.24* Amendment No. 1 to Mattel, Inc. Deferred Compensation Plan
10.25 The Fisher-Price, Inc. Pension Plan (1989 Restatement) (incorporated by
reference to Exhibit 10(l) to Fisher-Price's Registration Statement on
Form 10 dated June 28, 1991)
10.26 The Fisher-Price Section 415 Excess Benefit Plan (incorporated by
reference to Exhibit 10(n) to Fisher-Price's Registration Statement on
Form 10 dated June 28, 1991)
10.27 Mattel, Inc. Personal Investment Plan, April 1, 1997 Restatement
(incorporated by reference to Exhibit 99.3 to Mattel's Current Report
on Form 8-K dated August 21, 1998)
10.28 Mattel, Inc. PIP Excess Plan (incorporated by reference to Exhibit
10.18 to Mattel's Annual Report on Form 10-K for the year ended
December 31, 1998)
10.29* Amendment No. 1 to Mattel, Inc. PIP Excess Plan
10.30 Pleasant Company Retirement Savings Plan and Trust Agreement, dated
July 1, 1995 (incorporated by reference to Exhibit 10.19 to Mattel's
Annual Report on Form 10-K for the year ended December 31, 1998)
10.31 Mattel, Inc. 1990 Stock Option Plan (incorporated by reference to
Exhibit A to the Notice of Annual Meeting of Stockholders and Proxy
Statement of Mattel dated March 15, 1990)
</TABLE>
47
<PAGE>
<TABLE>
<C> <S>
10.32 Amendment No. 1 to the Mattel, Inc. 1990 Stock Option Plan
(incorporated by reference to the information under the heading
"Amendment to Mattel 1990 Stock Option Plan" on page F-1 of the Joint
Proxy Statement/Prospectus of Mattel and Fisher-Price included in
Mattel's Registration Statement on Form S-4, Registration No. 33-
50749)
10.33 Amendment No. 2 to the Mattel, Inc. 1990 Stock Option Plan
(incorporated by reference to Exhibit A to Mattel's Proxy Statement
dated March 22, 1995)
10.34* Amendment No. 3 to Mattel, Inc. 1990 Stock Option Plan
10.35 Form of Award Agreement evidencing award of stock appreciation rights
granted pursuant to the Mattel, Inc. 1990 Stock Option Plan to certain
executive officers of Mattel ("Award Agreement") (incorporated by
reference to Exhibit 10.12 to Mattel's Annual Report on Form 10-K for
the year ended December 31, 1991)
10.36 Form of First Amendment to Award Agreement (incorporated by reference
to Exhibit 10.21 to Mattel's Annual Report on Form 10-K for the year
ended December 31, 1993)
10.37 Notice of Grant of Stock Options and Grant Agreement (incorporated by
reference to Exhibit 99.0 to Mattel's Current Report on Form 8-K dated
May 31, 1994)
10.38 Grant Agreement for a Non-Qualified Stock Option (incorporated by
reference to Exhibit 99.1 to Mattel's Current Report on Form 8-K dated
May 31, 1994)
10.39 Award Cancellation Agreement (incorporated by reference to Exhibit 99.2
to Mattel's Current Report on Form 8-K dated May 31, 1994)
10.40 Amended and Restated Mattel, Inc. 1996 Stock Option Plan (the "1996
Plan") (incorporated by reference to Exhibit 10.2 to Mattel's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996)
10.41 Amendment to Amended and Restated Mattel, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 4.2 to Mattel's Registration
Statement on Form S-8 dated March 26, 1999)
10.42* Amendment No. 2 to Amended and Restated Mattel 1996 Stock Option Plan
10.43* Form of Option Agreement for Outside Directors under the 1996 Plan, as
amended
10.44* Form of Option Agreement under the 1996 Plan, as amended
10.45 Mattel, Inc. 1997 Premium Price Stock Option Plan (incorporated by
reference to Exhibit A to Mattel's Proxy Statement dated March 30,
1998)
10.46 First Amendment to the Mattel, Inc. 1997 Premium Price Stock Option
Plan (incorporated by reference to Exhibit 10.0 to Mattel's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)
10.47 Second Amendment to the Mattel, Inc. 1997 Premium Price Stock Option
Plan (incorporated by reference to Exhibit 10.26 to Mattel's Annual
report on Form 10-K for the year ended December 31, 1998)
10.48* Amendment No. 3 to the Mattel, Inc. 1997 Premium Price Stock Option
Plan
10.49 Form of Option and TLSAR Agreement under the Mattel, Inc. 1997 Premium
Price Stock Option Plan (25% Premium Grant), as amended (incorporated
by reference to Exhibit 10.1 to Mattel's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998)
10.50 Form of Option and TLSAR Agreement under the Mattel, Inc. 1997 Premium
Price Stock Option Plan (33 1/3% Premium Grant), as amended
(incorporated by reference to Exhibit 10.2 to Mattel's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)
10.51* Mattel 1999 Stock Option Plan
10.52* Form of Option Agreement under the Mattel 1999 Stock Option Plan (Two
Year Vesting)
10.53* Form of Option Agreement under the Mattel 1999 Stock Option Plan (Three
Year Vesting)
</TABLE>
48
<PAGE>
<TABLE>
<C> <S>
11.0* Computation of Income 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
21.0* Subsidiaries of the Registrant
23.0* Consent of PricewaterhouseCoopers LLP
24.0* Power of Attorney (on page 50 of Form 10-K)
27.0* Financial Data Schedule (EDGAR filing only)
</TABLE>
- --------
* Filed herewith.
(b) Reports on Form 8-K
Mattel filed the following Current Reports on Form 8-K during the quarterly
period ended December 31, 1999:
<TABLE>
<CAPTION>
Financial
Date of Report Items Reported Statements Filed
-------------- -------------- ----------------
<S> <C> <C>
October 19, 1999............................. 5, 7 None
October 22, 1999............................. 5, 7 None
November 12, 1999............................ 5, 7 None
November 12, 1999............................ 5, 7 None
</TABLE>
(c) Exhibits Required by Item 601 of Regulation S-K
See Item (3) above
(d) Financial Statement Schedule
See Item (2) above
Copies of Form 10-K (which includes Exhibit 24.0), Exhibits 11.0, 12.0, 21.0
and 23.0 and the Annual Report to Stockholders are available to stockholders of
the Company without charge. Copies of other Exhibits can be obtained by
stockholders of the Company upon payment of twelve cents per page for such
Exhibits. Written requests should be sent to Secretary, Mattel, Inc., 333
Continental Boulevard, El Segundo, California 90245-5012.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MATTEL, INC.
Registrant
/s/ Kevin M. Farr
By: _________________________________
Kevin M. Farr
Chief Financial Officer
Date: As of March 10, 2000
POWER OF ATTORNEY
We, the undersigned directors and officers of Mattel, Inc. do hereby
severally constitute and appoint Ronald M. Loeb, Ned Mansour, Robert Normile,
Christopher O'Brien, and John L. Vogelstein, and each of them, our true and
lawful attorneys and agents, to do any and all acts and things in our name and
behalf in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable said Corporation to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Annual Report on Form 10-K,
including specifically, but without limitation, power and authority to sign for
us or any of us, in our names in the capacities indicated below, any and all
amendments hereto; and we do each hereby ratify and confirm all that said
attorneys and agents, or any one of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William D. Rollnick Director and Acting Chairman March 10, 2000
____________________________________ of the Board
William D. Rollnick
/s/ Ronald M. Loeb Director and Acting Chief March 10, 2000
____________________________________ Executive Officer
Ronald M. Loeb
/s/ Kevin M. Farr Chief Financial Officer March 10, 2000
____________________________________ (principal financial and
Kevin M. Farr accounting officer)
/s/ Harold Brown Director March 10, 2000
____________________________________
Harold Brown
/s/ Tully M. Friedman Director March 10, 2000
____________________________________
Tully M. Friedman
/s/ Joseph C. Gandolfo Director and President, March 10, 2000
____________________________________ Worldwide Manufacturing
Joseph C. Gandolfo Operations
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ned Mansour Director and President, March 10, 2000
____________________________________ Mattel, Inc.
Ned Mansour
/s/ Andrea L. Rich Director March 10, 2000
____________________________________
Andrea L. Rich
/s/ Pleasant T. Rowland Vice Chairman of the Board March 10, 2000
____________________________________ and President, Pleasant
Pleasant T. Rowland Company
/s/ Christopher A. Sinclair Director March 10, 2000
____________________________________
Christopher A. Sinclair
/s/ John L. Vogelstein Director March 10, 2000
____________________________________
John L. Vogelstein
/s/ Ralph V. Whitworth Director March 10, 2000
____________________________________
Ralph V. Whitworth
</TABLE>
51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Mattel, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 45 present fairly, in all material
respects, the financial position of Mattel, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 45 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of Mattel's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
_____________________________________
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
February 2, 2000
F-1
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(In thousands)
ASSETS
------
<S> <C> <C>
Current Assets
Cash and short-term investments.................... $ 275,024 $ 469,213
Accounts receivable, less allowances of $229.2
million at December 31, 1999 and $125.1 million at
December 31, 1998................................. 1,270,005 1,150,051
Inventories........................................ 544,296 644,270
Prepaid expenses and other current assets.......... 330,702 371,772
---------- ----------
Total current assets............................. 2,420,027 2,635,306
---------- ----------
Property, Plant and Equipment
Land............................................... 35,930 35,113
Buildings.......................................... 276,880 271,580
Machinery and equipment............................ 611,948 569,428
Capitalized leases................................. 23,271 23,271
Leasehold improvements............................. 84,333 98,400
---------- ----------
1,032,362 997,792
Less: accumulated depreciation..................... 474,026 422,020
---------- ----------
558,336 575,772
Tools, dies and molds, net......................... 191,158 187,349
---------- ----------
Property, plant and equipment, net................. 749,494 763,121
---------- ----------
Other Noncurrent Assets
Intangibles, net................................... 1,393,315 1,484,634
Other assets....................................... 564,186 264,324
---------- ----------
$5,127,022 $5,147,385
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated results for 1998 have been restated retroactively for the
effects of the May 1999 merger with Learning Company, accounted for as a
pooling of interests. See Note 7.
F-2
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(In thousands, except
share data)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings.............................. $ 369,549 $ 199,006
Current portion of long-term liabilities........... 3,173 33,666
Accounts payable................................... 360,609 362,467
Accrued liabilities................................ 825,874 748,837
Income taxes payable............................... 258,319 299,058
---------- ----------
Total current liabilities........................ 1,817,524 1,643,034
---------- ----------
Long-Term Liabilities
6-3/4% senior notes, due 2000...................... 100,000 100,000
5-1/2% senior notes, due 2000...................... 200,955 200,955
6% senior notes, due 2003.......................... 150,000 150,000
6-1/8% senior notes, due 2005...................... 150,000 150,000
Medium-term notes.................................. 540,500 540,500
Mortgage note...................................... 42,380 43,007
Other.............................................. 162,976 149,086
---------- ----------
Total long-term liabilities...................... 1,346,811 1,333,548
---------- ----------
Stockholders' Equity
Preferred stock, Series A $0.01 par value, $200.00
liquidation preference per share, 750.0 thousand
shares authorized, issued and outstanding at
December 31, 1998................................. -- 8
Preferred stock, Series C $1.00 par value, $125.00
liquidation preference per share, 772.8 thousand
shares authorized; 771.9 thousand shares issued
and outstanding at December 31, 1998.............. -- 772
Special voting preferred stock $1.00 par value,
$10.00 liquidation preference per share, one share
authorized, issued and outstanding, representing
the voting rights of 3.2 million and 5.2 million
outstanding exchangeable shares at December 31,
1999 and 1998, respectively....................... -- --
Common stock $1.00 par value, 1.0 billion shares
authorized; 433.6 million shares and 405.1 million
shares issued in 1999 and 1998, respectively...... 433,563 405,114
Additional paid-in capital......................... 1,728,954 1,845,222
Deferred compensation.............................. -- (12,265)
Treasury stock at cost; 12.0 million shares and
14.3 million shares in 1999 and 1998,
respectively...................................... (361,825) (495,347)
Retained earnings.................................. 401,642 625,197
Accumulated other comprehensive loss............... (239,647) (197,898)
---------- ----------
Total stockholders' equity....................... 1,962,687 2,170,803
---------- ----------
$5,127,022 $5,147,385
========== ==========
Commitments and Contingencies (See accompanying
notes.)
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated results for 1998 have been restated retroactively for the
effects of the May 1999 merger with Learning Company, accounted for as a
pooling of interests. See Note 7.
F-3
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Year
----------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands, except per share
amounts)
<S> <C> <C> <C>
Net Sales................................. $5,514,950 $5,621,207 $5,455,547
Cost of sales............................. 2,913,910 2,707,904 2,635,887
---------- ---------- ----------
Gross Profit.............................. 2,601,040 2,913,303 2,819,660
Advertising and promotion expenses........ 945,955 917,665 846,448
Other selling and administrative
expenses................................. 1,190,915 1,144,801 1,013,091
Restructuring and other charges........... 345,996 157,314 343,606
Amortization of intangibles............... 91,847 129,689 487,199
Charge for incomplete technology.......... -- 56,826 20,300
Interest expense.......................... 151,609 128,468 112,612
Other income, net......................... (14,539) (13,092) (4,812)
---------- ---------- ----------
Income (Loss) Before Income Taxes and Ex-
traordinary Item......................... (110,743) 391,632 1,216
(Benefit) provision for income taxes...... (28,370) 185,579 179,327
---------- ---------- ----------
Income (Loss) Before Extraordinary Item... (82,373) 206,053 (178,111)
Extraordinary item--loss on early
retirement of debt....................... -- -- (4,610)
---------- ---------- ----------
Net Income (Loss)......................... (82,373) 206,053 (182,721)
Preferred stock dividend requirements..... 3,980 7,960 10,505
---------- ---------- ----------
Net Income (Loss) Applicable to Common
Shares................................... $ (86,353) $ 198,093 $ (193,226)
========== ========== ==========
Basic Income (Loss) Per Common Share......
Income (loss) before extraordinary item... $ (0.21) $ 0.51 $ (0.51)
Extraordinary item--loss on early
retirement of debt....................... -- -- (0.01)
---------- ---------- ----------
Net income (loss)......................... $ (0.21) $ 0.51 $ (0.52)
========== ========== ==========
Weighted average number of common shares.. 414,186 390,210 369,870
========== ========== ==========
Diluted Income (Loss) Per Common Share....
Income (loss) before extraordinary item... $ (0.21) $ 0.47 $ (0.51)
Extraordinary item--loss on early
retirement of debt....................... -- -- (0.01)
---------- ---------- ----------
Net income (loss)......................... $ (0.21) $ 0.47 $ (0.52)
========== ========== ==========
Weighted average number of common and
common equivalent shares................. 414,186 421,707 369,870
========== ========== ==========
Dividends Declared Per Common Share....... $ 0.35 $ 0.31 $ 0.27
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated results for all periods presented have been restated
retroactively for the effects of the May 1999 merger with Learning Company,
accounted for as a pooling of interests. See Note 7.
Consolidated results for 1997 have been restated retroactively for the
effects of the March 1997 merger with Tyco, accounted for as a pooling of
interests. See Note 7.
F-4
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year
---------------------------------
1999 1998 1997
--------- ----------- ---------
(In thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income......................... $ (82,373) $ 206,053 $(182,721)
Adjustments to reconcile net (loss) income
to net cash flows from operating
activities:
Noncash restructuring and integration
charges................................ 63,700 32,380 115,559
Depreciation............................ 199,830 179,135 164,060
Amortization............................ 98,769 133,549 489,937
Charge for incomplete technology........ -- 56,826 32,467
Loss on early retirement of debt, net of
tax.................................... -- -- 4,610
Increase (decrease) from changes in
assets and liabilities:
Accounts receivable................... (167,052) 141,583 (247,406)
Inventories........................... 82,077 (61,508) (48,923)
Prepaid expenses and other current
assets............................... (84,636) (26,873) (127,595)
Accounts payable, accrued liabilities
and income taxes payable............. (42,263) (104,275) 253,729
Deferred income taxes................. (7,151) (999) 64,015
Other, net............................ (2,315) 15,793 (14,344)
--------- ----------- ---------
Net cash flows from operating
activities......................... 58,586 571,664 503,388
--------- ----------- ---------
Cash Flows From Investing Activities:
Purchases of tools, dies and molds........ (107,017) (114,387) (96,006)
Purchases of other property, plant and
equipment................................ (104,572) (162,132) (136,439)
Payment for acquisitions, net of cash
acquired................................. (5,863) (938,647) (115,231)
Proceeds from sale of business and other
property, plant and equipment............ 10,033 18,667 31,484
Investment in other long-term assets...... (70,671) (10,783) (7,816)
Other, net................................ (612) (1,484) 566
--------- ----------- ---------
Net cash flows used for investing
activities......................... (278,702) (1,208,766) (323,442)
--------- ----------- ---------
Cash Flows From Financing Activities:
Short-term borrowings, net................ 179,595 131,810 3,193
Proceeds from issuance of notes........... -- 350,000 310,000
Proceeds from issuance of Softkey
warrants................................. -- 134,346 57,462
Payments of long-term debt................ (30,254) (106,421) (265,499)
Exercise of stock options including
related tax benefit...................... 81,291 170,233 72,290
Purchase of treasury stock................ (75,507) (351,093) (242,505)
Sale of treasury stock.................... -- -- 71,248
Issuance of preferred stock............... -- -- (10,701)
Payment of dividends on common and
preferred stock.......................... (125,673) (97,970) (84,537)
Other, net................................ (670) (6,968) (1,083)
--------- ----------- ---------
Net cash flows from (used) for
financing activities............... 28,782 223,937 (90,132)
Effect of Exchange Rate Changes on Cash..... (2,855) (1,525) (17,195)
--------- ----------- ---------
(Decrease) Increase in Cash and Short-term
Investments................................ (194,189) (414,690) 72,619
Cash and Short-term Investments at Beginning
of Year.................................... 469,213 883,903 811,284
--------- ----------- ---------
Cash and Short-term Investments at End of
Year....................................... $ 275,024 $ 469,213 $ 883,903
========= =========== =========
</TABLE>
The accompanying notes are an integral part of these statements
Consolidated results for all periods presented have been restated
retroactively for the effects of the May 1999 merger with Learning Company,
accounted for as a pooling of interests. See Note 7.
Consolidated results for 1997 have been restated retroactively for the
effects of the March 1997 merger with Tyco, accounted for as a pooling of
interests. See Note 7.
F-5
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other Total Stock-
Preferred Common Paid-In Treasury Deferred Retained Comprehensive holders'
Stock Stock Capital Stock Compensation Earnings Income (Loss) Equity
--------- -------- ---------- --------- ------------ --------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... $827 $369,190 $1,233,753 $(215,999) $ -- $ 820,024 $ (98,008) $2,109,787
Comprehensive (loss):
Net (loss)............. (182,721) (182,721)
Unrealized gain on
securities............ 719 719
Currency translation
adjustments........... (113,177) (113,177)
---- -------- ---------- --------- -------- --------- --------- ----------
Comprehensive (loss).... (182,721) (112,458) (295,179)
Net income of Broderbund
for the three months
ended November 30, 1996
not included in results
of operations.......... 8,895 8,895
Purchase of treasury
stock.................. (480) (14,094) (227,932) (242,506)
Issuance of treasury
stock.................. (45,486) 158,511 113,025
Exercise of stock
options................ 2,135 36,655 38,790
Shares issued for
acquisitions........... 4,362 13,591 (6,193) 11,760
Issuance of Series A
Preferred Stock........ 8 202,025 202,033
Issuance of Softkey
warrants............... 57,462 57,462
Conversion of 7% Notes.. 893 15,141 16,034
Conversion of preferred
stock.................. (55) 2,761 (2,706) --
Conversion of
exchangeable shares.... 88 (88) --
Shares issued under
employee stock purchase
plan................... 62 1,208 1,270
Dividends declared on
common stock........... (77,528) (77,528)
Dividends declared on
preferred stock........ (10,505) (10,505)
---- -------- ---------- --------- -------- --------- --------- ----------
Balance, December 31,
1997................... 780 379,011 1,497,461 (285,420) -- 551,972 (210,466) 1,933,338
Comprehensive income:
Net income............. 206,053 206,053
Unrealized gain on
securities............ 10,249 10,249
Currency translation
adjustments........... 2,319 2,319
---- -------- ---------- --------- -------- --------- --------- ----------
Comprehensive income.... 206,053 12,568 218,621
Net income of Broderbund
for the month ended
December 31, 1997 not
included in results of
operations............. 209 209
Purchase of treasury
stock.................. (351,393) (351,393)
Issuance of treasury
stock.................. (65,210) 141,466 76,256
Exercise of stock
options................ 4,682 76,749 81,431
Shares issued for
acquisitions........... 5,503 111,011 (34,646) 81,868
Issuance of Softkey
warrants............... 134,346 134,346
Conversion of
exchangeable shares.... 10,900 (10,900) --
Conversion of 5-1/2%
Notes.................. 4,122 88,880 93,002
Issuance of nonvested
stock.................. 840 12,071 (12,265) 646
</TABLE>
F-6
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity--(Continued)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total Stock-
Preferred Common Paid-In Treasury Deferred Retained Comprehensive holders'
Stock Stock Capital Stock Compensation Earnings Income (Loss) Equity
--------- --------- ----------- ---------- ------------ --------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares issued under
employee stock purchase
plan................... 56 814 870
Dividends declared on
common stock........... (90,431) (90,431)
Dividends declared on
preferred stock........ (7,960) (7,960)
----- --------- ----------- ---------- -------- --------- ---------- -----------
Balance, December 31,
1998................... 780 405,114 1,845,222 (495,347) (12,265) 625,197 (197,898) 2,170,803
Comprehensive (loss):
Net (loss)............ (82,373) (82,373)
Unrealized gain on
securities:
Unrealized holding
gains................. 3,184 3,184
Less: reclassification
adjustment for
realized gains
included in net
(loss)................ (11,143) (11,143)
Currency translation
adjustments........... (33,790) (33,790)
----- --------- ----------- ---------- -------- --------- ---------- -----------
Comprehensive (loss)... (82,373) (41,749) (124,122)
Conversion of Series A
Preferred Stock........ (8) 18,000 (17,992) --
Redemption of Series C
Preferred Stock........ (772) 6,382 (51,834) 46,224 --
Purchase of treasury
stock.................. (75,507) (75,507)
Issuance of treasury
stock.................. (87,300) 134,977 47,677
Exercise of stock
options................ 1,447 28,018 29,465
Shares issued for
acquisitions........... 241 5,306 5,547
Conversion of
exchangeable shares.... 2,342 (2,342) --
Shares issued under
employee stock purchase
plan................... 37 719 756
Tax adjustment related
to 1987 quasi-
reorganization......... 33,400 33,400
Exercise of warrants... (24,243) 27,828 3,585
Nonvested stock
activity............... 12,265 12,265
Dividends declared on
common stock........... (137,202) (137,202)
Dividends declared on
preferred stock........ (3,980) (3,980)
----- --------- ----------- ---------- -------- --------- ---------- -----------
Balance, December 31,
1999................... $ -- $ 433,563 $ 1,728,954 $ (361,825) $ -- $ 401,642 $ (239,647) $ 1,962,687
===== ========= =========== ========== ======== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated results for all periods presented have been restated
retroactively for the effects of the May 1999 merger with Learning Company,
accounted for as a pooling of interests. See Note 7.
Consolidated results for December 31, 1996 have been restated retroactively
for the effects of the March 1997 merger with Tyco, accounted for as a pooling
of interests. See Note 7.
F-7
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Preparation
The consolidated financial statements include the accounts of Mattel. All
significant intercompany accounts and transactions have been eliminated in
consolidation, and certain amounts in the financial statements for prior years
have been reclassified to conform with the current year presentation.
Investments in joint ventures and other companies are accounted for by the
equity method or cost basis depending upon the level of the investment and/or
Mattel's ability to exercise influence over operating and financial policies.
Financial data for all periods presented reflect the retroactive effect of the
merger, accounted for as a pooling of interests, with Learning Company
consummated in May 1999 (see Note 7). Financial data for 1997 reflect the
retroactive effect of the merger, accounted for as a pooling of interests, with
Tyco consummated in March 1997 (see Note 7).
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into US
dollars at fiscal year-end exchange rates. Income, expense and cash flow items
are translated at weighted average exchange rates prevailing during the fiscal
year. The resulting currency translation adjustments are recorded as a
component of other comprehensive income (loss) within stockholders' equity.
Cash and Short-Term Investments
Cash includes cash equivalents, which are highly liquid investments with
maturities of three months or less when purchased. Because of the short
maturities of these instruments, the carrying amount is a reasonable estimate
of fair value.
Marketable Securities
Marketable securities, comprised principally of investments in private and
publicly-traded securities, are stated at market value and classified as
securities available-for-sale. Unrealized gains or losses are reported as a
component of other comprehensive income (loss) within stockholders' equity
until realized. Quoted market prices, which approximated cost as of the balance
sheet dates, are reasonable estimates of the portfolio's fair value. These
marketable securities, which had a cost basis of $2.1 million and $2.7 million
as of December 31, 1999 and 1998, respectively, are shown in the consolidated
balance sheets as part of other assets.
Inventories
Inventories, net of an allowance for excess quantities and obsolescence, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over estimated useful lives of 10 to 40 years for buildings, 3 to 10
years for machinery and equipment, and 10 to 20 years, not to exceed the lease
term, for leasehold improvements. Tools, dies and molds are amortized using the
straight-line method over three years.
F-8
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangibles and Long-Lived Assets
Intangible assets consist of the excess of purchase price over the fair
value of net assets acquired in purchase acquisitions, and the cost of acquired
patents and trademarks. Intangible assets are amortized using the straight-line
method over periods ranging from 2 to 40 years. Accumulated amortization was
$1,327.8 million and $1,236.8 million as of December 31, 1999 and 1998,
respectively.
The carrying value of fixed and intangible assets is periodically reviewed
to identify and assess any impairment by evaluating the operating performance
and future undiscounted cash flows of the underlying assets.
Revenue Recognition
Revenue from the sale of toy products is recognized upon shipment. Accruals
for customer discounts and rebates, and defective returns are recorded as the
related revenues are recognized.
Revenue from the sale of software products is recognized upon shipment,
provided that no significant obligations remain outstanding and collection of
the receivable is probable. Costs related to insignificant post shipment
obligations are accrued when revenue is recognized for the sale of the related
products. Allowances for good returns are provided at the time of sale and
allowances for price protection are provided at the time of commitment and are
charged against revenues. The allowances for good returns and doubtful accounts
are developed based on an evaluation of historical and expected sales
experience and by channel of distribution, and are based on information
available as of the reporting date. To the extent the future market, sell-
through experience, customer mix, channels of distribution, product pricing and
general economic and competitive conditions change, the estimated reserves
required for returns and allowances may also change. Revenues from royalty and
licensing arrangements are recognized as earned based upon performance or
product shipments.
Advertising and Promotion Costs
Costs of media advertising are expensed the first time the advertising takes
place, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consists primarily of catalogue production and mailing costs that
are generally amortized within three months from the date catalogues are
mailed. Advertising costs associated with customer benefit programs are accrued
as the related revenues are recognized. Costs related to various end-user
coupon rebate programs are expensed at the time sales are made and are
estimated based on the expected coupon redemption rate on a product-by-product
basis and are adjusted to actual at the end of each reporting period.
Software Development Costs
Costs for new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. Once technological feasibility is established, software
development costs are capitalized until the related product is launched.
Capitalized software development costs are amortized on a product-by-product
basis using the straight-line method over the estimated economic life of the
product, which is generally twelve months from when the product is launched,
which approximates the ratio that current gross revenues for a product bear to
the total of current and anticipated future gross revenues for that product. As
of December 31, 1999 and 1998, Mattel had net capitalized software development
costs of $73.1 million and $24.3 million, respectively, which are included in
the consolidated balance sheets as part of other current assets. Amortization
of software development costs included in cost of goods sold was $64.3 million,
$20.2 million and $12.1 million for the years ended December 31, 1999, 1998 and
1997, respectively.
F-9
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
Mattel has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized in the results of
operations for nonqualified stock options granted under Mattel's plans as such
options are granted at not less than the quoted market price of Mattel's common
stock on the date of grant.
Income Taxes
Mattel accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, applying enacted statutory
tax rates in effect for the year in which the differences are expected to
reverse.
Income and Dividends Per Common Share
Share and per share data for all periods presented in these financial
statements reflect the retroactive effects of the May 1999 Learning Company
merger. The 1997 share and per share data presented in these financial
statements reflect the retroactive effects of the March 1997 Tyco merger.
In the 1997 fourth quarter, Mattel adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share. Accordingly, data for 1997 have been
restated to present basic and diluted income (loss) per common share.
Basic income (loss) per common share is computed by dividing earnings
available to common stockholders by the weighted average number of common
shares and common shares obtainable upon the exchange of the exchangeable
shares of Mattel's Canadian subsidiary, Softkey Software Products Inc.,
outstanding during each period. Earnings available to common stockholders
represent reported net income (loss) less preferred stock dividend
requirements.
Diluted income (loss) per common share is computed by dividing diluted
earnings available to common stockholders by the weighted average number of
common shares, common shares obtainable upon the exchange of the exchangeable
shares of Mattel's Canadian subsidiary, Softkey Software Products Inc., and
other 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 and convertible debt, as applicable.
F-10
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of earnings available to common stockholders and diluted
earnings available to common stockholders and the related weighted average
shares for the years ended December 31 follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
Earnings Shares Earnings Shares Earnings Shares
-------- ------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary item..... $(82,373) $206,053 $(178,111)
Extraordinary item--loss
on early retirement of
debt................... -- -- (4,610)
-------- -------- ---------
Net income (loss)....... (82,373) 206,053 (182,721)
Less: preferred stock
dividend requirements.. (3,980) (7,960) (10,505)
-------- -------- ---------
Earnings available to
common stockholders.... $(86,353) 414,186 $198,093 390,210 $(193,226) 369,870
Dilutive securities:
Dilutive stock
options.............. 8,685
Warrants.............. 4,812
Preferred stock....... 18,000
-------- ------- -------- ------- --------- -------
Diluted earnings
available to common
stockholders........... $(86,353) 414,186 $198,093 421,707 $(193,226) 369,870
======== ======= ======== ======= ========= =======
</TABLE>
Premium price stock options totaling 16.9 million, other nonqualified stock
options totaling 23.2 million, convertible debt, preferred stock and warrants
were excluded from the calculation of diluted earnings per share in 1999
because they were anti-dilutive. Premium price options totaling 18.7 million,
Series C preferred stock and convertible debt were excluded from the
calculation of diluted earnings per share 1998 because they were anti-dilutive.
Convertible debt, preferred stock and warrants were excluded from the
calculation of diluted earnings per share in 1997 because they were anti-
dilutive.
Foreign Currency Contracts
Mattel enters into foreign currency forward exchange and option contracts
primarily as hedges of inventory purchases, sales and other intercompany
transactions denominated in foreign currencies to limit the effect of exchange
rate fluctuations on its results of operations and cash flows. Mattel does not
enter into contracts for speculative purposes. Gains and losses related to firm
commitments, which qualify for hedge accounting, are deferred and are
recognized in the results of operations, balance sheet, and statement of cash
flows as part of the underlying transaction. Contracts that do not qualify for
hedge accounting are marked to market with gains and losses recognized in the
results of operations currently. If a derivative previously designated as a
hedge of a foreign currency commitment is terminated prior to the transaction
date of the related commitment, the resultant gain or loss is recognized at the
time of maturity of the original contract as a component of other income, net.
Note 2--Income Taxes
Consolidated pre-tax income (loss) consists of the following (in thousands):
<TABLE>
<CAPTION>
For the Year
------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
US operations................................ $(388,382) $(25,271) $(373,836)
Foreign operations........................... 277,639 416,903 375,052
--------- -------- ---------
$(110,743) $391,632 $ 1,216
========= ======== =========
</TABLE>
F-11
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The (benefit) provision for current and deferred income taxes consists of
the following (in thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current
Federal.................................... $ 9,816 $ 61,434 $101,916
State...................................... 7,400 6,500 24,796
Foreign.................................... 59,400 110,300 82,628
-------- -------- --------
76,616 178,234 209,340
-------- -------- --------
Deferred
Federal.................................... (121,506) 18,179 (26,335)
State...................................... 3,420 2,366 1,587
Foreign.................................... 13,100 (13,200) (7,962)
-------- -------- --------
(104,986) 7,345 (32,710)
-------- -------- --------
(Benefit) provision including extraordinary
item........................................ (28,370) 185,579 176,630
Benefit allocated to extraordinary item...... -- -- 2,697
-------- -------- --------
Total (benefit) provision for income taxes... $(28,370) $185,579 $179,327
======== ======== ========
</TABLE>
Deferred income taxes are provided principally for net operating loss
carryforwards, certain reserves, depreciation, employee compensation-related
expenses, acquired technology, and certain other expenses that are recognized
in different years for financial statement and income tax purposes. Mattel's
deferred income tax assets (liabilities) were comprised of the following (in
thousands):
<TABLE>
<CAPTION>
As of Year End
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating loss and tax credit carryforwards............ $ 426,836 $ 254,770
Sales allowances and inventory reserves................ 118,729 122,178
Deferred compensation.................................. 40,372 37,022
Excess of tax basis over book basis.................... 22,142 21,917
Restructuring and integration charges.................. 68,091 23,030
Postretirement benefits................................ 12,790 12,842
Acquired technology.................................... 9,181 6,170
Other.................................................. 48,858 42,000
--------- ---------
Gross deferred income tax assets..................... 746,999 519,929
--------- ---------
Excess of book basis over tax basis.................... (37,800) (30,851)
Retirement benefits.................................... (19,933) (15,570)
Deferred intangible assets............................. (54,791) (20,329)
Other.................................................. (26,407) (9,159)
--------- ---------
Gross deferred income tax liabilities................ (138,931) (75,909)
Deferred income tax asset valuation allowances......... (234,206) (175,144)
--------- ---------
Net deferred income tax assets......................... $ 373,862 $ 268,876
========= =========
</TABLE>
F-12
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management considered all available evidence and determined that a valuation
allowance of $234.2 million was required as of December 31, 1999 for certain
tax credit and net operating loss carryforwards that would likely expire prior
to their utilization. However, management feels it is more likely than not that
Mattel will generate sufficient taxable income in the appropriate carryforward
periods to realize the benefit of the remaining net deferred tax assets of
$373.9 million.
Differences between the (benefit) provision for income taxes at the US
federal statutory income tax rate and the (benefit) provision in the
consolidated statements of operations were as follows (in thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(Benefit) provision at federal statutory
rates........................................ $(38,760) $136,927 $ 426
Increase (decrease) resulting from:
Losses without income tax benefit........... 33,553 1,821 1,468
Foreign earnings taxed at different rates,
including withholding taxes................ (63,616) (34,221) (40,803)
State and local taxes, net of federal
benefit.................................... 6,165 5,763 17,149
Non-deductible amortization, merger and
restructuring charges...................... 29,391 65,493 139,363
Effect of change in valuation allowance..... -- (8,766) 50,679
Other....................................... 4,897 18,562 11,045
-------- -------- --------
Total (benefit) provision for income
taxes.................................... $(28,370) $185,579 $179,327
======== ======== ========
</TABLE>
Appropriate US and foreign income taxes have been provided for earnings of
foreign subsidiary companies that are expected to be remitted in the near
future. The cumulative amount of undistributed earnings of foreign subsidiaries
that Mattel intends to permanently invest and upon which no deferred US income
taxes have been provided is $1.4 billion at December 31, 1999. The additional
US income tax on the unremitted foreign earnings, if repatriated, would be
offset in whole or in part by foreign tax credits.
As of December 31, 1999, Mattel has US net operating loss carryforwards
totaling $740.2 million and credit carryforwards of $53.4 million for federal
income tax purposes. The net operating loss carryforwards expire during the
years 2000 to 2019, while $49.2 million of the tax credits expire during the
years 2000 to 2010 with the remainder having no expiration date. Utilization of
these loss and credit carryforwards are subject to annual limitations, and
Mattel has established a valuation allowance for the carryforwards which are
not expected to be utilized. The goodwill recorded in connection with Tyco's
1991 acquisition of Matchbox and Learning Company's 1998 acquisition of
Mindscape, Inc. have been reduced by the tax effect of the portion of the net
operating losses which Mattel expects to utilize.
Certain foreign subsidiaries have net operating loss carryforwards totaling
$219.6 million ($135.4 million with no expiration date, $82.5 million expiring
during the years 2000 to 2004, and $1.7 million expiring after 2004).
Generally accepted accounting principles require that tax benefits related
to the exercise by employees of nonqualified stock options be credited to
additional paid-in capital. In 1999, 1998 and 1997, nonqualified stock options
exercised resulted in credits to additional paid-in capital totaling $15.0
million, $38.7 million and $20.2 million, respectively.
The Internal Revenue Service has completed its examination of the Mattel,
Inc. federal income tax returns through December 31, 1994.
F-13
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Employee Benefits
Mattel and certain of its subsidiaries have retirement plans covering
substantially all employees of these companies. Expense related to these plans
totaled $18.6 million, $20.0 million and $19.0 million in 1999, 1998 and 1997,
respectively.
Pension Plans
Mattel provides defined benefit pension plans, which satisfy the
requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").
With the exception of the Fisher-Price Pension Plan, activity related to
Mattel's pension plans, including those of foreign affiliates, was not
significant during any year.
The components of net pension income for the Fisher-Price Pension Plan,
based upon a December valuation date for the year ended December 31, 1999 and
an October valuation date for the years ended December 31, 1998 and 1997, are
detailed below (in thousands):
<TABLE>
<CAPTION>
For the Period Ended
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost.................................. $ 2,829 $ 2,508 $ 2,594
Interest cost................................. 14,655 10,929 10,327
Expected return on plan assets................ (27,237) (18,949) (16,163)
Amortization of:
Unrecognized prior service cost............. 88 108 134
Unrecognized net asset...................... (1,284) (2,569) (2,569)
Plan amendment loss (gain).................... 1,386 1,154 (826)
-------- -------- --------
Net pension income............................ $ (9,563) $ (6,819) $ (6,503)
======== ======== ========
</TABLE>
Reconciliation of the funded status of Fisher-Price's domestic pension plan
to the related prepaid asset included in the consolidated balance sheets is as
follows (in thousands):
<TABLE>
<CAPTION>
As of Year End
-----------------
1999 1998
-------- -------
<S> <C> <C>
Funded status of the plan................................. $ 65,401 $41,335
Unrecognized net gain..................................... (19,551) (4,438)
Unrecognized prior service cost........................... 692 1,366
Unrecognized net transition asset......................... -- (1,285)
-------- -------
Prepaid pension asset..................................... $ 46,542 $36,978
======== =======
</TABLE>
F-14
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of the assets and liabilities of Fisher-Price's domestic
pension plan are as follows (in thousands):
<TABLE>
<CAPTION>
As of Year End
------------------
1999 1998
-------- --------
<S> <C> <C>
Change in Plan Assets
Plan assets at fair value, beginning of year........... $197,912 $202,887
Actual return on plan assets........................... 35,588 2,793
Benefits paid.......................................... (10,707) (7,768)
-------- --------
Plan assets at fair value, end of year................. $222,793 $197,912
======== ========
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of year........ $156,577 $142,078
Service cost........................................... 2,829 2,508
Interest cost.......................................... 14,655 10,929
Plan amendments........................................ 2,003 1,154
Actuarial (gain) loss.................................. (7,965) 7,676
Benefits paid.......................................... (10,707) (7,768)
-------- --------
Projected benefit obligation, end of year.............. $157,392 $156,577
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Period
-------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Assumptions:
Weighted average discount rate.......................... 8.00% 7.50% 7.75%
Rate of future compensation increases................... 4.00% 4.00% 4.00%
Long-term rate of return on plan assets................. 11.00% 11.00% 11.00%
</TABLE>
During 1999, Mattel applied for a determination letter from the Internal
Revenue Service related to its planned conversion of the Fisher-Price Pension
Plan from a career-average plan to a cash balance plan. As of December 31,
1999, the proposed cash balance plan is under review by the Internal Revenue
Service.
Other Retirement Plans
Domestic employees are eligible to participate in 401(k) savings plans
sponsored by Mattel or its subsidiaries, which are defined contribution plans
satisfying ERISA requirements. Mattel also maintains unfunded supplemental
executive retirement plans which are nonqualified defined benefit plans
covering certain key executives. For 1999, 1998 and 1997, the accumulated and
vested benefit obligations and related expenses of these plans were not
significant.
Deferred Compensation and Excess Benefit Plans
Mattel provides a deferred compensation plan which permits certain officers
and key employees to elect to defer portions of their compensation. The
deferred compensation plan, together with certain contributions made by Mattel
and employees to an excess benefit plan, earn various rates of return. The
liability for these plans as of December 31, 1999 and 1998 was $65.1 million
and $47.8 million, respectively. Mattel's contribution to these plans and the
related administrative expense were not significant to the results of
operations during any year.
F-15
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mattel has purchased group trust-owned life insurance contracts designed to
assist in funding these programs. The cash surrender value of these policies,
valued at $55.7 million and $40.7 million as of December 31, 1999 and 1998,
respectively, are held in an irrevocable rabbi trust which is included in other
assets in the consolidated balance sheets.
Postretirement Benefits
Fisher-Price has an unfunded postretirement health insurance plan covering
certain eligible domestic employees hired prior to January 1, 1993. Details of
the expense for the Fisher-Price plan recognized in the consolidated statements
of operations for the years ended December 31, 1999, 1998 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
For the Year
--------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost........................................... $ 224 $ 218 $ 284
Interest cost.......................................... 2,531 2,416 2,465
------ ------ ------
Net postretirement benefit cost........................ $2,755 $2,634 $2,749
====== ====== ======
</TABLE>
Amounts included in the consolidated balance sheets for this plan are as
follows (in thousands):
<TABLE>
<CAPTION>
As of Year End
----------------
1999 1998
------- -------
<S> <C> <C>
Current retirees....................................... $29,988 $25,140
Fully eligible active employees........................ 3,013 4,222
Other active employees................................. 4,162 4,239
------- -------
Accumulated postretirement benefit obligation.......... 37,163 33,601
Unrecognized net loss.................................. (6,254) (1,716)
------- -------
Accrued postretirement benefit liability............... $30,909 $31,885
======= =======
</TABLE>
Reconciliation of the liabilities of Fisher-Price's postretirement health
insurance plan are as follows (in thousands):
<TABLE>
<CAPTION>
As of Year End
----------------
1999 1998
------- -------
<S> <C> <C>
Change in Accumulated Postretirement Benefit
Obligation
Accumulated postretirement benefit obligation,
beginning of year................................. $33,601 $33,315
Service cost....................................... 224 218
Interest cost...................................... 2,531 2,416
Actuarial loss..................................... 4,538 503
Benefits paid, net of participant contributions.... (3,731) (2,851)
------- -------
Accumulated postretirement benefit obligation, end
of year........................................... $37,163 $33,601
======= =======
</TABLE>
F-16
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The discount rates used in determining the accumulated postretirement
benefit obligation were 8.00% for 1999, 7.50% for 1998 and 7.75% for 1997. For
all participants, the health care cost trend rate for expected claim costs was
assumed to be 5.50% in 1999 and remaining constant thereafter. A one percentage
point increase or decrease in the assumed health care cost trend rate for each
future year would have the following effect on the accumulated postretirement
benefit obligation and the service and interest cost recognized as of and for
the year ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
One Percentage
Point
-----------------
Increase Decrease
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation............. $3,729 $(3,188)
Service and interest cost................................. 284 (239)
</TABLE>
Domestic employees of Mattel participate in a contributory postretirement
benefit plan. The ongoing costs and obligations associated with the Mattel,
Inc. plan are not significant to the financial position and results of
operations during any year.
Incentive Awards
In June 1999, the stockholders approved the Amended and Restated Mattel
Long-Term Incentive Plan ("Amended and Restated LTIP"). The Amended and
Restated LTIP is a three-year plan available to certain key executives of
Mattel, Inc. Awards are based upon the financial performance of Mattel over a
three-year period and are paid in the quarter following the end of the three-
year measurement period. No expense was recorded in 1999 for awards under the
Amended and Restated LTIP. Amounts charged to operating expense in 1998 and
1997 under the 1996--1998 LTIP were $10.8 million and $13.8 million,
respectively.
Mattel also has annual incentive compensation plans for officers and key
employees based on Mattel's performance and subject to certain approvals of the
Compensation/Options Committee of the board of directors. No expense was
recorded in 1999 for awards under these plans. For the years ended December 31,
1998 and 1997, $11.7 million and $23.2 million, respectively, were charged to
operating expense for awards under these plans. For the year ended December 31,
1999, $22.0 million was charged to operating expense related to a special
award. This special broad-based employee award was approved by Mattel's board
of directors and was designed to provide a competitive compensation level to
retain and motivate employees of Mattel.
Prior to the May 1999 merger, Learning Company maintained the 1990 Long-Term
Equity Incentive Plan for certain senior executives. Under this plan, 0.8
million shares of nonvested stock were issued during 1998. The aggregate fair
market value of the nonvested stock was being amortized to compensation expense
over the restriction period. At the time of the 1999 merger, the nonvested
stock became fully vested as a result of change of control provisions and the
remaining unamortized amount of $12.3 million was charged to operating expense
in 1999.
Prior to the March 1997 merger, Tyco had a Long-Term Incentive Plan for
certain senior executives, under which Tyco awarded Restricted Stock Units
("RSU"). The aggregate fair market value of the RSUs was being amortized to
compensation expense by Tyco over the restriction period. At the time of the
1997 merger, the RSUs were converted into approximately 244 thousand shares of
Mattel common stock which approximated the fair value of the RSUs on the merger
consummation date and the remaining unamortized amount of $5.1 million was
charged to operating expense.
F-17
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Seasonal Financing and Long-Term Debt
Seasonal Financing
Mattel maintains and periodically amends or replaces an unsecured committed
revolving credit agreement with a commercial bank group that is used as the
primary source of financing the seasonal working capital requirements of its
domestic and certain foreign affiliates. The agreement in effect during 1999
consisted of a committed unsecured facility providing a total of up to $1.0
billion in seasonal financing (a five-year facility that expires in 2003).
Within the facility, up to $700.0 million was a standard revolving credit line
available for advances and backup for commercial paper issuances. Interest was
charged at various rates selected by Mattel, ranging from market commercial
paper rates to the bank reference rate. The remaining $300.0 million was
available for nonrecourse purchases of certain trade accounts receivable of
Mattel by the commercial bank group providing the credit line. The agreement
required Mattel to meet financial covenants for consolidated debt-to-capital
and interest coverage and Mattel was in compliance with such covenants during
1999. This agreement will continue to be in effect during 2000. In addition,
Mattel avails itself of uncommitted domestic facilities provided by certain
banks to issue short-term money market loans.
To meet seasonal borrowing requirements of certain foreign affiliates,
Mattel negotiates individual financing arrangements, generally with the same
group of banks that provided credit in the prior year. Foreign credit lines
total approximately $370 million, a portion of which is used to support letters
of credit. Mattel expects to extend these credit lines throughout 2000 and
believes available amounts will be adequate to meet its seasonal financing
requirements. Mattel also enters into agreements with banks of its foreign
affiliates for nonrecourse sales of certain of its foreign subsidiary
receivables.
TLC Multimedia Inc., a wholly-owned subsidiary of Learning Company, had a
revolving line of credit, of which $40.0 million was outstanding as of December
31, 1998. Learning Company was also party to a receivables purchase agreement
for nonrecourse sales of certain domestic trade accounts receivable, of which
$75.0 million was utilized as of December 31, 1998. Learning Company had a
European accounts receivable facility for sales with recourse of certain
European trade accounts receivable of up to $25.0 million, which was fully
utilized as of December 31, 1998. Upon consummation of the May 1999 merger, all
outstanding borrowings under the revolving line of credit and the European
accounts receivable facility were repaid and the revolving line of credit and
the domestic and European accounts receivable facilities were terminated by
Mattel.
F-18
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest rates charged on Mattel's working capital credit lines are adjusted
on a periodic basis; therefore, the carrying amounts of such obligations are a
reasonable approximation of their fair value. Information relating to Mattel's
domestic and foreign credit lines and other short-term borrowings is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
For the Year
--------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Balance at end of year
Domestic.................................. $ 293,744 $ 119,175 $ 35,150
Foreign................................... 75,805 79,831 17,468
Maximum amount outstanding
Domestic.................................. $1,207,000 $1,076,600 $558,000
Foreign................................... 117,000 141,000 67,000
Average borrowing
Domestic.................................. $ 573,100 $ 400,800 $178,000
Foreign................................... 40,000 58,000 40,000
Weighted average interest rate on average
borrowing
Domestic (computed daily)................. 5.5% 5.6% 5.7%
Foreign (computed monthly)................ 33.0% 20.3% 11.9%
</TABLE>
6 -3/4% Senior Notes
In May 1993, Mattel issued $100.0 million aggregate principal amount of 6 -
3/4% Senior Notes maturing May 15, 2000. Interest is payable semiannually on
the fifteenth day of May and November. At December 31, 1999 and 1998, the bid
prices for the 6 -3/4% Senior Notes, as provided by one of the underwriters,
were $999.40 and $1,014.00, respectively, based on a par value of $1,000.00. As
of December 31, 1999, the 6- 3/4% Senior Notes are classified in the
consolidated balance sheets as a long-term liability because management has the
ability and intent to repay this obligation upon maturity with proceeds from
the issuance of other long-term debt instruments.
5 -1/2% Senior Convertible Notes ("5- 1/2% Notes")
In October 1995, Learning Company issued $350.0 million aggregate principal
amount of 5 -1/2% Notes maturing November 1, 2000. Interest is payable
semiannually on the first day of May and November. The 5 -1/2% Notes are
convertible at the option of the holders into common stock at $53.00 per share.
The terms of the 5 -1/2% Notes provide for early redemption at the option of
the issuer, in whole or in part, at any time on or after November 2, 1998 at
redemption prices equal to 102.2% of the principal amount reducing annually to
100% by November 1, 2000. During the years ended December 31, 1998 and 1997,
Learning Company repurchased $6.0 million and $28.0 million, respectively, of 5
- -1/2% Notes. In June 1998, Learning Company repurchased $96.7 million of 5 -
1/2% Notes in exchange for issuance of 4.1 million shares of common stock. At
December 31, 1999 and 1998, the bid prices for the 5 -1/2% Notes, as provided
by one of the underwriters, were $980.00 and $985.00, respectively, based on a
par value of $1,000.00. As of December 31, 1999, the 5 -1/2% Senior Notes are
classified in the consolidated balance sheets as a long-term liability because
management has the ability and intent to repay this obligation upon maturity
with proceeds from the issuance of other long-term debt instruments.
Mattel assumed Learning Company's obligations related to the 5 -1/2% Notes
upon consummation of the May 1999 merger. As a result, the 5 -1/2% Notes are
now convertible at the option of the holders into a number of shares of Mattel
common stock determined by dividing the principal amount of the notes to be
converted by the $53.00 conversion price and multiplying the resulting number
by 1.2.
F-19
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December 1995, Tribune Company made an investment in Learning Company in
the form of $150.0 million aggregate principal amount of 5 -1/2% Notes. These
notes were sold by Tribune Company during 1997 in a private transaction to an
investor group prior to the issuance by Learning Company of 750.0 thousand
shares of Series A Convertible Participating Preferred Stock ("Series A
Preferred Stock") and were surrendered by the investor group for the shares of
the Series A Preferred Stock.
6% and 6 -1/8% Senior Notes
In July 1998, Mattel issued $300.0 million aggregate principal amount of
senior notes, $150.0 million of which were 6% Senior Notes maturing July 15,
2003 and $150.0 million of which were 6 -1/8% Senior Notes maturing July 15,
2005. Interest is payable semiannually on the fifteenth day of January and
July. At December 31, 1999 and 1998, the bid prices for the 6% and 6 -1/8%
Senior Notes, as provided by one of the underwriters, were $929.20 and
$1,004.40, respectively, for the 6% Senior Notes and $884.60 and $998.65,
respectively, for the 6 -1/8% Senior Notes, based on a par value of $1,000.00.
Medium-Term Notes ("MT Notes")
During the 1994 third quarter, Mattel commenced a program for the issuance
of debt and equity securities under various shelf registration statements. In
November 1998, Mattel filed its current universal shelf registration statement
allowing the issuance of up to $400.0 million of debt and equity securities,
all of which was available to be issued as of December 31, 1999. The following
is a summary of MT Notes currently outstanding (in millions, except bid
prices):
<TABLE>
<CAPTION>
Bid Price (b)
---------------------------------------
Year Issued Amount Maturity Date Rate (a) 1999 1998
- ----------- ------ ------------- ------------ ------------------ --------------------
<S> <C> <C> <C> <C> <C>
1994.................... $ 50.5 12/01--12/04 8.48%--8.55% $1,008.57--$991.65 $1,052.61--$1,112.70
1995.................... 130.0 04/02--05/07 7.01%--7.65% 937.40-- 963.78 1,043.20-- 1,051.34
1997.................... 310.0 11/04--07/12 6.70%--7.49% 867.40-- 912.10 1,021.59-- 1,073.45
1998.................... 50.0 11/13 6.50%--6.61% 777.50-- 786.30 990.52-- 1,000.85
</TABLE>
- --------
(a) Interest is payable semiannually at fixed rates on the fifteenth day of May
and November.
(b) Based on a par value of $1,000.00.
Mortgage Note
In 1990, Mattel borrowed $45.0 million under a mortgage agreement
collateralized by its headquarters office facility in El Segundo, California.
Interest accrues at 10.15% and monthly principal and interest payments are due
through December 2005. The fair value of the original mortgage note, estimated
by discounting future cash flows at interest rates currently available for debt
with the same credit rating, similar terms and maturity date, was approximately
$46 million and $51 million at December 31, 1999 and 1998, respectively.
7% Convertible Subordinated Notes ("7% Notes")
Upon consummation of the March 1997 merger, Mattel assumed Tyco's $16.0
million obligation related to the 7% Notes. On September 10, 1997, the holder
converted all of the 7% Notes into 892.7 thousand shares of Mattel common
stock.
F-20
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10 -1/8% Senior Subordinated Notes ("10 -1/8% Notes")
Upon consummation of the March 1997 merger, Mattel assumed Tyco's $126.5
million obligation related to the 10 -1/8% Notes. On August 15, 1997, Mattel
exercised its option and redeemed the 10 -1/8% Notes at 103.797% of par
together with accrued interest. In the third quarter of 1997, Mattel recognized
a pre-tax extraordinary loss of $7.3 million, and a related income tax benefit
of $2.7 million, as a result of the early retirement.
6 -7/8% Senior Notes
Mattel's $100.0 million of 6 -7/8% Senior Notes issued in August 1992 were
repaid upon maturity on August 1, 1997.
Scheduled Maturities
The aggregate amounts of long-term debt and other obligations maturing in
the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
MT Mortgage
Senior Notes Notes Note Other Total
------------ ------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
2000.............................. $301,000 $ -- $600 $2,500 $304,100
2001.............................. -- 30,500 700 500 31,700
2002.............................. -- 30,000 800 200 31,000
2003.............................. 150,000 30,000 800 200 181,000
2004.............................. -- 50,000 900 200 51,100
</TABLE>
Note 5--Stockholders' Equity
Preference Stock and Preference Share Purchase Rights
Mattel is authorized to issue 20.0 million shares of $0.01 par value
preference stock, of which none is currently outstanding. There are 2.0 million
shares of $0.01 par value preference stock designated as Series E Junior
Participating Preference Stock in connection with a distribution of Preference
Share Purchase Rights (the "Rights") to Mattel's common stockholders. The
Rights may be exercised by their holders to purchase shares of Mattel's Series
E Junior Participating Preference Stock upon the occurrence of a change of
control as defined in the rights agreement. The Rights will expire on February
17, 2002, unless the agreement is further extended or the Rights are earlier
redeemed or exchanged by Mattel.
Preferred Stock
Mattel is authorized to issue 3.0 million shares of $1.00 par value
preferred stock, of which 771.9 thousand shares were outstanding as of December
31, 1998.
--Series A Preferred Stock
During 1997, Learning Company issued 750.0 thousand shares of Series A
Preferred Stock to an investor group in exchange for $150.0 million of 5- 1/2%
Notes. Just prior to the consummation of the May 1999 merger, each share of
Series A Preferred Stock was converted into 20 shares of Learning Company
common stock, and the resale restrictions expired.
F-21
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
An extraordinary loss of approximately $61 million was recognized upon
conversion of the 5- 1/2% Notes into the Series A Preferred Stock due to the
appreciation of the underlying common stock between the date the conversion
agreement was signed and the date the preferred stock was issued. The resulting
income tax benefit related to the extraordinary loss was also estimated to be
approximately $61 million. As a result, the extraordinary loss, net of tax, was
determined to be immaterial and was not disclosed as a separate item in the
consolidated statement of operations for the year ended December 31, 1997.
--Series C Mandatorily Convertible Redeemable Preferred Stock ("Series C
Preferred Stock")
During 1996, Tyco sold 772.8 thousand shares of Series C Preferred Stock.
Each share of Series C Preferred Stock was converted into like Mattel preferred
stock as a result of the March 1997 merger. Series C Depositary Shares
("Depositary Shares"), each representing one twenty-fifth of a share of Series
C Preferred Stock, totaling 19.3 million shares, were sold by the depositary as
part of the above offering. Each Depositary Share was converted into a like
Mattel depositary share as a result of the March 1997 merger. On July 1, 1999,
all outstanding shares of Series C Preferred Stock (and the related Depositary
Shares) were converted by the holders into 7.7 million shares of Mattel common
stock pursuant to terms of the certificate of designations.
--Series B Voting Convertible Exchangeable Preferred Stock ("Series B
Preferred Stock")
During 1994, Tyco sold 47.6 thousand shares of Series B Preferred Stock to a
private investment group. Each share of Series B Preferred Stock was converted
into like Mattel preferred stock as a result of the March 1997 merger. On
December 2, 1997, all outstanding shares of Series B Preferred Stock were
converted by the holders into 2.8 million shares of Mattel common stock.
Special Voting Preferred Stock
Mattel is authorized to issue one share of $1.00 par value Special Voting
Preferred Stock, which was issued in exchange for one share of Learning Company
special voting stock in connection with the May 1999 merger. The par value and
liquidation preference of the Special Voting Preferred Stock are $1.00 and
$10.00 per share, respectively. The Special Voting Preferred Stock has a number
of votes equal to the number of outstanding exchangeable shares which are not
owned by Mattel, its subsidiaries or any entity controlled by Mattel. The
Special Voting Preferred Stock votes together with the holders of Mattel's
common stock as a single class on all matters on which the holders of Mattel's
common stock may vote. No dividends are paid on the Special Voting Preferred
Stock. The Special Voting Preferred Stock will be redeemed for $10.00 on
February 4, 2005, the redemption date for the exchangeable shares, unless the
board of directors of Mattel's subsidiary, Softkey Software Products Inc.,
extends or accelerates the redemption date.
Common Stock
In May 1998, the stockholders of Mattel approved an amendment to Mattel's
Restated Certificate of Incorporation that increased the number of shares of
authorized common stock from 600.0 million to 1.0 billion in order to
accommodate issuance of common stock in connection with possible future mergers
and other financing transactions, future stock dividends or splits, future
awards pursuant to Mattel's stock option plans, warrant exercises, and other
general corporate purposes.
Exchangeable Shares and Related Softkey Warrants
As of December 31, 1999 and 1998, there were 3.2 million and 5.2 million
outstanding exchangeable shares, respectively, which were not owned by Mattel,
its subsidiaries or any entity controlled by Mattel. As a
F-22
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
result of the May 1999 merger, each exchangeable share is convertible at the
option of the holder, without additional payment, for the right to receive 1.2
shares of Mattel common stock until February 4, 2005. On that date, any
exchangeable shares not previously converted will be redeemed at the current
market price of Mattel's common stock multiplied by 1.2. The redemption price
will be paid in the form of Mattel common stock, plus cash equal to any unpaid
dividends. The board of directors of Mattel's subsidiary, Softkey Software
Products Inc., may extend the automatic redemption date at its option and may
accelerate the automatic redemption date if the number of outstanding
exchangeable shares is less than 0.5 million. Holders of exchangeable shares
are entitled to receive dividends declared on Mattel's common stock multiplied
by 1.2 as if the exchangeable shares had been converted into common stock.
Holders of exchangeable shares vote their shares through the Special Voting
Preferred Stock at the rate of 1.2 votes per exchangeable share on all matters
on which the holders of Mattel's common stock may vote. As a result of the 1999
merger, each exchangeable share will include the right to acquire exchangeable
shares under a rights agreement issued by Softkey Software Products Inc. These
rights have an economically equivalent value to the Rights attached to Mattel's
common stock.
During the years ended December 31, 1999, 1998 and 1997, 1.9 million, 9.1
million and 0.1 million exchangeable shares, respectively, were converted by
the holders into common stock at the rate of 1.2 common shares per exchangeable
share.
In 1997 and 1998, Mattel's Canadian subsidiary, Softkey Software Products
Inc., issued 4.1 million and 8.7 million warrants in private placements in
Canada for net proceeds of $57.5 million and $134.3 million, respectively. Each
warrant was subsequently exchanged in accordance with its provisions into one
exchangeable share without additional payment during 1998.
Stock Compensation Plans
--Mattel Stock Option Plans
In 1996, the stockholders of Mattel approved the Mattel 1996 Stock Option
Plan. Under this plan, incentive stock options, nonqualified stock options,
stock appreciation rights, nonvested stock awards, and shares of common stock
may be granted to officers, key employees, and other persons providing services
to Mattel. In addition, nonqualified stock options may be granted to members of
Mattel's board of directors who are not employees of Mattel.
Generally, options are exercisable contingent upon the grantees' continued
employment with Mattel. Nonqualified stock options are granted at not less than
100% of the fair market value of Mattel's common stock on the date of grant,
generally vest at the rate of 25% per year of service, and usually expire
within ten years from the date of grant. The 1996 Stock Option Plan provides
that up to 1.5% of Mattel's outstanding common stock as of the first day of
each calendar year will be available for awards under the plan. Grants made to
individual participants cannot exceed 1.0 million shares in any single calendar
year. On February 4, 1999, Mattel's board of directors approved an amendment to
the 1996 Stock Option Plan authorizing an additional 6.0 million shares for
grant in connection with new employees of businesses acquired by Mattel. The
aggregate number of shares of common stock available for grant under the 1996
Stock Option Plan may not exceed 50.0 million shares. This plan expires on
December 31, 2005. Mattel's previous plans, the 1982 and 1990 Stock Option
Plans, expired on April 14, 1992 and December 31, 1996, respectively. All
outstanding awards under these plans continue to be exercisable under the terms
of their respective grant agreements.
In November 1999, the Compensation/Options Committee of Mattel's board of
directors approved the Mattel 1999 Stock Option Plan. Under this plan,
nonqualified stock options, stock appreciation rights and nonvested stock
awards may be granted to key employees who are not officers, directors or
consultants of
F-23
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mattel. Generally, options are exercisable contingent upon the grantee's
continued employment with Mattel. Nonqualified stock options are granted at not
less than 100% of the fair market value of Mattel's common stock on the date of
grant, and expire within ten years from the date of grant. Options granted
under the 1999 Stock Option Plan vest on a schedule determined by the
Compensation/Options Committee. Grants made in 1999 vest over three years at
six month intervals, at a rate of 10% for each six-month period during the
first year and at a rate of 20% per six month period thereafter. Grants made to
individual participants cannot exceed 1.0 million shares in any single calendar
year. The aggregate number of shares of common stock available for grant under
the 1999 Stock Option Plan may not exceed 12.8 million shares. This plan
expires on December 31, 2009.
The fair value of Mattel options granted has been estimated using the Black-
Scholes pricing model. The expected life of these options used in this
calculation has been determined using historical exercise patterns. The
following weighted average assumptions were used in determining fair value:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (in years)................................ 3.90 3.60 3.40
Risk-free interest rate................................. 6.34% 4.61% 5.69%
Volatility factor....................................... 18.46% 15.80% 17.40%
Dividend yield.......................................... 0.84% 0.83% 0.86%
</TABLE>
The weighted average fair value of Mattel options granted during 1999, 1998
and 1997 were $4.85, $7.32 and $4.86, respectively.
The following is a summary of stock option information and weighted average
exercise prices for Mattel's stock option plans during the year (options in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
Number Price Number Price Number Price
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1......... 16,075 $27.02 17,307 $21.73 13,310 $18.05
Options granted................ 18,208 20.45 3,680 41.66 7,443 25.79
Options exercised.............. (201) 20.93 (4,284) 17.80 (2,807) 14.89
Options canceled............... (1,872) 28.14 (628) 29.79 (639) 22.44
------ ------ ------
Outstanding at December 31....... 32,210 $23.28 16,075 $27.02 17,307 $21.73
====== ====== ======
Exercisable at December 31....... 10,813 $23.89 5,645 $20.48 5,999 $16.29
====== ====== ======
Available for grant at December
31.............................. 9,234 2,358 1,072
====== ====== ======
</TABLE>
F-24
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the weighted average
remaining contractual life (in years) and the weighted average exercise prices
for Mattel stock options outstanding as of December 31, 1999 (options in
thousands):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------------------- -------------------------
Exercise Price Remaining
Ranges Number Life Price Number Price
-------------- ------ --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ 4.69 to $13.56 389 5.20 $11.59 259 $10.77
13.69 to 13.69 7,010 9.84 13.69 -- --
14.00 to 22.40 3,090 4.65 16.17 2,990 16.05
22.50 to 22.50 3,816 9.04 22.50 1 22.50
22.56 to 25.63 3,125 6.76 24.47 1,811 24.57
25.75 to 25.75 5,063 7.11 25.75 3,162 25.75
25.94 to 26.25 592 6.93 26.15 507 26.14
26.38 to 26.38 5,440 9.42 26.38 947 26.38
26.50 to 41.38 826 7.64 33.37 410 31.40
42.00 to 42.00 2,859 8.10 42.00 726 42.00
------ ------
$ 4.69 to $42.00 32,210 8.13 $23.28 10,813 $23.89
====== ======
</TABLE>
Prior to the March 1997 merger, Tyco had various incentive and non-qualified
stock option plans that provided benefits for eligible participants. Effective
with the 1997 merger, all stock options previously granted and outstanding
under these plans were exchanged for approximately 363 thousand Mattel common
shares, which approximated the fair value of the options as of the merger
consummation date.
--Mattel 1997 Premium Price Stock Option Plan
In November 1997, the Compensation/Options Committee of the board of
directors approved the Mattel, Inc. 1997 Premium Price Stock Option Plan, which
was subsequently approved by Mattel's stockholders at the May 1998 meeting.
Under this plan, premium price options may be granted to officers and other key
employees of Mattel. Grants made to individual participants cannot exceed 4.5
million shares in any three consecutive calendar years. Grants under the 1997
Premium Price Stock Option Plan in 1997 were intended to replace annual grants
under the 1996 Stock Option Plan until the end of 2000.
The exercise price of premium price options is calculated at 25% and 33-
1/3% above Mattel's six-month average stock price prior to the date of grant.
Options are forfeited unless Mattel's common stock price reaches the premium
exercise price within two years from the date of grant for options with a 25%
premium price and within three years from the date of grant for options with a
33- 1/3% premium price. Options granted under the plan may not be exercised for
three years and expire five years from the date of grant. Each option includes
a Tandem Limited Stock Appreciation Right which gives the holder the right to
receive cash, shares of common stock or any combination of cash and common
stock upon the occurrence of a change of control as defined in the plan. On
February 4, 1999, Mattel's board of directors approved an amendment to the 1997
Premium Price Stock Option Plan authorizing an additional 3.0 million shares
for grant in connection with new employees of businesses acquired by Mattel,
bringing the aggregate number of shares of common stock available for grant
under this plan to 24.0 million. This plan expires on December 31, 2002.
F-25
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of stock option information and weighted average
exercise prices for premium price options during the year (options in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
Number Price Number Price Number Price
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1........... 18,661 $44.04 17,661 $43.58 --
Options granted.................. 3,420 35.00 1,000 52.15 17,661 $43.58
Options exercised................ -- -- --
Options canceled................. (5,139) 39.71 -- --
------ ------ ------
Outstanding at December 31......... 16,942 $43.53 18,661 $44.04 17,661 $43.58
====== ====== ======
Exercisable at December 31......... -- -- --
====== ====== ======
Available for grant at December
31................................ 7,058 2,339 3,339
====== ====== ======
</TABLE>
The fair value of premium price options granted has been estimated using the
Black-Scholes pricing model. The following assumptions were used in determining
fair value:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (in years)................................ 5.00 5.00 5.00
Risk-free interest rate................................. 5.16% 5.80% 6.33%
Volatility factor....................................... 39.90% 25.50% 24.10%
Dividend yield.......................................... 0.89% 0.83% 0.86%
</TABLE>
The fair value of options granted during 1999, 1998 and 1997 was $5.37,
$5.10 and $4.79 for 25% premium price options and $5.48, $4.92 and $4.86 for
33- 1/3% premium price options, respectively.
The following table summarizes information about the remaining contractual
life (in years) and the exercise prices for premium price options outstanding
as of December 31, 1999 (options in thousands):
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------------------------------------------
Remaining
Number Life Price
------ --------- ------
<S> <C> <C>
660 4.25 $35.24
660 4.25 37.59
7,364 2.85 42.31
7,258 2.85 44.87
500 3.54 50.46
500 3.54 53.83
------
16,942 $43.53
======
</TABLE>
--Learning Company Stock Option Plans
Prior to the May 1999 merger, Learning Company and its subsidiaries had
various incentive and nonqualified stock option plans that provided benefits
for eligible employees and non-employee directors. Effective with the 1999
merger, each outstanding option under these plans was converted into an option
to purchase 1.2 shares of Mattel common stock. The exercise price of such
options was adjusted by dividing the Learning Company option price by 1.2.
Other than options granted under some plans assumed by Learning Company in
connection with recent acquisitions, all Learning Company stock options vested
and became fully exercisable as a result of the 1999 merger.
F-26
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of Learning Company options granted prior to the 1999 merger,
and during the years ended 1998 and 1997 has been estimated using the Black-
Scholes pricing model. The expected life of these options used in this
calculation has been determined using historical exercise patterns. The
following weighted average assumptions were used in determining fair value:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (in years)................................ 4.00 6.00 4.00
Risk-free interest rate................................. 6.35% 5.13% 6.00%
Volatility factor....................................... 51.00% 68.00% 75.00%
Dividend yield.......................................... -- -- --
</TABLE>
The weighted average fair value of Learning Company options granted prior to
the 1999 merger, and during the years ended 1998 and 1997 were $9.83, $10.14
and $8.81, respectively.
The following is a summary of stock option information and weighted average
exercise prices for Learning Company's stock option plans during the year
(options in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
Number Price Number Price Number Price
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1......... 17,626 $14.30 16,396 $14.43 14,694 $18.63
Options assumed in
acquisitions.................. -- -- -- -- 860 3.98
Options granted................ 1,415 21.12 8,979 15.29 9,695 11.12
Options exercised.............. (5,278) 10.99 (4,660) 8.77 (1,489) 7.43
Options canceled............... (3,083) 15.94 (3,089) 21.70 (7,364) 16.12
------ ------ ------
Outstanding at December 31....... 10,680 $16.19 17,626 $14.30 16,396 $14.43
====== ====== ======
Exercisable at December 31....... 9,473 $15.41 6,602 $15.04 7,154 $13.05
====== ====== ======
Available for grant at December
31.............................. -- 4,709 3,270
====== ====== ======
</TABLE>
The following table summarizes information about the weighted average
remaining contractual life (in years) and the weighted average exercise prices
for Learning Company stock options outstanding as of December 31, 1999 (options
in thousands):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------------------- -------------------------
Exercise Price Remaining
Ranges Number Life Price Number Price
-------------- ------ --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ 0.58 to $ 5.63 232 6.87 $ 3.90 222 $ 3.90
6.54 to 12.92 2,026 7.54 10.87 2,016 10.88
12.97 to 23.49 7,361 7.32 15.89 6,479 15.34
24.06 to 34.51 1,025 7.14 29.38 727 29.55
79.92 to 79.92 36 0.83 79.92 29 79.92
------ -----
$ 0.58 to $79.92 10,680 7.31 $16.19 9,473 $15.41
====== =====
</TABLE>
In March 1997, in order to provide a competitive employment environment for
staff retention and hiring, Learning Company instituted an option exchange
program under which certain employees (other than employee directors) with
options exercisable at $8.67 per share or higher were given the opportunity to
exchange such options for options with an exercise price of $8.67 per share. A
total of 4.4 million options were exchanged and have been included in the
canceled and granted totals for the year ended December 31, 1997.
F-27
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
--Compensation Cost
Mattel, Tyco and Learning Company each adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized in the results of operations for nonqualified stock options granted
under these plans during the years ended December 31, 1999, 1998 and 1997. Had
compensation cost for nonqualified stock options been determined based on their
fair value at the date of grant consistent with the method of accounting
prescribed by SFAS No. 123, Mattel's net income (loss) and earnings per share
would have been adjusted as follows (amounts in millions except per share
data):
<TABLE>
<CAPTION>
For the Year Ended
------------------------
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Net income (loss)
As reported........................................ $ (82.4) $206.1 $(182.7)
Stock option plans................................. (30.1) (67.1) (38.6)
Premium price stock option plan.................... (20.1) (21.1) --
------- ------ -------
Pro forma income (loss)........................ $(132.6) $117.9 $(221.3)
======= ====== =======
Income (loss) per share
Basic
As reported...................................... $ (0.21) $ 0.51 $ (0.52)
Stock option and premium price option plans...... (0.12) (0.17) (0.11)
------- ------ -------
Pro forma basic income (loss).................. $ (0.33) $ 0.34 $ (0.63)
======= ====== =======
Diluted
As reported...................................... $ (0.21) $ 0.47 $ (0.52)
Stock option and premium price option plans...... (0.12) (0.16) (0.11)
------- ------ -------
Pro forma diluted income (loss)................ $ (0.33) $ 0.31 $ (0.63)
======= ====== =======
</TABLE>
The pro forma effect on Mattel's 1998 and 1997 net income is not indicative
of the pro forma effect in future years, because it does not take into
consideration the pro forma expense related to grants made prior to 1995.
Stock Subscription Warrants
In December 1999, 751.4 thousand warrants were exercised for an equal number
of common shares by the holder in accordance with the terms of the warrant
agreement. In June 1999, 114.2 thousand common shares were issued to a warrant
holder in a cashless exercise in accordance with the terms of the warrant
agreement. As of December 31, 1999, all stock subscription warrants previously
outstanding had been exercised.
Disney Warrant
In 1996, Mattel entered into a licensing agreement with Disney Enterprises,
Inc. Pursuant to this agreement, Mattel issued Disney a warrant to purchase 3.0
million shares of Mattel's common stock at an exercise price of $27.375 per
share. This warrant expires no later than April 2, 2004. The warrant's fair
value of $26.4 million was determined using the Black-Scholes pricing model,
assuming an expected life of eight years, a dividend yield of 0.88%, a risk-
free interest rate of 6.17%, and a volatility factor of 27.60%.
The fair value of the warrant is amortized as a component of royalty expense
as the related properties are introduced over the period the related revenues
are recognized. During 1999, 1998 and 1997, $5.6 million, $3.2 million and $1.1
million, respectively, was recognized in the results of operations related to
this warrant.
F-28
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Learning Company Employee Stock Purchase Plan
In December 1997, Learning Company stockholders approved the 1997 Employee
Stock Purchase Plan, which provided certain eligible employees with the
opportunity to purchase shares of common stock at a price of 85% of the price
listed on the New York Stock Exchange at various specified purchase dates. The
plan met the criteria established in SFAS No. 123 for noncompensatory employee
stock purchase plans and therefore, no compensation expense was recorded in
connection with this plan. During the years ended December 31, 1999 and 1998,
approximately 37 thousand and 56 thousand shares, respectively, were purchased
by employees under this plan. As a result of the May 1999 merger, the 1997
Employee Stock Purchase Plan was terminated.
Prior to their merger with Learning Company, Broderbund also had an employee
stock purchase plan. During the year ended December 31, 1997, approximately 62
thousand shares were purchased by employees under this plan. As a result of the
merger with Learning Company, the Broderbund employee stock purchase plan was
terminated.
Common Stock Repurchase Plan
Mattel's common stock repurchase plan, initiated in May 1990, provides for
the repurchase of common shares to fund Mattel's stock option plans. The number
of shares to be repurchased is authorized on an annual basis by the board of
directors based upon anticipated reissuance needs. During 1999, 1998, and 1997,
Mattel repurchased 4.0 million, 9.7 million, and 6.5 million shares,
respectively.
Dividends and Capital Transactions
A regular quarterly cash dividend has been declared by the Mattel board of
directors on Mattel's common stock since the second quarter of 1990. The board
of directors increased the quarterly cash dividend from $0.08 per common share
to $0.09 per common share in the second quarter of 1999. Learning Company did
not pay dividends on its common stock during 1999 prior to the May merger and
during the years ended December 31, 1998 and 1997.
Note 6--Commitments and Contingencies
Leases
Mattel routinely enters into noncancelable lease agreements for premises and
equipment used in the normal course of business. The following table shows the
future minimum obligations under lease commitments in effect at December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
----------- ---------
<S> <C> <C>
2000.................................................. $ 300 $ 49,000
2001.................................................. 300 37,800
2002.................................................. 300 20,500
2003.................................................. 300 15,100
2004.................................................. 300 13,900
Thereafter............................................ 9,200 10,300
------- --------
$10,700(a) $146,600
======= ========
</TABLE>
- --------
(a) Includes $8.4 million of imputed interest.
F-29
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense under operating leases amounted to $75.2 million, $66.6
million and $71.5 million for 1999, 1998 and 1997, respectively, net of
sublease income of $0.6 million, $0.5 million and $0.3 million in 1999, 1998
and 1997, respectively.
Commitments
In the normal course of business, Mattel enters into contractual
arrangements to obtain and protect Mattel's right to create and market certain
products and for future purchases of goods and services to ensure availability
and timely delivery. Such arrangements include royalty payments pursuant to
licensing agreements and commitments for future inventory purchases. Certain of
these commitments routinely contain provisions for guaranteed or minimum
expenditures during the terms of the contracts. Current and future commitments
for guaranteed payments reflect Mattel's focus on expanding its product lines
through alliances with businesses in other industries.
The largest commitment involves Mattel's agreements with The Walt Disney
Company and Disney Enterprises, Inc. The licensing agreement with The Walt
Disney Company, which contains annual minimum royalty guarantees, permits
Mattel to use the Disney name and certain characters on preschool and infant
products through September 2002.
The agreement with Disney Enterprises, Inc. grants Mattel exclusive
worldwide rights (with certain exceptions) to produce toys based on all
children-oriented Disney television and film properties introduced. This
agreement spans three years, with Mattel having the right for up to two
additional years to market merchandise from film properties produced during the
second and third years. The initial term of the agreement may be renewed for an
additional three-year period upon mutual consent. This agreement contains
minimum royalty guarantees that are contingent upon the number and nature of
the properties introduced by Disney. Commitments for 2000 introductions are
expected to approximate $10 million payable over a three-year period. Pursuant
to the agreement, Mattel issued Disney a stock warrant, valued at $26.4
million, to purchase 3.0 million shares of Mattel's common stock.
In January 2000, Mattel and Warner Bros. Worldwide Consumer Products signed
a licensing agreement making Mattel the worldwide master toy licensee for the
literary characters from the Harry Potter books published by J.K. Rowling as
well as for feature film and television properties developed by Warner Bros.
Pictures featuring the Harry Potter characters. Mattel's worldwide toy
licensing agreement involves the first two Harry Potter books and theatrical
films. This agreement contains minimum royalty guarantees and has a term of
four years, provided that the second theatrical film is released prior to
January 1, 2003. If the second theatrical film is released subsequent to
January 1, 2003, the agreement will be extended to a date twelve months after
the release of the second theatrical film. Pursuant to the agreement, Mattel
issued Warner Bros. Consumer Products a stock warrant to purchase 3.0 million
shares of Mattel's common stock. This warrant became fully vested and
exercisable upon signing of the licensing agreement.
F-30
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Licensing and related agreements provide for terms extending from 2000
through 2007 and contain provisions for future minimum payments as shown in the
following table (in thousands):
<TABLE>
<CAPTION>
Minimum
Payments
--------
<S> <C>
2000................................................................ $134,000
2001................................................................ 104,000
2002................................................................ 69,000
2003................................................................ 15,000
2004................................................................ 18,000
Thereafter.......................................................... 6,000
--------
$346,000
========
</TABLE>
Royalty expense for the years ended December 31, 1999, 1998 and 1997 was
$308.6 million, $234.2 million and $225.8 million, respectively.
As of December 31, 1999, Mattel had outstanding commitments for 2000
purchases of inventory of approximately $92 million.
Foreign Currency Contracts
To limit the exposure associated with exchange rate movements, Mattel enters
into foreign currency forward exchange and option contracts primarily as hedges
of inventory purchases, sales and other intercompany transactions denominated
in foreign currencies. These contracts generally have maturity dates of up to
18 months. Gains or losses related to firm commitments, which qualify for hedge
accounting, are deferred and are recognized in the results of operations as
part of the underlying transaction. Contracts that do not qualify for hedge
accounting are marked to market with gains and losses recognized in the results
of operations. Had Mattel not entered into hedges to limit the effect of
exchange rate fluctuations on results of operations and cash flows, 1999 pre-
tax income would have been reduced by approximately $16 million.
As of December 31, 1999 and 1998, Mattel held the following contracts to
sell foreign currencies (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
Fair Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Forwards................................. $342,370 $334,688 $392,972 $394,340
======== ======== ======== ========
</TABLE>
Fair value for forwards reflects the amount, based on dealer quotes, Mattel
would receive at maturity for contracts involving the same currencies and
maturity dates, if they had been entered into as of year-end 1999 and 1998,
respectively.
As of December 31, 1999 and 1998, Mattel held $144.7 million and $189.1
million, respectively, of foreign currency forward exchange contracts to
purchase foreign currencies. The fair value of these contracts was $144.9
million and $201.8 million as of December 31, 1999 and 1998, respectively. Fair
value reflects the amount, based on dealer quotes, Mattel would pay at maturity
for contracts involving the same currencies and maturity dates, if they had
been entered into as of year-end 1999 and 1998, respectively.
F-31
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes Mattel's foreign currency contracts by major
currency as of December 31, 1999 and 1998 (in thousands of US dollars):
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
Buy Sell Buy Sell
-------- -------- -------- --------
<S> <C> <C> <C> <C>
US dollar............................... $342,370 $144,703 $392,972 $189,122
Euro.................................... 92,445 253,096 -- --
British pounds sterling................. 6,316 16,679 6,548 66,856
Canadian dollar......................... 7,604 40,679 16,144 18,794
Indonesian rupiah....................... 19,455 -- 10,000 --
Japanese yen............................ -- 19,412 -- 12,501
Swiss franc............................. 14,893 -- 18,341 --
Australian dollar....................... -- 8,438 4,988 21,610
Hong Kong dollar........................ -- -- 55,829 --
French franc............................ -- -- 27,435 9,105
Italian lira............................ -- -- 20,014 68,358
German mark............................. -- -- 19,119 144,660
Spanish peseta.......................... -- -- 5,625 2,899
Dutch guilder........................... -- -- 5,079 8,086
Mexican peso............................ -- -- -- 22,000
Belgian franc........................... -- -- -- 11,641
Other (under $5,000).................... 3,990 4,066 -- 6,462
-------- -------- -------- --------
$487,073 $487,073 $582,094 $582,094
======== ======== ======== ========
</TABLE>
In order to minimize the risk of counterparty non-performance, Mattel
executes its foreign currency forward exchange and option contracts with
financial institutions believed to be credit-worthy, generally those that
provide Mattel with its working capital lines of credit.
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 international borrowings and intercompany
invoicing. Mattel does not trade in financial instruments for speculative
purposes.
Litigation
Power Wheels(R) Recall and Related Matters
On October 22, 1998, Mattel announced that Fisher-Price, in cooperation with
the Consumer Product Safety Commission, would conduct a voluntary recall
involving up to 10 million battery-powered Power Wheels(R) ride-on vehicles.
The recall did not result from any serious injury, and involves the replacement
of electronic components that may overheat, particularly when consumers make
alterations to the product. The recall involves vehicles sold nationwide since
1984 under nearly 100 model names. Additionally, Fisher-Price has been notified
by the Consumer Product Safety Commission that the Commission is considering
whether Fisher-Price may be subject to a fine for delayed reporting of the
facts underlying the recall.
In the third quarter of 1998, Mattel recognized a $38.0 million pre-tax
charge related to the recall. During the second and fourth quarters of 1999,
Mattel recognized additional pre-tax charges totaling $20.0 million related to
the recall.
F-32
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Greenwald Litigation and Related Matters
On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC 025
008) against Mattel in Superior Court of the State of California, County of Los
Angeles. Ms. Greenwald is a former employee whom Mattel terminated in July
1995. Her complaint sought $50 million in general and special damages, plus
punitive damages, for breach of oral, written and implied contract, wrongful
termination in violation of public policy and violation of California Labor
Code Section 970. Ms. Greenwald claimed that her termination resulted from
complaints she made to management concerning general allegations that Mattel
did not account properly for sales and certain costs associated with sales and
more specific allegations that Mattel failed to account properly for certain
royalty obligations to The Walt Disney Company. On December 5, 1996, Mattel's
motion for summary adjudication of Ms. Greenwald's public policy claim was
granted. On March 7, 1997, Mattel filed a motion for summary judgment on the
remaining causes of action. On December 9, 1997, Mattel's motion for summary
judgment of Ms. Greenwald's remaining claims was granted. On February 4, 1998,
Ms. Greenwald appealed from the dismissal of her suit. The appeal has been
fully briefed, and a hearing took place on March 3, 2000. Mattel intends to
continue to defend the action vigorously, including the appeal.
Toys R Us and Related Matters
On October 2, 1997, the Attorney General of the State of New York filed in
the United States District Court, Eastern District of New York (Case No. CV 97
5714), an action against Toys R Us, Mattel and certain other toy manufacturers
alleging that the defendants had violated federal antitrust laws and entered
into vertical and horizontal arrangements that had the effect of restricting
sales to the warehouse clubs. The attorneys general from forty-three other
states, the District of Columbia and the Commonwealth of Puerto Rico joined
this action. Following the filing of the New York action, a series of private
treble damage class actions under the federal antitrust laws were filed in
various federal district courts. The parties later agreed to have these related
actions transferred to the Eastern District of New York to be consolidated by
the Judicial Panel on Multiple Litigation before Nina Gershon, United States
District Judge. Private class actions were also filed in state courts in
Alabama, California, and New Jersey, asserting claims under state antitrust
law. These state court actions were coordinated with the federal court actions.
Subsequent mediation efforts resulted in a Settlement Agreement and Release
as to Mattel, Inc., Fisher-Price, and Tyco, effective April 6, 1999. Pursuant
to the terms of the Settlement Agreement and Release, Mattel agreed to make a
cash payment and a toy contribution, both of which were made in the fourth
quarter of 1999. As a result of a dispute between the parties as to the
selection of the toys to be contributed, Mattel negotiated a Supplemental Toy
Contribution Agreement and made a supplemental toy contribution in December
1999. Final Judgment and Order of Dismissal was entered by Judge Gershon on
February 17, 2000 that effectively dismissed with prejudice the claims asserted
by the state and private federal and state court plaintiffs, including the
claims of any person represented in either a parens patriae or private class
capacity.
Litigation Related to Business Combination
On December 16, 21, and 23, 1998, several stockholders of the legal entity
The Learning Company, Inc. that merged into Mattel ("Old Learning Company")
filed six separate purported class action complaints in the Court of Chancery
of the State of Delaware in and for New Castle County against Old Learning
Company and Old Learning Company's board of directors for alleged breaches of
fiduciary duties in connection with the May 1999 merger. The six complaints
were consolidated. The consolidated complaint named Mattel as an additional
defendant, claiming that Mattel aided and abetted the alleged breaches of
fiduciary duty. On March 9, 2000, the plaintiffs filed a notice and order of
dismissal dismissing the action without prejudice. Upon approval by the court,
the consolidated action will be formally dismissed.
F-33
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Litigation Related to Learning Company Earnings Shortfall
Following Mattel's announcement on October 4, 1999 that it expected an
earnings shortfall at its Learning Company division in the third quarter of
1999, several of Mattel's shareholders filed purported class action complaints
in the United States District Court for the Central District of California, the
United States District Court for the Southern District of New York and the
United States District Court for Massachusetts naming Mattel and certain of its
officers and directors as defendants. The complaints generally allege, among
other things, that the defendants made false or misleading statements that
artificially inflated the price of Mattel's common stock by overstating the
revenues and net income of Mattel, including its Learning Company division, and
by falsely representing that the May 1999 Learning Company acquisition would be
immediately accretive to Mattel's 1999 and 2000 financial results.
Two of the purported class action complaints are brought on behalf of the
former stockholders of Broderbund who acquired shares of Old Learning Company
in exchange for their Broderbund common stock in connection with the Old
Learning Company-Broderbund merger on August 31, 1998. Mattel has been named as
a defendant as the successor-in-interest to Old Learning Company. The
complaints generally allege that that the Old Learning Company-Broderbund
Registration Statement on Form S-4 filed on or about July 14, 1998 in
connection with the merger was materially false.
On November 23, 1999, Mattel (along with other defendants named in the
federal securities lawsuits) filed a motion and brief before the Judicial Panel
on Multidistrict Litigation seeking to transfer all of the federal actions to
the United States District Court for the Central District of California for
Coordinated or Consolidated Pretrial Proceedings. On March 3, 2000, the
Judicial Panel on Multidistrict Litigation granted Mattel's motion.
In addition, a Mattel stockholder filed a derivative complaint on behalf and
for the benefit of Mattel in the Superior Court of the State of California,
County of Los Angeles. The complaint alleges that Mattel's directors breached
their fiduciary duties, wasted corporate assets and grossly mismanaged Mattel
in connection with Mattel's acquisition of Learning Company and seeks both
monetary and injunctive relief. On February 10, 2000, the court sustained
defendants' demurrer and dismissed the complaint with leave to amend.
Mattel believes the lawsuits are without merit and intends to defend them
vigorously.
Environmental
--Fisher-Price
Fisher-Price has executed a consent order with the State of New York
involving a remedial action/feasibility study for one of its manufacturing
plants. Currently, Fisher-Price is negotiating an additional consent order
which will outline the specific clean up strategy for the site. Mattel
anticipates that the New York State Department of Environmental Quality will
issue their Record of Decision in March 2000. The ultimate liability associated
with this cleanup presently is estimated to be less than $1,425,000,
approximately $1,030,500 of which has been incurred through December 31, 1999.
F-34
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
--Beaverton, Oregon
Mattel operates a manufacturing facility on a leased property in Beaverton,
Oregon that was acquired as part of the Tyco merger. In March 1998, samples of
groundwater used by the facility for process water and drinking water disclosed
elevated levels of certain chemicals, including trichloroethylene. Mattel
immediately closed the water supply and self-reported the sample results to the
Oregon Department of Environmental Quality and the Oregon Health Division.
Mattel also implemented a community outreach program to employees, former
employees and surrounding landowners.
In November 1998, Mattel and another potentially responsible party entered
into a consent order with the Oregon Department of Environmental Quality to
conduct a remedial investigation/feasibility study at the property, to propose
an interim remedial action measure and to continue the community outreach
program. In the second quarter of 1999, Mattel recorded a $14.0 million pre-tax
charge for environmental remediation costs related to this property, based on
the completion and approval of the remediation plan and feasibility study.
General
Mattel is also involved in various other litigation and legal matters,
including claims related to intellectual property, product liability and labor,
which Mattel is addressing or defending in the ordinary course of business.
Management believes that any liability which may potentially result upon
resolution of such matters will not have a material adverse effect on Mattel's
business, financial condition or results of operations.
Note 7--Acquisitions and Nonrecurring Items
Business Combination with Learning Company
In May 1999, Mattel completed its merger with Learning Company, after which
Learning Company was merged with and into Mattel, with Mattel being the
surviving corporation. Each share of Learning Company Series A Preferred Stock
was converted into 20 shares of Learning Company common stock immediately prior
to the consummation of the merger. Pursuant to the merger agreement, each
outstanding share of Learning Company common stock was then converted into 1.2
shares of Mattel common stock upon consummation of the merger. As a result,
approximately 126 million Mattel common shares were 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
one share of Mattel Special Voting Preferred Stock. Each outstanding
exchangeable share of Learning Company's Canadian subsidiary, Softkey Software
Products Inc., remains outstanding, but upon consummation of the merger became
exchangeable for 1.2 shares of Mattel common stock.
This transaction has been accounted for as a pooling of interests, and
accordingly, financial information for periods prior to the merger reflect
retroactive restatement of the companies' combined financial position and
operating results. For periods preceding the merger, there were no material
intercompany transactions which required elimination from the combined
consolidated results of operations and there were no adjustments necessary to
conform the accounting practices of the two companies.
F-35
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Selected financial information for the combining entities included in the
consolidated statements of operations for the three years ended December 31,
1999 is shown below. Although the merger was effective on May 13, 1999, interim
financial information for the combining companies was not available as of that
date; therefore, information for and as of March 31, 1999 has been presented.
<TABLE>
<CAPTION>
March Dec. 31, Dec. 31,
31, 1999 1998 1997
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Net sales
Mattel...................................... $692,116 $4,781,892 $4,834,616
Learning Company............................ 186,843 839,315 620,931
-------- ---------- ----------
Combined.................................. $878,959 $5,621,207 $5,455,547
======== ========== ==========
Net income (loss)
Mattel...................................... $(17,856) $ 332,264 $ 285,184
Learning Company(a)(b)...................... 22,905 (126,211) (467,905)
-------- ---------- ----------
Combined.................................. $ 5,049 $ 206,053 $ (182,721)
======== ========== ==========
</TABLE>
- --------
(a) The (benefit) provision for income taxes has been adjusted by $(0.6)
million, $20.9 million and $(27.0) million in 1999, 1998 and 1997,
respectively, to reflect the reduction of valuation allowances established
in Learning Company's historical financial statements resulting in the
recognition of estimated benefits of net operating losses incurred by
Learning Company.
(b) Net loss in 1997 has been decreased by $9.0 million to reflect the
reduction in the purchase price paid by Learning Company when it acquired
the Former Learning Company and the corresponding decrease in goodwill
amortization.
Other Business Combinations
In August 1998, Learning Company completed its merger with Broderbund, a
publisher and developer of consumer software for the home and school market.
The stock-for-stock transaction was approved by the stockholders of Broderbund,
after which Broderbund became a wholly-owned subsidiary of Learning Company.
Under the merger agreement, each outstanding share of Broderbund common stock
was converted into 0.80 shares of Learning Company common stock and resulted in
the issuance of approximately 17 million shares of Learning Company common
stock.
This transaction was accounted for as a pooling of interests, and
accordingly, financial information for periods prior to the merger reflect the
retroactive restatement of the companies' combined financial position and
operating results. The consolidated statement of stockholders' equity for the
year ended December 31, 1998 has been adjusted to include Broderbund's
unrealized gain on securities of $0.5 million (included in comprehensive
income) and net income of $0.2 million for the month ended December 31, 1997.
Broderbund's net sales and operating expenses for the month ended December 31,
1997 were $28.7 million and $28.0 million, respectively. The consolidated
statements of operations, cash flows and stockholders' equity for the years
ended December 31, 1997 have been combined with those of Broderbund for the
twelve-month period ended November 30, 1997. The consolidated statement of
stockholders' equity for the year ended December 31, 1997 has been adjusted to
include Broderbund's net income of $8.9 million for the period from September
1, 1996 through November 30, 1996.
F-36
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1997, Mattel completed its merger with Tyco, accounted for as a
pooling of interests. Under the merger agreement, each outstanding share of
Tyco common stock was converted into 0.48876 Mattel common shares and resulted
in the issuance of approximately 17 million Mattel common shares. Tyco
restricted stock units and stock options outstanding as of the merger date were
exchanged for approximately 0.6 million Mattel common shares. In addition, each
share of Tyco Series B and Series C Preferred Stock was converted into like
Mattel preferred stock. Financial information for periods prior to the merger
reflect the retroactive restatement of the companies' combined financial
position and operating results.
Learning Company also merged with Palladium Interactive, Inc. and P.F.
Magic, Inc. in 1998 and TEC Direct, Inc., Microsystems Software, Inc., Skills
Bank Corporation and Learning Services Inc. in 1997, each of which were
accounted for as poolings of interests. The consolidated financial statements
have not been retroactively restated for the results of operations and
financial position of these companies as the effect of each acquisition
individually and in the aggregate on Learning Company's balance sheet and
results of operations was less than three percent. The consolidated statements
of stockholders' equity for the years ended December 31, 1998 and 1997 have
been adjusted to include the historical results of operations of the acquired
companies of $34.6 million and $6.2 million, respectively. A total of 1.6
million and 3.8 million common shares were issued in the years ended December
31, 1998 and 1997, respectively, as a result of these mergers.
Acquisitions
Mattel acquired the following companies during the years ended December 31,
1998 and 1997. Each of these acquisitions were accounted for using the purchase
method of accounting. The results of operations of the acquired companies have
been included in Mattel's consolidated financial statements from their
respective dates of acquisition. Intercompany accounts and transactions between
the acquired companies and Mattel, as applicable, have been eliminated.
<TABLE>
<CAPTION>
(Assets)/
Method of Liabilities Incomplete
Month Price Payment Assumed Intangibles Technology
------- ------ ---------- ----------- ----------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
1998
Pleasant Company........ July $715.0 Cash $(25.0) $690.0 $ --
Bluebird Toys PLC....... June 80.0 Cash (20.0) 60.0 --
Sofsource, Inc.......... June 45.0 Stock 6.7 36.8 14.9
Mindscape, Inc.......... March 152.6 Cash/stock 6.4 119.0 40.0
1997
Creative Wonders,
L.L.C.................. October $ 37.8 Cash $ 7.3 $ 44.0 $ 1.1
Parsons Technology...... August 31.0 Cash (11.7) 9.3 10.0
</TABLE>
The acquisition price includes investment advisor and other directly-related
expenses, as applicable. The portion of the purchase price allocated to
incomplete technology was charged to expense in the year of acquisition.
Mattel also made other minor acquisitions during the last three years, which
were accounted for using the purchase method. These acquisitions resulted in
the issuance of 0.4 million shares of common stock in the year ended December
31, 1997.
F-37
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Effect of 1998 Acquisitions
The unaudited pro forma results of operations for 1998 acquisitions
accounted for using the purchase method of accounting are as follows:
<TABLE>
<CAPTION>
Acquired Pro Forma
Mattel Companies Combined
---------- --------- ----------
(In thousands, except per share
data)
<S> <C> <C> <C>
1998
Net sales.................................... $5,621,207 $ 103,862 $5,725,069
Income before extraordinary item............. 206,053 (102,175) 103,878
Net income................................... 206,053 (102,175) 103,878
Basic income per share....................... 0.51 0.24
Diluted income per share..................... 0.47 0.22
1997
Net sales.................................... $5,455,547 $ 550,659 $6,006,206
Loss before extraordinary item............... (178,111) (61,827) (239,938)
Net loss..................................... (182,721) (61,827) (244,548)
Basic loss per share
Loss before extraordinary item............. (0.51) (0.65)
Net loss................................... (0.52) (0.66)
Diluted loss per share
Loss before extraordinary item............. (0.51) (0.65)
Net loss................................... (0.52) (0.66)
</TABLE>
The amounts shown for acquired companies assumes that Mattel's 1998
acquisitions occurred on January 1, 1997. These unaudited pro forma results of
operations have been prepared for comparative purposes only and do not purport
to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred on the date indicated, or which may
result in the future. Pro forma adjustments have been made to reflect the
amortization of intangible assets and goodwill capitalized as a result of the
acquisitions, incremental interest expense that would have been incurred as a
result of financing the acquisition of Pleasant Company as of January 1, 1997,
and elimination of intercompany sales and margins related to the acquisition of
Bluebird.
Restructuring and Other Charges
In 1999, Mattel incurred restructuring and other nonrecurring charges
totaling $346.0 million, approximately $265 million after-tax or $0.64 per
diluted share.
During the first quarter of 1999, Mattel incurred a nonrecurring pre-tax
charge of $3.9 million, largely related to the restructuring and integration of
acquisitions made by its Learning Company division in the fourth quarter of
1998.
During the second quarter of 1999, Mattel completed its merger with Learning
Company and finalized a previously announced plan of restructuring and
integration. These actions, along with other one-time events, resulted in a
nonrecurring pre-tax charge against operations of $345.0 million. In the fourth
quarter of 1999, Mattel incurred an additional $23.5 million charge relating to
its restructuring and integration plan and other one-time charges which had
previously not met the requirement for accrual. In addition, Mattel reversed
$26.4 million of the second quarter charge based on lower than anticipated
costs and revisions to previous estimates. The impact of these new developments
combined with the initial second quarter charge resulted in a
F-38
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
full year nonrecurring charge of $342.1 million. Of the total pre-tax charges,
approximately $278 million represents cash expenditures.
The restructuring and integration plan, expected to be substantially
complete by June 2000, provides for the consolidation and realignment of
Mattel's operations. The plan was aimed at leveraging global resources in areas
of manufacturing, marketing and distribution, eliminating duplicative functions
worldwide and achieving improved operating efficiencies. The following are the
major restructuring and integration initiatives:
. Consolidation of the Infant and Preschool businesses;
. Consolidation of the domestic and international back-office functions;
. Consolidation of direct marketing operations;
. Realignment of the North American sales force;
. Termination of various international distributor contracts; and
. Closure of three higher cost manufacturing facilities.
Components of the restructuring and other nonrecurring charges, including
related adjustments, are as follows:
<TABLE>
<CAPTION>
Adjustments Balance
----------------- Total Amounts Dec. 31,
Plan (Credits) Charges Charges Incurred 1999
---- --------- ------- ------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Severance and other
compensation.................. $108 $(13) $18 $113 $ (30) $ 83
Distributor, license and other
contract terminations......... 57 (2) -- 55 (45) 10
Writedown of assets............ 42 (2) -- 40 (40) --
Lease termination costs........ 22 (4) -- 18 -- 18
---- ---- --- ---- ----- ----
Total restructuring costs and
asset writedowns............ 229 (21) 18 226 (115) 111
Merger-related transaction and
other costs................... 86 (5) -- 81 (76) 5
Other nonrecurring charges..... 30 -- 5 35 (16) 19
---- ---- --- ---- ----- ----
Total restructuring, asset
writedowns and other
charges..................... $345 $(26) $23 $342 $(207) $135
==== ==== === ==== ===== ====
</TABLE>
In the fourth quarter of 1999, Mattel adjusted its restructuring and
integration plan and other nonrecurring charges, resulting in a net reduction
of approximately $3 million. The credits to the restructuring plan of
approximately $26 million were mainly due to Mattel's recent decision not to
close certain of its marketing offices and one of its manufacturing facilities.
The remaining credits include other changes in estimates and lower than
anticipated costs compared to the previous estimates for completed components
of the plan. Approximately 900 employees will not be terminated as a result
these changes.
The fourth quarter restructuring charge of approximately $18 million relates
to the termination of an additional 150 Learning Company employees at its
domestic offices. This action was taken to further consolidate the operations
of Learning Company's domestic offices. The fourth quarter other nonrecurring
charge relates to a $4.0 million increase to the reserve for the October 1998
recall of Mattel's Power Wheels(R) vehicles and a $1.1 million additional
charge related to the Toys R Us-related antitrust litigation settlement.
F-39
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A description of the components of the restructuring charges is as follows:
Severance and other compensation costs relate to the termination of
approximately 3,300 employees around the world. Approximately 2,300 of these
employees are hourly workers located in certain of Mattel's manufacturing
facilities, of which approximately 2,200 were employed in the manufacturing
facility in Kuala Lumpur, which ceased operations in September 1999. The
remainder of the work force reductions consists of downsizing sales and
marketing groups in the US, Europe and Asia-Pacific regions as well as the
elimination of duplicate administrative personnel following the consolidation
of back-office functions, the majority of which are in Europe. As of December
31, 1999, approximately $30 million had been paid to nearly 2,700 terminated
employees. Cash severance payments will extend beyond the completion of the
workforce reductions due to the severance payment options available to affected
employees.
Mattel terminated its sponsorship agreements related to certain attractions
for a total cost of $37.5 million, inclusive of the writeoff of related
capitalized costs. The cash portion of this charge was paid as of July 1999.
Mattel also recognized a $17.5 million charge, mainly related to settlements
for termination of certain foreign distributor agreements in conjunction with
the realignment of its sales and distribution network.
Mattel's restructuring plan resulted in the impairment of certain long-lived
assets related to the operations being closed. The sum of the undiscounted
future cash flows of these assets was not sufficient to cover the carrying
amount of these assets. As a result, these long-lived assets were written down
to fair market value and will be depreciated over their remaining useful lives.
Fair value of the impaired assets was determined by either third-party
appraisals or past experience in disposing of similar assets. Buildings and, to
the extent possible, equipment will be sold while the remainder of the impaired
assets will be abandoned when taken out of service. Nearly all of the revenue-
generating activities related to these assets will continue as a result of more
effective utilization of other assets. A significant portion of the fixed asset
writedowns is concentrated in the Operations and Learning Company segments. In
addition, other asset writeoffs include approximately $10 million of goodwill
related to a recently acquired software business, which was closed following
the merger with Learning Company.
Lease termination costs include penalties imposed upon canceling existing
leases and future obligations under long-term rental agreements at facilities
being vacated following the merger and realignment.
Merger-related transaction costs consist of investment banking fees, legal,
accounting and printing costs, registration fees and other costs recognized in
connection with the merger. Also included in this amount is the contractual
change of control payments arising from the merger. The majority of all merger-
related transaction costs were paid during the second quarter of 1999.
In 1998 Learning Company incurred restructuring charges related to the
integration of the business operations of Broderbund and Mindscape, Inc. as a
result of their respective acquisitions.
In 1997 Mattel incurred restructuring and integration charges related to the
integration of the business operations of Tyco as a result of its acquisition
and further restructuring of the business operations of Mattel. In 1997
Learning Company also incurred charges related to the integration of the
business operations of Creative Wonders, L.L.C., Learning Services, Inc.,
Skills Bank Corporation, Microsystems Software, Inc. and TEC Direct, Inc. as a
result of their respective acquisitions.
F-40
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Nonrecurring Charges
In the third quarter of 1998, Mattel recognized a $38.0 million pre-tax
charge related to a voluntary recall of certain Power Wheels(R) ride-on
vehicles. During the second and fourth quarters of 1999, Mattel recognized an
additional pre-tax charge totaling $20.0 million related to the recall.
In the second quarter of 1999, Mattel recorded a $14.0 million pre-tax
charge for environmental remediation costs related to a manufacturing facility
on a leased property in Beaverton, Oregon, based on the completion and approval
of the remediation plan and feasibility study.
In the fourth quarter of 1998, Mattel recognized a $6.0 million pre-tax
charge related to the settlement of the Toys R Us-related antitrust litigation.
In the fourth quarter of 1999, Mattel recognized an additional $1.1 million in
connection with this matter. Mattel made all required cash and toy
contributions during the fourth quarter of 1999.
Charge for Incomplete Technology
The charge for incomplete technology for the years ended December 31, 1998
and 1997 relates to products being developed by acquired companies at the time
of their acquisitions. In each case, Learning Company believed such products
had not yet reached technological feasibility, had no future alternative use as
of the date of acquisition, and required additional development to complete the
software technology and products. In order to develop the acquired incomplete
technology into commercially viable products, Learning Company was required to
complete the development of proprietary code, development of the artistic and
graphic works, and design of the remaining storyboards. During the two year
period ended December 31, 1999, Learning Company spent a total of approximately
$25 million to complete the development of acquired incomplete technology
related to 1998 acquisitions. In order to complete the development of acquired
incomplete technology, Learning Company spent approximately $0.5 million in
1998 related to 1997 acquisitions.
Note 8--Segment Information
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 supersedes 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 reportable segments. This statement requires disclosure of
certain information by reportable segment, geographic area and major customer.
The tables below present information about segment revenues, operating
profit and assets. Mattel's reportable segments are separately managed business
units and include toy marketing, toy manufacturing, and consumer software sales
and development. The Toy Marketing segment is divided on a geographic basis
between domestic and international. The domestic Toy Marketing segment is
further divided into USA Toys, US Fisher-Price/Tyco Preschool and Other. USA
Toys principally sells products in the Girls, Entertainment and Wheels
categories. US Fisher-Price/Tyco Preschool principally sells products in the
Infant and Preschool categories. The Other segment principally sells specialty
products in the Girls category. The International Toy Marketing segment sells
products in all toy categories. The Consumer Software segment consists of
educational, productivity and entertainment software products developed and
sold by Learning Company on a worldwide basis. The Operations segment
manufactures toy products, which are sold to the Toy Marketing segments based
on intercompany transfer prices. Such prices are based on manufacturing costs
plus a profit
F-41
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
margin. Segment revenues do not include sales adjustments such as trade
discounts and other allowances. However, such adjustments are included in the
determination of segment profit from operations. Segment profit from operations
represents income before restructuring and other charges, interest expense, and
provision for income taxes. The consolidated total profit from operations
presented in the following tables represents income before income taxes and
extraordinary item as reported in the consolidated statements of operations.
The segment assets are comprised of accounts receivable and inventories, net of
applicable reserves and allowances.
<TABLE>
<CAPTION>
For the Year
-------------------------------------
1999 1998 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Revenues
Toy Marketing
USA Toys........................... $ 2,199,329 $ 2,207,018 $ 2,330,658
US Fisher-Price/Tyco Preschool..... 941,208 902,018 1,030,906
Other ............................. 316,902 256,089 58,330
International...................... 1,596,449 1,712,509 1,733,605
Learning Company..................... 770,488 839,315 620,931
Operations........................... 1,426,167 1,488,502 1,554,047
----------- ----------- -----------
Segment total.................... 7,250,543 7,405,451 7,328,477
Elimination of intersegment sales.... (1,426,167) (1,486,320) (1,552,029)
Sales adjustments.................... (309,426) (297,924) (320,901)
----------- ----------- -----------
Net sales........................ $ 5,514,950 $ 5,621,207 $ 5,455,547
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Year
-------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Operating Profit (Loss)
Toy Marketing
USA Toys.................................. $ 322,755 $ 348,142 $ 478,579
US Fisher-Price/Tyco Preschool............ 105,519 97,813 87,742
Other .................................... 5,433 20,235 7,300
International............................. 112,222 156,207 218,659
Learning Company............................ (205,472) 114,344 (312,478)
Operations.................................. 223,952 151,905 144,058
--------- --------- ---------
Segment total........................... 564,409 888,646 623,860
Restructuring and other charges............. (345,996) (157,314) (343,606)
Charge for incomplete technology............ -- (56,826) (20,300)
Interest expense............................ (151,609) (128,468) (112,612)
Corporate and other......................... (177,547) (154,406) (146,126)
--------- --------- ---------
Income (loss) before income taxes....... $(110,743) $ 391,632 $ 1,216
========= ========= =========
</TABLE>
F-42
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
As of Year End
----------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Assets
Toy Marketing
USA Toys............................. $ 570,892 $ 571,976 $ 588,154
US Fisher-Price/Tyco Preschool....... 230,237 279,773 337,680
Other ............................... 96,538 71,575 --
International........................ 566,203 602,063 538,099
Learning Company....................... 302,818 226,913 201,309
Operations............................. 60,796 88,613 73,048
---------- ---------- ----------
Segment total...................... 1,827,484 1,840,913 1,738,290
Corporate and other.................... (13,183) (46,592) (16,721)
---------- ---------- ----------
Accounts receivable and
inventories, net.................. $1,814,301 $1,794,321 $1,721,569
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Year
--------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Depreciation/Amortization*
Toy Marketing
USA Toys......................................... $ 75,745 $ 61,510 $ 51,358
US Fisher-Price/Tyco Preschool................... 38,673 41,376 43,926
Other ........................................... 27,912 14,071 --
International.................................... 52,366 49,234 45,024
Learning Company................................... 51,820 97,779 464,086
Operations......................................... 28,859 25,629 32,145
-------- -------- --------
Segment total.................................. 275,375 289,599 636,539
Corporate and other................................ 23,224 23,085 17,458
-------- -------- --------
Depreciation and amortization.................. $298,599 $312,684 $653,997
======== ======== ========
</TABLE>
- --------
* Included in depreciation and amortization are charges for tooling. Such
charges are allocated among segments based on a percentage of relative
sales.
F-43
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Toy Marketing segments sell a broad variety of children's toy products,
which are grouped into four major categories: Girls, Infant and Preschool,
Entertainment and Wheels. Learning Company is a leading publisher of consumer
software for the personal computer. The table below presents revenues from
external customers by category:
<TABLE>
<CAPTION>
For the Year
----------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Girls.................................... $2,082,841 $2,136,354 $2,217,400
Infant and Preschool..................... 1,635,286 1,684,196 1,739,900
Wheels................................... 759,813 714,506 590,700
Entertainment............................ 531,540 479,891 421,700
Other.................................... 44,408 64,869 185,817
---------- ---------- ----------
5,053,888 5,079,816 5,155,517
Sales adjustments........................ (309,426) (297,924) (320,901)
---------- ---------- ----------
Toy category........................... 4,744,462 4,781,892 4,834,616
Learning Company......................... 770,488 839,315 620,931
---------- ---------- ----------
Consolidated total....................... $5,514,950 $5,621,207 $5,455,547
========== ========== ==========
</TABLE>
The tables below present 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>
For the Year
--------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Net Sales
United States............................... $3,983,217 $3,998,823 $3,770,540
International............................... 1,531,733 1,622,384 1,685,007
---------- ---------- ----------
Consolidated total.......................... $5,514,950 $5,621,207 $5,455,547
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of Year End
--------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Long-Lived Assets
United States............................... $1,477,202 $1,580,625 $ 770,147
International............................... 675,202 635,238 518,198
---------- ---------- ----------
2,152,404 2,215,863 1,288,345
Corporate and other......................... 257,786 245,985 229,625
---------- ---------- ----------
Consolidated total.......................... $2,410,190 $2,461,848 $1,517,970
========== ========== ==========
</TABLE>
F-44
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit is granted to customers on an unsecured basis, and generally provides
for extended payment terms, which result in a substantial portion of trade
receivables being collected during the latter half of the year. Mattel's two
largest customers accounted for the following percentage of consolidated net
sales and net accounts receivable:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Worldwide sales for the year ended............................ 33% 28% 30%
Accounts receivable as of December 31......................... 27% 26% 36%
</TABLE>
F-45
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9--Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Year Ended December 31, 1999(a)
Net sales........................ $878,959 $1,040,154 $1,825,247 $1,770,590
Gross profit..................... 438,497 512,501 867,286 782,756
Advertising and promotion ex-
penses.......................... 116,759 136,475 296,436 396,285
Other selling and administrative
expenses........................ 259,494 245,134 331,934 354,353
Amortization of intangibles...... 23,009 19,419 22,765 26,654
Restructuring and other
charges(b)...................... 3,889 345,000 -- (2,893)
Other income, net................ (4,038) (3,961) (846) (5,694)
Income (loss) before income tax-
es.............................. 10,254 (261,880) 175,978 (35,095)
Net income (loss)................ 5,049 (204,334) 135,333 (18,421)
Preferred stock dividend require-
ments........................... (1,990) (1,990) -- --
Net income (loss) applicable to
common shares................... 3,059 (206,324) 135,333 (18,421)
Basic income (loss) per common
share:
Net income (loss).............. $ 0.01 $ (0.50) $ 0.32 $ (0.04)
Weighted average number of com-
mon shares.................... 396,480 409,040 425,148 425,680
Diluted income (loss) per common
share:
Net income (loss).............. $ 0.01 $ (0.50) $ 0.32 $ (0.04)
Weighted average number of
common and common equivalent
shares........................ 422,264 409,040 429,455 425,680
Dividends declared per common
share........................... $ 0.08 $ 0.09 $ 0.09 $ 0.09
Common stock market price:
High........................... $ 27.81 $ 29.00 $ 26.69 $ 16.88
Low............................ 21.50 22.88 19.00 11.81
Year Ended December 31, 1998(a)
Net sales........................ $884,500 $1,033,509 $1,884,843 $1,818,355
Gross profit..................... 439,888 509,240 996,090 968,085
Advertising and promotion ex-
penses.......................... 119,175 135,030 281,726 381,734
Other selling and administrative
expenses........................ 242,092 263,402 278,059 361,248
Amortization of intangibles...... 49,600 33,091 20,674 26,324
Charge for incomplete
technology(c)................... 40,000 16,826 -- --
Restructuring and other
charges(d)...................... 15,230 20,887 97,088 24,109
Other (income) expense, net(e)... (2,147) (7,922) 8,870 (11,893)
Income (loss) before income tax-
es.............................. (47,156) 29,757 267,327 141,704
Net income (loss)................ (55,957) 4,578 168,734 88,698
Preferred stock dividend require-
ments........................... (1,990) (1,990) (1,990) (1,990)
Net income (loss) applicable to
common shares................... (57,947) 2,588 166,744 86,708
Basic income (loss) per common
share:
Net income (loss).............. $ (0.15) $ 0.01 $ 0.42 $ 0.22
Weighted average number of com-
mon shares.................... 376,364 384,596 399,218 397,237
Diluted income (loss) per common
share:
Net income (loss).............. $ (0.15) $ 0.01 $ 0.39 $ 0.20
Weighted average number of
common and common equivalent
shares........................ 376,364 423,407 435,123 424,296
Dividends declared per common
share........................... $ 0.07 $ 0.08 $ 0.08 $ 0.08
Common stock market price:
High........................... $ 45.63 $ 43.63 $ 42.31 $ 39.63
Low............................ 35.63 36.00 28.00 21.69
</TABLE>
- --------
(a) Financial information for first quarter 1999 and full year 1998 has been
restated retroactively for the effects of the May 1999 merger with Learning
Company, accounted for as a pooling of interests.
F-46
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Represents integration and restructuring charges in the second quarter of
1999 related to the Learning Company merger, and other nonrecurring
charges. The nonrecurring credit for the fourth quarter of 1999 represents
net adjustments made to the restructuring and nonrecurring charges recorded
in the second quarter of 1999.
(c) Primarily represents the writeoff of products being developed by Mindscape,
Inc. and Sofsource, Inc. that had not reached technological feasibility as
of the dates of their acquisitions in the first and second quarters of
1998, respectively. These products had no alternative future use and
additional development costs would have been required to complete the
software technology.
(d) Includes restructuring charges in the third quarter related to the merger
with Broderbund, a nonrecurring charge in the third quarter related to a
voluntary recall of certain Power Wheels(R) ride-on vehicles, and a one-
time charge in the fourth quarter in connection with the Toys R Us-related
antitrust litigation settlement, which reduced diluted earnings per share
by $0.06 and $0.01, respectively.
(e) Includes unrealized foreign currency exchange losses in the third quarter
that were partially recovered in the fourth quarter.
Note 10--Supplemental Financial Information
<TABLE>
<CAPTION>
As of Year End
---------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Inventories include the following:
Raw materials and work in process..................... $ 48,569 $ 48,473
Finished goods........................................ 495,727 595,797
---------- ----------
$ 544,296 $ 644,270
========== ==========
Prepaid expenses and other current assets include the
following:
Deferred income taxes................................. $ 91,545 $ 215,370
Other................................................. 239,157 156,402
---------- ----------
$ 330,702 $ 371,772
========== ==========
Intangibles, net include the following:
Goodwill.............................................. $1,274,643 $1,335,183
Other................................................. 118,672 149,451
---------- ----------
$1,393,315 $1,484,634
========== ==========
Other assets include the following:
Deferred income taxes................................. $ 296,805 $ 55,342
Other................................................. 267,381 208,982
---------- ----------
$ 564,186 $ 264,324
========== ==========
Short-term borrowings include the following:
Notes payable......................................... $ 121,805 $ 121,006
Commercial paper...................................... 247,744 78,000
---------- ----------
$ 369,549 $ 199,006
========== ==========
Accrued liabilities include the following:
Advertising and promotion............................. $ 186,558 $ 164,543
Restructuring and other charges....................... 170,845 85,623
Royalties............................................. 109,399 112,839
Other................................................. 359,072 385,832
---------- ----------
$ 825,874 $ 748,837
========== ==========
</TABLE>
F-47
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For the Year
--------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Selling and administrative expenses include the
following:
Research and development.......................... $207,664 $274,820 $246,337
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................ $147,530 $124,087 $124,234
Income taxes.................................... 79,099 102,163 113,496
Noncash investing and financing activities:
Common stock issued for acquisitions:
Settlement of earn-out agreements............. $ 5,547 $ 5,572 $ 2,023
Sofsource, Inc. .............................. -- 45,000 --
Mindscape, Inc. .............................. -- 30,000 --
Other......................................... -- -- 7,321
Conversion of 5 -1/2% Notes..................... -- 96,695 202,033
Conversion of 7% Notes.......................... -- -- 16,034
Increase in paid-in capital due to value of in-
the-money employee stock options acquired in
connection with acquisitions................... -- -- 2,969
</TABLE>
Note 11--New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at fair value. It also
requires that gains or losses resulting from changes in the values of those
derivatives be accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. Mattel is required to adopt this statement
for its fiscal year beginning January 1, 2001. Management believes the adoption
of this statement will not have a material impact on Mattel's consolidated
financial position or results of operations.
F-48
<PAGE>
SCHEDULE II
MATTEL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
(In thousands)
<TABLE>
<CAPTION>
Balance
at Additions Balance
Beginning Charged to Net at End
of Year Operations Deductions of Year
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended December 31, 1999.... $125,077 $386,497 $(282,339)(a) $229,235
Year Ended December 31, 1998.... 78,380 161,804 (115,107)(a) 125,077
Year Ended December 31, 1997.... 63,811 104,695 (90,126)(a) 78,380
Allowance for Inventory
Obsolescence
Year Ended December 31, 1999.... $ 70,169 $ 58,298 $ (82,139)(b) $ 46,328
Year Ended December 31, 1998.... 46,610 69,842 (46,283)(b) 70,169
Year Ended December 31, 1997.... 46,753 56,180 (56,323)(b) 46,610
</TABLE>
- --------
(a) Includes write-offs, recoveries of previous write-offs, and currency
translation adjustments. Increase in additions charged to operations from
1998 to 1999 is due to bad debt expense recorded by Learning Company
related to certain of its distributors. Increase in net deductions from
1998 to 1999 is due to transfers to legal reserve for insolvent customers.
Increase in net deductions from 1997 to 1998 is due to beginning balances
from acquired companies and transfers to legal reserve for insolvent
customers.
(b) Primarily represents relief of previously established reserves resulting
from the disposal of related inventory, raw materials, write-downs and
currency translation adjustments, partially offset by beginning balances
from acquired companies.
S-1
<PAGE>
EXHIBIT 3.3
MATTEL, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
---------------------------
An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such place,
on such date, and at such time as the Board of Directors shall each year fix,
which date shall be within thirteen months subsequent to the later of the date
of incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
-----------------------------
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of Directors
or the chief executive officer and shall be held at such place, on such date,
and at such time as they or he shall fix.
Section 3. Notice of Meetings.
-------------------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held to each stockholder
entitled to vote at such meeting, except as otherwise provided herein, in the
Restated Certificate of Incorporation or required by law.
When a meeting is adjourned to another place, date, or time, written
notice need not be given of the adjourned meeting if the place, date, and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
-------------------
At any meeting of the stockholders, the holders of a majority of all
of the shares of the stock entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of the stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
-------------------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the highest ranking officer of the corporation who is
present shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary of the corporation, the
secretary of the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------------------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.
Section 7. Proxies and Voting.
-------------------------------
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law. As provided by the
Certificate of Incorporation, at all elections of directors each stockholder who
is entitled to vote shall be entitled to as many votes as shall equal the number
of votes which (except for the provisions as to cumulative voting contained in
the Certificate of Incorporation) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected, and he may cast all of such votes for a single director
or may distribute them among the number to be voted for, or for any two or more
of them as he may see fit.
All voting, except for the election of directors and where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or his proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. Every vote
2
<PAGE>
taken by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law, all other matters shall be determined
by a majority of the votes cast.
Section 8. Stock List.
-----------------------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
name, shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
Section 9. Business Brought Before the Meeting,
------------------------------------------------
At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting or any adjournment
thereof (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the corporation who is entitled to vote with respect thereto and
who complies with the notice procedures set forth in this Section 9. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered or
mailed to and received at the principal executive offices of the corporation not
less than thirty (30) days prior to the date of the annual meeting the close of
business on the 90/th/ day nor earlier than the 120/th/ day prior to the
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 days before or
more than 60 days after such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the
120/th/ day prior to such annual meeting and not later than the 90/th/ day prior
to such annual meeting or the 10/th/ day following the day on which public
announcement of the date of such meeting is first made by the corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. ("Public announcement" means disclosure in a press release, national news
service or in a document publicly filed by the corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended). A stockholder's notice to the Secretary shall
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be
3
<PAGE>
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation's capital stock that are beneficially
owned by such stockholder, and (iv) any material interest of such stockholder in
such business, and (v) if the stockholder intends to solicit proxies in support
of such stockholder's proposal, a representation to that effect; provided,
---------
however, that compliance by such stockholder with the notice provisions and
- --------
other requirements in this Section 9 shall not create a duty of the corporation
to include such stockholder's business or proposal in the corporation's proxy
statement or proxy, and notwithstanding such compliance the corporation shall
retain such discretion as it has to omit such business or proposal from such
proxy statement or proxy or both. Notwithstanding anything in the Bylaws to the
contrary, no business shall be brought before or conducted at an annual meeting
(i) except in accordance with the provisions of this Section 9 or (ii) if the
stockholder solicits proxies in support of such stockholder's proposal made the
representation required by clause (v) of the preceding sentence. The officer of
the corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting or any adjournment thereof in accordance
with the provisions of this Section 9 and, if he or she should so determine, he
or she shall so declare to the meeting and any such business so determined to be
not properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
Section 10. Nomination for Election to Board.
----------------------------------------------
Only persons who are properly nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders or any adjournment thereof
at which directors are to be elected only (i) by or at the direction of the
Board of Directors (ii) by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 10. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made by timely
pursuant to timely and complete notice in writing to the Secretary of the
corporation. For elections at an annual meeting, to be timely, a stockholder's
notice must be delivered or mailed to and received at the principal executive
offices of the corporation not later than the close of business on the 90/th/
day nor earlier than the 120/th/ day prior to the anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 120/th/ day prior to such annual
meeting and not later than the 90/th/ day prior to such annual meeting or the
10/th/ day following the day on which public announcement of the date of such
meeting is first made by the corporation. In the event the corporation calls a
special meeting of the stockholders for the purpose of electing one or more
directors to the Board of Directors, a stockholder may
4
<PAGE>
nominate a person or persons (as the case may be), for election to such position
(s) as specified in the corporation's notice of meeting, if the stockholder's
notice shall be delivered or mailed to and received at the principal executive
offices of the corporation not earlier than the close of business on the 120/th/
day prior to such special meeting and not later than the close of business on
the later of the 90/th/ day prior to such meeting or the 10/th/ day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an adjournment of an
annual or special meeting commence a new time period for the giving of a
stockholder's notice as described above. ("Public announcement" is defined in
Section 9 herein. Such stockholder's notice shall set forth be complete
provided it sets forth (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
as to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the corporation's books,
of such stockholder and (y) class and number of shares of the corporation's
capital stock that are beneficially owned by such stockholder. (a) the name,
age, business address and residence address of the person, (b) the principal
occupation or employment of the person, (c) the class and number of shares of
capital stock of the corporation which are owned directly or beneficially by the
person, (d) a statement as to the person's citizenship, and (e) such person's
written consent to serve as a director if elected; (ii) as to the stockholder
giving the notice (a) the name and address, as they appear on the corporation's
books, of such stockholder and (b) the class and number of shares of the
corporation's stock which are owned by such stockholder, and (iii) if the
stockholder intends to solicit proxies in support of such stockholder's
nominee(s), a representation to that effect; provided, however, that compliance
------------------
by a stockholder with the notice provisions and other requirements in this
Section 10 shall not create a duty of the corporation to include the
stockholder's nominee in the corporation's proxy statement or proxy if the
stockholder's nominee is not nominated by the Board of Directors, and the
corporation shall retain any discretion it has to omit the nominee from the
corporation's proxy statement and proxy. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the provisions of this Section
10. The officer of the corporation or other person presiding at the meeting
shall, if the facts so warrant, determine and declare to the meeting that a
nomination made at the meeting or any adjournment thereof was not made in
accordance with the provisions of this Section 10, with law or rules applicable
to the meeting, or if the stockholder solicits proxies in support of such
stockholder's nominee(s) without such stockholder having made the representation
required by clause (iii) of this Section 10, and if he or she should so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 11. Inspectors of Written Consent
------------------------------------------
In the event of the delivery, in the manner provided by ARTICLE V,
Section 3(b), to the corporation of the requisite written consent or consents to
take corporate action and/or any related revocation or revocations, the
corporation shall engage nationally recognized independent inspectors of
elections for the purpose of promptly performing a ministerial review of the
validity of the consents and revocations. For the purpose of permitting the
inspectors to perform such review, no action by written consent without a
5
<PAGE>
meeting shall be effective until such date as the independent inspectors certify
to the corporation that the consents delivered to the corporation in accordance
with ARTICLE V, Section 3(b) represent at least the minimum number of votes that
would be necessary to take the corporation action. Nothing contained in this
paragraph shall in any way be construed to suggest or imply that the Board of
Directors or any stockholder shall not be entitled to contest the validity of
any consent or revocation thereof, whether before or after such certification by
the independent inspectors, or take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
Section 12. Effectiveness of Written Consent
--------------------------------------------
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days of the date
the earliest dated written consent was received in accordance with ARTICLE V,
Section 3(b), a written consent or consents signed by a sufficient number of
holders to take such action are delivered to the corporation in the manner
prescribed in ARTICLE V, Section 3(b).
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number and Term of Office.
--------------------------------------
The Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by resolution of the Board of
Directors. Each director shall hold office until the annual meeting of
stockholders next succeeding his election and until his successor is elected and
qualified, except as otherwise provided herein or required by law.
The Chairman of the Board of Directors, if there be one, shall be a
director and shall serve as Chairman of the Board of Directors at the pleasure
of the Board of Directors. The Chairman of the Board of Directors shall preside
at all meetings of the stockholders and of the Board of Directors. The Chairman
of the Board of Directors shall also perform such other duties and may exercise
such other powers as may from time to time be assigned by these Bylaws or by the
Board of Directors. If there shall be no Chairman of the Board of Directors,
the Board may designate a director to act in place of a Chairman of the Board of
Directors for any purpose.
Whenever the authorized number of directors is increased between
annual meetings of the stockholders, a majority of the directors then in office
shall have the power to elect such new directors for the balance of a term and
until their successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until the expiration
of the term of the directors then in office unless, at the time of such
decrease, there shall be vacancies on the board which are being eliminated by
the decrease.
Section 2. Vacancies.
----------------------
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his successor is elected and
qualified.
Section 3. Regular Meetings.
-----------------------------
6
<PAGE>
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
-----------------------------
Special meetings of the Board of Directors may be called by one-third
of the directors then in office or by the chief executive officer and shall be
held at such place, on such date, and at such time as they or he shall fix.
Notice of the place, date and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not less than
three days before the meeting or by telegraphing, sending by facsimile
transmission or by electronic mail the same not less than eighteen hours before
the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 5. Quorum.
-------------------
At any meeting of the Board of Directors, one-third of the total
number of the whole board, but not less than two, shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Conduct of Business.
--------------------------------
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 7. Powers.
-------------------
The Board of Directors may, except as otherwise required by law,
exercise all such power and do all such acts and things as may be exercised or
done by the corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or
7
<PAGE>
non-negotiable, secured or unsecured, and to do all things necessary
in connection therewith;
(4) To remove any officer of the corporation with or without
cause, from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(5) To confer upon any officer of the corporation the power to
appoint, remove and suspend subordinate officers and agents;
(6) To adopt from time to time such bonus or other
compensation plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the corporation's business
and affairs.
Section 8. Compensation of Directors.
--------------------------------------
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
directors.
Section 9. Action without Meeting.
-----------------------------------
Any action required or permitted to be taken at any meeting of the
Board of Directors or of any Committee thereof may be taken without a meeting if
all members of the Board or Committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or Committee.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
-------------------------------------------------
The Board of Directors, by a vote of a majority of the whole Board,
may from time to time designate committees of the Board, including an
Executive/Finance Committee, with the powers and duties it thereby confers, to
serve at the pleasure of the Board and shall, for those committees and any
others provided for herein, elect the director or directors to serve as the
member or members, designating, if it desires, other directors as alternate
members
8
<PAGE>
who may replace any absent or disqualified member at any meeting of the
committee. Committees other than the Executive/Finance Committee may have only
one member. In the absence or disqualification of any member of any committee
and any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may by unanimous vote appoint another member of the
Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 2. Executive/Finance Committee.
----------------------------------------
If the Board of Directors shall designate an Executive/Finance
Committee, said Committee shall have the following powers:
During the intervals between meetings of the Board of Directors, that
Committee shall have all of the powers and duties of the Board of Directors,
except with respect to matters delegated to another committee and except as
shall have been otherwise provided by the Board of Directors. All action taken
by the Executive/Finance Committee since the last meeting of the Board of
Directors shall be reported to the Board at its next meeting.
During the intervals between meetings of the Executive/Finance
Committee, the chairman thereof shall have such of the powers and duties of such
Committee as shall have been conferred upon him by the Board of Directors or the
Committee.
Section 3. Conduct of Business.
--------------------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third of the members, but not less
than two, shall constitute a quorum; and all matters shall be determined by a
majority vote of the members present.
Section 4. Emergency Management Committee.
-------------------------------------------
If as a result of a catastrophe or other emergency condition a quorum
of any committee of the Board of Directors having power to act in the premises
cannot readily be convened and a quorum of the Board of Directors cannot readily
be convened, then all the powers and duties of the Board of Directors shall
automatically vest and continue, until a quorum of the Board of Directors can be
convened, in the Emergency Management Committee, which shall consist of all
readily available members of the Board of Directors and two of whose members
shall constitute a quorum. The Emergency Management Committee shall call a
meeting of the Board of Directors as soon as circumstances permit for the
purpose of filling any vacancies on the Board of Directors and its committees
and taking such other action as may be appropriate.
9
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
----------------------
The officers shall consist of a Chief Executive Officer, a President,
one or more Vice Presidents (who may at the pleasure of the Board of Directors
be designated as Senior Vice Presidents, Executive Vice Presidents, Vice
Presidents in charge of a particular function such as Vice President-
Administration, or merely Vice President), a Secretary, a Treasurer, a
Controller, and such assistants to such officers as may from time to time be
appointed by the Board of Directors.
Officers shall be elected by the Board of Directors, which shall
consider that subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold his office at the pleasure of the Board of
Directors and until his successor is elected and qualified or until his earlier
resignation or removal. Any number of offices may be held by the same person.
The Board of Directors may appoint such other officers as the business
of the corporation may require, each of whom shall have such authority and
perform such duties as are provided in these Bylaws or as the Board of Directors
or the Chief Executive Officer may from time to time specify.
Section 2. Chief Executive Officer
-----------------------------------
Subject to the provisions of these Bylaws and to the direction of the
Board of Directors, the Chief Executive Officer of the Corporation shall have
the responsibility for the general management and control of the affairs and
business of the corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him by the Board of Directors.
The Chief Executive Officer shall have power to sign all stock
certificates, contracts and other instruments of the corporation which are
authorized. He shall have general supervision and direction of all of the other
officers and agents of the corporation.
Section 3. President.
----------------------
The President shall have such duties and powers as may from time to
time be delegated to him by the Board of Directors or by the Chief Executive
Officer. In the absence or disability of the Chief Executive Officer, or during
the period of a vacancy in that office, he shall act as the chief executive
officer of the corporation and shall have the duties and powers of such office.
10
<PAGE>
Section 4. Vice Presidents.
----------------------------
Each of the Vice Presidents shall have such duties and powers as may
from time to time be delegated to him by the Board of Directors, by the Chief
Executive Officer, or by the President. In the absence or disability of the
President, the Vice President designated by:
(a) the Board of Directors, or if no such designation is made, then by
(b) the Chief Executive Officer, or if no such designation is made, then
by
(c) the President
shall have the duties and powers of the President.
Section 5. The Treasurer.
--------------------------
The Treasurer shall have the custody of all monies and securities of
the corporation and shall keep regular books of account. He shall make such
disbursement of the funds of the corporation as are proper and shall render from
time to time an account of all such transactions and of the financial condition
of the corporation. He shall have such other duties and powers as are commonly
incident to this office or are delegated to him by the Board of Directors, by
the Chief Executive Officer, or by the President.
Section 6. The Secretary.
--------------------------
The Board of Directors shall appoint a Secretary or, at its
discretion, more than one Secretary, each of whom shall have such duties and
other powers as are commonly incident to this office or are delegated to him or
her by the Board of Directors, by the Chief Executive Officer, or by the
President. A Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. A
Secretary shall have charge of the corporate books.
Section 7. Delegation of Authority.
------------------------------------
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officer or agents, notwithstanding any
provision hereof.
Section 8. Removal.
--------------------
Any officer of the corporation may be removed at any time, with or
without cause, by the Board of Directors.
Section 9. Action with Respect to Securities of Corporation.
-------------------------------------------------------------
11
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Unless otherwise directed by the Board of Directors, the Chief
Executive Officer and the President, and each of them, shall have power to vote
and otherwise act on behalf of the corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this corporation may hold securities and otherwise to
exercise any and all rights and powers which this corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
----------------------------------
Each stockholder shall be entitled to a certificate signed by, or in
the name of the corporation by, the Chief Executive Officer, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him. Signatures required on such certificates may be manually signed by the
transfer agent, registrar or officer, or such signatures may be facsimile.
Section 2. Transfer of Stock.
------------------------------
Transfers of stock shall be made only upon the transfer books of the
corporation kept at an office of the corporation or by transfer agents
designated to transfer shares of the stock of the corporation. Except where a
certificate is issued in accordance with Section 4 of ARTICLE V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Dates.
-------------------------
(a) The Board of Directors may fix a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of any meeting
of stockholders, nor more than sixty (60) days prior to the time for the other
action hereinafter described (except as otherwise set forth in paragraph (b) of
this Section), as of which there shall be determined the stockholders who are
entitled: to notice of or to vote at any meeting of stockholders or any
adjournment thereof; to receive payment of any dividend or other distribution or
allotment of any rights; or to exercise any rights with respect to any change,
conversion or exchange of stock or with respect to any other lawful action.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or
12
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take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within ten (10) days
of the date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or any officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the date on which the Board of Directors adopts the
resolution taking such prior action.
Section 4. Lost, Stolen or Destroyed Certificates.
---------------------------------------------------
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
------------------------
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - INDEMNIFICATION
Section 1. Right to Indemnification.
-------------------------------------
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or person of whom he or she is the legal
representative, is or was a director or officer of the corporation, including
when any such director or officer is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director,
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officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment) against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 2 of this
-----------------
ARTICLE VI, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the corporation
within 20 days after the receipt by the corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that, if the Delaware General Corporation Law requires, the
- -----------------
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise.
Section 2. Right of Claimant to Bring Suit.
--------------------------------------------
If a claim under Section 1 of this ARTICLE VI, is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not
14
<PAGE>
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
Section 3. Non-Exclusivity of Rights.
--------------------------------------
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
ARTICLE VI shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or otherwise. No repeal
or modification of this ARTICLE VI shall in any way diminish or adversely affect
the rights of any director, officer, employee or agent of the corporation
hereunder in respect of any occurrence or matter arising prior to any such
repeal or modification.
Section 4. Insurance.
----------------------
The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law. To the extent that the
corporation maintains any policy or policies providing such insurance, each such
director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in Section 7 of this ARTICLE VI,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
Section 5. Procedures for Indemnification
------------------------------------------
To obtain indemnification under this ARTICLE VI, a claimant shall
submit to the corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this Section 5, a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by independent legal counsel ( as hereinafter defined), or (2) if no request is
made by the claimant for a determination by independent legal counsel, (i) by
the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the
Board of Directors consisting of Disinterested Directors is not obtainable or,
even if obtainable, such quorum of Disinterested Directors so directs, by
independent legal counsel in a written opinion to the Board of Directors, a copy
of which shall be delivered to the claimant, or (iii) if a quorum of
Disinterested Directors so directs, by the stockholders of the corporation. In
the event the determination of entitlement to indemnification is to be made by
independent legal counsel at the request of the claimant, the independent legal
counsel shall be selected by the Board of
15
<PAGE>
Directors unless there shall have occurred within two years prior to the date of
the commencement of the action, suit or proceeding for which indemnification is
claimed a Change of Control (as hereinafter defined), in which case the
independent legal counsel shall be selected by the claimant unless the claimant
shall request that such selection be made by the Board of Directors. If it is so
determined that the claimant is entitled to indemnification, payment to the
claimant shall be made within 10 days after such determination.
Section 6. Effect and Validity
-------------------------------
If a determination shall have been made pursuant to ARTICLE VI,
Section 5 that the claimant is entitled to indemnification, the corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to ARTICLE VI, Section 2. The corporation shall be precluded from
asserting in any judicial proceeding commenced pursuant to ARTICLE VI, Section 2
that the procedures and presumptions of this ARTICLE VI are not valid, binding
and enforceable and shall stipulate in such proceeding that the corporation is
bound by all the provisions of this ARTICLE VI.
If any provision or provisions of this ARTICLE VI shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this ARTICLE VI
(including, without limitation, each portion of any paragraph of this ARTICLE VI
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this ARTICLE VI (including, without limitation, each such portion
of any paragraph of this ARTICLE VI containing any such provision held to be
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 7. Employees and Agents
--------------------------------
The corporation may grant rights to indemnification, and rights to be
paid by the corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any employee or agent of the corporation,
including when any such person is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the
corporation, to the fullest extent of the provision of this ARTICLE VI with
respect to the indemnification and advancement of expenses of directors and
officers of the corporation.
Section 8. Definitions
-----------------------
For purposes of this ARTICLE VI:
(a) "Change of Control" means (i) The acquisition by any individual,
entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of
16
<PAGE>
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the
corporation (the "Outstanding Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the corporation entitled to vote
generally in the election of directors (the "Outstanding voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the corporation, (ii) any acquisition by the corporation, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the corporation or any corporation controlled by the corporation
or (iv) any acquisition pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (a) (iii) of this Section 7; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the corporation's stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as through such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors; or
(iii) Consummation by the corporation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the corporation or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individual and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the corporation or all or substantially all of the
corporation's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership immediately prior to such
Business Combination of the Outstanding Common Stock and Outstanding Voting
Securities, as the case may be, (B) no Person (excluding any employee benefit
plan (or related trust) of the corporation or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and (C)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination
17
<PAGE>
were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing for such
Business Combination; or
(iv) Approval by the stockholders of the corporation of a complete
liquidation or dissolution of the corporation.
(b) "Disinterested Director" means a director of the corporation who is
not and was not a party to the matter in respect of which
indemnification is sought by the claimant.
(c) "independent legal counsel" means a law firm, a member of a law firm,
or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable
standards of professional conduct then prevailing, would not have a
conflict of interest in representing either the corporation or the
claimant in an action to determine the claimant's rights under this
ARTICLE VI."
ARTICLE VII - NOTICES
Section 1. Notices.
--------------------
Whenever notice is required to be given to any stockholder, director,
officer, or agent, such requirement shall not be construed to mean personal
notice. Such notice may in every instance be effectively given by depositing a
writing in a post office or letter box, in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram, addressed to such stockholder, director,
officer, or agent at his or her address as the same appears on the books of the
corporation. The time when such notice is dispatched shall be the time of the
giving of the notice.
Section 2. Waivers.
--------------------
A written waiver of any notice, signed by a stockholder, director,
officer or agent, whether before or after the time of the event for which notice
is to be given, shall be deemed equivalent to the notice required to be given to
such stockholder, director, officer, or agent. Neither the business nor the
purpose of any meeting need be specified in such a waiver.
18
<PAGE>
ARTICLE VIII - MISCELLANEOUS
Section 1. Facsimile Signatures.
---------------------------------
In addition to the provisions for the use of facsimile signatures
elsewhere specifically authorized in these bylaws, facsimile signatures of any
officer or officers of the corporation may be used whenever and as authorized by
the Board of Directors or the Executive Committee.
Section 2. Corporate Seal.
---------------------------
The Board of Directors shall provide a suitable seal, containing the
name of the corporation, which seal shall be in charge of the Secretary. If and
when so directed by the Board of Directors or by the Executive Committee,
duplicates of the seal may be kept and used by the Treasurer or by any Assistant
Secretary or Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
-----------------------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the corporation shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
other records of the corporation, including reports made to the corporation by
any of its officers, by an independent certified public accountant, or by an
appraiser selected with reasonable care.
Section 4. Fiscal Year.
------------------------
The fiscal year of the corporation shall terminate at the end of
business on December 31 in each year, and the following year shall begin on the
next day thereafter.
Section 5. Time Periods.
-------------------------
In applying any provision of these Bylaws which require that an act be
done or not done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to any event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.
Section 6. Independent Accountants.
------------------------------------
The Board of Directors shall appoint on an annual basis such firm of
independent public accountants as it shall deem appropriate to examine the
Company's financial books and records on at least an annual basis. The
appointment of said independent accountants shall, at the next succeeding annual
meeting of stockholders be presented to the stockholders of the Company for
ratification. Should the stockholders fail to ratify the appointment by the
Board of
19
<PAGE>
Directors of said independent public accountants, the Board of Directors shall
take the matter under consideration and the vote of the stockholders in that
regard shall be deemed advisory in nature.
Section 7. Gender.
-------------------
Any reference to the masculine gender in these Bylaws shall be
construed to mean the feminine gender, as the situation may demand.
ARTICLE IX - AMENDMENTS
Section 1. Amendments.
-----------------------
These Bylaws may be amended or repealed by the Board of Directors at
any meeting or by the stockholders at any meeting.
20
<PAGE>
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into on
January 31, 2000 and effective as of April 1, 1999 (the "Effective Date")
between Mattel, Inc., a Delaware corporation ("Mattel") and Adrienne Fontanella
(the "Executive").
1. Employment Period. Mattel hereby agrees to employ and continue in its
-----------------
employ the Executive, and the Executive hereby accepts such employment and
agrees to remain in the employ of Mattel, for the period commencing on the
Effective Date and ending on the third anniversary of such date, subject to
earlier termination as provided herein (the "Employment Period"); provided that
commencing on the first day of the month next following the effective date
hereof, and on the first day of each month thereafter (the most recent of such
dates is hereinafter referred to as the "Renewal Date"), the Employment Period
shall be automatically extended so as to terminate three years from such Renewal
Date, unless at least 60 days prior to any Renewal Date Mattel or the Executive
shall give notice to the other that the Employment Period shall not be so
extended and shall be terminated.
2. Duties.
------
(a) Executive's Position and Duties. During the Employment Period, the
-------------------------------
Executive's position (including title(s), which is currently President of
Girls/Barbie of Mattel), authority and responsibilities shall be similar to
those held by the Executive on the date hereof with such additions and
modifications, and consistent with responsibilities generally assigned to
officers of Mattel as the Chief Executive Officer of Mattel may in her
discretion and acting in good faith from time to time assign to the Executive.
The Executive's services shall be performed in the greater Los Angeles,
California area, provided, however, that the Executive may be required to travel
on business from time to time generally consistent with the Executive's travel
requirements as of the date of this Agreement.
(b) Full Time. The Executive agrees to devote the Executive's full
---------
business time to the business and affairs of Mattel and to use the Executive's
best efforts to perform faithfully and efficiently the responsibilities assigned
to the Executive hereunder to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities which services have been approved by the Chief Executive
Officer; (ii) periods of vacation and sick leave to which the Executive is
entitled; and (iii) the management of personal investments and affairs. The
Executive will not engage in any outside business activity (as distinguished
from personal investment activity and affairs), including, but not limited to,
activity as a consultant, agent, partner or officer, director or provide
business services of any nature directly or indirectly to a corporation or other
business enterprise, except that the Executive may continue to serve as an
officer and/or director of January Productions, Inc.
<PAGE>
3. Compensation and Benefits.
-------------------------
(a) Base Salary. During the Employment Period, the Executive shall
-----------
receive a base salary ("Base Salary") at a bi-weekly rate at least equal to the
bi-weekly salary paid to the Executive by Mattel on the date of this Agreement.
The Base Salary shall be reviewed from time to time in accordance with Mattel's
policies and practices, but no less frequently than once every eighteen (18)
months and may be increased at any time and from time to time by action of the
Board of Directors of Mattel or the Compensation/Options Committee thereof or
any individual having authority to take such action in accordance with Mattel's
regular practices. Any increase in the Base Salary shall not serve to limit or
reduce any other obligation of Mattel hereunder and, after any such increase,
the Base Salary shall not be reduced.
(b) Bonus Programs. In addition to the Base Salary, the Executive shall
--------------
be eligible to participate throughout the Employment Period in such cash,
deferred bonus, annual bonus and long term bonus plans and programs ("Bonus
Programs"), such as Mattel's Management Incentive Plan (the "MIP") and Long Term
Incentive Plan (the "LTIP"), as may be in effect from time to time in accordance
with Mattel's compensation practices and the terms and provisions of any such
plans or programs as in effect from time to time; provided that the Executive's
eligibility for and participation in each of the Bonus Programs shall be at a
level and on terms and conditions no less favorable than those available to any
other comparably situated executive or consultant.
(c) Incentive Plans. In addition to the Base Salary and participation in
---------------
the Bonus Programs, during the Employment Period the Executive, shall be
eligible to participate, subject to the terms and conditions thereof, in all
incentive plans and programs, including, but not limited to, stock option plans
and other equity based incentive plans, as may be in effect from time to time
with respect to executives employed by Mattel at the Executive's level so as to
reflect the Executive's responsibilities.
(d) Pension and Welfare Benefit Plans. During the Employment Period, the
---------------------------------
Executive and/or the Executive's dependents, as the case may be, shall be
eligible to participate in, subject to the terms and conditions thereof, all
pension, profit sharing, medical, dental, disability, group life, accidental
death and travel accident insurance plans and programs of Mattel as in effect
from time to time with respect to executives employed by Mattel at the
Executive's level so as to reflect the Executive's responsibilities.
(e) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the policies and practices of Mattel as in
effect from time to time.
(f) Fringe Benefits. During the Employment Period, the Executive shall
---------------
be entitled to fringe benefits (including automobile benefits, financial
counseling, membership in
2
<PAGE>
one city or country club and related expenses) of the kind and quality which are
provided to executives at the Executive's level in accordance with the policies
of Mattel as in effect from time to time with respect to executives employed by
Mattel at the Executive's level so as to reflect the Executive's
responsibilities.
(g) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the policies and practices of
Mattel as in effect from time to time.
(h) Stock Options. During the Employment Period, the Executive shall be
-------------
entitled to participate in Mattel's stock option plans in accordance with the
policies and practices of Mattel as in effect from time to time with respect to
executives employed by Mattel at the Executive's level so as to reflect the
Executive's responsibilities.
(i) Certain Amendments. Nothing herein shall be construed to prevent
------------------
Mattel from amending, altering, eliminating or reducing any plans, benefits or
programs set forth in Sections 3(b) through (h) so long as such actions do not
result in a material diminution in the aggregate value of such compensation and
benefits, except for across-the-board compensation and benefit reductions to
which the Executive agrees and which affect all similarly situated executives of
Mattel.
(j) Retention Loan. Mattel and the Executive have entered into that
--------------
certain Loan Agreement (the "Loan Agreement") dated as of October 29, 1999,
which provided, among other things, that the definitions of "Cause," "Change of
Control," "Disability" and "Good Reason" contained in this Agreement supercede
the definitions of such terms as set forth in the Loan Agreement.
(k) Travel and Relocation. In order to defray the expense of travel
---------------------
between New York and California by the Executive's spouse, Mattel shall
reimburse the Executive for the cost of twenty-four (24) round-trip business
class tickets for a two year period beginning as of the date this Agreement is
entered into. In addition, in the event that the Executive's employment is
terminated by Mattel other than for Cause or Disability or if the Executive
terminates employment with Mattel for Good Reason or after a Change of Control,
and if the Executive relocates to New York, New York, Mattel shall reimburse the
Executive for the costs incurred by the Executive in relocating from Los
Angeles, California to New York, New York pursuant to Mattel's relocation policy
for senior executives, as it may be in effect from time to time with respect to
executives employed by Mattel at the Executive's level, provided, however that
in event of a Change of Control, such benefits shall not be less in the
aggregate than the benefits which would have been provided to the Executive
under Mattel's relocation policy as it was in effect immediately prior to the
Change of Control.
3
<PAGE>
4. Termination.
-----------
(a) Death or Disability. This Agreement shall terminate automatically
-------------------
upon the Executive's death; provided that the Executive's Base Salary will be
continued and paid for a period of six months thereafter. Mattel may terminate
this Agreement, after having established the Executive's Disability, by giving
to the Executive written notice of its intention to terminate the Executive's
employment, and the Executive's employment with Mattel shall terminate effective
on the 90th day after receipt of such notice (the "Disability Effective Date").
For purposes of this Agreement, the Executive's Disability shall occur and shall
be deemed to have occurred only in the event that the Executive suffers a
disability due to illness or injury which substantially and materially limits
the Executive from performing each of the essential functions of the Executive's
job, even with reasonable accommodation and becomes entitled to receive
disability benefits under the Mattel Long-Term Disability Plan for exempt
employees.
(b) Cause. Mattel may terminate the Executive's employment for "Cause"
-----
upon a determination of the Chief Executive Officer of Mattel that "Cause"
exists. For purposes of this Agreement, "Cause" means (i) one or more factually
substantiated willful acts of dishonesty on the Executive's part which are
intended to result in the Executive's substantial personal enrichment at the
expense of Mattel; (ii) repeated violations by the Executive of the Executive's
obligations under Section 2 of this Agreement which are demonstrably willful and
deliberate on the Executive's part and which resulted in material injury to
Mattel; (iii) conduct of a factually substantiated criminal nature (commonly
defined as a "felony" in criminal statutes) which has or which is more likely
than not to have a material adverse effect on Mattel's reputation or standing in
the community or on its continuing relationships with its customers or those who
purchase or use its products; or (iv) factually substantiated fraudulent conduct
in connection with the business or affairs of Mattel, regardless of whether said
conduct is designed to defraud Mattel or others; provided that, in each case,
the Executive has received written notice of the described activity, has been
afforded a reasonable opportunity to cure or correct the activity described in
the notice, and has failed to substantially cure, correct or cease the activity,
as appropriate.
(c) Good Reason. The Executive may terminate the Executive's employment
-----------
at any time for Good Reason. For purposes of this Agreement, "Good Reason" means
the good faith determination by the Executive that any one or more of the
following have occurred:
(i) without the express written consent of the Executive, any
change(s) in any of the duties, authority, or responsibilities of the Executive
which is (are) inconsistent in any substantial respect with the Executive's
position, authority, duties, or responsibilities as contemplated by Section 2 of
this Agreement;
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(ii) any failure by Mattel to comply with any of the provisions of
Section 3 of this Agreement, other than an insubstantial and inadvertent failure
remedied by Mattel promptly after receipt of notice thereof given by the
Executive;
(iii) any proposed termination by Mattel of the Executive's
employment other than as permitted by this Agreement;
(iv) any failure by Mattel to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 11(b); or
(v) transferring the Executive outside of the greater Los Angeles,
California area without the Executive's express written consent.
(d) Change of Control. "Change of Control" means:
-----------------
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of Mattel, including the
shares of common stock of Mattel issuable upon an exchange of Softkey
Exchangeable Shares that are not owned by Mattel or any corporation controlled
by Mattel (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Mattel entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i), the
following shall not constitute a Change of Control: (a) any acquisition directly
from Mattel, (b) any acquisition by Mattel or any corporation controlled by
Mattel, (c) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Mattel or any corporation controlled by Mattel, (d)
any acquisition by a Person of 20% of either the Outstanding Company Common
Stock or the Outstanding Company Voting Securities as a result of an acquisition
of common stock of Mattel by Mattel or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of Mattel or Softkey
Exchangeable Shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting Securities; provided,
however, that if a Person shall become the beneficial owner of 20% or more of
either the Outstanding Company Common Stock or the Outstanding Company Voting
Securities by reason of a share acquisition by Mattel or by Softkey as described
above and shall, after such share acquisition by Mattel or Softkey, become the
beneficial owner of any additional shares of common stock of Mattel, then such
acquisition shall constitute a Change of Control or (e) any acquisition pursuant
to a transaction which complies with clauses (a), (b) and (c) of subsection
(iii) of this Section 4(d); provided, further, however, that for purposes of
this subsection (i), any Investing Person (as such term is defined in the Rights
Agreement) shall be deemed not to be a beneficial owner of any Investment Shares
(as such term is defined in the Rights Agreement) and the holder of the
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Mattel Special Voting Preferred Share (as such term is defined in the Rights
Agreement) shall be deemed not to be a beneficial owner of such Mattel Special
Voting Preferred Share; or
(ii) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
Mattel's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as through
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) consummation by Mattel of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Mattel or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (a)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns Mattel or all or substantially all of Mattel's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (b) no Person (excluding any employee benefit plan (or
related trust) of Mattel or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding share of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (c) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of Mattel of a complete
liquidation or dissolution of Mattel.
For the purposes of this Section 4(d), (a) "Rights Agreement" means the
Rights Agreement, dated as of February 7, 1992, as amended by an amendment dated
as of May 13, 1999 and an amendment dated as of November 4, 1999 by and between
Mattel and BankBoston
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N.A., a national banking association, formerly, The First National Bank of
Boston, and not giving effect to any amendments subsequent to November 4, 1999,
(b) "Softkey" means Softkey Software Products Inc., an Ontario corporation, and
(c) "Softkey Exchangeable Shares" means the Exchangeable Shares in the capital
stock of Softkey.
(e) Notice of Termination. Any termination of the Executive's employment
---------------------
by Mattel for Cause or following a Change of Control or by the Executive for
Good Reason shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 15(b). Any termination by Mattel due to
Disability shall be given in accordance with Section 4(a). For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon; (ii) except in
the event of a termination following a Change of Control, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated; and
(iii) specifies the Date of Termination (defined below).
(f) Date of Termination. "Date of Termination" means the date of actual
-------------------
receipt of the Notice of Termination or any later date specified therein (but
not more than fifteen (15) days after the giving of the Notice of Termination),
as the case may be; provided that (i) if the Executive's employment is
terminated by Mattel for any reason other than Cause or Disability, the Date of
Termination is the date on which Mattel notifies the Executive of such
termination; (ii) if the Executive's employment is terminated due to Disability,
the Date of Termination is the Disability Effective Date; and (iii) if the
Executive's employment is terminated due to the Executive's death, the Date of
Termination shall be the date of death.
5. Obligations of Mattel upon Termination. Other than as specifically set
--------------------------------------
forth or referenced in this Agreement, the Executive shall not be entitled to
any benefits on or after the Date of Termination.
(a) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death, this Agreement shall terminate without further obligations by
Mattel to the Executive's legal representatives under this Agreement other than
those obligations accrued hereunder or under the terms of the applicable Mattel
plan or program which takes effect at the date of the Executive's death or as
otherwise provided in Section 4(a) or this Section 5(a). As of the Date of
Termination, the Executive's family shall be entitled to healthcare coverage and
financial counseling benefits until the third anniversary of the Date of
Termination.
(b) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability, the Executive shall be entitled to receive after the
Disability Effective Date (i) disability benefits, if any, at least equal to
those then provided by Mattel to disabled executives and/or their families and
(ii) until the earlier of the third anniversary of the Date of Termination or
the date the Executive accepts other employment, those other benefits on the
terms described in Section 5(d)(v).
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(c) Cause. If the Executive's employment is terminated for Cause or if
-----
the Executive terminates the Executive's employment without Good Reason, Mattel
shall pay the Executive the Executive's full Base Salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
and Mattel shall have no further obligations to the Executive under this
Agreement.
(d) Good Reason; Other Than for Cause or Disability. If Mattel terminates
-----------------------------------------------
the Executive's employment other than for Cause or Disability or the Executive
terminates the Executive's employment for Good Reason (in each case, other than
within 18 months following a Change of Control as provided in Section 5(e)):
(i) Mattel shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base Salary
through the Date of Termination at the rate in effect at the time of Notice of
Termination was given;
(B) a current year bonus (the "Bonus") equal to the greater
of (x) the average of the two highest annual bonuses received by the Executive
under the MIP, or any successor plan, in the three years prior to the Date of
Termination, including any years in which the Executive was paid no bonus, (the
"Average Annual Bonus") and prorated to reflect the total number of full months
the Executive is employed on an active and full time basis in the year in which
termination occurs, (y) the annual bonus paid to the Executive, under the MIP or
any successor plan, if any, for the 2000 or 2001 calendar year, whichever is
greater, without proration, or (z) the target annual bonus (50%) for
the Executive under the MIP for the 2000 calendar year;
(C) three times the sum of (x) the Executive's annual Base
Salary at the rate in effect at the time the Notice of Termination is given and
(y) the Bonus defined in Section 5(d)(i)(B), but without proration (and, in each
such case, without regard to any contributions by Mattel for the Executive's
benefit to any retirement or other investment plans).
(ii) Mattel shall pay the Executive a portion of any long-term
incentive compensation that Executive would have received under the LTIP with
respect to any performance period which is pending as of the Executive's Date of
Termination as if the Executive had remained employed for the entire performance
period, pro rated based on the number of full months of Executive's employment
during the performance period over the total number of months in the performance
period, which amount shall be payable at the end of the period in accordance
with the terms of the LTIP and shall be net of any interim payments previously
made to the Executive.
(iii) Any options granted to the Executive under Mattel's stock
option plans, other than Mattel's 1997 Premium Price Stock Option Plan or any
successor thereto (the
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"Stock Option Plans"), shall become immediately exercisable and the Executive
shall have a period of 90 days following the Date of Termination (but in no
event past the expiration of the term of the option grant) to exercise all
options granted under the Stock Option Plans then exercisable or which become
exercisable pursuant to this clause (iii).
(iv) Mattel shall, promptly upon submission by the Executive of
supporting documentation, pay or reimburse to the Executive any costs and
expenses paid or incurred by the Executive which would have been payable under
Section 3(e) if the Executive's employment had not terminated.
(v) Until the earlier of (x) the third anniversary of the Date of
Termination or (y) the date the Executive becomes gainfully employed in a
substantially similar employment position, Mattel shall provide to the Executive
at Mattel's expense:
(A) coverage under Mattel's medical, dental, prescription
drug and vision care group insurance as in effect from time to time on the same
terms and conditions as such insurance is available to active employees of
Mattel (the last 18 months of the Executive's coverage under such insurance
shall be deemed to be participation under an election to continue such benefits
under the Consolidated Omnibus Budget Reconciliation Act at Mattel's expense);
(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor;
(C) financial counseling and tax preparation services through
the vendor engaged and paid for by Mattel;
(D) automobile benefits; provided however, that if such
automobile is leased by Mattel, such benefits shall expire upon expiration of
such lease. Upon expiration of the automobile benefits, at which time the
Executive may purchase the car for either $100, if the automobile benefits
terminate at the end of the lease term, or Mattel's book value, if the
automobile benefits terminate on either the third anniversary of the Date of
Termination or the date on which the Executive accepts other employment. As of
the Date of Termination, all expenses related to such automobile, including but
not limited to insurance, repairs, maintenance, gasoline, and car phone and
associated expenses, shall be the sole responsibility of the Executive; and
(E) membership in one city or country club and related
expenses. Mattel shall cause the membership to be transferred to the Executive
at no cost to the Executive.
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(vi) If the Executive is a participant in the Mattel Supplemental
Executive Retirement Plan, the Mattel Deferred Compensation Plan or the Mattel
Retiree Medical Plan, the Executive shall be given credit for three years of
service (in addition to actual service) and for three years of attained age to
be added to the Executive's actual age for purposes of computing any service and
age-related benefits for which the Executive is eligible under such plans.
Notwithstanding the foregoing, if Mattel terminates the Executive's employment
other than for Cause or Disability or if the Executive terminates the
Executive's employment for Good Reason and such termination occurs within 18
months after the date upon which Mattel changes the person to whom the Executive
immediately reports, then (a) the Executive's "Average Annual Bonus" for the
purpose of calculating the amounts provided by clauses (d)(i)(B) and (d)(i)(C)
above shall be equal to the Executive's maximum targeted MIP bonus for the year
in which the termination of employment occurs and (b) the amount payable to the
Executive under clause (d)(ii) above shall be based on the maximum LTIP payment
that the Executive could have received with respect to the pending performance
period, rather than amount which would have been payable to the Executive had
the Executive remained employed for the entire performance period.
Notwithstanding the foregoing, the amounts payable with respect to a termination
of employment which is subject to the preceding sentence shall be prorated as
set forth in clauses (d)(i)(B) and (d)(ii).
(e) Change of Control. If, within 18 months following a Change of
-----------------
Control, the Executive terminates the Executive's employment for Good Reason or
Mattel or the surviving entity terminates the Executive's employment other than
for Cause or Disability or within the 30 day period immediately following the
six (6) month anniversary of a Change of Control the Executive terminates the
Executive's employment for any reason:
(i) Mattel shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base Salary
through the Date of Termination at the rate in effect at the time of Notice of
Termination was given;
(B) a current year bonus (the "Bonus Amount") equal to the
greater of (x) the average of the two highest annual bonuses received by the
Executive under the MIP, or any successor plan, in the three years prior to the
Date of Termination, including any years in which the Executive was paid no
bonus, and prorated to reflect the total number of full months the Executive is
employed on an active and full time basis in the year in which termination
occurs, (y) the annual bonus paid to the Executive, under the MIP or any
successor plan, if any, for the 2000 or 2001 calendar year, whichever is
greater, without proration, or (z) the target annual bonus (50%) for the
Executive under the MIP for the 2000 calendar year;
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(C) three times the sum of (x) the Executive's annual Base
Salary at the rate in effect at the time the Notice of Termination is given and
(y) the Bonus Amount defined in Section 5(e)(i)(B), but without proration (and,
in each such case, without regard to any contributions by Mattel for the
Executive's benefit to any retirement or other investment plans).
(ii) Any options granted to the Executive under Mattel's stock
option plans, other than Mattel's 1997 Premium Price Stock Option Plan or any
successor thereto (the "Stock Option Plans"), shall become immediately
exercisable and the Executive shall have a period of 90 days or such longer
period of time as specified in the Stock Option Plans following the Date of
Termination (but in no event past the expiration of the term of the option
grant) to exercise all options granted under the Stock Option Plans then
exercisable or which become exercisable pursuant to this clause (ii).
(iii) Mattel shall, promptly upon submission by the Executive of
supporting documentation, pay or reimburse to the Executive any costs and
expenses paid or incurred by the Executive which would have been payable under
Section 3(e) if the Executive's employment had not terminated.
(iv) Until the earlier of (x) the third anniversary of the Date of
Termination or (y) the date the Executive becomes gainfully employed in a
substantially similar employment position, Mattel shall provide to the Executive
at Mattel's expense:
(A) coverage under Mattel's medical, dental, prescription
drug and vision care group insurance as in effect from time to time on the same
terms and conditions as such insurance is available to active employees of
Mattel (the last 18 months of the Executive's coverage under such insurance
shall be deemed to be participation under an election to continue such benefits
under the Consolidated Omnibus Budget Reconciliation Act at Mattel's expense);
(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor;
(C) financial counseling and tax preparation services through
the vendor engaged and paid for by Mattel;
(D) automobile benefits; provided however, that if such
automobile is leased by Mattel, such benefits shall expire upon expiration of
such lease. Upon expiration of the automobile benefits, at which time the
Executive may purchase the car for either $100, if the automobile benefits
terminate at the end of the lease term, or Mattel's book value, if the
automobile benefits terminate on either the third anniversary of the Date of
Termination or the date on which the Executive accepts other employment. As of
the Date of
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Termination, all expenses related to such automobile, including but not limited
to insurance, repairs, maintenance, gasoline, and car phone and associated
expenses, shall be the sole responsibility of the Executive; and
(E) membership in one city or country club and related
expenses. Mattel shall cause the membership to be transferred to the Executive
at no cost to the Executive.
(v) If the Executive is a participant in the Mattel Supplemental
Executive Retirement Plan, the Mattel Deferred Compensation Plan or the Mattel
Retiree Medical Plan, the Executive shall be given credit for three years of
service (in addition to actual service) and for three years of attained age to
be added to the Executive's actual age for purposes of computing any service and
age-related benefits for which the Executive is eligible under such plans.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by Mattel and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any stock option or other agreement with
Mattel or any of its affiliated companies. Except as otherwise provided herein,
amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan or program of Mattel at or subsequent to the Date of
Termination shall be payable in accordance with such plan or program.
7. No Set Off, Payment of Fees. Except as provided herein, Mattel's
---------------------------
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation any set-off, counterclaim, recoupment, defense or
other right which Mattel may have against the Executive or others. Mattel
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by Mattel or others of the validity or enforceability
of, or liability under, any provision of this Agreement other than expenses
relating to a claim by the Executive that the Executive terminated for Good
Reason or that the termination for Cause was improper, in which case such fees
and expenses shall be paid only if the Executive prevails in whole or in part.
In the event that the Executive shall in good faith give a Notice of Termination
for Good Reason and it shall thereafter be determined that Good Reason did not
exist, the employment of the Executive shall, unless Mattel and the Executive
shall otherwise mutually agree, be deemed to have terminated at the Date of
Termination specified in such purported Notice of Termination by mutual consent
of Mattel and the Executive and thereupon, the Executive shall be entitled to
receive only those payments and benefits which the Executive would have been
entitled to receive at such date.
8. Arbitration of Disputes.
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(a) The parties agree that any disputes, controversies or claims which
arise out of or relate to this Agreement, the Executive's employment or the
termination of the Executive's employment, including, but not limited to, any
claim relating to the purported validity, interpretation, enforceability or
breach of this Agreement, and/or any other claim or controversy arising out of
the relationship between the Executive and Mattel (or the nature of the
relationship) or the continuation or termination of that relationship,
including, but not limited to, claims that a termination was for Cause, or for
Good Reason, claims for breach of covenant, breach of an implied covenant of
good faith and fair dealing, wrongful termination, breach of contract, or
intentional infliction of emotional distress, defamation, breach of right of
privacy, interference with advantageous or contractual relations, fraud,
conspiracy or other tort or property claims of any kind, which are not settled
by agreement between the parties, shall be settled by expedited arbitration
under the then applicable arbitration rules of JAMS/Endispute (or any other
mutually agreed arbitrator) before a board of three arbitrators, as selected
thereunder.
One arbitrator shall be selected by the Executive, one by Mattel and the
third by the two persons so selected, all in accordance with the then applicable
arbitration rules of JAMS/Endispute then in effect. In the event that the
arbitrator selected by the Executive and the arbitrator selected by Mattel are
unable to agree upon a third arbitrator, then the third arbitrator shall be
selected from a list of seven (each of whom shall be a member of the
"Independent List" of retired judges with experience in resolving employment
disputes) provided by the Los Angeles office of JAMS/Endispute with the parties
striking names in order and the party striking first to be determined by the
flip of a coin. The arbitration shall be held in a location mutually agreed upon
by the parties. In the absence of agreement, the arbitration shall be held in
Los Angeles, California.
(b) In consideration of the parties' agreement to submit to arbitration
all disputes with regard to this Agreement and/or with regard to any alleged
contract, or any other claim arising out of their conduct, the relationship
existing hereunder or the continuation or termination of that relationship, and
in further consideration of the anticipated expedition and the minimizing of
expense resulting from this arbitration remedy, the arbitration provisions of
this Agreement shall provide the exclusive remedy, and each party expressly
waives any right the Executive or it may have to seek redress in any other
forum.
(c) Any claim which either party has against the other party which could
be submitted for resolution pursuant to this Section 8 must be presented in
writing by the claiming party to the other within the period of the applicable
statue of limitations.
(d) Mattel will pay all costs and expenses of the arbitration.
(e) Any decision and award or order of a majority of the arbitrators
shall be binding upon the parties hereto and judgment thereon may be entered in
the Superior Court of the State of California or any other court having
jurisdiction.
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(f) Each of the above terms and conditions of this Section 8 shall have
separate validity and the invalidity of any part thereof shall not affect the
remaining parts.
(g) Any decision and award or order of a majority of the arbitrators
shall be final and binding between the parties as to all claims which were
raised in connection with the dispute to the full extent permitted by law. In
all other cases, the parties agree that a decision of a majority of arbitrators
shall be a condition precedent to the institution or maintenance of any legal,
equitable, administrative, or other formal proceeding by Mattel or the Executive
in connection with the dispute, and that the decision and opinion of the board
of arbitrators may be presented in any other forum on the merits of the dispute.
9. General Release. The Executive acknowledges and agrees that this
---------------
Agreement includes the entire agreement and understanding between the parties
with regard to the Executive's employment, the termination thereof during the
Employment Period, and all amounts to which the Executive shall be entitled
whether during the term of employment or upon termination thereof. The
Executive also acknowledges and agrees that the Executive's right to receive
severance pay and other benefits pursuant to subsections (b), (d) and (e) of
Section 5 of this Agreement is contingent upon the Executive's compliance with
the covenants set forth in Section 10 of this Agreement and the Executive's
execution and acceptance of the terms and conditions of, and the effectiveness
of the General Release of All Claims (the "Release") attached hereto as Exhibit
"A." If the Executive fails to comply with the covenants set forth in Section
10 or if the Executive fails to execute the Release within twenty-one (21) days
of receipt of such Release, then the Executive shall not be entitled to any
severance payments or other benefits to which the Executive would otherwise be
entitled under subsections (b), (d) and (e) of Section 5 of this Agreement.
10. The Executive's Covenants.
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(a) The Executive acknowledges that in the Executive's capacity in
management, the Executive has had a great deal of exposure and access to a broad
variety of commercially valuable proprietary information which is vital to the
success of Mattel's business including, by way of illustration, past, current
and future products and product concepts, marketing strategies, research and
plans and information regarding employees. The Executive acknowledges that as a
result of the Executive's knowledge of the above information and in
consideration for the benefits offered by Mattel under this Agreement, the
Executive hereby agrees to reaffirm and recognize the Executive's continuing
obligations with respect to the use and disclosure of confidential and
proprietary information of Mattel pursuant to the Mattel's policies as set forth
in Mattel's form Executive Patent and Confidence Agreement, as revised from time
to time, and by this reference made a part hereof. Pursuant thereto, the
Executive acknowledges and agrees that Mattel shall be entitled to injunctive
relief to prevent a threatened misappropriation of one or more of the Mattel's
trade secrets or to halt an actual misappropriation of such trade secrets. The
Executive shall hold in a fiduciary capacity for the benefit of Mattel all
secret or confidential information, knowledge or data relating to Mattel or
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any of its affiliated companies, and their respective businesses, which shall
have been obtained by the Executive during the Executive's employment by Mattel
or any of its affiliated companies and which shall not be public knowledge.
After termination of the Executive's employment with Mattel, the Executive shall
not, without the prior written consent of Mattel, communicate or divulge any
such information, knowledge or data to anyone other than Mattel and those
designated by it. The Executive further represents and agrees that, unless
otherwise required by law, the Executive will keep the terms, amount and fact of
this Agreement completely confidential, and that the Executive will not
hereafter disclose any information concerning this Agreement to anyone other
than Executive's immediate family and professional representatives who will be
informed of and bound by this confidentiality clause.
(b) If the termination of the Executive's employment occurs prior to a
Change of Control, the Executive agrees that eligibility for severance payments
and other benefits under this Agreement are contingent upon the Executive's
agreement and compliance with Mattel's requirement that the Executive does not
accept employment nor an engagement as a consultant with a competitor whereupon
such position is comparable to the position the Executive held with Mattel and
where the Executive can not reasonably satisfy Mattel that the new employer is
prepared to and/or does take adequate steps to preclude and to prevent
inevitable disclosure of trade secrets, as prohibited under the Mattel's
policies with respect to the use and disclosure of confidential and proprietary
information, as set forth in Mattel's form Executive Patent and Confidence
Agreement, as revised from time to time, and by this reference made a part
hereof. If the Executive accepts employment or a consulting relationship with a
competitor as described above, no further payments nor eligibility for benefits
continuation will be available to the Executive as of the date the Executive
commences such employment/consulting. It is a specific condition of this
Agreement that so long as the Executive is receiving any payments or benefits
under this Agreement with respect to a termination of the Executive's employment
prior to a Change of Control, the Executive is obligated to immediately notify
Mattel as to the specifics of the new position that the Executive is planing to
commence as an employee or consultant for any company which is a competitor of
Mattel.
(c) The Executive agrees that so long as the Executive is receiving any
payments or benefits under this Agreement and for a period of 12 months
thereafter, the Executive will not participate in recruiting any of Mattel's
employees or in the solicitation of Mattel's employees, and the Executive will
not communicate to any other person or entity, about the nature, quality or
quantity of work, or any special knowledge or personal characteristics of any
person employed by Mattel. If the Executive should wish to discuss possible
employment with any then-current Mattel employee during the 12-month period set
forth above, the Executive may request written permission to do so from the
senior human resources officer of Mattel who may, in his/her discretion, grant a
written exception to the no solicitation agreement set forth above, provided,
however, the Executive agrees that the Executive will not discuss any such
employment possibility with such employees prior to securing Mattel's
permission. If Mattel should decline to grant such permission, the Executive
agrees that the Executive will not at any time, either during or after the non-
solicitation period set forth above, advise the employee concerned that he/she
was the subject
15
<PAGE>
of a request under this paragraph or that Mattel refused to grant the Executive
the right to discuss an employment possibility with him/her.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of Mattel shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Mattel and its successors. Mattel shall require any successor to all or
substantially all of the business and/or assets of Mattel, whether direct or
indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Mattel would be required to perform if no such succession
had taken place.
12. Amendment; Waiver. This Agreement contains the entire agreement between
-----------------
the parties with respect to the subject matter hereof and may be amended,
modified or changed only by a written instrument executed by the Executive and
Mattel. No provision of this Agreement may be waived except by a writing
executed and delivered by the party sought to be charged. Any such written
waiver will be effective only with respect to the event or circumstance
described therein and not with respect to any other event or circumstance,
unless such waiver expressly provides to the contrary.
13. Long Term Incentive Compensation Plan Payments After a Change of Control.
------------------------------------------------------------------------
(a) In the event of a Change of Control during the Employment Period,
Mattel shall pay the Executive a cash payment as provided under the provisions
of the LTIP, as in effect immediately prior to the Change of Control.
(b) In addition, in the event of a Change of Control during the
Employment Period, within thirty (30) days after the date of such Change of
Control, Mattel shall pay the Executive any unpaid amounts to which the
Executive is entitled with respect to any performance period under the LTIP, or
any other successor long-term incentive compensation plan of Mattel, that has
been completed as of the date of the Change of Control.
14. Certain Additional Payments by Mattel.
-------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any Payment (as
defined below) would be subject to the Excise Tax (as defined below), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment
16
<PAGE>
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 14(a), if it shall be determined that the Executive
is entitled to a Gross-Up Payment, but that the Parachute Value of Payments (as
defined below) does not exceed 110% of the Safe Harbor Amount (as defined
below), then no Gross-Up Payment shall be made to the Executive and the
Agreement Payments (as defined below), in the aggregate, shall be reduced to
(but not below zero) such that the Parachute Value of all Payments equals the
Safe Harbor Amount, determined in such a manner as to maximize the Value of all
Payments (as defined below) actually made to the Executive.
(b) Subject to the provisions of Section 14(c), all determinations
required to be made under this Section 14, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PricewaterhouseCooper LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to Mattel and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by Mattel.
All fees and expenses of the Accounting Firm shall be borne solely by Mattel.
Subject to Section 14(e) below, any Gross-Up Payment, as determined pursuant to
this Section 14, shall be paid by Mattel to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon Mattel and the Executive. As a result of
the uncertainty in the application of Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by Mattel should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Mattel
exhausts its remedies pursuant to Section 14(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Mattel to or for the benefit of the
Executive.
(c) The Executive shall notify Mattel in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Mattel of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise Mattel of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to Mattel (or such shorter period ending on
the date that any payment of taxes
17
<PAGE>
with respect to such claim is due). If Mattel notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give Mattel any information reasonably requested by Mattel
relating to such claim,
(ii) take such action in connection with contesting such claim as
Mattel shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by Mattel,
(iii) cooperate with Mattel in good faith in order effectively
to contest such claim, and
(iv) permit Mattel to participate in any proceedings relating to
such claim;
provided, however, that Mattel shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 14(c), Mattel shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Mattel shall determine;
provided, however, that if Mattel directs the Executive to pay such claim and
sue for a refund, Mattel shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, Mattel's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
Mattel pursuant to Section 14(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to Mattel's
complying with the requirements of Section 14(c)) promptly pay to Mattel the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an
18
<PAGE>
amount advanced by Mattel pursuant to Section 14(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and Mattel does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 14, Mattel may
withhold and pay over to the Internal Revenue Service for the benefit of the
Executive all or any portion of the Gross-Up Payment that it determines in good
faith that it is or may be in the future required to withhold, and the Executive
hereby consents to such withholding.
(f) Definitions. The following terms shall have the following meanings
-----------
for purposes of this Section 14.
(i) An "Agreement Payment" shall mean a Payment paid or payable
pursuant to this Agreement (disregarding this Section 14) and any payment
relating to the Loan Agreement.
(ii) "Excise Tax" shall mean the excise tax imposed by Section 4999
of the Code, together with any interest or penalties imposed with respect to
such excise tax.
(iii) The "Net After-Tax Amount" of a Payment shall mean the Value
of a Payment net of all taxes imposed on the Executive with respect thereto
under Sections 1 and 4999 of the Code and applicable state and local law,
determined by applying the highest marginal rates that are expected to apply to
the Executive's taxable income for the taxable year in which the Payment is
made.
(iv) "Parachute Value" of a Payment shall mean the present value as
of the date of the change of control for purposes of Section 280G of the Code of
the portion of such Payment that constitutes a "parachute payment" under Section
280G(b)(2), as determined by the Accounting Firm for purposes of determining
whether and to what extent the Excise Tax will apply to such Payment.
(v) A "Payment" shall mean any payment or distribution in the
nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to
or for the benefit of the Executive, whether paid or payable pursuant to this
Agreement or otherwise.
(vi) The "Safe Harbor Amount" means the maximum Parachute Value of
all Payments that the Executive can receive without any Payments being subject
to the Excise Tax.
(vii) "Value" of a Payment shall mean the economic present value of
a Payment as of the date of the change of control for purposes of Section 280G
of the Code, as
19
<PAGE>
determined by the Accounting Firm using the discount rate required by Section
280G(d)(4) of the Code.
15. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
(b) All notices and other communications hereunder shall be in writing;
shall be delivered by hand delivery to the other party or mailed by registered
or certified mail, return receipt requested, postage prepaid; shall be deemed
delivered upon actual receipt; and shall be addressed as follows:
If to Mattel:
------------
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
If to Executive:
---------------
Ms. Adrienne Fontanella
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
(c) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction will, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
(d) Mattel may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
20
<PAGE>
(e) Mattel agrees to reimburse the Executive for the reasonable
attorneys' fees and costs incurred by the Executive in connection with this
Agreement and the Loan Agreement, in an aggregate amount not to exceed $25,000.
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first set forth above.
EXECUTIVE:
ADRIENNE FONTANELLA
/s/ Adrienne Fontanella 2/1/00
----------------------------------
MATTEL: MATTEL, INC.,
a Delaware corporation
By: /s/ Jill E. Barad 1/31/00
------------------------------
Its: Chief Executive Officer
-----------------------------
ATTEST:
- -----------------------------
Assistant Secretary
22
<PAGE>
Form for Executive Employment Agreement
---------------------------------------
Exhibit "A"
GENERAL RELEASE
OF ALL CLAIMS
1. For valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned ("Executive") does hereby on behalf of Executive
and Executive's successors, assigns, heirs and any and all other persons
claiming through Executive, if any, and each of them, forever relieve, release,
and discharge Mattel, Inc. ("Mattel") and its respective predecessors,
successors, assigns, owners, attorneys, representatives, affiliates, Mattel
corporations, subsidiaries (whether or not wholly-owned), divisions, partners
and their officers, directors, agents, employees, servants, executors,
administrators, accountants, investigators, insurers, and any and all other
related individuals and entities, if any, and each of them, in any and all
capacities from any and all claims, debts, liabilities, demands, obligations,
liens, promises, acts, agreements, costs and expenses (including, but not
limited to attorneys' fees), damages, actions and causes of action, of whatever
kind or nature, including, without limiting the generality of the foregoing, any
claims arising out of, based upon, or relating to the hire, employment,
remuneration (including salary; bonus; incentive or other compensation;
vacation, sick leave or medical insurance benefits; or other benefits) or
termination of Executive's employment with Mattel.
2. This release includes a release of any rights or claims Executive may have
under the Age Discrimination in Employment Act, which prohibits age
discrimination in employment as to individuals forty years of age and older; the
Older Workers Benefit Protection Act, which prohibits discrimination against
older workers in all Executive benefits; Title VII of the Civil Rights Act of
1964, as amended in 1991, which prohibits discrimination in employment based on
race, color, national origin, religion or sex; the California Fair Employment
and Housing Act, which prohibits discrimination based on race, color, religion,
national origin, ancestry, physical or mental disability, medical condition,
sex, pregnancy-related condition, marital status, age or sexual orientation; the
Equal Pay Act, which prohibits paying men and women unequal pay for equal work;
the Americans with Disabilities Act, which prohibits discrimination against
qualified individuals with disabilities; or any other federal, state or local
laws or regulations which prohibit employment discrimination, restrict an
employer's right to terminate Executives, or otherwise regulate employment.
This also includes a release by Executive of any claims for breach of contract,
wrongful discharge and all claims for alleged physical or personal injury,
emotional distress relating to or arising out of Executive's employment with
Mattel or the termination of that employment; any claims under the WARN Act or
any similar law, which requires, among other things, that advance notice be
given of certain work force reductions; and all claims under the Employee
Retirement Income Security Act, such as claims relating to pension or health
plan benefits.
<PAGE>
3. Notwithstanding any other provision of this Agreement, this release does not
apply to any rights or claims which arise after the execution of this Agreement
or to any rights or claims with respect to any breach of that certain Executive
Employment Agreement (the "Employment Agreement") by between Executive and
Mattel.
4. This release, as contained within this Agreement, covers both claims that
Executive knows about and those Executive may not know about. Executive
expressly waives all rights afforded by any statute (such as Section 1542 of the
Civil Code of the State of California) which limits the effect of a release with
respect to unknown claims. Executive understands the significance of
Executive's release of unknown claims and Executive's waiver of statutory
protection against a release of unknown claims (such as under Section 1542).
Section 1542 of the Civil Code of the State of California states as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Notwithstanding the provisions of Section 1542, Executive expressly acknowledges
that this release is intended to include both claims that Executive knows about
and those Executive does not know or suspect to exist.
5. The provisions of this Agreement are severable, and if any part of it is
found to be unenforceable, the other paragraphs shall remain fully valid and
enforceable. This Agreement shall be construed in accordance with its fair
meaning and in accordance with the laws of the state of California, without
regard to conflicts of laws principles thereof.
6. Executive is strongly encouraged to consult with an attorney before signing
this Agreement. Executive acknowledges that Executive has been advised of this
right to consult an attorney and Executive understands that whether to do so is
Executive's decision. Executive acknowledges that Mattel has advised Executive
that Executive has twenty-one (21) days in which to consider whether Executive
should sign this Release and has advised Executive that if Executive signs this
Release, Executive has seven (7) days following the date on which Executive
signs the Release to revoke it and that the Release will not be effective until
after this seven-day period had lapsed.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.
Date:
--------------------- -------------------------------
Executive
2 of 2
<PAGE>
EXHIBIT 10.7
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of October
29, 1999, by and between Mattel, Inc., a Delaware corporation ("Lender") and
Adrienne Fontanella ("Borrower"). Borrower and Lender are sometimes referred to
in this Agreement as a "Party" or, collectively, as the "Parties."
RECITALS
--------
WHEREAS, Borrower desires to obtain from Lender a loan in the
principal amount of One Million Dollars ($1,000,000.00) (the "Loan"); and
WHEREAS, as an additional incentive to retain Borrower in the employ
of Lender for a period of at three years from the date hereof, Lender desires to
grant Borrower the Loan.
NOW, THEREFORE, in consideration of the terms and conditions herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. Loan Terms.
----------
(a) Principal Amount. Lender shall pay to the order of Borrower,
----------------
on October 29, 1999, the principal sum of One Million Dollars ($1,000,000.00)
(the "Principal").
(b) Interest. Interest shall accrue on the outstanding Principal
--------
amount at the rate of seven percent (7%) per annum, compounded annually.
(c) Promissory Note. Borrower's obligation to repay the Loan shall be
---------------
evidenced by a promissory note substantially in the form attached as Exhibit A
---------
hereto (the "Note"). Borrower shall execute and deliver to Lender the Note
concurrently with execution and delivery of this Agreement.
(d) Repayment. Borrower shall pay to the order of Lender the
---------
Principal and accrued interest under the Note on October 30, 2002, provided,
however, that all Principal and accrued but unpaid interest shall become
immediately due and payable thirty (30) days after the date of Borrower's
termination of employment with Lender for any reason prior to October 30, 2002,
unless Borrower commences arbitration with respect to the grounds for such
termination of employment within such thirty (30) day period, in which case all
Principal and accrued but unpaid interest shall be due and payable five (5) days
after notice to Borrower of the entry of a final judgement in such arbitration.
Interest shall continue to accrue during any such arbitration. The Loan shall be
subject to forgiveness as provided below. The Loan shall be unsecured but with
full recourse against Borrower.
<PAGE>
(e) Forgiveness. The Loan, and Borrower's obligation to repay all
-----------
outstanding Principal and accrued interest thereunder, shall be forgiven and
cancelled by Lender and the Note shall be cancelled on October 29, 2002 if
Borrower is employed by Lender on October 29, 2002, or earlier upon the date of
the termination of Borrower's employment with Lender prior to October 29, 2002
if such termination is by Lender without Cause (as defined below), by Borrower
for Good Reason (as defined below) or by reason of Borrower's death or
Disability (as defined below). In addition, if the Loan is forgiven pursuant to
the preceding sentence and if Borrower is employed by Lender on October 29, 2002
and continues to be employed by Lender, on April 1, 2003, or such earlier date
as Borrower shall be required to pay federal, state or local income taxes with
respect to the forgiveness of the Loan, Lender shall pay Borrower an additional
payment (the "Gross-Up Payment") in an amount required to fully reimburse
Borrower with respect to all federal, state and local income taxes and
employment taxes with respect to the forgiveness of the Loan and with respect to
such taxes, such that upon receipt of the Gross-Up Payment Borrower shall have
no remaining obligations with respect to such taxes. In addition, the Loan
shall be forgiven by Lender on the date of a Change of Control (as defined
below) of Lender if Borrower is employed by Lender on such date and Lender shall
pay Borrower the Gross-Up Payment with respect to the forgiveness of the Loan on
April 1, of the year following the year of the Change of Control, or such
earlier date as Borrower shall be required to pay federal, state or local income
taxes with respect to the forgiveness of the Loan.
(f) Definitions. For purposes of this Agreement, the following
-----------
terms shall have the meanings indicated below:
"Cause" shall mean a reasonable determination of the Chief Executive
Officer of Lender that at least one of the following has occurred: (i) one or
more factually substantiated willful acts of dishonesty on Borrower's part which
are intended to result in Borrower's substantial personal enrichment at the
expense of Lender; (ii) repeated violations by Borrower of Borrower's employment
obligations to Lender which are demonstrably willful and deliberate on
Borrower's part and which resulted in material injury to Lender; (iii) conduct
of a factually substantiated criminal nature (commonly defined as a "felony" in
criminal statutes) which has or which is more likely than not to have a material
adverse effect on Lender's reputation or standing in the community or on its
continuing relationships with its customers or those who purchase or use its
products; or (iv) factually substantiated fraudulent conduct in connection with
the business or affairs of Lender, regardless of whether said conduct is
designed to defraud Lender or others; provided that, in each case, Borrower has
received written notice of the described activity, has been afforded a
reasonable opportunity to cure or correct the activity described in the notice,
and has failed to substantially cure, correct or cease the activity, as
appropriate.
"Change of Control" shall be deemed to have occurred if:
(i) any "Person," which shall mean a "person" as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than Lender, any trustee or other fiduciary
holding securities under an employee benefit plan of Lender) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Lender representing 20% or more of the combined
voting power of Lender's then outstanding voting securities;
2
<PAGE>
(ii) during any period of 24 consecutive months,
individuals, who at the beginning of such period constitute the Board of
Directors of Lender, and any new director whose election by the Board of
Directors, or whose nomination for election by Lender's stockholders, was
approved by a vote of at least one-half (1/2) of the directors then in office
(other than in connection with a contested election), cease for any reason to
constitute at least a majority of the Board of Directors;
(iii) the stockholders of Lender approve (I) a plan of
complete liquidation of Lender or (II) the sale or other disposition by Lender
of all or substantially all of Lender's assets unless the acquirer of the assets
or its board of directors shall meet the conditions for a merger or
consolidation in subparagraphs (iv)(I) or (iv)(II) below; or
(iv) the consummation of a merger or consolidation of Lender
with any other entity other than:
(I) a merger or consolidation which results in the
voting securities of Lender outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the surviving entity's outstanding voting securities immediately after such
merger or consolidation; or
(II) a merger or consolidation which would result in
the directors of Lender (who were directors immediately prior thereto)
continuing to constitute at least 50% of all directors of the surviving entity
immediately after such merger or consolidation.
In this paragraph (iv), "surviving entity" shall mean only an
entity in which all of Lender's stockholders immediately before such merger or
consolidation (determined without taking into account any stockholders properly
exercising appraisal or similar rights) become stockholders by the terms of such
merger or consolidation, and the phrase "directors of Lender (who were directors
immediately prior thereto)" shall include only individuals who were directors of
Lender at the beginning of the 24 consecutive month period preceding the date of
such merger or consolidation.
"Disability" shall mean that Borrower suffers a disability due to
illness or injury which substantially and materially limits Borrower from
performing each of the essential functions of Borrower's job, even with
reasonable accommodation and becomes entitled to receive disability benefits
under Lender's Long-Term Disability Plan for exempt employees.
"Good Reason" shall mean the good faith determination by Borrower
that any one or more of the following have occurred:
(i) without the express written consent of Borrower, any
change(s) in any of the employment duties, authority, or responsibilities of
Borrower which is (are) inconsistent in any substantial respect with Borrower's
position, authority, duties, or responsibilities as of the date of this
Agreement;
3
<PAGE>
(ii) any failure by Lender to pay Borrower Borrower's
salary or earned bonuses, other than an insubstantial and inadvertent failure
remedied by Lender promptly after receipt of notice thereof given by Borrower;
or
(iii) transferring Borrower outside of the greater Los
Angeles, California area without Borrower's express written consent.
(g) Notwithstanding any other provision in this Agreement, in the
event Borrower and Lender enter into an employment agreement after the date of
this Agreement, the definition of "Cause," "Change of Control," "Disability,"
and "Good Reason" as provided in such employment agreement (or any amendments
thereto) shall supercede the definitions in Section 1(f) of this Agreement.
2. Transfer of Notes. Borrower shall not assign or transfer any of
-----------------
Borrower's benefits or obligations arising under the Notes. Lender reserves
the right to assign or transfer all or any part of, or any interest in, Lender's
rights and benefits under this Agreement or the Note to any successor to all or
part of its business or assets so long as any assignee or transferee expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent as Lender would be required to perform if no such assignment or transfer
had taken place.
3. Amendment; Waiver. This Agreement and the Note contain the entire
-----------------
agreement between the Parties with respect to the subject matter hereof and may
be amended, modified or changed only by a written instrument executed by the
Parties. No provision of this Agreement or the Note may be waived except by a
writing executed and delivered by the Party sought to be charged. Any such
written waiver will be effective only with respect to the event or circumstance
described therein and not with respect to any other event or circumstance,
unless such waiver expressly provides to the contrary.
4. Choice of Law. This Agreement shall be construed in accordance
-------------
with and governed by the internal laws of the State of California, without
reference to principles of conflict of laws.
5. Headings. The paragraph headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
6. Notices. All notices and other communications hereunder shall be
-------
in writing; shall be delivered by hand delivery to the other party or mailed by
registered or certified mail, return receipt requested, postage prepaid; shall
be deemed delivered upon actual receipt; and shall be addressed as follows:
If to Lender:
------------
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
4
<PAGE>
If to Borrower:
--------------
Ms. Adrienne Fontanella
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
and
Ms. Jennifer Freeman, Esq.
Freeman Forrest & Levy LLP
415 Madison Avenue
New York, NY 10017
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
8. Severability. If any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
9. No Third-Party Beneficiary Rights. The Parties do not intend to
---------------------------------
confer and this Agreement shall not be construed to confer any rights or
benefits to any person, firm, group, corporation or entity other than the
Parties.
[Signature Page Follows]
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties on the date first written above.
LENDER
By: /s/ Alan Kaye
-------------------------------------------
Its: Senior Vice President, Human Resources
------------------------------------------
BORROWER
/s/ Adrienne Fontanella
---------------------------------------------
Adrienne Fontanella
S-1
<PAGE>
EXHIBIT A
---------
Promissory Note
$1,000,000.00 Date: October 29, 1999
Mattel, Inc. (herein referred to as "Holder") has agreed to advance to
Adrienne Fontanella (herein referred to as "Maker") on October 29, 1999,
$1,000,000.00, and for said value received Maker promises to repay to the order
of Holder, the principal sum of $1,000,000.00 on or before October 30, 2002.
Maker shall owe to Holder interest on the principal sum in an amount equal to 7%
per annum, commencing on October 29, 1999, compounded annually, payable with
principal on October 30, 2002.
If Maker fails to make any payment set forth above when due, Holder
may elect to declare the entire unpaid principal amount, including all unpaid
interest, immediately due and payable with or without notice.
In the event of the termination of Maker's employment with Holder for
any reason, all outstanding principal and accrued interest hereunder is
immediately due and payable, with or without notice, thirty (30) days after the
date of such termination unless Maker commences arbitration as provided in that
certain Loan Agreement (the "Loan Agreement"), dated as of October 29, 1999,
between Holder and Maker, unless this note and the loan it evidences shall have
been cancelled and forgiven pursuant to the terms of the Loan Agreement.
In the event of commencement of legal action to enforce payment of
this note, the non-prevailing party agrees to pay the prevailing party's
reasonable attorney's fees and court costs in connection therewith.
By: /s/ Adrienne Fontanella 12/21/99
----------------------------------------
Adrienne Fontanella Date
Witnessed by:
/s/ Alan Kaye 12-21-99
- ----------------------------------
Date
<PAGE>
EXHIBIT 10.8
February 10, 2000
Ms. Adrienne Fontanella
President Girls/Barbie
Mattel, Inc.
333 Continental Boulevard
El Segundo, California 90245-5012
Re: Amendment to Your Employment Agreement and Stock Option Grant Agreements
------------------------------------------------------------------------
Dear Adrienne:
Pursuant to action taken by Mattel's Board of Directors and
Compensation Committee on February 1, 2000 to amend Mattel's 1990 and 1996 Stock
Option Plans (the "Plans") and to amend the Grant Agreements for Non-Qualified
Stock Options ("Grant Agreements") with respect to all of the stock options
which you hold under the Plans and which are outstanding as of February 1, 2000
(the "Outstanding Options"), this letter agreement constitutes an amendment to
each of your Grant Agreements and your Employment Agreement with Mattel.
Notwithstanding any provision of your Grant Agreements or of your
Employment Agreement to the contrary, in the event that your employment with
Mattel is terminated (i) by Mattel without Cause (as defined in your Employment
Agreement), (ii) by you for Good Reason (as defined in your Employment
Agreement), (iii) by you for any reason during the 30-day period immediately
following the six (6) month anniversary of a Change of Control (as defined in
your Employment Agreement) or (iv) by reason of your death or Disability (as
defined in you Employment Agreement), all of the Outstanding Options shall
become immediately exercisable and you shall have until the date which is ten
(10) years from the date each Outstanding Option was granted to exercise such
Outstanding Option.
I would appreciate it if you would sign, date and return a copy of
this letter agreement to me. As such, it will constitute a written amendment to
your Grant Agreements and your Employment Agreement.
Sincerely yours,
Mattel, Inc.
By: /s/ Alan Kaye
-------------------------
Alan Kaye
Senior Vice President, Human Resources
Agreed to and accepted by:
/s/ Adrienne Fontanella Dated: February 16, 2000
- ----------------------------
Adrienne Fontanella
<PAGE>
EXHIBIT 10.9
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into on
January 31, 2000 and effective as of April 1, 1999 (the "Effective Date")
between Mattel, Inc., a Delaware corporation ("Mattel") and Matthew C.
Bousquette (the "Executive").
1. Employment Period. Mattel hereby agrees to employ and continue in its
-----------------
employ the Executive, and the Executive hereby accepts such employment and
agrees to remain in the employ of Mattel, for the period commencing on the
Effective Date and ending on the third anniversary of such date, subject to
earlier termination as provided herein (the "Employment Period"); provided that
commencing on the first day of the month next following the effective date
hereof, and on the first day of each month thereafter (the most recent of such
dates is hereinafter referred to as the "Renewal Date"), the Employment Period
shall be automatically extended so as to terminate three years from such Renewal
Date, unless at least 60 days prior to any Renewal Date Mattel or the Executive
shall give notice to the other that the Employment Period shall not be so
extended and shall be terminated.
2. Duties.
------
(a) Executive's Position and Duties. During the Employment Period,
-------------------------------
the Executive's position shall be that of President of the Boys/Entertainment/
Wheels/Games Division of Mattel and the Executive shall have the authority and
responsibilities similar to those held by the Executive on the date hereof with
such additions and modifications, and consistent with responsibilities generally
assigned to officers of Mattel as the Chief Executive Officer of Mattel may in
her discretion and acting in good faith from time to time assign to the
Executive. The Executive's services shall be performed in the greater Los
Angeles, California area, provided, however, that the Executive may be required
to travel on business from time to time generally consistent with the
Executive's travel requirements as of the date of this Agreement.
(b) Full Time. The Executive agrees to devote the Executive's full
---------
business time to the business and affairs of Mattel and to use the Executive's
best efforts to perform faithfully and efficiently the responsibilities assigned
to the Executive hereunder to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities which services have been approved by the Chief Executive
Officer; (ii) periods of vacation and sick leave to which the Executive is
entitled; and (iii) the management of personal investments and affairs. The
Executive will not engage in any outside business activity (as distinguished
from personal investment activity and affairs), including, but not limited to,
activity as a consultant, agent, partner or officer, or provide business
services of any nature directly or indirectly to a corporation or other business
enterprise.
<PAGE>
3. Compensation and Benefits.
-------------------------
(a) Base Salary. During the Employment Period, the Executive shall
-----------
receive a base salary ("Base Salary") at a bi-weekly rate at least equal to the
bi-weekly salary paid to the Executive by Mattel on the date of this Agreement.
The Base Salary shall be reviewed from time to time in accordance with Mattel's
policies and practices, but no less frequently than once every eighteen (18)
months and may be increased at any time and from time to time by action of the
Board of Directors of Mattel or the Compensation/Options Committee thereof or
any individual having authority to take such action in accordance with Mattel's
regular practices. Any increase in the Base Salary shall not serve to limit or
reduce any other obligation of Mattel hereunder and, after any such increase,
the Base Salary shall not be reduced.
(b) Bonus Programs. In addition to the Base Salary, the Executive
--------------
shall be eligible to participate throughout the Employment Period in such cash,
deferred bonus, annual bonus and long term bonus plans and programs ("Bonus
Programs"), such as Mattel's Management Incentive Plan (the "MIP") and Long Term
Incentive Plan (the "LTIP"), as may be in effect from time to time in accordance
with Mattel's compensation practices and the terms and provisions of any such
plans or programs as in effect from time to time; provided that the Executive's
eligibility for and participation in each of the Bonus Programs shall be at a
level and on terms and conditions no less favorable than those available to any
other comparably situated executive or consultant.
(c) Incentive Plans. In addition to the Base Salary and
---------------
participation in the Bonus Programs, during the Employment Period the Executive,
shall be eligible to participate, subject to the terms and conditions thereof,
in all incentive plans and programs, including, but not limited to, stock option
plans and other equity based incentive plans, as may be in effect from time to
time with respect to executives employed by Mattel at the Executive's level so
as to reflect the Executive's responsibilities.
(d) Pension and Welfare Benefit Plans. During the Employment Period,
---------------------------------
the Executive and/or the Executive's dependents, as the case may be, shall be
eligible to participate in, subject to the terms and conditions thereof, all
pension, profit sharing, medical, dental, disability, group life, accidental
death and travel accident insurance plans and programs of Mattel as in effect
from time to time with respect to executives employed by Mattel at the
Executive's level so as to reflect the Executive's responsibilities. In
addition, the Executive shall be credited for all years of employment service
with Mattel for purposes of such plans and programs of Mattel, unless such
crediting is prohibited by law or would adversely affect the tax status of the
plan or program.
(e) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the policies and practices of Mattel as in
effect from time to time.
2
<PAGE>
(f) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits (including automobile benefits, financial
counseling, membership in one city or country club and related expenses) of the
kind and quality which are provided to executives at the Executive's level in
accordance with the policies of Mattel as in effect from time to time with
respect to executives employed by Mattel at the Executive's level so as to
reflect the Executive's responsibilities.
(g) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the policies and practices of
Mattel as in effect from time to time.
(h) Stock Options. During the Employment Period, the Executive shall
-------------
be entitled to participate in Mattel's stock option plans in accordance with the
policies and practices of Mattel as in effect from time to time with respect to
executives employed by Mattel at the Executive's level so as to reflect the
Executive's responsibilities.
(i) Certain Amendments. Nothing herein shall be construed to prevent
------------------
Mattel from amending, altering, eliminating or reducing any plans, benefits or
programs set forth in Sections 3(b) through (h) so long as such actions do not
result in a material diminution in the aggregate value of such compensation and
benefits, except for across-the-board compensation and benefit reductions to
which the Executive agrees and which affect all similarly situated executives of
Mattel.
(j) Retention Loan. Mattel and the Executive have entered into that
--------------
certain Loan Agreement (the "Loan Agreement") dated as of October 29, 1999,
which provided, among other things, that the definitions of "Cause," "Change of
Control," "Disability" and "Good Reason" contained in this Agreement supercede
the definitions of such terms as set forth in the Loan Agreement.
4. Termination.
-----------
(a) Death or Disability. This Agreement shall terminate
-------------------
automatically upon the Executive's death; provided that the Executive's Base
Salary will be continued and paid for a period of six months thereafter. Mattel
may terminate this Agreement, after having established the Executive's
Disability, by giving to the Executive written notice of its intention to
terminate the Executive's employment, and the Executive's employment with Mattel
shall terminate effective on the 90th day after receipt of such notice (the
"Disability Effective Date"). For purposes of this Agreement, the Executive's
Disability shall occur and shall be deemed to have occurred only in the event
that the Executive suffers a disability due to illness or injury which
substantially and materially limits the Executive from performing each of the
essential functions of the Executive's job, even with reasonable accommodation
and becomes entitled to receive disability benefits under the Mattel Long-Term
Disability Plan for exempt employees.
3
<PAGE>
(b) Cause. Mattel may terminate the Executive's employment for
"Cause" upon a determination of the Chief Executive Officer of Mattel that
"Cause" exists. For purposes of this Agreement, "Cause" means (i) one or more
factually substantiated willful acts of dishonesty on the Executive's part which
are intended to result in the Executive's substantial personal enrichment at the
expense of Mattel; (ii) repeated violations by the Executive of the Executive's
obligations under Section 2 of this Agreement which are demonstrably willful and
deliberate on the Executive's part and which resulted in material injury to
Mattel; (iii) conduct of a factually substantiated criminal nature (commonly
defined as a "felony" in criminal statutes) which has or which is more likely
than not to have a material adverse effect on Mattel's reputation or standing in
the community or on its continuing relationships with its customers or those who
purchase or use its products; or (iv) factually substantiated fraudulent conduct
in connection with the business or affairs of Mattel, regardless of whether said
conduct is designed to defraud Mattel or others; provided that, in each case,
the Executive has received written notice of the described activity, has been
afforded a reasonable opportunity to cure or correct the activity described in
the notice, and has failed to substantially cure, correct or cease the activity,
as appropriate.
(c) Good Reason. The Executive may terminate the Executive's
employment at any time for Good Reason. For purposes of this Agreement, "Good
Reason" means the good faith determination by the Executive that any one or more
of the following have occurred:
(i) without the express written consent of the Executive,
any change(s) in any of the duties, authority, or responsibilities of the
Executive which is (are) inconsistent in any substantial respect with the
Executive's position, authority, duties, or responsibilities as contemplated by
Section 2 of this Agreement;
(ii) any failure by Mattel to comply with any of the
provisions of Section 3 of this Agreement, other than an insubstantial and
inadvertent failure remedied by Mattel promptly after receipt of notice thereof
given by the Executive;
(iii) any proposed termination by Mattel of the Executive's
employment other than as permitted by this Agreement;
(iv) any failure by Mattel to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by Section
11(b); or
(v) transferring the Executive outside of the greater Los
Angeles, California area without the Executive's express written consent.
(d) Change of Control. "Change of Control" means:
-----------------
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the
4
<PAGE>
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of Mattel, including the shares of
common stock of Mattel issuable upon an exchange of Softkey Exchangeable Shares
that are not owned by Mattel or any corporation controlled by Mattel (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of Mattel entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following shall not
constitute a Change of Control: (a) any acquisition directly from Mattel, (b)
any acquisition by Mattel or any corporation controlled by Mattel, (c) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by Mattel or any corporation controlled by Mattel, (d) any
acquisition by a Person of 20% of either the Outstanding Company Common Stock or
the Outstanding Company Voting Securities as a result of an acquisition of
common stock of Mattel by Mattel or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of Mattel or Softkey
Exchangeable Shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting Securities; provided,
however, that if a Person shall become the beneficial owner of 20% or more of
either the Outstanding Company Common Stock or the Outstanding Company Voting
Securities by reason of a share acquisition by Mattel or by Softkey as described
above and shall, after such share acquisition by Mattel or Softkey, become the
beneficial owner of any additional shares of common stock of Mattel, then such
acquisition shall constitute a Change of Control or (e) any acquisition pursuant
to a transaction which complies with clauses (a), (b) and (c) of subsection
(iii) of this Section 4(d); provided, further, however, that for purposes of
this subsection (i), any Investing Person (as such term is defined in the Rights
Agreement) shall be deemed not to be a beneficial owner of any Investment Shares
(as such term is defined in the Rights Agreement) and the holder of the Mattel
Special Voting Preferred Share (as such term is defined in the Rights Agreement)
shall be deemed not to be a beneficial owner of such Mattel Special Voting
Preferred Share; or
(ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by Mattel's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
through such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) consummation by Mattel of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Mattel or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (a)
all or substantially all of the individuals and entities
5
<PAGE>
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns Mattel or all or
substantially all of Mattel's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (b) no
Person (excluding any employee benefit plan (or related trust) of Mattel or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding share
of common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (c) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) approval by the shareholders of Mattel of a complete
liquidation or dissolution of Mattel.
For the purposes of this Section 4(d), (a) "Rights Agreement" means
the Rights Agreement, dated as of February 7, 1992, as amended by an amendment
dated as of May 13, 1999 and an amendment dated as of November 4, 1999 by and
between Mattel and BankBoston N.A., a national banking association, formerly,
The First National Bank of Boston, and not giving effect to any amendments
subsequent to November 4, 1999, (b) "Softkey" means Softkey Software Products
Inc., an Ontario corporation, and (c) "Softkey Exchangeable Shares" means the
Exchangeable Shares in the capital stock of Softkey.
(e) Notice of Termination. Any termination of the Executive's
---------------------
employment by Mattel for Cause or following a Change of Control or by the
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 15(b). Any termination by
Mattel due to Disability shall be given in accordance with Section 4(a). For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon; (ii) except in the event of a termination following a Change of Control,
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated; and (iii) specifies the Date of Termination (defined below).
(f) Date of Termination. "Date of Termination" means the date of
-------------------
actual receipt of the Notice of Termination or any later date specified therein
(but not more than fifteen
6
<PAGE>
(15) days after the giving of the Notice of Termination), as the case may be;
provided that (i) if the Executive's employment is terminated by Mattel for any
reason other than Cause or Disability, the Date of Termination is the date on
which Mattel notifies the Executive of such termination; (ii) if the Executive's
employment is terminated due to Disability, the Date of Termination is the
Disability Effective Date; and (iii) if the Executive's employment is terminated
due to the Executive's death, the Date of Termination shall be the date of
death.
5. Obligations of Mattel upon Termination. Other than as specifically set
--------------------------------------
forth or referenced in this Agreement, the Executive shall not be entitled to
any benefits on or after the Date of Termination.
(a) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death, this Agreement shall terminate without further
obligations by Mattel to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder or under the terms of
the applicable Mattel plan or program which takes effect at the date of the
Executive's death or as otherwise provided in Section 4(a) or this Section 5(a).
As of the Date of Termination, the Executive's family shall be entitled to
healthcare coverage and financial counseling benefits until the third
anniversary of the Date of Termination.
(b) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability, the Executive shall be entitled to receive
after the Disability Effective Date (i) disability benefits, if any, at least
equal to those then provided by Mattel to disabled executives and/or their
families and (ii) until the earlier of the third anniversary of the Date of
Termination or the date the Executive accepts other employment, those other
benefits on the terms described in Section 5(d)(v).
(c) Cause. If the Executive's employment is terminated for Cause or
-----
if the Executive terminates the Executive's employment without Good Reason,
Mattel shall pay the Executive the Executive's full Base Salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given,
and Mattel shall have no further obligations to the Executive under this
Agreement.
(d) Good Reason; Other Than for Cause or Disability. If Mattel
-----------------------------------------------
terminates the Executive's employment other than for Cause or Disability or the
Executive terminates the Executive's employment for Good Reason (in each case,
other than within 18 months following a Change of Control as provided in Section
5(e):
(i) Mattel shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) if not theretofore paid, the Executive's Base
Salary through the Date of Termination at the rate in effect at the time of
Notice of Termination was given;
7
<PAGE>
(B) a current year bonus (the "Bonus") equal to the
greater of (x) the average of the two highest annual bonuses received by the
Executive under the MIP, or any successor plan, in the three years prior to the
Date of Termination, including any years in which the Executive was paid no
bonus, (the "Average Annual Bonus") and prorated to reflect the total number of
full months the Executive is employed on an active and full time basis in the
year in which termination occurs, (y) the annual bonus paid to the Executive,
under the MIP or any successor plan, if any, for the 2000 or 2001 calendar year,
whichever is greater, without proration, or (z) the target annual bonus (50%)
for the Executive under the MIP for the 2000 calendar year;
(C) three times the sum of (x) the Executive's annual
Base Salary at the rate in effect at the time the Notice of Termination is given
and (y) the Bonus defined in Section 5(d)(i)(B), but without proration (and, in
each such case, without regard to any contributions by Mattel for the
Executive's benefit to any retirement or other investment plans).
(ii) Mattel shall pay the Executive a portion of any long-
term incentive compensation that Executive would have received under the LTIP
with respect to any performance period which is pending as of the Executive's
Date of Termination as if the Executive had remained employed for the entire
performance period, pro rated based on the number of full months of Executive's
employment during the performance period over the total number of months in the
performance period, which amount shall be payable at the end of the period in
accordance with the terms of the LTIP and shall be net of any interim payments
previously made to the Executive.
(iii) Any options granted to the Executive under Mattel's
stock option plans, other than Mattel's 1997 Premium Price Stock Option Plan or
any successor thereto (the "Stock Option Plans"), shall become immediately
exercisable and the Executive shall have a period of 90 days following the Date
of Termination (but in no event past the expiration of the term of the option
grant) to exercise all options granted under the Stock Option Plans then
exercisable or which become exercisable pursuant to this clause (iii).
(iv) Mattel shall, promptly upon submission by the Executive
of supporting documentation, pay or reimburse to the Executive any costs and
expenses paid or incurred by the Executive which would have been payable under
Section 3(e) if the Executive's employment had not terminated.
(v) Until the earlier of (x) the third anniversary of the
Date of Termination or (y) the date the Executive becomes gainfully employed in
a substantially similar employment position, Mattel shall provide to the
Executive at Mattel's expense:
(A) coverage under Mattel's medical, dental,
prescription drug and vision care group insurance as in effect from time to time
on the same terms and conditions as such insurance is available to active
employees of Mattel (the last 18 months of the
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<PAGE>
Executive's coverage under such insurance shall be deemed to be participation
under an election to continue such benefits under the Consolidated Omnibus
Budget Reconciliation Act at Mattel's expense);
(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor;
(C) financial counseling and tax preparation services
through the vendor engaged and paid for by Mattel;
(D) automobile benefits; provided however, that if
such automobile is leased by Mattel, such benefits shall expire upon expiration
of such lease. Upon expiration of the automobile benefits, at which time the
Executive may purchase the car for either $100, if the automobile benefits
terminate at the end of the lease term, or Mattel's book value, if the
automobile benefits terminate on either the third anniversary of the Date of
Termination or the date on which the Executive accepts other employment. As of
the Date of Termination, all expenses related to such automobile, including but
not limited to insurance, repairs, maintenance, gasoline, and car phone and
associated expenses, shall be the sole responsibility of the Executive; and
(E) membership in one city or country club and related
expenses. Mattel shall cause the membership to be transferred to the Executive
at no cost to the Executive.
(vi) If the Executive is a participant in the Mattel
Supplemental Executive Retirement Plan, the Mattel Deferred Compensation Plan or
the Mattel Retiree Medical Plan, the Executive shall be given credit for three
years of service (in addition to actual service) and for three years of attained
age to be added to the Executive's actual age for purposes of computing any
service and age-related benefits for which the Executive is eligible under such
plans.
Notwithstanding the foregoing, if Mattel terminates the Executive's employment
other than for Cause or Disability or if the Executive terminates the
Executive's employment for Good Reason and such termination occurs within 18
months after the date upon which Mattel changes the person to whom the Executive
immediately reports, then (a) the Executive's "Average Annual Bonus" for the
purpose of calculating the amounts provided by clauses (d)(i)(B) and (d)(i)(C)
above shall be equal to the Executive's maximum targeted MIP bonus for the year
in which the termination of employment occurs and (b) the amount payable to the
Executive under clause (d)(ii) above shall be based on the maximum LTIP payment
that the Executive could have received with respect to the pending performance
period, rather than amount which would have been payable to the Executive had
the Executive remained employed for the entire performance period.
Notwithstanding the foregoing, the amounts payable with respect to a termination
of
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employment which is subject to the preceding sentence shall be prorated as
set forth in clauses (d)(i)(B) and (d)(ii).
(e) Change of Control. If, within 18 months following a Change of
-----------------
Control, the Executive terminates the Executive's employment for Good Reason or
Mattel or the surviving entity terminates the Executive's employment other than
for Cause or Disability or within the 30 day period immediately following the
six (6) month anniversary of a Change of Control the Executive terminates the
Executive's employment for any reason:
(i) Mattel shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) if not theretofore paid, the Executive's Base
Salary through the Date of Termination at the rate in effect at the time of
Notice of Termination was given;
(B) a current year bonus (the "Bonus Amount") equal to
the greater of (x) the average of the two highest annual bonuses received by the
Executive under the MIP, or any successor plan, in the three years prior to the
Date of Termination, including any years in which the Executive was paid no
bonus, and prorated to reflect the total number of full months the Executive is
employed on an active and full time basis in the year in which termination
occurs, (y) the annual bonus paid to the Executive, under the MIP or any
successor plan, if any, for the 2000 or 2001 calendar year, whichever is
greater, without proration, or (z) the target annual bonus (50%) for the
Executive under the MIP for the 2000 calendar year;
(C) three times the sum of (x) the Executive's annual
Base Salary at the rate in effect at the time the Notice of Termination is given
and (y) the Bonus Amount defined in Section 5(e)(i)(B), but without proration
(and, in each such case, without regard to any contributions by Mattel for the
Executive's benefit to any retirement or other investment plans).
(ii) Any options granted to the Executive under Mattel's
stock option plans, other than Mattel's 1997 Premium Price Stock Option Plan or
any successor thereto (the "Stock Option Plans"), shall become immediately
exercisable and the Executive shall have a period of 90 days or such longer
period of time as specified in the Stock Option Plans following the Date of
Termination (but in no event past the expiration of the term of the option
grant) to exercise all options granted under the Stock Option Plans then
exercisable or which become exercisable pursuant to this clause (ii).
(iii) Mattel shall, promptly upon submission by the Executive
of supporting documentation, pay or reimburse to the Executive any costs and
expenses paid or incurred by the Executive which would have been payable under
Section 3(e) if the Executive's employment had not terminated.
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(iv) Until the earlier of (x) the third anniversary of the
Date of Termination or (y) the date the Executive becomes gainfully employed in
a substantially similar employment position, Mattel shall provide to the
Executive at Mattel's expense:
(A) coverage under Mattel's medical, dental,
prescription drug and vision care group insurance as in effect from time to time
on the same terms and conditions as such insurance is available to active
employees of Mattel (the last 18 months of the Executive's coverage under such
insurance shall be deemed to be participation under an election to continue such
benefits under the Consolidated Omnibus Budget Reconciliation Act at Mattel's
expense);
(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor;
(C) financial counseling and tax preparation services
through the vendor engaged and paid for by Mattel;
(D) automobile benefits; provided however, that if
such automobile is leased by Mattel, such benefits shall expire upon expiration
of such lease. Upon expiration of the automobile benefits, at which time the
Executive may purchase the car for either $100, if the automobile benefits
terminate at the end of the lease term, or Mattel's book value, if the
automobile benefits terminate on either the third anniversary of the Date of
Termination or the date on which the Executive accepts other employment. As of
the Date of Termination, all expenses related to such automobile, including but
not limited to insurance, repairs, maintenance, gasoline, and car phone and
associated expenses, shall be the sole responsibility of the Executive; and
(E) membership in one city or country club and related
expenses. Mattel shall cause the membership to be transferred to the Executive
at no cost to the Executive.
(v) If the Executive is a participant in the Mattel
Supplemental Executive Retirement Plan, the Mattel Deferred Compensation Plan or
the Mattel Retiree Medical Plan, the Executive shall be given credit for three
years of service (in addition to actual service) and for three years of attained
age to be added to the Executive's actual age for purposes of computing any
service and age-related benefits for which the Executive is eligible under such
plans.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by Mattel and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any stock option or other
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agreement with Mattel or any of its affiliated companies. Except as otherwise
provided herein, amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of Mattel at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
7. No Set Off, Payment of Fees. Except as provided herein, Mattel's
---------------------------
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation any set-off, counterclaim, recoupment, defense or
other right which Mattel may have against the Executive or others. Mattel
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by Mattel or others of the validity or enforceability
of, or liability under, any provision of this Agreement other than expenses
relating to a claim by the Executive that the Executive terminated for Good
Reason or that the termination for Cause was improper, in which case such fees
and expenses shall be paid only if the Executive prevails in whole or in part.
In the event that the Executive shall in good faith give a Notice of Termination
for Good Reason and it shall thereafter be determined that Good Reason did not
exist, the employment of the Executive shall, unless Mattel and the Executive
shall otherwise mutually agree, be deemed to have terminated at the Date of
Termination specified in such purported Notice of Termination by mutual consent
of Mattel and the Executive and thereupon, the Executive shall be entitled to
receive only those payments and benefits which the Executive would have been
entitled to receive at such date.
8. Arbitration of Disputes.
-----------------------
(a) The parties agree that any disputes, controversies or claims
which arise out of or relate to this Agreement, the Executive's employment or
the termination of the Executive's employment, including, but not limited to,
any claim relating to the purported validity, interpretation, enforceability or
breach of this Agreement, and/or any other claim or controversy arising out of
the relationship between the Executive and Mattel (or the nature of the
relationship) or the continuation or termination of that relationship,
including, but not limited to, claims that a termination was for Cause, or for
Good Reason, claims for breach of covenant, breach of an implied covenant of
good faith and fair dealing, wrongful termination, breach of contract, or
intentional infliction of emotional distress, defamation, breach of right of
privacy, interference with advantageous or contractual relations, fraud,
conspiracy or other tort or property claims of any kind, which are not settled
by agreement between the parties, shall be settled by expedited arbitration
under the then applicable arbitration rules of JAMS/Endispute (or any other
mutually agreed arbitrator) before a board of three arbitrators, as selected
thereunder.
One arbitrator shall be selected by the Executive, one by Mattel and
the third by the two persons so selected, all in accordance with the then
applicable arbitration rules of JAMS/Endispute then in effect. In the event that
the arbitrator selected by the Executive and the arbitrator selected by Mattel
are unable to agree upon a third arbitrator, then the third arbitrator shall be
selected from a list of seven (each of whom shall be a member of the
"Independent List"
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of retired judges with experience in resolving employment disputes) provided by
the Los Angeles office of JAMS/Endispute with the parties striking names in
order and the party striking first to be determined by the flip of a coin. The
arbitration shall be held in a location mutually agreed upon by the parties. In
the absence of agreement, the arbitration shall be held in Los Angeles,
California.
(b) In consideration of the parties' agreement to submit to
arbitration all disputes with regard to this Agreement and/or with regard to any
alleged contract, or any other claim arising out of their conduct, the
relationship existing hereunder or the continuation or termination of that
relationship, and in further consideration of the anticipated expedition and the
minimizing of expense resulting from this arbitration remedy, the arbitration
provisions of this Agreement shall provide the exclusive remedy, and each party
expressly waives any right the Executive or it may have to seek redress in any
other forum.
(c) Any claim which either party has against the other party which
could be submitted for resolution pursuant to this Section 8 must be presented
in writing by the claiming party to the other within the period of the
applicable statue of limitations.
(d) Mattel will pay all costs and expenses of the arbitration.
(e) Any decision and award or order of a majority of the arbitrators
shall be binding upon the parties hereto and judgment thereon may be entered in
the Superior Court of the State of California or any other court having
jurisdiction.
(f) Each of the above terms and conditions of this Section 8 shall
have separate validity and the invalidity of any part thereof shall not affect
the remaining parts.
(g) Any decision and award or order of a majority of the arbitrators
shall be final and binding between the parties as to all claims which were
raised in connection with the dispute to the full extent permitted by law. In
all other cases, the parties agree that a decision of a majority of arbitrators
shall be a condition precedent to the institution or maintenance of any legal,
equitable, administrative, or other formal proceeding by Mattel or the Executive
in connection with the dispute, and that the decision and opinion of the board
of arbitrators may be presented in any other forum on the merits of the dispute.
9. General Release. The Executive acknowledges and agrees that this
---------------
Agreement includes the entire agreement and understanding between the parties
with regard to the Executive's employment, the termination thereof during the
Employment Period, and all amounts to which the Executive shall be entitled
whether during the term of employment or upon termination thereof. The
Executive also acknowledges and agrees that the Executive's right to receive
severance pay and other benefits pursuant to subsections (b), (d) and (e) of
Section 5 of this Agreement is contingent upon the Executive's compliance with
the covenants set forth in Section 10 of this Agreement and the Executive's
execution and acceptance of the terms and
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conditions of, and the effectiveness of the General Release of All Claims (the
"Release") attached hereto as Exhibit "A." If the Executive fails to comply with
the covenants set forth in Section 10 or if the Executive fails to execute the
Release within twenty-one (21) days of receipt of such Release, then the
Executive shall not be entitled to any severance payments or other benefits to
which the Executive would otherwise be entitled under subsections (b), (d) and
(e) of Section 5 of this Agreement.
10. The Executive's Covenants.
-------------------------
(a) The Executive acknowledges that in the Executive's capacity in
management, the Executive has had a great deal of exposure and access to a broad
variety of commercially valuable proprietary information which is vital to the
success of Mattel's business including, by way of illustration, past, current
and future products and product concepts, marketing strategies, research and
plans and information regarding employees. The Executive acknowledges that as a
result of the Executive's knowledge of the above information and in
consideration for the benefits offered by Mattel under this Agreement, the
Executive hereby agrees to reaffirm and recognize the Executive's continuing
obligations with respect to the use and disclosure of confidential and
proprietary information of Mattel pursuant to the Mattel's policies as set forth
in Mattel's form Executive Patent and Confidence Agreement, as revised from time
to time, and by this reference made a part hereof. Pursuant thereto, the
Executive acknowledges and agrees that Mattel shall be entitled to injunctive
relief to prevent a threatened misappropriation of one or more of the Mattel's
trade secrets or to halt an actual misappropriation of such trade secrets. The
Executive shall hold in a fiduciary capacity for the benefit of Mattel all
secret or confidential information, knowledge or data relating to Mattel or any
of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by Mattel or
any of its affiliated companies and which shall not be public knowledge. After
termination of the Executive's employment with Mattel, the Executive shall not,
without the prior written consent of Mattel, communicate or divulge any such
information, knowledge or data to anyone other than Mattel and those designated
by it. The Executive further represents and agrees that, unless otherwise
required by law, the Executive will keep the terms, amount and fact of this
Agreement completely confidential, and that the Executive will not hereafter
disclose any information concerning this Agreement to anyone other than
Executive's immediate family and professional representatives who will be
informed of and bound by this confidentiality clause.
(b) If the termination of the Executive's employment occurs prior to
a Change of Control, the Executive agrees that eligibility for severance
payments and other benefits under this Agreement are contingent upon the
Executive's agreement and compliance with Mattel's requirement that the
Executive does not accept employment nor an engagement as a consultant with a
competitor whereupon such position is comparable to the position the Executive
held with Mattel and where the Executive can not reasonably satisfy Mattel that
the new employer is prepared to and/or does take adequate steps to preclude and
to prevent inevitable disclosure of trade secrets, as prohibited under the
Mattel's policies with respect to the use and disclosure of
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confidential and proprietary information, as set forth in Mattel's form
Executive Patent and Confidence Agreement, as revised from time to time, and by
this reference made a part hereof. If the Executive accepts employment or a
consulting relationship with a competitor as described above, no further
payments nor eligibility for benefits continuation will be available to the
Executive as of the date the Executive commences such employment/consulting. It
is a specific condition of this Agreement that so long as the Executive is
receiving any payments or benefits under this Agreement with respect to a
termination of the Executive's employment prior to a Change of Control, the
Executive is obligated to immediately notify Mattel as to the specifics of the
new position that the Executive is planing to commence as an employee or
consultant for any company which is a competitor of Mattel.
(c) The Executive agrees that so long as the Executive is receiving
any payments or benefits under this Agreement and for a period of 12 months
thereafter, the Executive will not participate in recruiting any of Mattel's
employees or in the solicitation of Mattel's employees, and the Executive will
not communicate to any other person or entity, about the nature, quality or
quantity of work, or any special knowledge or personal characteristics of any
person employed by Mattel. If the Executive should wish to discuss possible
employment with any then-current Mattel employee during the 12-month period set
forth above, the Executive may request written permission to do so from the
senior human resources officer of Mattel who may, in his/her discretion, grant a
written exception to the no solicitation agreement set forth above, provided,
however, the Executive agrees that the Executive will not discuss any such
employment possibility with such employees prior to securing Mattel's
permission. If Mattel should decline to grant such permission, the Executive
agrees that the Executive will not at any time, either during or after the non-
solicitation period set forth above, advise the employee concerned that he/she
was the subject of a request under this paragraph or that Mattel refused to
grant the Executive the right to discuss an employment possibility with him/her.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the
prior written consent of Mattel shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Mattel and its successors. Mattel shall require any successor to all or
substantially all of the business and/or assets of Mattel, whether direct or
indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Mattel would be required to perform if no such succession
had taken place.
12. Amendment; Waiver. This Agreement contains the entire agreement
--------- ------
between the parties with respect to the subject matter hereof and may be
amended, modified or changed only
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<PAGE>
by a written instrument executed by the Executive and Mattel. No provision of
this Agreement may be waived except by a writing executed and delivered by the
party sought to be charged. Any such written waiver will be effective only with
respect to the event or circumstance described therein and not with respect to
any other event or circumstance, unless such waiver expressly provides to the
contrary.
13. Long Term Incentive Compensation Plan Payments After a Change of
----------------------------------------------------------------
Control.
- -------
(a) In the event of a Change of Control during the Employment
Period, Mattel shall pay the Executive a cash payment as provided under the
provisions of the LTIP, as in effect immediately prior to the Change of Control.
(b) In addition, in the event of a Change of Control during the
Employment Period, within thirty (30) days after the date of such Change of
Control, Mattel shall pay the Executive any unpaid amounts to which the
Executive is entitled with respect to any performance period under the LTIP, or
any other successor long-term incentive compensation plan of Mattel, that has
been completed as of the date of the Change of Control.
14. Certain Additional Payments by Mattel.
-------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any Payment
(as defined below) would be subject to the Excise Tax (as defined below), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 14(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Parachute Value of Payments (as defined below)
does not exceed 110% of the Safe Harbor Amount (as defined below), then no
Gross-Up Payment shall be made to the Executive and the Agreement Payments (as
defined below), in the aggregate, shall be reduced to (but not below zero) such
that the Parachute Value of all Payments equals the Safe Harbor Amount,
determined in such a manner as to maximize the Value of all Payments (as defined
below) actually made to the Executive.
(b) Subject to the provisions of Section 14(c), all determinations
required to be made under this Section 14, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PricewaterhouseCooper LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to Mattel and the
Executive within 15
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business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by Mattel. All fees and expenses
of the Accounting Firm shall be borne solely by Mattel. Subject to Section 14(e)
below, any Gross-Up Payment, as determined pursuant to this Section 14, shall be
paid by Mattel to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Mattel and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by Mattel should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Mattel exhausts
its remedies pursuant to Section 14(c) and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by Mattel to or for the benefit of the Executive.
(c) The Executive shall notify Mattel in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Mattel of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise Mattel of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to Mattel (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If
Mattel notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give Mattel any information reasonably requested by
Mattel relating to such claim,
(ii) take such action in connection with contesting such
claim as Mattel shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by Mattel,
(iii) cooperate with Mattel in good faith in order effectively
to contest such claim, and
(iv) permit Mattel to participate in any proceedings relating
to such claim;
provided, however, that Mattel shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 14(c), Mattel shall control all proceedings taken in connection
with such contest and, at
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its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Mattel shall determine; provided, however, that if Mattel
directs the Executive to pay such claim and sue for a refund, Mattel shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, Mattel's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
Mattel pursuant to Section 14(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to Mattel's
complying with the requirements of Section 14(c)) promptly pay to Mattel the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by Mattel pursuant to Section 14(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Mattel does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 14, Mattel
may withhold and pay over to the Internal Revenue Service for the benefit of the
Executive all or any portion of the Gross-Up Payment that it determines in good
faith that it is or may be in the future required to withhold, and the Executive
hereby consents to such withholding.
(f) Definitions. The following terms shall have the following
-----------
meanings for purposes of this Section 14.
(i) An "Agreement Payment" shall mean a Payment paid or
payable pursuant to this Agreement (disregarding this Section 14) and any
payment relating to the Loan Agreement.
(ii) "Excise Tax" shall mean the excise tax imposed by
Section 4999 of the Code, together with any interest or penalties imposed with
respect to such excise tax.
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(iii) The "Net After-Tax Amount" of a Payment shall mean the
Value of a Payment net of all taxes imposed on the Executive with respect
thereto under Sections 1 and 4999 of the Code and applicable state and local
law, determined by applying the highest marginal rates that are expected to
apply to the Executive's taxable income for the taxable year in which the
Payment is made.
(iv) "Parachute Value" of a Payment shall mean the present
value as of the date of the change of control for purposes of Section 280G of
the Code of the portion of such Payment that constitutes a "parachute payment"
under Section 280G(b)(2), as determined by the Accounting Firm for purposes of
determining whether and to what extent the Excise Tax will apply to such
Payment.
(v) A "Payment" shall mean any payment or distribution in
the nature of compensation (within the meaning of Section 280G(b)(2) of the
Code) to or for the benefit of the Executive, whether paid or payable pursuant
to this Agreement or otherwise.
(vi) The "Safe Harbor Amount" means the maximum Parachute
Value of all Payments that the Executive can receive without any Payments being
subject to the Excise Tax.
(vii) "Value" of a Payment shall mean the economic present
value of a Payment as of the date of the change of control for purposes of
Section 280G of the Code, as determined by the Accounting Firm using the
discount rate required by Section 280G(d)(4) of the Code.
15. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(b) All notices and other communications hereunder shall be in
writing; shall be delivered by hand delivery to the other party or mailed by
registered or certified mail, return receipt requested, postage prepaid; shall
be deemed delivered upon actual receipt; and shall be addressed as follows:
If to Mattel:
------------
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
If to Executive:
---------------
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Mr. Matthew Bousquette
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
(d) Mattel may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) Mattel agrees to reimburse the Executive for the reasonable
attorneys' fees and costs incurred by the Executive in connection with this
Agreement and the Loan Agreement, in an aggregate amount not to exceed $10,000.
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first set forth above.
EXECUTIVE:
MATTHEW C. BOUSQUETTE
/s/ Matthew C Bousquette
----------------------------------
MATTEL: MATTEL, INC.,
a Delaware corporation
By: /s/ Jill E. Barad 1/31/00
-------------------------------
Its: Chief Executive Officer
------------------------------
ATTEST:
- -------------------
Assistant Secretary
<PAGE>
Exhibit "A"
GENERAL RELEASE
OF ALL CLAIMS
1. For valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned ("Executive") does hereby on behalf of Executive
and Executive's successors, assigns, heirs and any and all other persons
claiming through Executive, if any, and each of them, forever relieve, release,
and discharge Mattel, Inc. ("Mattel") and its respective predecessors,
successors, assigns, owners, attorneys, representatives, affiliates, Mattel
corporations, subsidiaries (whether or not wholly-owned), divisions, partners
and their officers, directors, agents, employees, servants, executors,
administrators, accountants, investigators, insurers, and any and all other
related individuals and entities, if any, and each of them, in any and all
capacities from any and all claims, debts, liabilities, demands, obligations,
liens, promises, acts, agreements, costs and expenses (including, but not
limited to attorneys' fees), damages, actions and causes of action, of whatever
kind or nature, including, without limiting the generality of the foregoing, any
claims arising out of, based upon, or relating to the hire, employment,
remuneration (including salary; bonus; incentive or other compensation;
vacation, sick leave or medical insurance benefits; or other benefits) or
termination of Executive's employment with Mattel.
2. This release includes a release of any rights or claims Executive may have
under the Age Discrimination in Employment Act, which prohibits age
discrimination in employment as to individuals forty years of age and older; the
Older Workers Benefit Protection Act, which prohibits discrimination against
older workers in all Executive benefits; Title VII of the Civil Rights Act of
1964, as amended in 1991, which prohibits discrimination in employment based on
race, color, national origin, religion or sex; the California Fair Employment
and Housing Act, which prohibits discrimination based on race, color, religion,
national origin, ancestry, physical or mental disability, medical condition,
sex, pregnancy-related condition, marital status, age or sexual orientation; the
Equal Pay Act, which prohibits paying men and women unequal pay for equal work;
the Americans with Disabilities Act, which prohibits discrimination against
qualified individuals with disabilities; or any other federal, state or local
laws or regulations which prohibit employment discrimination, restrict an
employer's right to terminate Executives, or otherwise regulate employment.
This also includes a release by Executive of any claims for breach of contract,
wrongful discharge and all claims for alleged physical or personal injury,
emotional distress relating to or arising out of Executive's employment with
Mattel or the termination of that employment; any claims under the WARN Act or
any similar law, which requires, among other things, that advance notice be
given of certain work force reductions; and all claims under the Employee
Retirement Income Security Act, such as claims relating to pension or health
plan benefits.
<PAGE>
3. Notwithstanding any other provision of this Agreement, this release does
not apply to any rights or claims which arise after the execution of this
Agreement or to any rights or claims with respect to any breach of that certain
Executive Employment Agreement (the "Employment Agreement") by between Executive
and Mattel.
4. This release, as contained within this Agreement, covers both claims that
Executive knows about and those Executive may not know about. Executive
expressly waives all rights afforded by any statute (such as Section 1542 of the
Civil Code of the State of California) which limits the effect of a release with
respect to unknown claims. Executive understands the significance of
Executive's release of unknown claims and Executive's waiver of statutory
protection against a release of unknown claims (such as under Section 1542).
Section 1542 of the Civil Code of the State of California states as follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor."
Notwithstanding the provisions of Section 1542, Executive expressly acknowledges
that this release is intended to include both claims that Executive knows about
and those Executive does not know or suspect to exist.
5. The provisions of this Agreement are severable, and if any part of it is
found to be unenforceable, the other paragraphs shall remain fully valid and
enforceable. This Agreement shall be construed in accordance with its fair
meaning and in accordance with the laws of the state of California, without
regard to conflicts of laws principles thereof.
6. Executive is strongly encouraged to consult with an attorney before signing
this Agreement. Executive acknowledges that Executive has been advised of this
right to consult an attorney and Executive understands that whether to do so is
Executive's decision. Executive acknowledges that Mattel has advised Executive
that Executive has twenty-one (21) days in which to consider whether Executive
should sign this Release and has advised Executive that if Executive signs this
Release, Executive has seven (7) days following the date on which Executive
signs the Release to revoke it and that the Release will not be effective until
after this seven-day period had lapsed.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.
Date:
-------------------- ---------------------
Executive
2 of 2
<PAGE>
EXHIBIT 10.10
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of October
29, 1999, by and between Mattel, Inc., a Delaware corporation ("Lender") and
Matthew C. Bousquette ("Borrower"). Borrower and Lender are sometimes referred
to in this Agreement as a "Party" or, collectively, as the "Parties."
RECITALS
--------
WHEREAS, Borrower desires to obtain from Lender a loan in the
principal amount of One Million Dollars ($1,000,000.00) (the "Loan"); and
WHEREAS, as an additional incentive to retain Borrower in the employ
of Lender for a period of at least three years from the date hereof, Lender
desires to grant Borrower the Loan.
NOW, THEREFORE, in consideration of the terms and conditions herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. Loan Terms.
----------
(a) Principal Amount. Lender shall pay to the order of Borrower,
----------------
on October 29, 1999, the principal sum of One Million Dollars ($1,000,000.00)
(the "Principal").
(b) Interest. Interest shall accrue on the outstanding Principal
--------
amount at the rate of seven percent (7%) per annum, compounded annually.
(c) Promissory Note. Borrower's obligation to repay the Loan shall
---------------
be evidenced by a promissory note substantially in the form attached as Exhibit
-------
A hereto (the "Note"). Borrower shall execute and deliver to Lender the Note
- -
concurrently with execution and delivery of this Agreement.
(d) Repayment. Borrower shall pay to the order of Lender the
---------
Principal and accrued interest under the Note on October 30, 2002, provided,
however, that all Principal and accrued but unpaid interest shall become
immediately due and payable thirty (30) days after the date of Borrower's
termination of employment with Lender for any reason prior to October 30, 2002,
unless Borrower commences arbitration with respect to the grounds for such
termination of employment within such thirty (30) day period, in which case all
Principal and accrued but unpaid interest shall be due and payable five (5) days
after notice to Borrower of the entry of a final judgement in such arbitration.
Interest shall continue to accrue during any such arbitration. The Loan shall be
subject to forgiveness as provided below. The Loan shall be unsecured but with
full recourse against Borrower.
<PAGE>
(e) Forgiveness. The Loan, and Borrower's obligation to repay all
-----------
outstanding Principal and accrued interest thereunder, shall be forgiven and
cancelled by Lender and the Note shall be cancelled on October 29, 2002 if
Borrower is employed by Lender on October 29, 2002, or earlier upon the date of
the termination of Borrower's employment with Lender prior to October 29, 2002
if such termination is by Lender without Cause (as defined below), by Borrower
for Good Reason (as defined below) or by reason of Borrower's death or
Disability (as defined below). In addition, if the Loan is forgiven pursuant to
the preceding sentence and if Borrower is employed by Lender on October 29, 2002
and continues to be employed by Lender, on April 1, 2003, or such earlier date
as Borrower shall be required to pay federal, state or local income taxes with
respect to the forgiveness of the Loan, Lender shall pay Borrower an additional
payment (the "Gross-Up Payment") in an amount required to fully reimburse
Borrower with respect to all federal, state and local income taxes and
employment taxes with respect to the forgiveness of the Loan and with respect to
such taxes, such that upon receipt of the Gross-Up Payment Borrower shall have
no remaining obligations with respect to such taxes. In addition, the Loan
shall be forgiven by Lender on the date of a Change of Control (as defined
below) of Lender if Borrower is employed by Lender on such date and Lender shall
pay Borrower the Gross-Up Payment with respect to the forgiveness of the Loan on
April 1, of the year following the year of the Change of Control, or such
earlier date as Borrower shall be required to pay federal, state or local income
taxes with respect to the forgiveness of the Loan.
(f) Definitions. For purposes of this Agreement, the following
-----------
terms shall have the meanings indicated below:
"Cause" shall mean a reasonable determination of the Chief
Executive Officer of Lender that at least one of the following has occurred: (i)
one or more factually substantiated willful acts of dishonesty on Borrower's
part which are intended to result in Borrower's substantial personal enrichment
at the expense of Lender; (ii) repeated violations by Borrower of Borrower's
employment obligations to Lender which are demonstrably willful and deliberate
on Borrower's part and which resulted in material injury to Lender; (iii)
conduct of a factually substantiated criminal nature (commonly defined as a
"felony" in criminal statutes) which has or which is more likely than not to
have a material adverse effect on Lender's reputation or standing in the
community or on its continuing relationships with its customers or those who
purchase or use its products; or (iv) factually substantiated fraudulent conduct
in connection with the business or affairs of Lender, regardless of whether said
conduct is designed to defraud Lender or others; provided that, in each case,
Borrower has received written notice of the described activity, has been
afforded a reasonable opportunity to cure or correct the activity described in
the notice, and has failed to substantially cure, correct or cease the activity,
as appropriate.
"Change of Control" shall be deemed to have occurred if:
(i) any "Person," which shall mean a "person" as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than Lender, any trustee or other fiduciary
holding securities under an employee benefit plan of Lender) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Lender representing 20% or more of the combined
voting power of Lender's then outstanding voting securities;
2
<PAGE>
(ii) during any period of 24 consecutive months,
individuals, who at the beginning of such period constitute the Board of
Directors of Lender, and any new director whose election by the Board of
Directors, or whose nomination for election by Lender's stockholders, was
approved by a vote of at least one-half (1/2) of the directors then in office
(other than in connection with a contested election), cease for any reason to
constitute at least a majority of the Board of Directors;
(iii) the stockholders of Lender approve (I) a plan of
complete liquidation of Lender or (II) the sale or other disposition by Lender
of all or substantially all of Lender's assets unless the acquirer of the assets
or its board of directors shall meet the conditions for a merger or
consolidation in subparagraphs (iv)(I) or (iv)(II) below; or
(iv) the consummation of a merger or consolidation of Lender
with any other entity other than:
(I) a merger or consolidation which results in the
voting securities of Lender outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the surviving entity's outstanding voting securities immediately after such
merger or consolidation; or
(II) a merger or consolidation which would result in
the directors of Lender (who were directors immediately prior thereto)
continuing to constitute at least 50% of all directors of the surviving entity
immediately after such merger or consolidation.
In this paragraph (iv), "surviving entity" shall mean only an
entity in which all of Lender's stockholders immediately before such merger or
consolidation (determined without taking into account any stockholders properly
exercising appraisal or similar rights) become stockholders by the terms of such
merger or consolidation, and the phrase "directors of Lender (who were directors
immediately prior thereto)" shall include only individuals who were directors of
Lender at the beginning of the 24 consecutive month period preceding the date of
such merger or consolidation.
"Disability" shall mean that Borrower suffers a disability due to
illness or injury which substantially and materially limits Borrower from
performing each of the essential functions of Borrower's job, even with
reasonable accommodation and becomes entitled to receive disability benefits
under Lender's Long-Term Disability Plan for exempt employees.
"Good Reason" shall mean the good faith determination by Borrower that
any one or more of the following have occurred:
(i) without the express written consent of Borrower, any
change(s) in any of the employment duties, authority, or responsibilities of
Borrower which is (are) inconsistent in any substantial respect with Borrower's
position, authority, duties, or responsibilities as of the date of this
Agreement;
3
<PAGE>
(ii) any failure by Lender to pay Borrower Borrower's salary
or earned bonuses, other than an insubstantial and inadvertent failure remedied
by Lender promptly after receipt of notice thereof given by Borrower; or
(iii) transferring Borrower outside of the greater Los
Angeles, California area without Borrower's express written consent.
(g) Notwithstanding any other provision in this Agreement, in the
event that Borrower and Lender enter into an employment agreement after the date
of this Agreement, the definition of "Cause," "Change of Control," "Disability,"
and "Good Reason" as provided in such employment agreement (or any amendments
thereto) shall supercede the definitions in Section 1(f) of this Agreement.
2. Transfer of Notes. Borrower shall not assign or transfer any of
-----------------
Borrower's benefits or obligations arising under the Notes. Lender reserves
the right to assign or transfer all or any part of, or any interest in, Lender's
rights and benefits under this Agreement or the Note to any successor to all or
part of its business or assets so long as any assignee or transferee expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent as Lender would be required to perform if no such assignment or transfer
had taken place.
3. Amendment; Waiver. This Agreement and the Note contain the entire
-----------------
agreement between the Parties with respect to the subject matter hereof and may
be amended, modified or changed only by a written instrument executed by the
Parties. No provision of this Agreement or the Note may be waived except by a
writing executed and delivered by the Party sought to be charged. Any such
written waiver will be effective only with respect to the event or circumstance
described therein and not with respect to any other event or circumstance,
unless such waiver expressly provides to the contrary.
4. Choice of Law. This Agreement shall be construed in accordance
-------------
with and governed by the internal laws of the State of California, without
reference to principles of conflict of laws.
5. Headings. The paragraph headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
6. Notices. All notices and other communications hereunder shall be
-------
in writing; shall be delivered by hand delivery to the other party or mailed by
registered or certified mail, return receipt requested, postage prepaid; shall
be deemed delivered upon actual receipt; and shall be addressed as follows:
If to Lender:
------------
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
If to Borrower:
--------------
Mr. Matthew Bousquette
4
<PAGE>
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
8. Severability. If any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
9. No Third-Party Beneficiary Rights. The Parties do not intend to
---------------------------------
confer and this Agreement shall not be construed to confer any rights or
benefits to any person, firm, group, corporation or entity other than the
Parties.
[Signature Page Follows]
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties on the date first written above.
LENDER
By: /s/ Alan Kaye
------------------------------------------
Its: Senior Vice President, Human Resources
-----------------------------------------
BORROWER
/s/ Matthew C. Bousquette
---------------------------------------------
Matthew C. Bousquette
S-1
<PAGE>
EXHIBIT A
---------
Promissory Note
$1,000,000.00 Date: October 29, 1999
Mattel, Inc. (herein referred to as "Holder") has agreed to advance to
Matthew C. Bousquette (herein referred to as "Maker") on October 29, 1999,
$1,000,000.00, and for said value received Maker promises to repay to the order
of Holder, the principal sum of $1,000,000.00 on or before October 30, 2002.
Maker shall owe to Holder interest on the principal sum in an amount equal to 7%
per annum, commencing on October 29, 1999, compounded annually, payable with
principal on October 30, 2002.
If Maker fails to make any payment set forth above when due, Holder
may elect to declare the entire unpaid principal amount, including all unpaid
interest, immediately due and payable with or without notice.
In the event of the termination of Maker's employment with Holder for
any reason, all outstanding principal and accrued interest hereunder is
immediately due and payable, with or without notice, thirty (30) days after the
date of such termination unless Maker commences arbitration as provided in that
certain Loan Agreement (the "Loan Agreement"), dated as of October 29, 1999,
between Holder and Maker, unless this note and the loan it evidences shall have
been cancelled and forgiven pursuant to the terms of the Loan Agreement.
In the event of commencement of legal action to enforce payment of
this note, the non-prevailing party agrees to pay the prevailing party's
reasonable attorney's fees and court costs in connection therewith.
By: /s/ Matthew C. Bousquette
--------------------------------------
Matthew C.Bousquette Date
Witnessed by:
/s/ Alan Kaye 12-21-99
- ----------------------------
Date
<PAGE>
EXHIBIT 10.11
February 10, 2000
Mr. Matthew Bousquette
President Boys/Entertainment
Mattel, Inc.
333 Continental Boulevard
El Segundo, California 90245-5012
Re: Amendment to Your Employment Agreement and Stock Option Grant Agreements
------------------------------------------------------------------------
Dear Matthew:
Pursuant to action taken by Mattel's Board of Directors and
Compensation Committee on February 1, 2000 to amend Mattel's 1990 and 1996 Stock
Option Plans (the "Plans") and to amend the Grant Agreements for Non-Qualified
Stock Options ("Grant Agreements") with respect to all of the stock options
which you hold under the Plans and which are outstanding as of February 1, 2000
(the "Outstanding Options"), this letter agreement constitutes an amendment to
each of your Grant Agreements and your Employment Agreement with Mattel.
Notwithstanding any provision of your Grant Agreements or of your
Employment Agreement to the contrary, in the event that your employment with
Mattel is terminated (i) by Mattel without Cause (as defined in your Employment
Agreement), (ii) by you for Good Reason (as defined in your Employment
Agreement), (iii) by you for any reason during the 30-day period immediately
following the six (6) month anniversary of a Change of Control (as defined in
your Employment Agreement) or (iv) by reason of your death or Disability (as
defined in you Employment Agreement), all of the Outstanding Options shall
become immediately exercisable and you shall have until the date which is ten
(10) years from the date each Outstanding Option was granted to exercise such
Outstanding Option.
I would appreciate it if you would sign, date and return a copy of
this letter agreement to me. As such, it will constitute a written amendment to
your Grant Agreements and your Employment Agreement.
Sincerely yours,
Mattel, Inc.
By /s/ Alan Kaye
--------------------------
Alan Kaye
Senior Vice President, Human Resources
Agreed to and accepted by:
/s/ Matthew C. Bousquette Dated: February 20, 2000
- ----------------------------
Matthew Bousquette
<PAGE>
EXHIBIT 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into on
January 31, 2000 and effective as of April 1, 1999 (the "Effective Date")
between Mattel, Inc., a Delaware corporation ("Mattel") and Neil B. Friedman
(the "Executive").
1. Employment Period. Mattel hereby agrees to employ and continue in its
-----------------
employ the Executive, and the Executive hereby accepts such employment and
agrees to remain in the employ of Mattel, for the period commencing on the
Effective Date and ending on the third anniversary of such date, subject to
earlier termination as provided herein (the "Employment Period"); provided that
commencing on the first day of the month next following the effective date
hereof, and on the first day of each month thereafter (the most recent of such
dates is hereinafter referred to as the "Renewal Date"), the Employment Period
shall be automatically extended so as to terminate three years from such Renewal
Date, unless at least 60 days prior to any Renewal Date Mattel or the Executive
shall give notice to the other that the Employment Period shall not be so
extended and shall be terminated.
2. Duties.
------
(a) Executive's Position and Duties. During the Employment Period,
-------------------------------
the Executive's position (including titles), authority and responsibilities
shall be similar to those held by the Executive on the date hereof with such
additions and modifications, and consistent with responsibilities generally
assigned to officers of Mattel as the Chief Executive Officer of Mattel may in
her discretion and acting in good faith from time to time assign to the
Executive. The Executive's services shall be performed in the greater New York,
New York area, provided, however, that the Executive may be required to travel
on business from time to time generally consistent with the Executive's travel
requirements as of the date of this Agreement.
(b) Full Time. The Executive agrees to devote the Executive's full
---------
business time to the business and affairs of Mattel and to use the Executive's
best efforts to perform faithfully and efficiently the responsibilities assigned
to the Executive hereunder to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities which services have been approved by the Chief Executive
Officer; (ii) periods of vacation and sick leave to which the Executive is
entitled; and (iii) the management of personal investments and affairs. The
Executive will not engage in any outside business activity (as distinguished
from personal investment activity and affairs), including, but not limited to,
activity as a consultant, agent, partner or officer, director or provide
business services of any nature directly or indirectly to a corporation or other
business enterprise.
<PAGE>
3. Compensation and Benefits.
-------------------------
(a) Base Salary. During the Employment Period, the Executive shall
-----------
receive a base salary ("Base Salary") at a bi-weekly rate at least equal to the
bi-weekly salary paid to the Executive by Mattel on the date of this Agreement.
The Base Salary shall be reviewed from time to time in accordance with Mattel's
policies and practices, but no less frequently than once every eighteen (18)
months and may be increased at any time and from time to time by action of the
Board of Directors of Mattel or the Compensation/Options Committee thereof or
any individual having authority to take such action in accordance with Mattel's
regular practices. Any increase in the Base Salary shall not serve to limit or
reduce any other obligation of Mattel hereunder and, after any such increase,
the Base Salary shall not be reduced.
(b) Bonus Programs. In addition to the Base Salary, the Executive
--------------
shall be eligible to participate throughout the Employment Period in such cash,
deferred bonus, annual bonus and long term bonus plans and programs ("Bonus
Programs"), such as Mattel's Management Incentive Plan (the "MIP") and Long
Term Incentive Plan (the "LTIP"), as may be in effect from time to time in
accordance with Mattel's compensation practices and the terms and provisions
of any such plans or programs as in effect from time to time; provided that
the Executive's eligibility for and participation in each of the Bonus Programs
shall be at a level and on terms and conditions no less favorable than those
available to any other comparably situated executive or consultant.
(c) Incentive Plans. In addition to the Base Salary and
---------------
participation in the Bonus Programs, during the Employment Period the Executive,
shall be eligible to participate, subject to the terms and conditions thereof,
in all incentive plans and programs, including, but not limited to, stock option
plans and other equity based incentive plans, as may be in effect from time to
time with respect to executives employed by Mattel at the Executive's level so
as to reflect the Executive's responsibilities.
(d) Pension and Welfare Benefit Plans. During the Employment Period,
---------------------------------
the Executive and/or the Executive's dependents, as the case may be, shall be
eligible to participate in, subject to the terms and conditions thereof, all
pension, profit sharing, medical, dental, disability, group life, accidental
death and travel accident insurance plans and programs of Mattel as in effect
from time to time with respect to executives employed by Mattel at the
Executive's level so as to reflect the Executive's responsibilities.
(e) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the policies and practices of Mattel as in
effect from time to time.
(f) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits (including automobile benefits, financial
counseling, membership in one city or country club and related expenses) of the
kind and quality which are provided to executives at the Executive's level in
accordance with the policies of Mattel as in effect from
2
<PAGE>
time to time with respect to executives employed by Mattel at the Executive's
level so as to reflect the Executive's responsibilities.
(g) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the policies and practices of
Mattel as in effect from time to time.
(h) Stock Options. During the Employment Period, the Executive shall
-------------
be entitled to participate in Mattel's stock option plans in accordance with the
policies and practices of Mattel as in effect from time to time with respect to
executives employed by Mattel at the Executive's level so as to reflect the
Executive's responsibilities.
(i) Certain Amendments. Nothing herein shall be construed to
------------------
prevent Mattel from amending, altering, eliminating or reducing any plans,
benefits or programs set forth in Sections 3(b) through (h) so long as such
actions do not result in a material diminution in the aggregate value of such
compensation and benefits, except for across-the-board compensation and
benefit reductions to which the Executive agrees and which affect all
similarly situated executives of Mattel.
(j) Retention Loan. Mattel and the Executive have entered into that
--------------
certain Loan Agreement (the "Loan Agreement") dated as of October 29, 1999,
which provided, among other things, that the definitions of "Cause," "Change of
Control," "Disability" and "Good Reason" contained in this Agreement supercede
the definitions of such terms as set forth in the Loan Agreement.
4. Termination.
-----------
(a) Death or Disability. This Agreement shall terminate automatically
-------------------
upon the Executive's death; provided that the Executive's Base Salary will be
continued and paid for a period of six months thereafter. Mattel may terminate
this Agreement, after having established the Executive's Disability, by giving
to the Executive written notice of its intention to terminate the Executive's
employment, and the Executive's employment with Mattel shall terminate effective
on the 90th day after receipt of such notice (the "Disability Effective Date").
For purposes of this Agreement, the Executive's Disability shall occur and shall
be deemed to have occurred only in the event that the Executive suffers a
disability due to illness or injury which substantially and materially limits
the Executive from performing each of the essential functions of the Executive's
job, even with reasonable accommodation and becomes entitled to receive
disability benefits under the Mattel Long-Term Disability Plan for exempt
employees.
(b) Cause. Mattel may terminate the Executive's employment for
-----
"Cause" upon a determination of the Chief Executive Officer of Mattel that
"Cause" exists. For purposes of this Agreement, "Cause" means (i) one or more
factually substantiated willful acts of dishonesty on the Executive's part which
are intended to result in the Executive's substantial personal enrichment at the
expense of Mattel; (ii) repeated violations by the Executive of the
3
<PAGE>
Executive's obligations under Section 2 of this Agreement which are
demonstrably willful and deliberate on the Executive's part and which resulted
in material injury to Mattel; (iii) conduct of a factually substantiated
criminal nature (commonly defined as a "felony" in criminal statutes) which has
or which is more likely than not to have a material adverse effect on Mattel's
reputation or standing in the community or on its continuing relationships with
its customers or those who purchase or use its products; or (iv) factually
substantiated fraudulent conduct in connection with the business or affairs of
Mattel, regardless of whether said conduct is designed to defraud Mattel or
others; provided that, in each case, the Executive has received written notice
of the described activity, has been afforded a reasonable opportunity to cure or
correct the activity described in the notice, and has failed to substantially
cure, correct or cease the activity, as appropriate.
(c) Good Reason. The Executive may terminate the Executive's
-----------
employment at any time for Good Reason. For purposes of this Agreement, "Good
Reason" means the good faith determination by the Executive that any one or
more of the following have occurred:
(i) without the express written consent of the Executive, any
change(s) in any of the duties, authority, or responsibilities of the Executive
which is (are) inconsistent in any substantial respect with the Executive's
position, authority, duties, or responsibilities as contemplated by Section
2 of this Agreement;
(ii) any failure by Mattel to comply with any of the provisions
of Section 3 of this Agreement, other than an insubstantial and inadvertent
failure remedied by Mattel promptly after receipt of notice thereof given by the
Executive;
(iii) any proposed termination by Mattel of the Executive's
employment other than as permitted by this Agreement;
(iv) any failure by Mattel to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 11(b); or
(v) transferring the Executive outside of the greater New York,
New York area without the Executive's express written consent.
(d) Change of Control. "Change of Control" means:
-----------------
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of Mattel,
including the shares of common stock of Mattel issuable upon an exchange of
Softkey Exchangeable Shares that are not owned by Mattel or any corporation
controlled by Mattel (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of Mattel
entitled to vote generally in the election
4
<PAGE>
of directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (i), the following shall not constitute a
Change of Control: (a) any acquisition directly from Mattel, (b) any acquisition
by Mattel or any corporation controlled by Mattel, (c) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by Mattel or
any corporation controlled by Mattel, (d) any acquisition by a Person of 20% of
either the Outstanding Company Common Stock or the Outstanding Company Voting
Securities as a result of an acquisition of common stock of Mattel by Mattel or
of Softkey Exchangeable Shares by Softkey which, by reducing the number of
shares of common stock of Mattel or Softkey Exchangeable Shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 20% or more of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities; provided, however, that if a Person shall become the
beneficial owner of 20% or more of either the Outstanding Company Common Stock
or the Outstanding Company Voting Securities by reason of a share acquisition by
Mattel or by Softkey as described above and shall, after such share acquisition
by Mattel or Softkey, become the beneficial owner of any additional shares of
common stock of Mattel, then such acquisition shall constitute a Change of
Control or (e) any acquisition pursuant to a transaction which complies with
clauses (a), (b) and (c) of subsection (iii) of this Section 4(d); provided,
further, however, that for purposes of this subsection (i), any Investing Person
(as such term is defined in the Rights Agreement) shall be deemed not to be a
beneficial owner of any Investment Shares (as such term is defined in the Rights
Agreement) and the holder of the Mattel Special Voting Preferred Share (as such
term is defined in the Rights Agreement) shall be deemed not to be a beneficial
owner of such Mattel Special Voting Preferred Share; or
(ii) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
Mattel's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as through
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) consummation by Mattel of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of Mattel or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (a)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns Mattel or all or substantially all of Mattel's assets
either directly
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or through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (b) no Person (excluding any employee benefit plan (or related
trust) of Mattel or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding share of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (c) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) approval by the shareholders of Mattel of a complete
liquidation or dissolution of Mattel.
For the purposes of this Section 4(d), (a) "Rights Agreement" means
the Rights Agreement, dated as of February 7, 1992, as amended by an amendment
dated as of May 13, 1999 and an amendment dated as of November 4, 1999 by and
between Mattel and BankBoston N.A., a national banking association, formerly,
The First National Bank of Boston, and not giving effect to any amendments
subsequent to November 4, 1999, (b) "Softkey" means Softkey Software Products
Inc., an Ontario corporation, and (c) "Softkey Exchangeable Shares" means the
Exchangeable Shares in the capital stock of Softkey.
(e) Notice of Termination. Any termination of the Executive's
---------------------
employment by Mattel for Cause or following a Change of Control or by the
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 15(b). Any termination by
Mattel due to Disability shall be given in accordance with Section 4(a). For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon; (ii) except in the event of a termination following a Change of Control,
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated; and (iii) specifies the Date of Termination (defined below).
(f) Date of Termination. "Date of Termination" means the date of
-------------------
actual receipt of the Notice of Termination or any later date specified therein
(but not more than fifteen (15) days after the giving of the Notice of
Termination), as the case may be; provided that (i) if the Executive's
employment is terminated by Mattel for any reason other than Cause or
Disability, the Date of Termination is the date on which Mattel notifies the
Executive of such termination; (ii) if the Executive's employment is terminated
due to Disability, the Date of Termination is the Disability Effective Date; and
(iii) if the Executive's employment is terminated due to the Executive's death,
the Date of Termination shall be the date of death.
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5. Obligations of Mattel upon Termination. Other than as specifically set
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forth or referenced in this Agreement, the Executive shall not be entitled to
any benefits on or after the Date of Termination.
(a) Death. If the Executive's employment is terminated by reason of
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the Executive's death, this Agreement shall terminate without further
obligations by Mattel to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder or under the terms of
the applicable Mattel plan or program which takes effect at the date of the
Executive's death or as otherwise provided in Section 4(a) or this Section 5(a).
As of the Date of Termination, the Executive's family shall be entitled to
healthcare coverage and financial counseling benefits until the third
anniversary of the Date of Termination.
(b) Disability. If the Executive's employment is terminated by
----------
reason of to Executive's Disability, the Executive shall be entitled to receive
after the Disability Effective Date (i) disability benefits, if any, at least
equal to those then provided by Mattel to disabled executives and/or their
families and (ii) until the earlier of the third anniversary of the Date of
Termination or the date the Executive accepts other employment, those other
benefits on the terms described in Section 5(d)(v).
(c) Cause. If the Executive's employment is terminated for Cause or
-----
if the Executive terminates the Executive's employment without Good Reason,
Mattel shall pay the Executive the Executive's full Base Salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given,
and Mattel shall have no further obligations to the Executive under this
Agreement.
(d) Good Reason; Other Than for Cause or Disability. If Mattel
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terminates the Executive's employment other than for Cause or Disability or the
Executive terminates the Executive's employment for Good Reason (in each case,
other than within 18 months following a Change of Control as provided in Section
5(e):
(i) Mattel shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) if not theretofore paid, the Executive's Base Salary
through the Date of Termination at the rate in effect at the time of Notice of
Termination was given;
(B) a current year bonus (the "Bonus") equal to the greater
of (x) the average of the two highest annual bonuses received by the Executive
under the MIP, or any successor plan, in the three years prior to the Date of
Termination, including any years in which the Executive was paid no bonus, (the
"Average Annual Bonus") and prorated to reflect the total number of full months
the Executive is employed on an active and full time basis in the year in which
termination occurs, (y) the annual bonus paid to the Executive, under the MIP or
any successor plan, if any, for the 2000 or 2001 calendar year, whichever is
greater, without
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proration, or (z) the target annual bonus for the Executive under the MIP for
the 2000 calendar year;
(C) three times the sum of (x) the Executive's annual Base
Salary at the rate in effect at the time the Notice of Termination is given and
(y) the Bonus defined in Section 5(d)(i)(B), but without proration (and, in each
such case, without regard to any contributions by Mattel for the Executive's
benefit to any retirement or other investment plans).
(ii) Mattel shall pay the Executive a portion of any long-term
incentive compensation that Executive would have received under the LTIP with
respect to any performance period which is pending as of the Executive's Date of
Termination as if the Executive had remained employed for the entire performance
period, pro rated based on the number of full months of Executive's employment
during the performance period over the total number of months in the performance
period, which amount shall be payable at the end of the period in accordance
with the terms of the LTIP and shall be net of any interim payments previously
made to the Executive.
(iii) Any options granted to the Executive under Mattel's stock
option plans, other than Mattel's 1997 Premium Price Stock Option Plan or any
successor thereto (the "Stock Option Plans"), shall become immediately
exercisable and the Executive shall have a period of 90 days following the Date
of Termination (but in no event past the expiration of the term of the option
grant) to exercise all options granted under the Stock Option Plans then
exercisable or which become exercisable pursuant to this clause (iii).
(iv) Mattel shall, promptly upon submission by the Executive of
supporting documentation, pay or reimburse to the Executive any costs and
expenses paid or incurred by the Executive which would have been payable under
Section 3(e) if the Executive's employment had not terminated.
(v) Until the earlier of (x) the third anniversary of the Date
of Termination or (y) the date the Executive becomes gainfully employed in a
substantially similar employment position, Mattel shall provide to the Executive
at Mattel's expense:
(A) coverage under Mattel's medical, dental, prescription
drug and vision care group insurance as in effect from time to time on the same
terms and conditions as such insurance is available to active employees of
Mattel (the last 18 months of the Executive's coverage under such insurance
shall be deemed to be participation under an election to continue such benefits
under the Consolidated Omnibus Budget Reconciliation Act at Mattel's expense);
(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor;
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(C) financial counseling and tax preparation services
through the vendor engaged and paid for by Mattel;
(D) automobile benefits; provided however, that if such
automobile is leased by Mattel, such benefits shall expire upon expiration of
such lease. Upon expiration of the automobile benefits, at which time the
Executive may purchase the car for either $100, if the automobile benefits
terminate at the end of the lease term, or Mattel's book value, if the
automobile benefits terminate on either the third anniversary of the Date of
Termination or the date on which the Executive accepts other employment. As of
the Date of Termination, all expenses related to such automobile, including but
not limited to insurance, repairs, maintenance, gasoline, and car phone and
associated expenses, shall be the sole responsibility of the Executive; and
(E) membership in one city or country club and related
expenses. Mattel shall cause the membership to be transferred to the Executive
at no cost to the Executive.
(vi) If the Executive is a participant in the Mattel
Supplemental Executive Retirement Plan, the Mattel Deferred Compensation Plan or
the Mattel Retiree Medical Plan, the Executive shall be given credit for three
years of service (in addition to actual service) and for three years of attained
age to be added to the Executive's actual age for purposes of computing any
service and age-related benefits for which the Executive is eligible under such
plans.
Notwithstanding the foregoing, if Mattel terminates the Executive's employment
other than for Cause or Disability or if the Executive terminates the
Executive's employment for Good Reason and such termination occurs within 18
months after the date upon which Mattel changes the person to whom the Executive
immediately reports, then (a) the Executive's "Average Annual Bonus" for the
purpose of calculating the amounts provided by clauses (d)(i)(B) and (d)(i)(C)
above shall be equal to the Executive's maximum targeted MIP bonus for the year
in which the termination of employment occurs and (b) the amount payable to the
Executive under clause (d)(ii) above shall be based on the maximum LTIP payment
that the Executive could have received with respect to the pending performance
period, rather than amount which would have been payable to the Executive had
the Executive remained employed for the entire performance period.
Notwithstanding the foregoing, the amounts payable with respect to a termination
of employment which is subject to the preceding sentence shall be prorated as
set forth in clauses (d)(i)(B) and (d)(ii).
(e) Change of Control. If, within 18 months following a Change of
-----------------
Control, the Executive terminates the Executive's employment for Good Reason or
Mattel or the surviving entity terminates the Executive's employment other than
for Cause or Disability or within the 30 day period immediately following the
six (6) month anniversary of a Change of Control the Executive terminates the
Executive's employment for any reason:
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(i) Mattel shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) if not theretofore paid, the Executive's Base Salary
through the Date of Termination at the rate in effect at the time of Notice of
Termination was given;
(B) a current year bonus (the "Bonus Amount") equal to the
greater of (x) the average of the two highest annual bonuses received by the
Executive under the MIP, or any successor plan, in the three years prior to the
Date of Termination, including any years in which the Executive was paid no
bonus, and prorated to reflect the total number of full months the Executive is
employed on an active and full time basis in the year in which termination
occurs, (y) the annual bonus paid to the Executive, under the MIP or any
successor plan, if any, for the 2000 or 2001 calendar year, whichever is
greater, without proration, or (z) the target annual bonus for the Executive
under the MIP for the 2000 calendar year;
(C) three times the sum of (x) the Executive's annual Base
Salary at the rate in effect at the time the Notice of Termination is given and
(y) the Bonus Amount defined in Section 5(e)(i)(B), but without proration (and,
in each such case, without regard to any contributions by Mattel for the
Executive's benefit to any retirement or other investment plans).
(ii) Any options granted to the Executive under Mattel's stock
option plans, other than Mattel's 1997 Premium Price Stock Option Plan or any
successor thereto (the "Stock Option Plans"), shall become immediately
exercisable and the Executive shall have a period of 90 days or such longer
period of time as specified in the Stock Option Plans following the Date of
Termination (but in no event past the expiration of the term of the option
grant) to exercise all options granted under the Stock Option Plans then
exercisable or which become exercisable pursuant to this clause (ii).
(iii) Mattel shall, promptly upon submission by the Executive of
supporting documentation, pay or reimburse to the Executive any costs and
expenses paid or incurred by the Executive which would have been payable under
Section 3(e) if the Executive's employment had not terminated.
(iv) Until the earlier of (x) the third anniversary of the Date
of Termination or (y) the date the Executive becomes gainfully employed in a
substantially similar employment position, Mattel shall provide to the Executive
at Mattel's expense:
(A) coverage under Mattel's medical, dental, prescription
drug and vision care group insurance as in effect from time to time on the same
terms and conditions as such insurance is available to active employees of
Mattel (the last 18 months of the Executive's coverage under such insurance
shall be deemed to be participation under an election to continue such benefits
under the Consolidated Omnibus Budget Reconciliation Act at Mattel's expense);
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(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor;
(C) financial counseling and tax preparation services
through the vendor engaged and paid for by Mattel;
(D) automobile benefits; provided however, that if such
automobile is leased by Mattel, such benefits shall expire upon expiration of
such lease. Upon expiration of the automobile benefits, at which time the
Executive may purchase the car for either $100, if the automobile benefits
terminate at the end of the lease term, or Mattel's book value, if the
automobile benefits terminate on either the third anniversary of the Date of
Termination or the date on which the Executive accepts other employment. As of
the Date of Termination, all expenses related to such automobile, including but
not limited to insurance, repairs, maintenance, gasoline, and car phone and
associated expenses, shall be the sole responsibility of the Executive; and
(E) membership in one city or country club and related
expenses. Mattel shall cause the membership to be transferred to the Executive
at no cost to the Executive.
(v) If the Executive is a participant in the Mattel
Supplemental Executive Retirement Plan, the Mattel Deferred Compensation Plan or
the Mattel Retiree Medical Plan, the Executive shall be given credit for three
years of service (in addition to actual service) and for three years of attained
age to be added to the Executive's actual age for purposes of computing any
service and age-related benefits for which the Executive is eligible under such
plans.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by Mattel and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any stock option or other agreement with
Mattel or any of its affiliated companies. Except as otherwise provided herein,
amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan or program of Mattel at or subsequent to the Date of
Termination shall be payable in accordance with such plan or program.
7. No Set Off, Payment of Fees. Except as provided herein, Mattel's
---------------------------
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation any set-off, counterclaim, recoupment, defense or
other right which Mattel may have against the Executive or others. Mattel
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome
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thereof) by Mattel or others of the validity or enforceability of, or liability
under, any provision of this Agreement other than expenses relating to a claim
by the Executive that the Executive terminated for Good Reason or that the
termination for Cause was improper, in which case such fees and expenses shall
be paid only if the Executive prevails in whole or in part. In the event that
the Executive shall in good faith give a Notice of Termination for Good Reason
and it shall thereafter be determined that Good Reason did not exist, the
employment of the Executive shall, unless Mattel and the Executive shall
otherwise mutually agree, be deemed to have terminated at the Date of
Termination specified in such purported Notice of Termination by mutual consent
of Mattel and the Executive and thereupon, the Executive shall be entitled to
receive only those payments and benefits which the Executive would have been
entitled to receive at such date.
8. Arbitration of Disputes.
-----------------------
(a) The parties agree that any disputes, controversies or claims which
arise out of or relate to this Agreement, the Executive's employment or the
termination of the Executive's employment, including, but not limited to, any
claim relating to the purported validity, interpretation, enforceability or
breach of this Agreement, and/or any other claim or controversy arising out of
the relationship between the Executive and Mattel (or the nature of the
relationship) or the continuation or termination of that relationship,
including, but not limited to, claims that a termination was for Cause, or for
Good Reason, claims for breach of covenant, breach of an implied covenant of
good faith and fair dealing, wrongful termination, breach of contract, or
intentional infliction of emotional distress, defamation, breach of right of
privacy, interference with advantageous or contractual relations, fraud,
conspiracy or other tort or property claims of any kind, which are not settled
by agreement between the parties, shall be settled by expedited arbitration
under the then applicable arbitration rules of JAMS/Endispute (or any other
mutually agreed arbitrator) before a board of three arbitrators, as selected
thereunder.
One arbitrator shall be selected by the Executive, one by Mattel and
the third by the two persons so selected, all in accordance with the then
applicable arbitration rules of JAMS/Endispute then in effect. In the event that
the arbitrator selected by the Executive and the arbitrator selected by Mattel
are unable to agree upon a third arbitrator, then the third arbitrator shall be
selected from a list of seven (each of whom shall be a member of the
"Independent List" of retired judges with experience in resolving employment
disputes) provided by the New York, New York office of JAMS/Endispute with the
parties striking names in order and the party striking first to be determined by
the flip of a coin. The arbitration shall be held in a location mutually agreed
upon by the parties. In the absence of agreement, the arbitration shall be held
in New York, New York.
(b) In consideration of the parties' agreement to submit to
arbitration all disputes with regard to this Agreement and/or with regard to any
alleged contract, or any other claim arising out of their conduct, the
relationship existing hereunder or the continuation or termination of that
relationship, and in further consideration of the anticipated expedition and the
minimizing of expense resulting from this arbitration remedy, the arbitration
provisions of this
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Agreement shall provide the exclusive remedy, and each party expressly waives
any right the Executive or it may have to seek redress in any other forum.
(c) Any claim which either party has against the other party which
could be submitted for resolution pursuant to this Section 8 must be presented
in writing by the claiming party to the other within the period of the
applicable statue of limitations.
(d) Mattel will pay all costs and expenses of the arbitration.
(e) Any decision and award or order of a majority of the arbitrators
shall be binding upon the parties hereto and judgment thereon may be entered in
the Superior Court of the State of California or any other court having
jurisdiction.
(f) Each of the above terms and conditions of this Section 8 shall
have separate validity and the invalidity of any part thereof shall not affect
the remaining parts.
(g) Any decision and award or order of a majority of the arbitrators
shall be final and binding between the parties as to all claims which were
raised in connection with the dispute to the full extent permitted by law. In
all other cases, the parties agree that a decision of a majority of arbitrators
shall be a condition precedent to the institution or maintenance of any legal,
equitable, administrative, or other formal proceeding by Mattel or the Executive
in connection with the dispute, and that the decision and opinion of the board
of arbitrators may be presented in any other forum on the merits of the dispute.
9. General Release. The Executive acknowledges and agrees that this
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Agreement includes the entire agreement and understanding between the parties
with regard to the Executive's employment, the termination thereof during the
Employment Period, and all amounts to which the Executive shall be entitled
whether during the term of employment or upon termination thereof. The
Executive also acknowledges and agrees that the Executive's right to receive
severance pay and other benefits pursuant to subsections (b), (d) and (e) of
Section 5 of this Agreement is contingent upon the Executive's compliance with
the covenants set forth in Section 10 of this Agreement and the Executive's
execution and acceptance of the terms and conditions of, and the effectiveness
of the General Release of All Claims (the "Release") attached hereto as Exhibit
"A." If the Executive fails to comply with the covenants set forth in Section
10 or if the Executive fails to execute the Release within twenty-one (21) days
of receipt of such Release, then the Executive shall not be entitled to any
severance payments or other benefits to which the Executive would otherwise be
entitled under subsections (b), (d) and (e) of Section 5 of this Agreement.
10. The Executive's Covenants.
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(a) The Executive acknowledges that in the Executive's capacity in
management, the Executive has had a great deal of exposure and access to a broad
variety of commercially valuable proprietary information which is vital to the
success of Mattel's business
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including, by way of illustration, past, current and future products and product
concepts, marketing strategies, research and plans and information regarding
employees. The Executive acknowledges that as a result of the Executive's
knowledge of the above information and in consideration for the benefits offered
by Mattel under this Agreement, the Executive hereby agrees to reaffirm and
recognize the Executive's continuing obligations with respect to the use and
disclosure of confidential and proprietary information of Mattel pursuant to the
Mattel's policies as set forth in Mattel's form Executive Patent and Confidence
Agreement, as revised from time to time, and by this reference made a part
hereof. Pursuant thereto, the Executive acknowledges and agrees that Mattel
shall be entitled to injunctive relief to prevent a threatened misappropriation
of one or more of the Mattel's trade secrets or to halt an actual
misappropriation of such trade secrets. The Executive shall hold in a fiduciary
capacity for the benefit of Mattel all secret or confidential information,
knowledge or data relating to Mattel or any of its affiliated companies, and
their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by Mattel or any of its affiliated companies
and which shall not be public knowledge. After termination of the Executive's
employment with Mattel, the Executive shall not, without the prior written
consent of Mattel, communicate or divulge any such information, knowledge or
data to anyone other than Mattel and those designated by it. The Executive
further represents and agrees that, unless otherwise required by law, the
Executive will keep the terms, amount and fact of this Agreement completely
confidential, and that the Executive will not hereafter disclose any information
concerning this Agreement to anyone other than Executive's immediate family and
professional representatives who will be informed of and bound by this
confidentiality clause.
(b) If the termination of the Executive's employment occurs prior to
a Change of Control, the Executive agrees that eligibility for severance
payments and other benefits under this Agreement are contingent upon the
Executive's agreement and compliance with Mattel's requirement that the
Executive does not accept employment nor an engagement as a consultant with a
competitor whereupon such position is comparable to the position the Executive
held with Mattel and where the Executive can not reasonably satisfy Mattel that
the new employer is prepared to and/or does take adequate steps to preclude and
to prevent inevitable disclosure of trade secrets, as prohibited under the
Mattel's policies with respect to the use and disclosure of confidential and
proprietary information, as set forth in Mattel's form Executive Patent and
Confidence Agreement, as revised from time to time, and by this reference made a
part hereof. If the Executive accepts employment or a consulting relationship
with a competitor as described above, no further payments nor eligibility for
benefits continuation will be available to the Executive as of the date the
Executive commences such employment/consulting. It is a specific condition of
this Agreement that so long as the Executive is receiving any payments or
benefits under this Agreement with respect to a termination of the Executive's
employment prior to a Change of Control, the Executive is obligated to
immediately notify Mattel as to the specifics of the new position that the
Executive is planing to commence as an employee or consultant for any company
which is a competitor of Mattel.
(c) The Executive agrees that so long as the Executive is receiving
any payments or benefits under this Agreement and for a period of 12 months
thereafter, the Executive
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will not participate in recruiting any of Mattel's employees or in the
solicitation of Mattel's employees, and the Executive will not communicate to
any other person or entity, about the nature, quality or quantity of work, or
any special knowledge or personal characteristics of any person employed by
Mattel. If the Executive should wish to discuss possible employment with any
then-current Mattel employee during the 12-month period set forth above, the
Executive may request written permission to do so from the senior human
resources officer of Mattel who may, in his/her discretion, grant a written
exception to the no solicitation agreement set forth above, provided, however,
the Executive agrees that the Executive will not discuss any such employment
possibility with such employees prior to securing Mattel's permission. If Mattel
should decline to grant such permission, the Executive agrees that the Executive
will not at any time, either during or after the non-solicitation period set
forth above, advise the employee concerned that he/she was the subject of a
request under this paragraph or that Mattel refused to grant the Executive the
right to discuss an employment possibility with him/her.
11. Successors.
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(a) This Agreement is personal to the Executive and without the
prior written consent of Mattel shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Mattel and its successors. Mattel shall require any successor to all or
substantially all of the business and/or assets of Mattel, whether direct or
indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Mattel would be required to perform if no such succession
had taken place.
12. Amendment; Waiver. This Agreement contains the entire agreement
--------- ------
between the parties with respect to the subject matter hereof and may be
amended, modified or changed only by a written instrument executed by the
Executive and Mattel. No provision of this Agreement may be waived except by a
writing executed and delivered by the party sought to be charged. Any such
written waiver will be effective only with respect to the event or circumstance
described therein and not with respect to any other event or circumstance,
unless such waiver expressly provides to the contrary.
13. Long Term Incentive Compensation Plan Payments After a Change of
----------------------------------------------------------------
Control.
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(a) In the event of a Change of Control during the Employment
Period, Mattel shall pay the Executive a cash payment as provided under the
provisions of the LTIP, as in effect immediately prior to the Change of Control.
(b) In addition, in the event of a Change of Control during the
Employment Period, within thirty (30) days after the date of such Change of
Control, Mattel shall pay the
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Executive any unpaid amounts to which the Executive is entitled with respect to
any performance period under the LTIP, or any other successor long-term
incentive compensation plan of Mattel, that has been completed as of the date of
the Change of Control.
14. Certain Additional Payments by Mattel.
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(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any Payment
(as defined below) would be subject to the Excise Tax (as defined below), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 14(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Parachute Value of Payments (as defined below)
does not exceed 110% of the Safe Harbor Amount (as defined below), then no
Gross-Up Payment shall be made to the Executive and the Agreement Payments (as
defined below), in the aggregate, shall be reduced to (but not below zero) such
that the Parachute Value of all Payments equals the Safe Harbor Amount,
determined in such a manner as to maximize the Value of all Payments (as defined
below) actually made to the Executive.
(b) Subject to the provisions of Section 14(c), all determinations
required to be made under this Section 14, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PricewaterhouseCooper LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to Mattel and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by Mattel.
All fees and expenses of the Accounting Firm shall be borne solely by Mattel.
Subject to Section 14(e) below, any Gross-Up Payment, as determined pursuant to
this Section 14, shall be paid by Mattel to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon Mattel and the Executive. As a result of
the uncertainty in the application of Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by Mattel should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Mattel
exhausts its remedies pursuant to Section 14(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has
16
<PAGE>
occurred and any such Underpayment shall be promptly paid by Mattel to or for
the benefit of the Executive.
(c) The Executive shall notify Mattel in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Mattel of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise Mattel of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to Mattel (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If
Mattel notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give Mattel any information reasonably requested by Mattel
relating to such claim,
(ii) take such action in connection with contesting such claim
as Mattel shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by Mattel,
(iii cooperate with Mattel in good faith in order effectively
to contest such claim, and
(iv) permit Mattel to participate in any proceedings relating
to such claim;
provided, however, that Mattel shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 14(c), Mattel shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Mattel shall determine;
provided, however, that if Mattel directs the Executive to pay such claim and
sue for a refund, Mattel shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, Mattel's control of
17
<PAGE>
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
Mattel pursuant to Section 14(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to Mattel's
complying with the requirements of Section 14(c)) promptly pay to Mattel the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by Mattel pursuant to Section 14(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Mattel does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 14, Mattel
may withhold and pay over to the Internal Revenue Service for the benefit of the
Executive all or any portion of the Gross-Up Payment that it determines in good
faith that it is or may be in the future required to withhold, and the Executive
hereby consents to such withholding.
(f) Definitions. The following terms shall have the following
-----------
meanings for purposes of this Section 14.
(i) An "Agreement Payment" shall mean a Payment paid or
payable pursuant to this Agreement (disregarding this Section 14) and any
payment relating to the Loan Agreement.
(ii) "Excise Tax" shall mean the excise tax imposed by
Section 4999 of the Code, together with any interest or penalties imposed with
respect to such excise tax.
(iii) The "Net After-Tax Amount" of a Payment shall mean the
Value of a Payment net of all taxes imposed on the Executive with respect
thereto under Sections 1 and 4999 of the Code and applicable state and local
law, determined by applying the highest marginal rates that are expected to
apply to the Executive's taxable income for the taxable year in which the
Payment is made.
(iv) "Parachute Value" of a Payment shall mean the present
value as of the date of the change of control for purposes of Section 280G of
the Code of the portion of such Payment that constitutes a "parachute payment"
under Section 280G(b)(2), as determined by the Accounting Firm for purposes of
determining whether and to what extent the Excise Tax will apply to such
Payment.
18
<PAGE>
(v) A "Payment" shall mean any payment or distribution in
the nature of compensation (within the meaning of Section 280G(b)(2) of the
Code) to or for the benefit of the Executive, whether paid or payable pursuant
to this Agreement or otherwise.
(vi) The "Safe Harbor Amount" means the maximum Parachute
Value of all Payments that the Executive can receive without any Payments being
subject to the Excise Tax.
(vii) "Value" of a Payment shall mean the economic present
value of a Payment as of the date of the change of control for purposes of
Section 280G of the Code, as determined by the Accounting Firm using the
discount rate required by Section 280G(d)(4) of the Code.
15. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(b) All notices and other communications hereunder shall be in
writing; shall be delivered by hand delivery to the other party or mailed by
registered or certified mail, return receipt requested, postage prepaid; shall
be deemed delivered upon actual receipt; and shall be addressed as follows:
If to Mattel:
------------
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
If to Executive:
---------------
Mr. Neil B. Friedman
TYCO PRESCHOOL
675 Avenue of Americas, 2/nd/ Floor
New York, NY 10010
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
19
<PAGE>
(d) Mattel may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first set forth above.
EXECUTIVE:
NEIL B. FRIEDMAN
/s/ Neil B. Friedman
-----------------------------------
MATTEL:
MATTEL, INC.,
a Delaware corporation
By: /s/ Jill E. Barad 1/31/00
--------------------------------
Its: Chief Executive Officer
-------------------------------
ATTEST:
- ---------------------------
Assistant Secretary
<PAGE>
Form for Executive Employment Agreement
---------------------------------------
Exhibit "A"
GENERAL RELEASE
OF ALL CLAIMS
1. For valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned ("Executive") does hereby on behalf of Executive
and Executive's successors, assigns, heirs and any and all other persons
claiming through Executive, if any, and each of them, forever relieve, release,
and discharge Mattel, Inc. ("Mattel") and its respective predecessors,
successors, assigns, owners, attorneys, representatives, affiliates, Mattel
corporations, subsidiaries (whether or not wholly-owned), divisions, partners
and their officers, directors, agents, employees, servants, executors,
administrators, accountants, investigators, insurers, and any and all other
related individuals and entities, if any, and each of them, in any and all
capacities from any and all claims, debts, liabilities, demands, obligations,
liens, promises, acts, agreements, costs and expenses (including, but not
limited to attorneys' fees), damages, actions and causes of action, of whatever
kind or nature, including, without limiting the generality of the foregoing, any
claims arising out of, based upon, or relating to the hire, employment,
remuneration (including salary; bonus; incentive or other compensation;
vacation, sick leave or medical insurance benefits; or other benefits) or
termination of Executive's employment with Mattel.
2. This release includes a release of any rights or claims Executive may have
under the Age Discrimination in Employment Act, which prohibits age
discrimination in employment as to individuals forty years of age and older; the
Older Workers Benefit Protection Act, which prohibits discrimination against
older workers in all Executive benefits; Title VII of the Civil Rights Act of
1964, as amended in 1991, which prohibits discrimination in employment based on
race, color, national origin, religion or sex; the California Fair Employment
and Housing Act, which prohibits discrimination based on race, color, religion,
national origin, ancestry, physical or mental disability, medical condition,
sex, pregnancy-related condition, marital status, age or sexual orientation; the
Equal Pay Act, which prohibits paying men and women unequal pay for equal work;
the Americans with Disabilities Act, which prohibits discrimination against
qualified individuals with disabilities; or any other federal, state or local
laws or regulations which prohibit employment discrimination, restrict an
employer's right to terminate Executives, or otherwise regulate employment.
This also includes a release by Executive of any claims for breach of contract,
wrongful discharge and all claims for alleged physical or personal injury,
emotional distress relating to or arising out of Executive's employment with
Mattel or the termination of that employment; any claims under the WARN Act or
any similar law, which requires, among other things, that advance notice be
given of certain work force reductions; and all claims under the Employee
Retirement Income Security Act, such as claims relating to pension or health
plan benefits.
<PAGE>
3. Notwithstanding any other provision of this Agreement, this release does not
apply to any rights or claims which arise after the execution of this Agreement
or to any rights or claims with respect to any breach of that certain Executive
Employment Agreement (the "Employment Agreement") by between Executive and
Mattel.
4. This release, as contained within this Agreement, covers both claims that
Executive knows about and those Executive may not know about. Executive
expressly waives all rights afforded by any statute (such as Section 1542 of the
Civil Code of the State of California) which limits the effect of a release with
respect to unknown claims. Executive understands the significance of
Executive's release of unknown claims and Executive's waiver of statutory
protection against a release of unknown claims (such as under Section 1542).
Section 1542 of the Civil Code of the State of California states as follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor."
Notwithstanding the provisions of Section 1542, Executive expressly acknowledges
that this release is intended to include both claims that Executive knows about
and those Executive does not know or suspect to exist.
5. The provisions of this Agreement are severable, and if any part of it is
found to be unenforceable, the other paragraphs shall remain fully valid and
enforceable. This Agreement shall be construed in accordance with its fair
meaning and in accordance with the laws of the state of California, without
regard to conflicts of laws principles thereof.
6. Executive is strongly encouraged to consult with an attorney before signing
this Agreement. Executive acknowledges that Executive has been advised of this
right to consult an attorney and Executive understands that whether to do so is
Executive's decision. Executive acknowledges that Mattel has advised Executive
that Executive has twenty-one (21) days in which to consider whether Executive
should sign this Release and has advised Executive that if Executive signs this
Release, Executive has seven (7) days following the date on which Executive
signs the Release to revoke it and that the Release will not be effective until
after this seven-day period had lapsed.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.
Date: ______________________ _______________________________
Executive
2 of 2
<PAGE>
EXHIBIT 10.13
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is entered into as of October
29, 1999, by and between Mattel, Inc., a Delaware corporation ("Lender") and
Neil B. Friedman ("Borrower"). Borrower and Lender are sometimes referred to in
this Agreement as a "Party" or, collectively, as the "Parties."
RECITALS
--------
WHEREAS, Borrower desires to obtain from Lender a loan in the
principal amount of One Million Dollars ($1,000,000.00) (the "Loan"); and
WHEREAS, as an additional incentive to retain Borrower in the employ
of Lender for a period of at least two years from the date hereof, Lender
desires to grant Borrower the Loan.
NOW, THEREFORE, in consideration of the terms and conditions herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. Loan Terms.
----------
(a) Principal Amount. Lender shall pay to the order of Borrower,
----------------
on October 29, 1999 (the "Loan Date"), the principal sum of One Million
Dollars ($1,000,000.00) (the "Principal").
(b) Interest. Interest shall accrue on the outstanding Principal
--------
amount at the rate of seven percent (7%) per annum, compounded annually.
(c) Promissory Note. Borrower's obligation to repay the Loan shall
---------------
be evidenced by a promissory note substantially in the form attached as
Exhibit A hereto (the "Note"). Borrower shall execute and deliver to
- ---------
Lender the Note concurrently with execution and delivery of this
Agreement.
(d) Repayment. Borrower shall pay to the order of Lender the
---------
Principal and accrued interest under the Note on October 30, 2002, provided,
however, that all Principal and accrued, but unpaid, interest shall become
immediately due and payable upon Borrower's termination of employment with
Lender for any reason prior to the Loan Date and shall be subject to forgiveness
as provided below. The Loan shall be unsecured but with full recourse against
Borrower.
(e) Forgiveness. The Loan, and Borrower's obligation to repay all
-----------
outstanding Principal and accrued interest thereunder, shall be forgiven and
cancelled by Lender and the Note shall be cancelled on October 29, 2002 if
Borrower is employed by Lender on October 29, 2002, or earlier upon the date of
the termination of Borrower's employment with
<PAGE>
Lender prior to October 29, 2002 if such termination is by Lender without Cause
(as defined below), by Borrower for Good Reason (as defined below) or by reason
of Borrower's death or Disability (as defined below). In addition, if the Loan
is forgiven pursuant to the preceding sentence and if Borrower is employed by
Lender on October 29, 2002 and continues to be employed by Lender, on April 1,
2003, or such earlier date as Borrower shall be required to pay federal, state
or local income taxes with respect to the forgiveness of the Loan, Lender shall
pay Borrower an additional payment (the "Gross-Up Payment") in an amount
required to fully reimburse Borrower with respect to all federal, state and
local income taxes and employment taxes with respect to the forgiveness of the
Loan and with respect to such taxes, such that upon receipt of the Gross-Up
Payment Borrower shall have no remaining obligations with respect to such taxes.
In addition, the Loan shall be forgiven by Lender on the date of a Change of
Control (as defined below) of Lender if Borrower is employed by Lender on such
date and Lender shall pay Borrower the Gross-Up Payment with respect to the
forgiveness of the Loan.
(f) Definitions. For purposes of this Agreement, the following
-----------
terms shall have the meanings indicated below:
"Cause" shall mean a reasonable determination of the Chief Executive
Officer of Lender that at least one of the following has occurred: (i) one or
more factually substantiated willful acts of dishonesty on Borrower's part which
are intended to result in Borrower's substantial personal enrichment at the
expense of Lender; (ii) repeated violations by Borrower of Borrower's employment
obligations to Lender which are demonstrably willful and deliberate on
Borrower's part and which resulted in material injury to Lender; (iii) conduct
of a factually substantiated criminal nature (commonly defined as a "felony" in
criminal statutes) which has or which is more likely than not to have a material
adverse effect on Lender's reputation or standing in the community or on its
continuing relationships with its customers or those who purchase or use its
products; or (iv) factually substantiated fraudulent conduct in connection with
the business or affairs of Lender, regardless of whether said conduct is
designed to defraud Lender or others; provided that, in each case, Borrower has
received written notice of the described activity, has been afforded a
reasonable opportunity to cure or correct the activity described in the notice,
and has failed to substantially cure, correct or cease the activity, as
appropriate.
"Change of Control" shall be deemed to have occurred if:
(i) any "Person," which shall mean a "person" as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than Lender, any trustee or other fiduciary
holding securities under an employee benefit plan of Lender) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Lender representing 20% or more of the combined
voting power of Lender's then outstanding voting securities;
(ii) during any period of 24 consecutive months, individuals,
who at the beginning of such period constitute the Board of Directors of Lender,
and any new director whose election by the Board of Directors, or whose
nomination for election by Lender's stockholders, was approved by a vote of at
least one-half (1/2) of the directors then in office
2
<PAGE>
(other than in connection with a contested election), cease for any reason to
constitute at least a majority of the Board of Directors;
(iii) the stockholders of Lender approve (I) a plan of
complete liquidation of Lender or (II) the sale or other disposition by Lender
of all or substantially all of Lender's assets unless the acquirer of the assets
or its board of directors shall meet the conditions for a merger or
consolidation in subparagraphs (iv)(I) or (iv)(II) below; or
(iv) the consummation of a merger or consolidation of Lender
with any other entity other than:
(I) a merger or consolidation which results in the voting
securities of Lender outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the surviving entity's outstanding voting securities immediately after such
merger or consolidation; or
(II) a merger or consolidation which would result in the
directors of Lender (who were directors immediately prior thereto) continuing to
constitute at least 50% of all directors of the surviving entity immediately
after such merger or consolidation.
In this paragraph (iv), "surviving entity" shall mean only an
entity in which all of Lender's stockholders immediately before such merger or
consolidation (determined without taking into account any stockholders properly
exercising appraisal or similar rights) become stockholders by the terms of such
merger or consolidation, and the phrase "directors of Lender (who were directors
immediately prior thereto)" shall include only individuals who were directors of
Lender at the beginning of the 24 consecutive month period preceding the date of
such merger or consolidation.
"Disability" shall mean that Borrower suffers a disability due to
illness or injury which substantially and materially limits Borrower from
performing each of the essential functions of Borrower's job, even with
reasonable accommodation and becomes entitled to receive disability benefits
under Lender's Long-Term Disability Plan for exempt employees.
"Good Reason" shall mean the good faith determination by Borrower that
any one or more of the following have occurred:
(i) without the express written consent of Borrower, any
change(s) in any of the employment duties, authority, or responsibilities of
Borrower which is (are) inconsistent in any substantial respect with Borrower's
position, authority, duties, or responsibilities as of the date of this
Agreement;
(ii) any failure by Lender to pay Borrower Borrower's salary
or earned bonuses, other than an insubstantial and inadvertent failure remedied
by Lender promptly after receipt of notice thereof given by Borrower; or
3
<PAGE>
(iii) transferring Borrower outside of the greater New York,
New York area without Borrower's express written consent.
(g) Notwithstanding any other provision in this Agreement, in the
event that Borrower and Lender enter into an amendment to the Employment
Agreement, dated as of October 26, 1999, after the date of this Agreement, the
definition of "Cause," "Change of Control," "Disability," and "Good Reason" as
provided in such Employment Agreement, as amended, shall supercede the
definitions in Section 1(f) of this Agreement.
2. Transfer of Notes. Borrower shall not assign or transfer any of
-----------------
Borrower's benefits or obligations arising under the Notes. Lender reserves
the right to assign or transfer all or any part of, or any interest in, Lender's
rights and benefits under this Agreement or the Note to any successor to all or
part of its business or assets so long as any assignee or transferee expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent as Lender would be required to perform if no such assignment or transfer
had taken place.
3. Amendment; Waiver. This Agreement and the Note contain the entire
-----------------
agreement between the Parties with respect to the subject matter hereof and may
be amended, modified or changed only by a written instrument executed by the
Parties. No provision of this Agreement or the Note may be waived except by a
writing executed and delivered by the Party sought to be charged. Any such
written waiver will be effective only with respect to the event or circumstance
described therein and not with respect to any other event or circumstance,
unless such waiver expressly provides to the contrary.
4. Choice of Law. This Agreement shall be construed in accordance
-------------
with and governed by the internal laws of the State of California, without
reference to principles of conflict of laws.
5. Headings. The paragraph headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
6. Notices. All notices and other communications hereunder shall be
-------
in writing; shall be delivered by hand delivery to the other party or mailed by
registered or certified mail, return receipt requested, postage prepaid; shall
be deemed delivered upon actual receipt; and shall be addressed as follows:
If to Lender:
------------
MATTEL, INC.
333 Continental Blvd.
El Segundo, CA 90245
If to Borrower:
--------------
Mr. Neil B. Friedman
TYCO PRESCHOOL.
675 Avenue of the Americas, 2nd
New York, NY 10010
4
<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
8. Severability. If any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
9. No Third-Party Beneficiary Rights. The Parties do not intend to
---------------------------------
confer and this Agreement shall not be construed to confer any rights or
benefits to any person, firm, group, corporation or entity other than the
Parties.
[Signature Page Follows]
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties on the date first written above.
LENDER
/s/ Alan Kaye
By:________________________________________
Senior Vice President, Human Resources
Its:_______________________________________
BORROWER
/s/ Neil B. Friedman
__________________________________________
Neil B. Friedman
S-1
<PAGE>
EXHIBIT A
---------
Promissory Note
$1,000,000.00 Date: October 29, 1999
Mattel, Inc. (herein referred to as "Holder") has agreed to advance to
Neil B. Friedman (herein referred to as "Maker") on October 29, 1999,
$1,000,000.00, and for said value received Maker promises to repay to the order
of Holder, the principal sum of $1,000,000.00 on or before October 30, 2002.
Maker shall owe to Holder interest on the principal sum in an amount equal to 7%
per annum, commencing on October 29, 1999, compounded annually, payable with
principal on October 30, 2002.
If Maker fails to make any payment set forth above when due, Holder
may elect to declare the entire unpaid principal amount, including all unpaid
interest, immediately due and payable with or without notice.
In the event of the termination of Maker's employment with Holder for
any reason, all outstanding principal and accrued interest hereunder is
immediately due and payable, with or without notice.
This note and the loan it evidences shall be subject to cancellation
and forgiveness under certain circumstances pursuant to the terms of that
certain Loan Agreement, dated as of October 29, 1999, between Holder and Maker.
In the event of commencement of legal action to enforce payment of
this note, Maker agrees to pay the Holder's reasonable attorney's fees and court
costs in connection therewith.
By: /s/ Neil B. Friedman
______________________________________
Neil B. Friedman Date
Witnessed by:
/s/ Alan Kaye 12/6/99
_________________________________________
Date
<PAGE>
EXHIBIT 10.14
February 10, 2000
Mr. Neil Friedman
President Fisher-Price Brands
Mattel, Inc.
333 Continental Boulevard
El Segundo, California 90245-5012
Re: Amendment to Your Employment Agreement and Stock Option Grant Agreements
------------------------------------------------------------------------
Dear Neil:
Pursuant to action taken by Mattel's Board of Directors and
Compensation Committee on February 1, 2000 to amend Mattel's 1990 and 1996 Stock
Option Plans (the "Plans") and to amend the Grant Agreements for Non-Qualified
Stock Options ("Grant Agreements") with respect to all of the stock options
which you hold under the Plans and which are outstanding as of February 1, 2000
(the "Outstanding Options"), this letter agreement constitutes an amendment to
each of your Grant Agreements and your Employment Agreement with Mattel.
Notwithstanding any provision of your Grant Agreements or of your
Employment Agreement to the contrary, in the event that your employment with
Mattel is terminated (i) by Mattel without Cause (as defined in your Employment
Agreement), (ii) by you for Good Reason (as defined in your Employment
Agreement), (iii) by you for any reason during the 30-day period immediately
following the six (6) month anniversary of a Change of Control (as defined in
your Employment Agreement) or (iv) by reason of your death or Disability (as
defined in you Employment Agreement), all of the Outstanding Options shall
become immediately exercisable and you shall have until the date which is ten
(10) years from the date each Outstanding Option was granted to exercise such
Outstanding Option.
I would appreciate it if you would sign, date and return a copy of
this letter agreement to me. As such, it will constitute a written amendment to
your Grant Agreements and your Employment Agreement.
Sincerely yours,
Mattel, Inc.
By /s/ Alan Kaye
________________________________
Alan Kaye
Senior Vice President, Human Resources
Agreed to and accepted by:
/s/ Neil Friedman
__________________________________ Dated: February 16, 2000
Neil Friedman
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 1 TO
THE MATTEL, INC. MANAGEMENT INCENTIVE PLAN
The Mattel, Inc. Management Incentive Plan (the "Plan") is hereby
amended, effective November 4, 1999, as set forth below:
1. Section 2 of the Plan is hereby amended by adding new Sections 2.1, 2.2,
2.10, 2.11 and 2.12, reading in their entirety as follows:
2.1 Board. "Board" shall mean the Board of Directors of the Company.
-----
2.2 Change in Control. "Change in Control" shall mean the occurrence
-----------------
of any of the following:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company, including the shares of common stock
of the Company issuable upon an exchange of Softkey Exchangeable
Shares that are not owned by the Company or any corporation controlled
by the Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
-------- -------
purposes of this subsection (a), the following shall not constitute a
Change in Control: (1) any acquisition directly from the Company, (2)
any acquisition by the Company or any corporation controlled by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (4) any acquisition by a Person of 20% of
either the Outstanding Company Common Stock or the Outstanding Company
Voting Securities as a result of an acquisition of common stock of the
Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company
or Softkey Exchangeable Shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to
20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities; provided, however, that if a
-----------------
Person shall become the beneficial owner of 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities by reason of a share acquisitions by the Company or by
Softkey as described above and shall, after such share acquisitions by
the Company or Softkey, become the beneficial owner of any additional
shares of common stock of the Company, then such acquisition shall
constitute a Change in Control or (5) any acquisition pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(c) of this Section; provided, further,
-----------------
<PAGE>
however, that for purposes of this subsection (a), any Investing
Person (as such term is defined in the Rights Agreement) shall be
deemed not to be a beneficial owner of any Investment Shares (as such
term is defined in the Rights Agreement) and the holder of the Mattel
Special Voting Preferred Share (as such term is defined in the Rights
Agreement) shall be deemed not to be a beneficial owner of such Mattel
Special Voting Preferred Share; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
-----------------
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
entity (a "Business Combination"), in each case, unless, following
such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (2) no Person
(excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding share of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (3) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
-2-
<PAGE>
(4) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.10 Rights Agreement. "Rights Agreement" shall mean the Rights
----------------
Agreement, dated as of February 7, 1992, as amended by an amendment
dated as of May 13, 1999 and an amendment dated as of November 4, 1999
by and between the Company and BankBoston N.A., a national banking
association, formerly, The First National Bank of Boston, and not
giving effect to any amendments subsequent to November 4, 1999.
2.11 Softkey. "Softkey" shall mean Softkey Software Products Inc.,
-------
an Ontario corporation.
2.12 Softkey Exchangeable Shares. "Softkey Exchangeable Shares"
---------------------------
shall mean the Exchangeable Shares (as defined in the Rights
Agreement) in the capital stock of Softkey.
2. Current Sections 2.1 through 2.7 of the Plan are hereby renumbered as
Sections 2.3 through 2.9.
3. Section 6.1 of the Plan is hereby amended by adding an additional sentence
at the end thereof, reading in its entirety as follows: "Notwithstanding
the foregoing, following a Change in Control, no amendment or termination
of the Plan may adversely affect the rights of any Participant with respect
to bonus opportunities for years beginning before the Change in Control
without that Participant's written consent, including without limitation
such rights under Article VII."
4. The Plan is hereby amended by adding a new Article VII, reading in its
entirety as follows:
ARTICLE VII
CHANGE IN CONTROL
In the event of a Change in Control, each Participant who is employed
by the Company or its successor as of the date of such Change in Control (the
"CIC Date") shall receive (i) within 30 days after the CIC Date, any unpaid
bonus amounts to which the Participant is entitled with respect to any year that
ended on or before the CIC Date, and (ii) an interim cash payment with respect
to the year in which such Change in Control occurs (the "CIC Year") equal to the
amount that such Participant would have received if the target performance goals
(as established by the Committee pursuant to Section 3.1 hereof) for the CIC
Year had been achieved. Notwithstanding the foregoing, in the case of a
Participant who is a party to any individual agreement under which the
Participant is or may become entitled to bonus payments with respect to the CIC
Year, the Company or its successor may make the right of such Participant to
receive such interim cash payment conditional upon the execution by such
Participant of a waiver of the right to receive such payments under the
individual agreement to the extent they would duplicate such interim cash
payment. Any amounts that thereafter become
-3-
<PAGE>
payable to a Participant with respect to the CIC Year shall be reduced, but not
below zero, by the amount of such interim payment to such Participant.
* * *
IN WITNESS WHEREOF, the Company has caused this Amendment to the Plan
to be executed, effective as of November 4, 1999.
MATTEL, INC.
By: /s/ Alan Kaye
-------------------------------
Name: Alan Kaye
Title: Senior Vice President Human Resources
-4-
<PAGE>
EXHIBIT 10.19
AMENDMENT NO. 1 TO
THE AMENDED AND RESTATED MATTEL LONG-TERM INCENTIVE PLAN
The Amended and Restated Mattel Long-Term Incentive Plan (the "Plan")
is hereby amended, effective November 4, 1999, as set forth below:
1. Section 2 of the Plan is hereby amended by adding new Sections 2.1, 2.2,
2.12, 2.13 and 2.14, reading in their entirety as follows:
2.1 Board. "Board" shall mean the Board of Directors of the Company.
-----
2.2 Change in Control. "Change in Control" shall mean the occurrence
-----------------
of any of the following:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company, including the shares of common stock
of the Company issuable upon an exchange of Softkey Exchangeable
Shares that are not owned by the Company or any corporation controlled
by the Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
-----------------
purposes of this subsection (a), the following shall not constitute a
Change in Control: (1) any acquisition directly from the Company, (2)
any acquisition by the Company or any corporation controlled by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (4) any acquisition by a Person of 20% of
either the Outstanding Company Common Stock or the Outstanding Company
Voting Securities as a result of an acquisition of common stock of the
Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company
or Softkey Exchangeable Shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to
20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities; provided, however, that if a
-----------------
Person shall become the beneficial owner of 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities by reason of a share acquisitions by the Company or by
Softkey as described above and shall, after such share acquisitions by
the Company or Softkey, become the beneficial owner of any additional
shares of common stock of the Company, then such acquisition shall
constitute a Change in Control or (5) any acquisition pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(c) of this Section; provided, further,
-----------------
<PAGE>
however, that for purposes of this subsection (a), any Investing
Person (as such term is defined in the Rights Agreement) shall be
deemed not to be a beneficial owner of any Investment Shares (as such
term is defined in the Rights Agreement) and the holder of the Mattel
Special Voting Preferred Share (as such term is defined in the Rights
Agreement) shall be deemed not to be a beneficial owner of such Mattel
Special Voting Preferred Share; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however,
-----------------
that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
entity (a "Business Combination"), in each case, unless, following
such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (2) no Person
(excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding share of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (3) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
-2-
<PAGE>
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.12 Rights Agreement. "Rights Agreement" shall mean the Rights
----------------
Agreement, dated as of February 7, 1992, as amended by an amendment
dated as of May 13, 1999 and an amendment dated as of November 4, 1999
by and between the Company and BankBoston N.A., a national banking
association, formerly, The First National Bank of Boston, and not
giving effect to any amendments subsequent to November 4, 1999.
2.13 Softkey. "Softkey" shall mean Softkey Software Products Inc.,
-------
an Ontario corporation.
2.14 Softkey Exchangeable Shares. "Softkey Exchangeable Shares"
---------------------------
shall mean the Exchangeable Shares (as defined in the Rights
Agreement) in the capital stock of Softkey
2. Current Sections 2.1 through 2.9 of the Plan are hereby renumbered as
Sections 2.3 through 2.11.
3. Section 6.1 of the Plan is hereby amended by adding an additional sentence
at the end thereof, reading in its entirety as follows: "Notwithstanding
the foregoing, following a Change in Control, no amendment or termination
of the Plan may adversely affect the rights of any Participant with respect
to bonus opportunities for Performance Periods that began before the Change
in Control without that Participant's written consent, including without
limitation such rights under Article VII."
4. The Plan is hereby amended by adding new Article VIII, reading in its
entirety as follows:
ARTICLE VIII
CHANGE IN CONTROL
In the event of a Change in Control, each Participant who is employed
by the Company or its successor as of the date of such Change in Control (the
"CIC Date") shall receive (i) within 30 days after the CIC Date, any unpaid
bonus amounts to which the Participant is entitled with respect to any
Performance Period that ended on or before the CIC Date, and (ii) an interim
cash payment for each Performance Period that commenced prior to the CIC Date
that has not been completed as of the CIC Date, equal to the amount that such
Participant would have received had the target Performance Objectives been
achieved with respect to each such Performance Period. Notwithstanding the
foregoing, in the case of a Participant who is a party to any individual
agreement under which the Participant is or may become entitled to payments with
respect to the same Performance Period(s), the Company or its successor may make
the right of such Participant to receive such interim cash payment under clause
(ii) conditional upon the execution by such Participant of a waiver of the right
to receive such payments under the individual agreement to the extent they would
duplicate such interim cash payment. Any bonus
-3-
<PAGE>
that thereafter becomes payable to a Participant with respect to such a
Performance Period shall be reduced, but not below zero, by the amount of such
interim payment to such Participant with respect to that Performance Period.
* * *
IN WITNESS WHEREOF, the Company has caused this Amendment to the Plan
to be executed, effective as of November 4, 1999.
MATTEL, INC.
By: /s/ Alan Kaye
------------------------------------
Name: Alan Kaye
Title: Senior Vice President Human
Resources
-4-
<PAGE>
EXHIBIT 10.22
AMENDMENT NO. 1 TO
MATTEL, INC. AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Mattel, Inc. Amended and Restated Supplemental Executive Retirement
Plan is hereby amended as set forth below:
1. Section 2.6 of the Plan is hereby amended and restated, effective as of
November 4, 1999, to read in its entirety as follows:
2.6 Change in Control.
-----------------
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company, including the shares of common stock of the Company issuable
upon an exchange of Softkey Exchangeable Shares that are not owned by the
Company or any corporation controlled by the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
shall not constitute a Change in Control: (A) any acquisition directly from
the Company, (B) any acquisition by the Company or any corporation
controlled by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any acquisition by a Person of
20% of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities as a result of an acquisition of common stock of
the Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company or
Softkey Exchangeable Shares outstanding, increases the proportionate number
of shares beneficially owned by such Person to 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities; provided, however, that if a Person shall become the beneficial
owner of 20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by reason of a share acquisition by
the Company or by Softkey as described above and shall, after such share
acquisition by the Company or Softkey, become the beneficial owner of any
additional shares of common stock of the Company, then such acquisition
shall constitute a Change of Control or (E) any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2.6; provided, further, however, that for purposes of
this subsection (i), any Investing Person (as such term is defined in the
Rights Agreement) shall be deemed not to be a beneficial owner of any
Investment Shares (as such term is defined in the Rights Agreement) and the
holder of the Mattel Special Voting Preferred Share (as such term is
<PAGE>
defined in the Rights Agreement) shall be deemed not to be a beneficial
owner of such Mattel Special Voting Preferred Share; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as through such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors;
or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding share of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2. Section 2 of the Plan is hereby amended, effective as of November 4, 1999,
by adding new subsections 2.21, 2.23 and 2.24, reading in their entirety as
follows:
<PAGE>
2.21. Rights Agreement. The Rights Agreement, dated as of February 7,
----------------
1992, as amended by an amendment dated as of May 13, 1999 and an amendment
dated as of November 4, 1999 by and between the Company and BankBoston
N.A., a national banking association, formerly, The First National Bank of
Boston, and not giving effect to any amendments subsequent to November 4,
1999.
2.23. Softkey. Softkey Software Products Inc., an Ontario corporation.
-------
2.24. Softkey Exchangeable Shares. The Exchangeable Shares (as such term
---------------------------
is defined in the Rights Agreement) in the capital stock of Softkey.
3. Section 2 of the Plan is hereby amended, effective as of November 4, 1999,
by renumbering the current subsections 2.21 and 2.22 as 2.22 and 2.25,
respectively.
4. Section 5.1 of the Plan is hereby amended and restated, effective as of
January 1, 2000, to read in its entirety as follows:
5.1 Benefit Accrual. Each employee who becomes a Participant under
---------------
Section 3.1 and who remains in the employ of the Employer until age 60 and
until he becomes vested under Section 5.4 shall be entitled to a monthly
benefit beginning at age sixty (60) (or when there is a Termination, if
later) and continuing for the Participant's lifetime. Such monthly amount,
determined as of the Determination Date (as defined below), shall equal:
(a) for Participant's credited with at least five (5) years of
Service but not more than fifteen (15) years of Service, one-twelfth
(1/12th) of (i) times (ii) below, rounded to the nearest dollar, where
(i) is twenty-five percent (25%) of the Participant's Final
Average Compensation, determined as of the Determination Date,
and
(ii) is the fraction, not in excess of one (1), equal to the
number of Months of Service credited to the Participant as of the
Determination Date divided by one hundred eighty (180).
(b) for Participant's credited with more than fifteen (15) years of
Service, one-twelfth (1/12th) of twenty-five percent (25%) of the
Participant's Final Average Compensation, determined as of the
Determination Date, plus an additional 0.1666% for each month of
credited Service after fifteen (15) years up to a maximum total
percentage of thirty-five percent (35%).
"Determination Date" shall mean the date of Termination or the date the
Participant is no longer a full-time employee (scheduled to work a forty (40)
hour work week).
IN WITNESS WHEREOF, Mattel, Inc. has caused this Amendment No.1 to the
Mattel,Inc. Amended and Restated Supplemental Executive Retirement Plan to be
executed, effective as set forth above.
MATTEL, INC.
By: /s/ Alan Kaye
__________________________________
Name: Alan Kaye
Title: Senior Vice President Human
Resources
<PAGE>
EXHIBIT 10.24
AMENDMENT NO.1 TO
MATTEL, INC. DEFERRED COMPENSATION PLAN
The Mattel, Inc. Deferred Compensation Plan is hereby amended, effective as
of November 4, 1999, as set forth below:
1. Section 2.5 of the Plan is hereby amended and restated in its entirety as
follows:
2.5 Change in Control.
-----------------
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company, including the shares of common stock of the Company issuable
upon an exchange of Softkey Exchangeable Shares that are not owned by the
Company or any corporation controlled by the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
shall not constitute a Change in Control: (A) any acquisition directly from
the Company, (B) any acquisition by the Company or any corporation
controlled by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any acquisition by a Person of
20% of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities as a result of an acquisition of common stock of
the Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company or
Softkey Exchangeable Shares outstanding, increases the proportionate number
of shares beneficially owned by such Person to 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities; provided, however, that if a Person shall become the beneficial
owner of 20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by reason of a share acquisition by
the Company or by Softkey as described above and shall, after such share
acquisition by the Company or Softkey, become the beneficial owner of any
additional shares of common stock of the Company, then such acquisition
shall constitute a Change of Control or (E) any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2.5; provided, further, however, that for purposes of
this subsection (i), any Investing Person (as such term is defined in the
Rights Agreement) shall be deemed not to be a beneficial owner of any
Investment Shares (as such term is defined in the Rights Agreement) and the
holder of the Mattel Special Voting Preferred Share (as such term is
defined in the Rights Agreement) shall be deemed not to be a beneficial
owner of such Mattel Special Voting Preferred Share; or
<PAGE>
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as through such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors;
or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding share of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2. Section 2 of the Plan is hereby amended by adding new subsections 2.28,
2.30 and 2.31, reading in their entirety as follows:
2.28. Rights Agreement. The Rights Agreement, dated as of February 7,
----------------
1992, as amended by an amendment dated as of May 13, 1999 and an amendment
dated as of
<PAGE>
November 4, 1999 by and between the Company and BankBoston N.A., a national
banking association, formerly, The First National Bank of Boston, and not
giving effect to any amendments subsequent to November 4, 1999.
2.30. Softkey. Softkey Software Products Inc., an Ontario corporation.
-------
2.31. Softkey Exchangeable Shares. The Exchangeable Shares (as such term
---------------------------
is defined in the Rights Agreement) in the capital stock of Softkey.
3. Section 2 of the Plan is hereby amended by renumbering the current
subsections 2.28, 2.29, 2.30, 2.31, 2.32 and 2.33 as 2.29, 2.32, 2.33, 2.34,
2.35 and 2.36, respectively.
IN WITNESS WHEREOF, Mattel, Inc. has caused this Amendment No.1 to the
Mattel, Inc. Deferred Compensation Plan to be executed, effective as of November
4, 1999.
MATTEL, INC.
/s/ Alan Kaye
By:__________________________________
Name: Alan Kaye
Title: Senior Vice President Human Resources
<PAGE>
EXHIBIT 10.29
AMENDMENT NO.1 TO
MATTEL, INC. PIP EXCESS PLAN
The Mattel, Inc. PIP Excess Plan is hereby amended, effective as of
November 4, 1999, as set forth below:
1. Section 2.6 of the Plan is hereby amended and restated in its entirety as
follows:
2.6 Change in Control.
-----------------
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company, including the shares of common stock of the Company issuable
upon an exchange of Softkey Exchangeable Shares that are not owned by the
Company or any corporation controlled by the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
shall not constitute a Change in Control: (A) any acquisition directly from
the Company, (B) any acquisition by the Company or any corporation
controlled by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any acquisition by a Person of
20% of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities as a result of an acquisition of common stock of
the Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company or
Softkey Exchangeable Shares outstanding, increases the proportionate number
of shares beneficially owned by such Person to 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities; provided, however, that if a Person shall become the beneficial
owner of 20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by reason of a share acquisition by
the Company or by Softkey as described above and shall, after such share
acquisition by the Company or Softkey, become the beneficial owner of any
additional shares of common stock of the Company, then such acquisition
shall constitute a Change of Control or (E) any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2.6; provided, further, however, that for purposes of
this subsection (i), any Investing Person (as such term is defined in the
Rights Agreement) shall be deemed not to be a beneficial owner of any
Investment Shares (as such term is defined in the Rights Agreement) and the
holder of the Mattel Special Voting Preferred Share (as such term is
defined in the Rights Agreement) shall be deemed not to be a beneficial
owner of such Mattel Special Voting Preferred Share; or
<PAGE>
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as through such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors;
or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding share of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2. Section 2 of the Plan is hereby amended by adding new subsections 2.30,
2.32 and 2.33, reading in their entirety as follows:
2.30. Rights Agreement. The Rights Agreement, dated as of February 7,
----------------
1992, as amended by an amendment dated as of May 13, 1999 and an amendment
dated as of
<PAGE>
November 4, 1999 by and between the Company and BankBoston N.A., a national
banking association, formerly, The First National Bank of Boston, and not
giving effect to any amendments subsequent to November 4, 1999.
2.32. Softkey. Softkey Software Products Inc., an Ontario corporation.
-------
2.33. Softkey Exchangeable Shares. The Exchangeable Shares (as such term
---------------------------
is defined in the Rights Agreement) in the capital stock of Softkey.
3. Section 2 of the Plan is hereby amended by renumbering the current
subsections 2.30, 2.31, 2.32, 2.33, 2.34 and 2.35 as 2.31, 2.34, 2.35, 2.36,
2.37 and 2.38, respectively.
IN WITNESS WHEREOF, Mattel, Inc. has caused this Amendment No.1 to the
Mattel, Inc. PIP Excess Plan to be executed, effective as of November 4, 1999.
MATTEL, INC.
/s/ Alan Kaye
By:
-----------------------------
Name: Alan Kaye
Title: Senior Vice President Human Resources
<PAGE>
EXHIBIT 10.34
AMENDMENT NO. 3 TO
MATTEL, INC. 1990 STOCK OPTION PLAN
The Mattel, Inc. 1990 Stock Option Plan (effective 5/10/95) (the
"Plan") is hereby amended as set forth below.
1. Section 2 of the Plan is hereby amended, effective as of November 4,
1999, by adding the following new subsections (e), (l), (m), and (n)
reading in their entirety as follows:
(e) "Cause" (1) "Cause" as defined in any individual employment
agreement between the Company or an affiliate and the
Participant, or (2) if there is no such individual employment
agreement or if it does not define Cause: (A) an act or acts of
dishonesty on the Participant's part that are intended to result
in the Participant's substantial personal enrichment at the
expense of the Company; (B) repeated violations by the
Participant of the Participant's obligations to the Company that
are demonstrably willful and deliberate on the Participant's
part and that resulted in material injury to the Company; (C)
conduct of a criminal nature that has, or that is more likely
than not to have a material adverse effect on the Company's
reputation or standing in the community, or on its continuing
relationships with its customers or those who purchase or use
its products; or (d) fraudulent conduct in connection with the
business or affairs of the Company, regardless of whether said
conduct is designed to defraud the Company or others.
(l) "Rights Agreement" the Rights Agreement, dated as of
February 7, 1992, as amended by an amendment dated as of May
13, 1999 and an amendment dated as of November 4, 1999 by and
between the Company and BankBoston N.A., a national banking
association, formerly, The First National Bank of Boston, and
not giving effect to any amendments subsequent to November 4,
1999.
(m) "Softkey" Softkey Software Products Inc., an Ontario
corporation.
(n) "Softkey Exchangeable Shares" the Exchangeable Shares
(as such term is defined in the Rights Agreement) in the
capital stock of Softkey.
2. Section 2 of the Plan is hereby amended, effective as of November 4,
1999, by renumbering the current subsections (e) through (j) as (f)
through (k).
3. The first sentence of Section 12 of the Plan is hereby amended,
effective as of February 10, 2000, to read in its entirety as follows:
"If the employment of a Participant terminates, other than pursuant to
paragraphs (a) through (e) of this Section 12, all unexercised,
deferred and unpaid Awards shall be cancelled 90 days after the date of
such termination of employment, unless the Award Agreement provides
otherwise."
4. Paragraph (c)(ii) of Section 12 of the Plan is hereby amended,
effective as of February 10, 2000, by adding the following additional
sentence to the end thereof, reading in its entirety as follows:
"Without limiting the generality of the foregoing, in such event, the
<PAGE>
Participant's stock options shall remain outstanding until, and be
cancelled upon the first anniversary of the date of the Participant's
termination of employment because of disability, unless the Award
Agreement provides otherwise."
5. Section 12 of the Plan is hereby amended, effective as of November 4,
1999, by adding new subsections (d) and (e) to the end thereof,
reading in its entirety as follows:
(d) If the employment of a Participant terminates for Cause,
all unexercised, deferred and unpaid Awards shall be immediately
cancelled.
(e) Additionally, except to the extent the terms of a stock
option permit its later termination, notwithstanding the
provisions of this Section 12 and Section 13 to the contrary, in
the case of a Participant who incurs a termination of employment
other than for Cause during the 18-month period following a
Change in Control, any stock option held by such Participant may
thereafter be exercised by the Participant, to the extent it was
exercisable at the time of termination, or on such accelerated
basis as the Committee may determine, for (l) the longer of (A)
two years from the date of such termination of employment or (B)
such other period as may be provided in the Plan for such
termination of employment, or as the Committee may provide in
the Award Agreement, or (2) until expiration of the stated term
of such stock option, whichever period is shorter.
6. Section 19 of the Plan is hereby amended, effective as of November 4,
1999, to read in its entirety as follows:
(a) In the event of a Change in Control (as defined below) of
the Company, all Awards then outstanding shall become fully
exercisable as of the date of the Change in Control, and all
restrictions and conditions of all Awards then outstanding
shall be deemed satisfied as of the date of the Change in
Control.
(b) "Change in Control"
(1) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of either (A) the then outstanding shares of common stock of the
Company, including the shares of common stock of the Company
issuable upon an exchange of Softkey Exchangeable Shares that
are not owned by the Company or any corporation controlled by
the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (1), the
-------- -------
following shall not constitute a Change in Control: (A) any
acquisition directly from the Company, (B) any acquisition by
the Company or any corporation controlled by the Company, (C)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a
-2-
<PAGE>
Person of 20% of either the Outstanding Company Common Stock or
the Outstanding Company Voting Securities as a result of an
acquisition of common stock of the Company by the Company or of
Softkey Exchangeable Shares by Softkey which, by reducing the
number of shares of common stock of the Company or Softkey
Exchangeable Shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 20% or
more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities; provided, however, that
-------- -------
if a Person shall become the beneficial owner of 20% or more of
either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities by reason of a share acquisitions by
the Company or by Softkey as described above and shall, after
such share acquisitions by the Company or Softkey, become the
beneficial owner of any additional shares of common stock of the
Company, then such acquisition shall constitute a Change in
Control or (E) any acquisition pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (3) of this
Section; provided, further, however, that for purposes of this
-------- -------
subsection (1), any Investing Person (as such term is defined in
the Rights Agreement) shall be deemed to be a beneficial owner
of any Investment Shares (as such term is defined in the Rights
Agreement) and the holder of the Mattel Special Voting Preferred
Share (as such term is defined in the Rights Agreement) shall be
deemed not to be a beneficial owner of such Mattel Special
Voting Preferred Share; or
(2) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
-------- -------
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(3) Consummation by the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as
-3-
<PAGE>
a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding share of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (C)
at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(4) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
7. The foregoing amendments to the Plan shall apply (i) with respect to
awards granted under the Plan on or after the effective date specified
above for such amendment, as of the date of grant, and (ii) with
respect to awards previously granted under the Plan, effective as of
February 10, 2000.
* * *
IN WITNESS WHEREOF, the Company has caused this Amendment to
the Plan to be executed, effective as set forth above.
MATTEL, INC.
By: /s/ Alan Kaye
-------------------------------------
Name: Alan Kaye
Title: Senior Vice President Human
Resources
-4-
<PAGE>
EXHIBIT 10.42
AMENDMENT NO. 2 TO
THE AMENDED AND RESTATED MATTEL 1996 STOCK OPTION PLAN
The Amended and Restated Mattel 1996 Stock Option Plan (the "Plan") is
hereby amended as set forth below.
1. Section 2 of the Plan is hereby amended, effective as of November 4, 1999,
by adding new Paragraphs (b), (t), (v), and (w), reading in their entirety
as follows:
(b) "Cause" shall mean (1) "Cause" as defined in any individual
employment agreement between the Company or an affiliate and the
Participant, or (2) if there is no such individual employment agreement
or if it does not define Cause: (A) an act or acts of dishonesty on the
Participant's part which are intended to result in the Participant's
substantial personal enrichment at the expense of the Company; (B)
repeated violations by the Participant of the Participant's obligations
to the Company that are demonstrably willful and deliberate on the
Participant's part and that resulted in material injury to the Company;
(C) conduct of a criminal nature that has or that is more likely than
not to have a material adverse effect on the Company's reputation or
standing in the community, or on its continuing relationships with its
customers or those who purchase or use its products; or (D) fraudulent
conduct in connection with the business or affairs of the Company,
regardless of whether said conduct is designed to defraud the Company or
others.
(t) "Rights Agreement" shall mean the Rights Agreement, dated as of
February 7, 1992, as amended by an amendment dated as of May 13, 1999
and an amendment dated as of November 4, 1999 by and between the Company
and BankBoston N.A., a national banking association, formerly, The First
National Bank of Boston, and not giving effect to any amendments
subsequent to November 4, 1999.
(v) "Softkey" shall mean Softkey Software Products Inc., an Ontario
corporation.
(y) "Softkey Exchangeable Shares" shall mean the Exchangeable Shares
(as such term is defined in the Rights Agreement) in the capital stock
of Softkey.
2. Section 2 of the Plan is hereby amended, effective as of November 4,
1999, by renumbering the current Paragraphs (b) through (r) as (c)
through (s), (s) as (u) and (t) through (w) as (x) through (aa).
3. Section 9 of the Plan is hereby amended, effective as of November 4,
1999, to read in its entirety as follows:
(a) Except to the extent the terms of an Option require its prior
termination, each Option shall terminate on the earliest of the
following dates:
<PAGE>
(i) The date which is ten (10) years from the date on which
the Option is granted or five (5) years in the case of an Incentive
Stock Option granted to a Ten Percent Stockholder; or
(ii) Except to the extent the terms of an Option permit its later
termination, the date that is ninety (90) days from the date of the
Severance of the Participant to whom the Option was granted; provided,
however, that if the Participant's Severance is as a result of death
or the Participant's becoming Disabled, then the date shall be
extended to one (1) year from the date of the Severance of the
Participant to whom the Option was granted; or
(iii) The date of the Participant's Severance for Cause.
(b) Except to the extent the terms of an Option permit its later
termination, notwithstanding the provisions of Paragraph (a) above, in
the case of a Participant who incurs a Severance after the attainment of
age fifty-five (55) and the completion of five (5) years of service (as
determined for a Participant who is also an employee of the Company in
accordance with the terms of the Mattel, Inc. Personal Investment Plan),
the Participant's Non-Qualified Stock Options will continue to vest for
five (5) years following Severance, and the Participant will be able to
exercise his or her Non-Qualified Stock Options until the earlier of (i)
five (5) years following Severance or (ii) the date on which the Options
would otherwise expire.
(c) Additionally, except to the extent the terms of an Option permit
its later termination, notwithstanding Paragraphs (a) and (b) of this
Section 9 and Section 20, in the case of a Participant who incurs a
Severance other than for Cause during the 18-month period following a
Change in Control, any Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for (1) the longer of (a) two years from such date of
Severance or (b) such other period as may be provided in the Plan for
such Severance or as the Committee may provide in the option agreement,
or (2) until expiration of the stated term of such Option, whichever
period is shorter.
4. Section 19 of the Plan is hereby amended, effective as of November 4,
1999, to read in its entirety as follows:
(a) In the event of a Change in Control (as defined below), all
Options and Stock Appreciation Rights then outstanding shall become
fully exercisable as of the date of the Change in Control and all
restrictions and conditions of all Grants of Restricted Stock then
outstanding shall be deemed satisfied as of the date of the Change in
Control.
-2-
<PAGE>
(b) "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company, including the shares of common stock of the Company
issuable upon an exchange of Softkey Exchangeable Shares that are not owned
by the Company or any corporation controlled by the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (1),
-------- -------
the following shall not constitute a Change in Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company or any
corporation controlled by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company, (D) any acquisition by a Person
of 20% of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities as a result of an acquisition of common stock of
the Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company or
Softkey Exchangeable Shares outstanding, increases the proportionate number
of shares beneficially owned by such Person to 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities; provided, however, that if a Person shall become the beneficial
-------- -------
owner of 20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by reason of a share acquisitions by
the Company or by Softkey as described above and shall, after such share
acquisitions by the Company or Softkey, become the beneficial owner of any
additional shares of common stock of the Company, then such acquisition
shall constitute a Change in Control or (E) any acquisition pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection (3)
of this Section; provided, further, however, that for purposes of this
-------- -------
subsection (l), any Investing Person (as such term is defined in the Rights
Agreement) shall be deemed not to be a beneficial owner of any Investment
Shares (as such term is defined in the Rights Agreement) and the holder of
the Mattel Special Voting Preferred Share (as such term is defined in the
Rights Agreement) shall be deemed not to be a beneficial owner of such
Mattel Special Voting Preferred Share; or
(2) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
-------- -------
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual
-3-
<PAGE>
were a member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(3) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding share of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(4) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5. The foregoing amendments to the Plan shall apply (i) with respect to awards
granted under the Plan on or after November 4, 1999, as of the date of grant,
and (ii) with respect to awards previously granted under the Plan, effective as
of February 10, 2000.
* * *
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amendment to the Plan
to be executed, effective as set forth above.
MATTEL, INC.
By: /s/ Alan Kaye
-------------------------------
Name: Alan Kaye
Title: Senior Vice President Human Resources
-5-
<PAGE>
EXHIBIT 10.43
Grant Agreement for a
Non-Qualified Stock Option
under the Mattel 1996 Stock Option Plan
This is an Option Agreement between Mattel, Inc. (the "Company") and the
individual (the "Option Holder") named in the Notice of Grant of Stock Option
(the "Notice) attached hereto as the cover page of this agreement.
Recitals
The Company has adopted the Mattel 1996 Stock Option Plan (the "Plan") for
the granting to selected employees of options to purchase shares of Common Stock
of the Company. In accordance with the terms of the Plan, the
Compensation/Options Committee of the Board of Directors (the "Committee"), has
approved the execution of this Grant Agreement (the "Option") between the
Company and the Option Holder. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Plan.
Option
1. Terms. The Company grants to the Option Holder the right and option
-----
to purchase on the terms and conditions hereinafter set forth, all or any part
of the aggregate number of shares set forth in the Notice of Common Stock
exercisable in accordance with the provisions of this Option during a period
expiring ten years from the date of the Notice (the "Expiration Date"), unless
terminated prior to that date pursuant to Section 5 or 6 below. This Option is a
Non-Qualified Stock Option.
2. Exercisability (Vesting). The Option Holder may purchase the
------------------------
following percentages of the shares of Common Stock set forth in the Notice on
or after the dates set forth below; provided that the Option Holder is employed
by the Company or one of its Subsidiaries on the applicable vesting date:
<TABLE>
<CAPTION>
=========================================================================
Percent of Shares
Commencing on the Date of this Option Subject to this Option
that may be Purchased
-------------------------------------------------------------------------
<S> <C>
After the First 6 months 10%
-------------------------------------------------------------------------
After the First year 10%
-------------------------------------------------------------------------
After each 6 months thereafter 20%
-------------------------------------------------------------------------
Fully vested after 3 years
=========================================================================
</TABLE>
The number of shares that may be purchased upon exercise of this Option
shall in each case be calculated to the nearest full share.
<PAGE>
3. Method of Exercising. Each exercise of this Option shall be by means
--------------------
of a written notice of exercise delivered to the office of the Secretary of the
Company, specifying the number of whole shares to be purchased, accompanied by
payment of the full purchase price of the shares to be purchased. The payment
shall be in the form of cash or such other forms of consideration as the
Committee shall deem acceptable, such as the surrender of outstanding shares of
Common Stock owned by the Option Holder or by withholding shares that would
otherwise be issued upon the exercise of the Option. The Option Holder may
exercise this Option by the delivery to the Company or its designated agent of
an irrevocable written notice of exercise form together with irrevocable
instructions to the broker-dealer to sell or margin a sufficient portion of the
shares of Common Stock and to deliver the sale or margin loan proceeds directly
to the Company to pay the exercise price of this Option.
4. Withholding. Upon exercise, the Option Holder shall pay, or make
-----------
provisions satisfactory to the Company or its Subsidiary for payment of any
federal, state and local taxes required to be withheld.
5. Cancellation of Grants. Option Holder specifically acknowledges that
----------------------
this Option is subject to the provisions of Section 20 of the plan, entitled
"Cancellation of Grants," which can cause the forfeiture of this Option, or the
rescission of Common Stock acquired upon the exercise of this Option. As a
condition of the exercise of this Option, the Option Holder shall certify on a
form acceptable to the Committee that he or she is in compliance with the terms
and conditions of the plan, including Section 20 thereof, entitled "Cancellation
of Grants."
6. Term. This Option shall terminate ninety (90) days after the Option
----
Holder ceases to be a member of the Board, for whatever reason.
7. Compliance with Law. No shares issuable upon the exercise of this
-------------------
Option shall be issued and delivered unless and until all applicable
registration requirements of the Securities Act of 1933, all applicable listing
requirements of any national securities exchange on which the Common Stock is
then listed, and all other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery, shall have been complied
with. In particular, the Committee may require certain investment (or other)
representations and undertakings in connection with the issuance of securities
in connection with the Plan in order to comply with applicable law.
8. Assignability. Except as may be effected by will or by the laws of
-------------
descent and distribution, any attempt to assign this Option shall be of no
effect.
9. Certain Corporate Transactions. In the event of any change in the
------------------------------
Common Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event the
Committee may adjust proportionately the number of shares and the stock price of
the Common Stock subject to this Option. In the event of any other change
affecting the Common Stock or
2
<PAGE>
any distribution (other than normal cash dividends) to holders of Common Stock,
the Committee may make such adjustments as it may deem equitable (including
adjustments to avoid fractional shares) in order to give proper effect to such
event. In the event of a corporate merger, consolidation, acquisition of
property or stock, spin-off, reorganization or liquidation, the Committee may
substitute a new option for this Option or provide for the assumption of this
Option by the other corporation that is a party to the transaction.
10. No Additional Rights. Neither the granting of this Option nor its
--------------------
exercise shall (a) confer upon the Option Holder any right to continue in the
employ of the Company (b) interfere in any way with the rights of the Company or
a Subsidiary to terminate such employment at any time for any reason, with or
without cause, or (c) interfere with the right of the Company or a Subsidiary to
undertake any lawful corporate action. Option Holder acknowledges that he or she
is an "employee at will." The provisions of this Section 10 are subject to the
terms of any employment agreement between the Option Holder and the Company (or
a Subsidiary).
11. Rights as a Stockholder. Neither the Option Holder nor any other
-----------------------
person legally entitled to exercise this Option shall be entitled to any of the
rights or privileges of a stockholder of the Company in respect of any shares
issuable upon any exercises of this Option unless and until a certificate or
certificates representing such shares shall have been actually issued and
delivered to the Option Holder.
12. Compliance with Plan. This Option is subject to, and the Company and
--------------------
Option Holder agree to be bound by, all of the terms and conditions of the Plan
as it shall be amended from time-to-time. No amendment to the plan shall
adversely affect this Option without the consent of the Option Holder. In the
case of a conflict between the terms of the Plan and this Option, the terms of
the Plan shall govern.
13. Governing Law. This Option has been granted, executed and delivered
-------------
with effect from the date of Notice, at El Segundo, California, and
interpretation, performance and enforcement of this Option shall be governed by
the laws of the State of Delaware.
3
<PAGE>
EXHIBIT 10.44
Grant Agreement for a
Non-Qualified Stock Option
under the Mattel 1996 Stock Option Plan
This is an Option Agreement between Mattel, Inc. (the "Company") and
the individual (the "Option Holder") named in the Notice of Grant of Stock
Option (the "Notice) attached hereto as the cover page of this agreement.
Recitals
The Company has adopted the Mattel 1996 Stock Option Plan (the "Plan")
for the granting to selected employees of options to purchase shares of Common
Stock of the Company. In accordance with the terms of the Plan, the
Compensation/Options Committee of the Board of Directors (the "Committee"), has
approved the execution of this Grant Agreement (the "Option") between the
Company and the Option Holder. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Plan.
Option
1. Terms. The Company grants to the Option Holder the right and
-----
option to purchase on the terms and conditions hereinafter set forth, all or any
part of the aggregate number of shares set forth in the Notice of Common Stock
exercisable in accordance with the provisions of this Option during a period
expiring ten years from the date of the Notice (the "Expiration Date"), unless
terminated prior to that date pursuant to Section 5 or 6 below. This Option is
a Non-Qualified Stock Option.
2. Exercisability (Vesting). The Option Holder may purchase the
------------------------
following percentages of the shares of Common Stock set forth in the Notice on
or after the dates set forth below; provided that the Option Holder is employed
by the Company or one of its Subsidiaries on the applicable vesting date:
<TABLE>
<CAPTION>
============================================================================
Percent of Shares
Commencing on the Date of this Option Subject to this Option
that may be Purchased
----------------------------------------------------------------------------
<S> <C>
After the First 6 months 10%
----------------------------------------------------------------------------
After the First year 10%
----------------------------------------------------------------------------
After each 6 months thereafter 20%
----------------------------------------------------------------------------
Fully vested after 3 years
============================================================================
</TABLE>
The number of shares that may be purchased upon exercise of this
Option shall in each case be calculated to the nearest full share.
1
<PAGE>
3. Method of Exercising. Each exercise of this Option shall be by
--------------------
means of a written notice of exercise delivered to the office of the Secretary
of the Company, specifying the number of whole shares to be purchased,
accompanied by payment of the full purchase price of the shares to be purchased.
The payment shall be in the form of cash or such other forms of consideration as
the Committee shall deem acceptable, such as the surrender of outstanding shares
of Common Stock owned by the Option Holder or by withholding shares that would
otherwise be issued upon the exercise of the Option. The Option Holder may
exercise this Option by the delivery to the Company or its designated agent of
an irrevocable written notice of exercise form together with irrevocable
instructions to the broker-dealer to sell or margin a sufficient portion of the
shares of Common Stock and to deliver the sale or margin loan proceeds directly
to the Company to pay the exercise price of this Option.
4. Withholding. Upon exercise, the Option Holder shall pay, or make
-----------
provisions satisfactory to the Company or its Subsidiary for payment of any
federal, state and local taxes required to be withheld.
5. Cancellation of Grants. Option Holder specifically acknowledges
----------------------
that this Option is subject to the provisions of Section 20 of the plan,
entitled "Cancellation of Grants," which can cause the forfeiture of this
Option, or the rescission of Common Stock acquired upon the exercise of this
Option. As a condition of the exercise of this Option, the Option Holder shall
certify on a form acceptable to the Committee that he or she is in compliance
with the terms and conditions of the plan, including Section 20 thereof,
entitled "Cancellation of Grants."
6. Term. Any portion of this Option that is not exercisable
----
pursuant to Section 2 on the date upon which the Option Holder's employment with
the Company and its Subsidiaries terminates shall terminate immediately upon the
termination of the Option Holder's employment with the Company and its
Subsidiaries. Any portion of this Option that is exercisable on the date upon
which the Option Holder's employment with the Company and its Subsidiaries
terminates shall terminate ninety (90) days after the Option Holder ceases to be
an employee of the Company or one of its Subsidiaries for any reason other than
as described below.
i. If the Option Holder's employment is terminated by reason of
death, the heirs of the Option Holder will be able to exercise this Option
until the earlier of (a) one (1) year following the death of the Optionee
or (b) the date on which this Option would otherwise expire.
ii. If the Option Holder's employment is terminated after the
attainment of age fifty-five (55) and the completion of five (5) years of
service (as determined in accordance with the terms of the Mattel, Inc.
Personal Investment Plan), the Option Holder will be able to exercise this
Option until the earlier of (a) five (5) years following termination of
employment or (b) the date on which this Option would otherwise expire.
2
<PAGE>
7. Compliance with Law. No shares issuable upon the exercise of
-------------------
this Option shall be issued and delivered unless and until all applicable
registration requirements of the Securities Act of 1933, all applicable listing
requirements of any national securities exchange on which the Common Stock is
then listed, and all other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery, shall have been complied
with. In particular, the Committee may require certain investment (or other)
representations and undertakings in connection with the issuance of securities
in connection with the Plan in order to comply with applicable law.
8. Assignability. Except as may be effected by will or by the laws
-------------
of descent and distribution, any attempt to assign this Option shall be of no
effect.
9. Certain Corporate Transactions. In the event of any change in
------------------------------
the Common Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event the
Committee may adjust proportionately the number of shares and the stock price of
the Common Stock subject to this Option. In the event of any other change
affecting the Common Stock or any distribution (other than normal cash
dividends) to holders of Common Stock, the Committee may make such adjustments
as it may deem equitable (including adjustments to avoid fractional shares) in
order to give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, spin-off, reorganization or
liquidation, the Committee may substitute a new option for this Option or
provide for the assumption of this Option by the other corporation that is a
party to the transaction.
10. No Additional Rights. Neither the granting of this Option nor its
--------------------
exercise shall (a) confer upon the Option Holder any right to continue in
the employ of the Company (b) interfere in any way with the rights of the
Company or a Subsidiary to terminate such employment at any time for any reason,
with or without cause, or (c) interfere with the right of the Company or a
Subsidiary to undertake any lawful corporate action. Option Holder acknowledges
that he or she is an "employee at will." The provisions of this Section 10 are
subject to the terms of any employment agreement between the Option Holder and
the Company (or a Subsidiary).
11. Rights as a Stockholder. Neither the Option Holder nor any other
-----------------------
person legally entitled to exercise this Option shall be entitled to any
of the rights or privileges of a stockholder of the Company in respect of any
shares issuable upon any exercises of this Option unless and until a certificate
or certificates representing such shares shall have been actually issued and
delivered to the Option Holder.
12. Compliance with Plan. This Option is subject to, and the
--------------------
Company and Option Holder agree to be bound by, all of the terms and conditions
of the Plan as it shall be amended from time-to-time. No amendment to the plan
shall adversely affect this Option without the consent of the Option Holder. In
the case of a conflict between the terms of the Plan and this Option, the terms
of the Plan shall govern.
3
<PAGE>
13. Governing Law. This Option has been granted, executed and
-------------
delivered with effect from the date of Notice, at El Segundo, California, and
interpretation, performance and enforcement of this Option shall be governed by
the laws of the State of Delaware.
4
<PAGE>
EXHIBIT 10.48
AMENDMENT NO. 3 TO
THE MATTEL, INC. 1997 PREMIUM PRICE STOCK OPTION PLAN
The Mattel, Inc. 1997 Premium Price Stock Option Plan (the "Plan") is
hereby amended as set forth below.
1. Section 2.2 of the Plan is hereby amended, effective as of November 4,
1999, to read in its entirety as follows:
2.2 "Change in Control" means the occurrence of any of the following:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares
of common stock of the Company, including the shares of common stock
of the Company issuable upon an exchange of Softkey Exchangeable
Shares that are not owned by the Company or any corporation controlled
by the Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
-----------------
purposes of this subsection (a), the following shall not constitute a
Change in Control: (1) any acquisition directly from the Company, (2)
any acquisition by the Company or any corporation controlled by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (4) any acquisition by a Person of 20% of
either the Outstanding Company Common Stock or the Outstanding Company
Voting Securities as a result of an acquisition of common stock of the
Company by the Company or of Softkey Exchangeable Shares by Softkey
which, by reducing the number of shares of common stock of the Company
or Softkey Exchangeable Shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to
20% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities; provided, however, that if a
-----------------
Person shall become the beneficial owner of 20% or more of either the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities by reason of a share acquisitions by the Company or by
Softkey as described above and shall, after such share acquisitions by
the Company or Softkey, become the beneficial owner of any additional
shares of common stock of the Company, then such acquisition shall
constitute a Change in Control or (5) any acquisition pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(c) of this Section; provided, further, however, that for purposes of
-----------------
this subsection (a), any Investing Person (as such term is defined in
the Rights Agreement) shall be deemed not to be a beneficial owner of
any Investment Shares (as such term is defined in the Rights
Agreement) and the holder of the Mattel Special Voting Preferred Share
(as such term is defined in the Rights
<PAGE>
Agreement) and the holder of the Mattel Special Voting Preferred Share
(as such term is defined in the Rights Agreement) shall be deemed not
to be a beneficial owner of such Mattel Special Voting Preferred
Share; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
-----------------
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
entity (a "Business Combination"), in each case, unless, following
such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (2) no Person
(excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of
respectively, the then outstanding share of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (3) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
-2-
<PAGE>
2. A new Section 2.29 is hereby added to the Plan, effective as of November 4,
1999, reading in its entirety as follows:
2.9 "Rights Agreement" means the Rights Agreement, dated as of
February 7, 1992, as amended by an amendment dated as of May 13, 1999
and an amendment dated as of November 4, 1999 by and between the
Company and BankBoston N.A., a national banking association, formerly,
The First National Bank of Boston, and not giving effect to any
amendments subsequent to November 4, 1999.
3. New Sections 2.32 and 2.33 are hereby added to the Plan, effective as of
November 4, 1999, reading in their entirety as follows:
2.32 "Softkey" means Softkey Software Products Inc., an Ontario
corporation.
2.33 "Softkey Exchangeable Shares" means the Exchangeable Shares (as
defined in the Rights Agreement) the capital stock of Softkey.
4. Current Sections 2.29, 2.30, 2.31, 2.32, 2.33, 2.34 and 2.35 are hereby
renumbered, effective as of November 4, 1999, as 2.30, 2.31, 2.34, 2.35,
2.36, 2.37 and 2.38, respectively.
5. Section 9.5.5 of the Plan is hereby amended, effective as of February 10,
2000, to read in its entirety as follows:
In the event of a Change in Control, an Option which has not
previously been forfeited may be exercised for all of the shares that
were part of the original grant as to which the Option has not
previously been exercised, without regard to the Participant's
duration of employment and without regard to the applicable
performance criteria.
6. Clause (c) of Section 11.4.4 of the Plan is hereby amended, effective as of
February 10, 2000, to read in its entirety as follows: "The second
anniversary of the date of the Change in Control."
7. Section 10.1.1 of the Plan is hereby amended, as of November 4, 1999, by
adding a new paragraph to the end thereof, reading in its entirety as
follows:
Notwithstanding the provisions of this Section 10.1.1 and Section 12.4
to the contrary, in the case of a Participant who incurs a Termination
without Cause during the 18-month period following a Change in
Control, any Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for (a) the longer of (1) two years from such date of
Severance or (2) such other period as may be provided in the Plan for
such Severance or as the Grant Agreement provides, or (b) until
expiration of the stated term of such Option, whichever period is
shorter.
-3-
<PAGE>
8. The foregoing amendments to the Plan shall apply (i) with respect to awards
granted under the Plan on or after the effective date specified above for
such amendment, as of the date of grant, and (ii) with respect to awards
previously granted under the Plan, effective as of February 10, 2000.
* * *
IN WITNESS WHEREOF, the Company has caused this Amendment to the Plan
to be executed, effective as set forth above.
MATTEL, INC.
By: /s/ Alan Kaye
------------------------------------
Name: Alan Kaye
Title: Senior Vice President Human
Resources
-4-
<PAGE>
EXHIBIT 10.51
MATTEL 1999 STOCK OPTION PLAN
1. Purpose. The purpose of the Mattel, Inc. 1999 Stock Option Plan ("Plan")
-------
is to promote the interests of Mattel, Inc. ("Company") and its stockholders by
enabling the Company to offer an opportunity to acquire an equity interest in
the Company so as to better attract, retain, and reward Employees (as defined
below) who are not Officers (as defined below) or Directors (as defined below)
of the Company and Consultants (as defined below) to the Company and,
accordingly, to strengthen the mutuality of interests between those persons and
the Company's stockholders by providing those persons with a proprietary
interest in pursuing the Company's long-term growth and financial success.
2. Definitions. For purposes of this Plan, the following terms shall have
-----------
the meanings set forth below.
(a) "Board" means the Board of Directors of Mattel, Inc.
(b) "Cause" shall mean (1) "Cause" as defined in any individual employment
agreement between the Company or an affiliate and the Participant, or (2) if
there is no such individual employment agreement or if it does not define Cause:
(A) an act or acts of dishonesty on the Participant's part which are intended to
result in the Participant's substantial personal enrichment at the expense of
the Company; (B) repeated violations by the Participant of the Participant's
obligations to the Company that are demonstrably willful and deliberate on the
Participant's part and that resulted in material injury to the Company; (C)
conduct of a criminal nature that has or that is more likely than not to have a
material adverse effect on the Company's reputation or standing in the
community, or on its continuing relationships with its customers or those who
purchase or use its products; or (D) fraudulent conduct in connection with the
business or affairs of the Company, regardless of whether said conduct is
designed to defraud the Company or others.
(c) "Code" means the Internal Revenue Code of 1986, as amended. Reference
to any specific section of the Code shall be deemed to be a reference to any
successor provision.
(d) "Committee" means the Compensation/Options Committee of the Board, or
such other committee of the Board that is designated by the Board to administer
the Plan, as provided in Section 3(a). In the event that one or more members of
the Committee do not comply with the eligibility requirements of Rule 16b-3,
then the entire Board may serve as the Committee for purposes of this Plan.
(e) "Common Stock" means the common stock of Mattel, Inc., $1.00 par value
per share, or any security issued in substitution, exchange, or in lieu thereof.
(f) "Company" means Mattel, Inc., a Delaware corporation, or any successor
corporation. Except where the context indicates otherwise, the term "Company"
shall include its Parent and Subsidiaries.
1
<PAGE>
(g) "Consultant" means any consultant or adviser if: (i) the consultant or
adviser renders bona fide services to the Company; (ii) the services rendered by
the consultant or adviser are not in connection with the offer or sale of
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company's securities; and (iii) the
consultant or adviser is a natural person who has contracted directly with the
Company to render such services.
(h) "Director" means a member of the Board.
(i) "Disabled" means that there is a determination to that effect under the
group long-term disability plan of the Company and the Participant is also
approved for permanent disability benefits by the Social Security Administration
or that a Participant is treated as "disabled" under an employment agreement
which is in effect between the Company and the Participant at the time of such
termination. However, in no event will a Participant be considered to be
disabled for purposes of this Plan if the Participant's incapacity is a result
of intentionally self-inflicted injuries (while sane or insane), alcohol or drug
abuse, or a criminal act for which the Participant is convicted or to which the
Participant pleads guilty or nolo contendere.
(j) "Employee" means any Officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(l) "Fair Market Value" shall mean, unless a different method or value is
determined by the Committee, the closing price of the Common Stock as reported
on the New York Stock Exchange Composite Tape for that day, or, if the New York
Stock Exchange is closed on that day, the next preceding day on which the New
York Stock Exchange was open.
(m) "Grant" means an award of an Option or Restricted Stock.
(n) "Independent Director" means a member of the Board who is not an
Employee of the Company.
(o) "Insider" means a person or entity that is subject to the provisions of
Section 16 of the Exchange Act.
(p) "Officer" means the Company's president, principal financial officer,
principal accounting officer (or if there is no such accounting officer, the
controller), any vice-president of the Company in charge of a principal business
unit, division or function (such as sales, administration or finance), any other
officer who performs a policy-making function, or any other person who performs
similar policy-making functions for the Company.
(q) "Option" means a non-qualified stock option that is intended not to be
and is specifically designated as not being an incentive stock option under
Section 422 of the Code.
2
<PAGE>
(r) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of the
corporations (other than the Company) owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in the chain, as determined in accordance with the rules of
Code Section 424(e).
(s) "Participant" means a person who has received a Grant.
(t) "Plan" means this Mattel, Inc. 1999 Stock Option Plan, as it may be
amended from time to time.
(u) "Restricted Stock" means shares of Common Stock issued pursuant to
Section 11 below that are subject to restrictions on ownership.
(v) "Retirement" means a Severance where the Participant (i) had previously
attained the age of fifty-five (55) and completed five (5) years of service (as
determined in accordance with the terms of the Mattel, Inc. Personal Investment
Plan) or (ii) is otherwise eligible to be treated as retired for purposes of
Mattel stock option plans under an employment agreement which is in effect
between the Company and the Participant at the time of Severance.
(w) "Rights Agreement" shall mean the Rights Agreement, dated as of
February 7, 1992, as amended by an amendment dated as of May 13, 1999 and an
amendment dated as of November 4, 1999 by and between the Company and BankBoston
N.A., a national banking association, formerly, The First National Bank of
Boston, and not giving effect to any amendments subsequent to November 4, 1999.
(x) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act and as amended from time to time.
(y) "Severance" means, with respect to a Participant, the termination of
his or her provision of services to the Company as an Employee, Director, or
Consultant, whether by reason of death, becoming Disabled, Retirement,
resignation, dismissal, or any other reason. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions relating to
a Severance. However, a Participant will not be considered to have incurred a
Severance because of a transfer of employment between the Company and a
Subsidiary or a Parent (or vice versa).
(z) "Softkey" shall mean Softkey Software Products Inc., an Ontario
corporation.
(aa) "Softkey Exchangeable Shares" shall mean the Exchangeable Shares (as
such term is defined in the Rights Agreement) in the capital stock of Softkey.
(bb) "Stock Appreciation Right" means a right granted pursuant to Section
12 below to receive a payment in cash, shares of Common Stock or any combination
thereof with respect to a specified number of shares of Common Stock equal to
the excess of the Fair Market Value of the
3
<PAGE>
Common Stock on the date the right is exercised over the Fair Market Value of
the Common Stock on the date the right was granted.
(cc) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain, as determined in
accordance with the rules of Code Section 424(f).
3. Administration.
--------------
(a) Except as set forth in Section 15(b) below, this Plan shall be
administered by the Committee. The Board may remove members from, or add members
to, the Committee at any time. The Committee shall be composed of individuals
selected in a manner that complies with Rule 16b-3 and with Code Section 162(m).
(b) The Committee may conduct its meetings in person or by telephone. One-
third (1/3rd) of the members of the Committee shall constitute a quorum, and any
action shall constitute the action of the Committee if it is authorized by a
majority of the members present at any meeting or by all of the members in
writing without a meeting.
(c) The Committee is authorized to interpret this Plan and to adopt rules
and procedures relating to the administration of this Plan. All actions of the
Committee in connection with the interpretation and administration of this Plan
shall be binding upon all parties.
(d) Subject to the limitations of Sections 16 and 22 below, the Committee
is expressly authorized to make such modifications to this Plan as well as to
the Options, Restricted Stock and Stock Appreciation Rights granted hereunder as
are necessary to effectuate the intent of this Plan as a result of any changes
in the tax, accounting, or securities laws treatment of Participants and the
Plan.
(e) The Committee may delegate its responsibilities to others under such
conditions and limitations as it may prescribe, except that the Committee may
not delegate its authority with regard to the granting of Options to Insiders,
except to the extent permitted by Rule 16b-3.
4. Duration of Plan.
----------------
(a) This Plan shall be effective as of November 4, 1999.
(b) Unless terminated earlier pursuant to Section 19, this Plan shall
terminate on December 31, 2009, except with respect to Options, Restricted Stock
and Stock Appreciation Rights then outstanding.
5. Number of Shares.
----------------
4
<PAGE>
(a) The maximum number of shares of Common Stock for which Grants may be
awarded under the Plan shall be twelve million eight hundred thousand
(12,800,000) shares. The maximum number of shares that may be issued to a single
Participant in a single calendar year is one million (1,000,000).
(b) In the event that a Participant pays part or all of the exercise price
of an Option or the purchase price of Restricted Stock in the form of Common
Stock, only the net additional shares issued (i.e., the number of shares issued
in excess of the number of shares surrendered) will be taken into account for
purposes of the limitations of Paragraph (a) above.
(c) Upon the forfeiture of shares of Restricted Stock, the forfeited shares
of Common Stock shall again become available for use under the Plan. Upon the
expiration or termination of an outstanding Option which shall not have been
exercised in full, the shares of Common Stock remaining unissued under the
Option shall again become available for use under the Plan.
6. Eligibility.
-----------
(a) Persons eligible to receive Grants under this Plan shall consist of key
Employees who are not Officers or Directors and Consultants.
(b) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:
(i) Determine which eligible Employees who are not Officers or
Directors are key Employees and select from among the key Employees as well as
Consultants such of them as in its opinion should be awarded Grants.
(ii) Subject to Section 5(a), determine the number of shares to be
subject to such Grants awarded to the selected individuals.
(iii) Determine the terms and conditions of such Grants, consistent
subject this Plan.
(c) In the event that the Company acquires another entity by merger or
otherwise, the Committee may authorize the issuance of Options ("Substitute
Options") to the individuals performing services for the acquired entity in
substitution of stock options previously granted to those individuals in
connection with their performance of services for the acquired entity upon such
terms and conditions as the Committee shall determine.
7. Form of Options. Options shall be granted under this Plan on such terms
---------------
and in such form as the Committee may approve, which shall not be inconsistent
with the provisions of this Plan, but which need not be identical from Option to
Option.
(a) The exercise price per share of Common Stock purchasable under an
Option shall be set forth in the Option. Except in the case of Options subject
to the provisions of Section 6(b)
5
<PAGE>
above, the exercise price of an Option, determined on the date of the Grant,
shall be no less than one hundred percent (100%) of the Fair Market Value of the
Common Stock.
(b) The Committee may include dividend equivalent rights on shares of
Common Stock that are subject to Options. The Committee shall specify in the
Option such terms as it deems appropriate regarding the dividend equivalent
rights, including whether the dividend rights are payable currently or only when
the Option is exercised, and whether any interest accrues on any unpaid dividend
equivalent rights.
8. Exercise of Options.
-------------------
(a) An Option shall be exercisable at such time or times and be subject to
such terms and conditions as may be set forth in the Option. Options shall only
be exercisable for whole numbers of shares.
(b) Options are exercised by payment of the full amount of the purchase
price to the Company. The payment shall be in the form of cash or such other
forms of consideration as the Committee shall deem acceptable, such as the
surrender of outstanding shares of Common Stock owned by the person exercising
the Option or by withholding shares that would otherwise be issued upon the
exercise of the Option. If the payment is made by means of the surrender of
Restricted Stock, a number of shares issued upon the exercise of the Option
equal to the number of shares of Restricted Stock surrendered shall be subject
to the same restrictions as the Restricted Stock that was surrendered. The
Committee may also authorize the exercise of Options by the delivery to the
Company or its designated agent of an irrevocable written notice of exercise
form together with irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the shares of Common Stock and to deliver the sale or
margin loan proceeds directly to the Company to pay the exercise price of the
Option.
(c) In the event of the Disability of the Participant, an Option held by
the Participant may be exercised (to the extent that the Option is then
exercisable) by his or her conservator, agent under durable power of attorney,
or trustee of any trust holding the Option.
(d) In the event of the death of the Participant, an Option held by the
Participant may be exercised (to the extent that the Option is then exercisable)
by his or her administrator, executor, personal representative, or trustee of a
trust holding the Option, or other person to whom the Option has been
transferred by means of the laws of descent and distribution.
(e) In the event of the Participant's Retirement, all Options which were
granted to such Participant at least six (6) months prior to Retirement, whether
or not previously exercisable, shall become exercisable immediately.
9. Termination of Options.
----------------------
(a) Except to the extent the terms of an Option require its prior
termination, each Option shall terminate on the earliest of the following dates:
6
<PAGE>
(i) The date which is ten (10) years from the date on which the
Option is granted;
(ii) Except to the extent the terms of an Option permit its later
termination, the date that is ninety (90) days from the date of the Severance of
the Participant to whom the Option was granted; provided, however, that if the
Participant's Severance is as a result of death or the Participant's becoming
Disabled, then the date shall be extended to one (1) year from the date of the
Severance of the Participant to whom the Option was granted; or
(iii) The date of the Participant's Severance for Cause.
(b) Except to the extent the terms of an Option permit its later
termination, notwithstanding the provisions of Paragraph (a) above, in the
case of a Participant's Retirement, the Participant's Options will continue
to vest for five (5) years following Retirement, and the Participant will be
able to exercise his or her Options until the earlier of (i) five (5) years
following Retirement or (ii) the date on which the Options would otherwise
expire.
(c) Additionally, except to the extent the terms of an Option permit its
later termination, nothwithstanding Paragraphs (a) and (b) of this Section 9 and
Section 20, in the case of a Participant who incurs a Severance other than for
Cause during the 18-month period following a Change in Control, any Option held
by such Participant may thereafter be exercised by the Participant, to the
extent it was exercisable at the time of termination, or on such accelerated
basis as the Committee may determine, for (1) the longer of (a) two years from
such date of Severance or (b) such other period as may be provided in the Plan
for such Severance or as the Committee may provide in the option agreement, or
(2) until expiration of the stated term of such Option, whichever period is
shorter.
10. Reload Options.
--------------
(a) In the case of a Participant who pays the exercise price of an Option
prior to the date on which it expires by means of surrendering shares of Common
Stock previously acquired by the Participant, the Committee may at its
discretion grant the Participant another Option ("Reload Option") of the same
type (i.e., a non-qualified stock option) as the Option being exercised
("Underlying Option") for the same number of shares that were so surrendered.
(b) The duration of the Reload Option will be for the remaining term of the
Underlying Option, and the Exercise Price shall be the Fair Market Value of the
Common Stock on the day on which the Underlying Option was exercised.
(c) Reload Options may only be granted to individuals performing services
for the Company at the time the Underlying Option is exercised. A Reload Option
may not be granted upon the exercise of another Reload Option.
11. Restricted Stock.
----------------
(a) The Committee may issue Grants of Restricted Stock upon such terms and
conditions as it may deem appropriate, which terms need not be identical for all
such Grants.
(b) Restricted Stock may be sold to Participants, or it may be issued to
Participants without the receipt of any consideration. If the Participant is
required to give any consideration, the payment shall be in the form of cash or
such other forms of consideration as the Committee shall deem acceptable, such
as the surrender of outstanding shares of Common Stock owned by the Participant.
(c) A Participant shall not have a vested right to the Restricted Stock
until the satisfaction of the vesting requirements specified in the Grant.
(d) A Participant may not assign or alienate his or her interest in the
shares of Restricted Stock prior to vesting. Otherwise, the Participant shall
have all of the rights of a
7
<PAGE>
stockholder of the Company with respect to the Restricted Stock, including the
right to vote the shares and to receive any dividends.
(e) The following rules apply with respect to events that occur prior to
the date on which the Participant obtains a vested right to the Restricted
Stock.
(i) Stock dividends issued with respect to the shares covered by a
Grant of Restricted Stock shall be treated as additional shares received under
the Grant of Restricted Stock.
(ii) Cash dividends are taxable compensation to the Participant that is
deductible by the Company.
12. Stock Appreciation Rights.
-------------------------
(a) Stock Appreciation Rights may be granted separately or in conjunction
with all or part of an Option granted under the Plan. In the case of an Option,
such rights may be granted either at or after the time of the Grant of the
Option.
(b) A Stock Appreciation Right that is granted in conjunction with an
Option may provide that it may only be exercised when the Option may be
exercised.
13. Participant Elections. Pursuant to such rules and procedures as may be
---------------------
prescribed by the Committee, Participants may elect to exchange one type of
Grant under the Plan for another type of Grant, and/or enter into other
arrangements to defer the receipt of income or items of tax preference that
would otherwise be recognized by the Participant under the Plan.
14. [Intentionally Omitted].
15. Bonus Grants and Grants In Lieu Of Compensation. The Committee is
-----------------------------------------------
authorized to grant shares of Common Stock as a bonus, or to grant shares of
Common Stock, Restricted Stock or Options in lieu of Company obligations to pay
cash or deliver other property under the Plan or under other plans or
compensatory arrangements. Such grants shall be upon such terms and conditions
as the Committee may deem appropriate.
16. Modification of Options. The Committee may modify an existing Option,
-----------------------
including the right to:
(a) Accelerate the right to exercise it;
(b) Extend or renew it; or
(c) Cancel it and issue a new Option.
However, no modification may be made to an Option that would impair the rights
of the Participant holding the Option without his or her consent.
8
<PAGE>
17. Non-transferability of Grants.
-----------------------------
(a) Except to the extent specified in the Grant and as provided in Sections
8(c) and (d), Options are exercisable only by the Participant. Options are not
assignable or transferable except by will or the laws of descent and
distribution. The Committee shall prescribe such rules and procedures as it
deems appropriate regarding the transfer of Options, taking into account the
impact of Section 16 of the Exchange Act, the need to register those shares
under the Securities Act of 1933, and applicable State Blue Sky Laws.
(b) Grants of Restricted Stock and Stock Appreciation Rights shall be
subject to such restrictions on transferability as may be imposed in such
Grants.
18. Adjustments.
-----------
(a) In the event of a stock split, stock dividend, recapitalization,
merger, consolidation, split-up, combination, exchange of shares, or similar
change affecting Common Stock, the Committee shall authorize such adjustments as
it may deem appropriate with respect to:
(i) The number and/or kind of shares covered by each outstanding
Option;
(ii) The aggregate number and/or kind of shares for which Options may
be granted under this Plan; and
(iii) The exercise price per share in respect of each outstanding
Option.
Except as set forth above in this Section 18(a), no issuance by the Company
of shares of stock of any class, or securities convertible into, or options or
warrants to purchase shares of any class of stock, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to any Grant.
(b) The Committee may also make such adjustments in the event of a spinoff
(or other distribution) of Company assets to stockholders, other than normal
cash dividends.
19. Effect of Change in Control.
---------------------------
(a) In the event of a Change in Control (as defined in Paragraph (b)
below), all Options and Stock Appreciation Rights then outstanding shall become
fully exercisable as of the date of the Change in Control and all restrictions
and conditions of all Grants of Restricted Stock then outstanding shall be
deemed satisfied as of the date of the Change in Control.
(b) A "Change in Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of common
9
<PAGE>
stock of the Company, including the shares of common stock of the Company
issuable upon an exchange of Softkey Exchangeable Shares that are not owned by
the Company or any corporation controlled by the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (i), the following shall not constitute a Change
in Control: (1) any acquisition directly from the Company, (2) any acquisition
by the Company or any corporation controlled by the Company, (3) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, (4) any acquisition by a
Person of 20% of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities as a result of an acquisition of common stock of the
Company by the Company or of Softkey Exchangeable Shares by Softkey which, by
reducing the number of shares of common stock of the Company or Softkey
Exchangeable Shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting Securities; provided,
however, that if a Person shall become the beneficial owner of 20% or more of
either the Outstanding Company Common Stock or the Outstanding Company Voting
Securities by reason of a share acquisition by the Company or by Softkey as
described above and shall, after such share acquisition by the Company or
Softkey, become the beneficial owner of any additional shares of common stock of
the Company, then such acquisition shall constitute a Change in Control or (5)
any acquisition pursuant to a transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 19(b); provided, further, however,
that for purposes of this subsection (i), any Investing Person (as such term is
defined in the Rights Agreement) shall be deemed not to be a beneficial owner of
any Investment Shares (as such term is defined in the Rights Agreement) and the
holder of the Mattel Special Voting Preferred Share (as such term is defined in
the Rights Agreement) shall be deemed not to be a beneficial owner of such
Mattel Special Voting Preferred Share; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as through such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
10
<PAGE>
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding share of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
20. Cancellation of Grants. Except as otherwise provided in the Grant, the
----------------------
Committee may cancel any unexpired, unpaid, or deferred Grant at any time if the
Participant does not comply with all of the terms of the Grant and the following
conditions.
(a) A Participant shall not render services for any organization or engage
directly or indirectly in any business that, in the judgment of the Chief
Executive Officer of the Company or other senior officer designated by the
Committee, is or becomes competitive with the Company, or which organization or
business, or the rendering of services to such organization or business, is or
becomes otherwise prejudicial to or in conflict with the interests of the
Company. For Participants whose employment has terminated, the judgment of the
Chief Executive Officer shall be based on the Participant's position and
responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other organization or
business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect on the
Company's customers, suppliers and competitors of the Participant assuming the
post-employment position and such other considerations as are deemed relevant
given the applicable facts and circumstances. A Participant who has retired
shall be free, however, to purchase as an investment or otherwise, stock or
other securities of such organization or business so long as they are listed
upon a recognized securities exchange or traded over-the-counter, and such
investment does not represent a substantial investment to the Participant or a
greater than five percent (5%) equity interest in the organization or business.
(b) A Participant shall not, without prior written authorization from the
Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material, as those terms are
used in the Company's Employee Patent and Confidence Agreement, relating to the
business of the Company, acquired by the Participant either during or after
employment with the Company.
11
<PAGE>
(c) A Participant, pursuant to the Company's Employee Patent and Confidence
Agreement, shall disclose promptly and assign to the Company all right, title,
and interest in any invention or idea, patentable or not, made or conceived by
the Participant during employment by the Company, relating in any manner to the
actual or anticipated business, research, or development work of the Company and
shall do anything reasonably necessary to enable the Company to secure a patent
where appropriate in the United States and in foreign countries.
(d) Upon exercise, payment, or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he or she
is in compliance with the terms and conditions of the Plan. Failure to comply
with the provisions of paragraph (a), (b) or (c) of this Section 20 prior to, or
during the six (6) months after, any exercise, payment or delivery pursuant to
an Award may, at the Committee's discretion, cause such exercise, payment or
delivery to be rescinded. The Company shall notify the Participant in writing of
any such rescission within two (2) years after such exercise, payment or
delivery. Within ten (10) days after receiving such a notice from the Company,
the Participant shall pay to the Company the amount of any gain realized or
payment received as a result of the rescinded exercise, payment, or delivery
pursuant to an Award. Such payment shall be made either in cash or by returning
to the Company the number of shares of Common Stock that the Participant
received in connection with the rescinded exercise, payment, or delivery.
21. [Intentionally Omitted.]
22. Amendments and Termination. The Board may at any time amend or terminate
--------------------------
this Plan. However, no amendment or termination of the Plan may impair the
rights of a Participant holding a Grant without his or her consent.
23. Tax Withholding.
---------------
(a) The Company shall have the right to take such actions as may be
necessary to satisfy its tax withholding obligations relating to the operation
of this Plan.
(b) If Common Stock is used to satisfy the Company's tax withholding
obligations, the stock shall be valued at its Fair Market Value when the tax
withholding is required to be made.
(c) Notwithstanding any other provision of this Plan, the number of shares
of Common Stock otherwise issuable upon the exercise of an Option which may be
withheld in order to satisfy the Participant's federal and state income and
payroll tax liabilities with respect to the exercise or vesting of the Option
shall be limited to the number of shares which have a Fair Market Value equal to
the aggregate amount of such liabilities based on the minimum statutory
withholding rates for federal and state income tax and payroll tax purposes that
are applicable to such supplemental taxable income.
24. No Additional Rights.
--------------------
(a) Neither the adoption of this Plan nor the granting of any Option or
Restricted Stock shall:
12
<PAGE>
(i) Affect or restrict in any way the power of the Company to
undertake any corporate action otherwise permitted under applicable law; or
(ii) Confer upon any Participant the right to continue performing
services for the Company, nor shall it interfere in any way with the right of
the Company to terminate the services of any Participant at any time, with or
without cause.
(b) No Participant shall have any rights as a stockholder with respect to
any shares covered by a Grant until the date a certificate for such shares has
been issued to the Participant following the exercise of an Option or the
receipt of Restricted Stock.
25. Securities Law Restrictions.
---------------------------
(a) No securities shall be issued under this Plan unless the Committee
shall be satisfied that the issuance will be in compliance with applicable
federal and state securities laws.
(b) The Committee may require certain investment (or other) representations
and undertakings in connection with the issuance of securities in connection
with the Plan in order to comply with applicable law.
(c) Certificates for shares of Common Stock delivered under this Plan may
be subject to such restrictions as the Committee may deem advisable. The
Committee may cause a legend to be placed on the certificates to refer to those
restrictions.
26. Indemnification. To the maximum extent permitted by law, the Company
---------------
shall indemnify each member of the Committee and of the Board, as well as any
other Employee of the Company with duties under this Plan, against expenses
(including any amount paid in settlement) reasonably incurred by the individual
in connection with any claims against the individual by reason of the
performance of the individual's duties under this Plan, unless the losses are
due to the individual's gross negligence or lack of good faith. The Company
will have the right to select counsel and to control the prosecution or defense
of the suit. The Company will not be required to indemnify any person for any
amount incurred through any settlement unless the Company consents in writing to
the settlement.
27. Governing Law. This Plan and all actions taken hereunder shall be
-------------
governed by and construed in accordance with the laws of the State of Delaware.
************************************
To signify its adoption of this Plan, the Company has caused its execution.
Mattel, Inc.,
a Delaware Corporation
/s/ Alan Kaye
--------------------------------------
Senior Vice President, Human Resources
Date: November 4, 1999
13
<PAGE>
EXHIBIT 10.52
Grant Agreement for a
Non-Qualified Stock Option
under the Mattel 1999 Stock Option Plan
This is an Option Agreement between Mattel, Inc. (the "Company") and the
individual (the "Option Holder") named in the Notice of Grant of Stock Option
(the "Notice) attached hereto as the cover page of this agreement.
Recitals
The Company has adopted the Mattel 1999 Stock Option Plan (the "Plan") for
the granting to selected employees of options to purchase shares of Common Stock
of the Company. In accordance with the terms of the Plan, the
Compensation/Options Committee of the Board of Directors (the "Committee"), has
approved the execution of this Grant Agreement (the "Option") between the
Company and the Option Holder. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Plan.
Option
1. Terms. The Company grants to the Option Holder the right and option
-----
to purchase on the terms and conditions hereinafter set forth, all or any part
of the aggregate number of shares set forth in the Notice of Common Stock
exercisable in accordance with the provisions of this Option during a period
expiring ten years from the date of the Notice (the "Expiration Date"), unless
terminated prior to that date pursuant to Section 5 or 6 below. This Option is
a Non-Qualified Stock Option.
2. Exercisability (Vesting). The Option Holder may purchase the
------------------------
following percentages of the shares of Common Stock set forth in the Notice on
or after the dates set forth below; provided that the Option Holder is employed
by the Company or one of its Subsidiaries on the applicable vesting date:
<TABLE>
<CAPTION>
Percent of Shares
Commencing on the Date of this Option Subject to this Option
that may be Purchased
==============================================================================================
<S> <C>
On and Before First Anniversary 0%
- ----------------------------------------------------------------------------------------------
After the First Anniversary 50%
- ----------------------------------------------------------------------------------------------
After the Second Anniversary and Until the Expiration Date 100%
==============================================================================================
</TABLE>
<PAGE>
The number of shares that may be purchased upon exercise of this Option
shall in each case be calculated to the nearest full share.
3. Method of Exercising. Each exercise of this Option shall be by means
--------------------
of a written notice of exercise delivered to the office of the Secretary of the
Company, specifying the number of whole shares to be purchased, accompanied by
payment of the full purchase price of the shares to be purchased. The payment
shall be in the form of cash or such other forms of consideration as the
Committee shall deem acceptable, such as the surrender of outstanding shares of
Common Stock owned by the Option Holder or by withholding shares that would
otherwise be issued upon the exercise of the Option. The Option Holder may
exercise this Option by the delivery to the Company or its designated agent of
an irrevocable written notice of exercise form together with irrevocable
instructions to the broker-dealer to sell or margin a sufficient portion of the
shares of Common Stock and to deliver the sale or margin loan proceeds directly
to the Company to pay the exercise price of this Option.
4. Withholding. Upon exercise, the Option Holder shall pay, or make
-----------
provisions satisfactory to the Company or its Subsidiary for payment of any
federal, state and local taxes required to be withheld.
5. Cancellation of Grants. Option Holder specifically acknowledges that
----------------------
this Option is subject to the provisions of Section 20 of the plan, entitled
"Cancellation of Grants," which can cause the forfeiture of this Option, or the
rescission of Common Stock acquired upon the exercise of this Option. As a
condition of the exercise of this Option, the Option Holder shall certify on a
form acceptable to the Committee that he or she is in compliance with the terms
and conditions of the plan, including Section 20 thereof, entitled "Cancellation
of Grants."
6. Term. Any portion of this Option that is not exercisable pursuant to
----
Section 2 on the date upon which the Option Holder's employment with the Company
and its Subsidiaries terminates shall terminate immediately upon the termination
of the Option Holder's employment with the Company and its Subsidiaries. Any
portion of this Option that is exercisable on the date upon which the Option
Holder's employment with the Company and its Subsidiaries terminates shall
terminate ninety (90) days after the Option Holder ceases to be an employee of
the Company or one of its Subsidiaries for any reason other than as described
below.
i. If the Option Holder's employment is terminated by reason of
death, the heirs of the Option Holder will be able to exercise this Option
until the earlier of (a) one (1) year following the death of the Optionee
or (b) the date on which this Option would otherwise expire.
2
<PAGE>
ii. If the Option Holder's employment is terminated after the
attainment of age fifty-five (55) and the completion of five (5) years of
service (as determined in accordance with the terms of the Mattel, Inc.
Personal Investment Plan), the Option Holder will be able to exercise this
Option until the earlier of (a) five (5) years following termination of
employment or (b) the date on which this Option would otherwise expire.
7. Compliance with Law. No shares issuable upon the exercise of this
-------------------
Option shall be issued and delivered unless and until all applicable
registration requirements of the Securities Act of 1933, all applicable listing
requirements of any national securities exchange on which the Common Stock is
then listed, and all other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery, shall have been complied
with. In particular, the Committee may require certain investment (or other)
representations and undertakings in connection with the issuance of securities
in connection with the Plan in order to comply with applicable law.
8. Assignability. Except as may be effected by will or by the laws of
-------------
descent and distribution, any attempt to assign this Option shall be of no
effect.
9. Certain Corporate Transactions. In the event of any change in the
------------------------------
Common Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event the
Committee may adjust proportionately the number of shares and the stock price of
the Common Stock subject to this Option. In the event of any other change
affecting the Common Stock or any distribution (other than normal cash
dividends) to holders of Common Stock, the Committee may make such adjustments
as it may deem equitable (including adjustments to avoid fractional shares) in
order to give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, spin-off, reorganization or
liquidation, the Committee may substitute a new option for this Option or
provide for the assumption of this Option by the other corporation that is a
party to the transaction.
10. No Additional Rights. Neither the granting of this Option nor its
--------------------
exercise shall (a) confer upon the Option Holder any right to continue in the
employ of the Company (b) interfere in any way with the rights of the Company or
a Subsidiary to terminate such employment at any time for any reason, with or
without cause, or (c) interfere with the right of the Company or a Subsidiary to
undertake any lawful corporate action. Option Holder acknowledges that he or
she is an "employee at will." The provisions of this Section 10 are subject to
the terms of any employment agreement between the Option Holder and the Company
(or a Subsidiary).
11. Rights as a Stockholder. Neither the Option Holder nor any other
-----------------------
person legally entitled to exercise this Option shall be entitled to any of the
rights or privileges of a stockholder of the Company in respect of any shares
issuable upon any
3
<PAGE>
exercises of this Option unless and until a certificate or certificates
representing such shares shall have been actually issued and delivered to the
Option Holder.
12. Compliance with Plan. This Option is subject to, and the Company
--------------------
and Option Holder agree to be bound by, all of the terms and conditions of the
Plan as it shall be amended from time-to-time. No amendment to the plan shall
adversely affect this Option without the consent of the Option Holder. In the
case of a conflict between the terms of the Plan and this Option, the terms of
the Plan shall govern.
13. Governing Law. This Option has been granted, executed and delivered
-------------
with effect from the date of Notice, at El Segundo, California, and
interpretation, performance and enforcement of this Option shall be governed by
the laws of the State of Delaware.
4
<PAGE>
EXHIBIT 10.53
Grant Agreement for a
Non-Qualified Stock Option
under the Mattel 1999 Stock Option Plan
This is an Option Agreement between Mattel, Inc. (the "Company") and the
individual (the "Option Holder") named in the Notice of Grant of Stock Option
(the "Notice) attached hereto as the cover page of this agreement.
Recitals
The Company has adopted the Mattel 1999 Stock Option Plan (the "Plan") for
the granting to selected employees of options to purchase shares of Common Stock
of the Company. In accordance with the terms of the Plan, the
Compensation/Options Committee of the Board of Directors (the "Committee"), has
approved the execution of this Grant Agreement (the "Option") between the
Company and the Option Holder. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Plan.
Option
1. Terms. The Company grants to the Option Holder the right and option
-----
to purchase on the terms and conditions hereinafter set forth, all or any part
of the aggregate number of shares set forth in the Notice of Common Stock
exercisable in accordance with the provisions of this Option during a period
expiring ten years from the date of the Notice (the "Expiration Date"), unless
terminated prior to that date pursuant to Section 5 or 6 below. This Option is
a Non-Qualified Stock Option.
2. Exercisability (Vesting). The Option Holder may purchase the
------------------------
following percentages of the shares of Common Stock set forth in the Notice on
or after the dates set forth below; provided that the Option Holder is employed
by the Company or one of its Subsidiaries on the applicable vesting date:
<TABLE>
<CAPTION>
Percent of Shares
Commencing on the Date of this Option Subject to this Option
that may be Purchased
=================================================================================================================
<S> <C>
After the First 6 months 10%
- -----------------------------------------------------------------------------------------------------------------
After the First year 10%
- -----------------------------------------------------------------------------------------------------------------
After each 6 months thereafter 20%
- -----------------------------------------------------------------------------------------------------------------
Fully vested after 3 years
=================================================================================================================
</TABLE>
<PAGE>
The number of shares that may be purchased upon exercise of this Option
shall in each case be calculated to the nearest full share.
3. Method of Exercising. Each exercise of this Option shall be by means
--------------------
of a written notice of exercise delivered to the office of the Secretary of the
Company, specifying the number of whole shares to be purchased, accompanied by
payment of the full purchase price of the shares to be purchased. The payment
shall be in the form of cash or such other forms of consideration as the
Committee shall deem acceptable, such as the surrender of outstanding shares of
Common Stock owned by the Option Holder or by withholding shares that would
otherwise be issued upon the exercise of the Option. The Option Holder may
exercise this Option by the delivery to the Company or its designated agent of
an irrevocable written notice of exercise form together with irrevocable
instructions to the broker-dealer to sell or margin a sufficient portion of the
shares of Common Stock and to deliver the sale or margin loan proceeds directly
to the Company to pay the exercise price of this Option.
4. Withholding. Upon exercise, the Option Holder shall pay, or make
-----------
provisions satisfactory to the Company or its Subsidiary for payment of any
federal, state and local taxes required to be withheld.
5. Cancellation of Grants. Option Holder specifically acknowledges that
----------------------
this Option is subject to the provisions of Section 20 of the plan, entitled
"Cancellation of Grants," which can cause the forfeiture of this Option, or the
rescission of Common Stock acquired upon the exercise of this Option. As a
condition of the exercise of this Option, the Option Holder shall certify on a
form acceptable to the Committee that he or she is in compliance with the terms
and conditions of the plan, including Section 20 thereof, entitled "Cancellation
of Grants."
6. Term. Any portion of this Option that is not exercisable pursuant to
----
Section 2 on the date upon which the Option Holder's employment with the Company
and its Subsidiaries terminates shall terminate immediately upon the termination
of the Option Holder's employment with the Company and its Subsidiaries. Any
portion of this Option that is exercisable on the date upon which the Option
Holder's employment with the Company and its Subsidiaries terminates shall
terminate ninety (90) days after the Option Holder ceases to be an employee of
the Company or one of its Subsidiaries for any reason other than as described
below.
i. If the Option Holder's employment is terminated by reason of
death, the heirs of the Option Holder will be able to exercise this Option
until the earlier of (a) one (1) year following the death of the Optionee
or (b) the date on which this Option would otherwise expire.
2
<PAGE>
ii. If the Option Holder's employment is terminated after the
attainment of age fifty-five (55) and the completion of five (5) years of
service (as determined in accordance with the terms of the Mattel, Inc.
Personal Investment Plan), the Option Holder will be able to exercise this
Option until the earlier of (a) five (5) years following termination of
employment or (b) the date on which this Option would otherwise expire.
7. Compliance with Law. No shares issuable upon the exercise of this
-------------------
Option shall be issued and delivered unless and until all applicable
registration requirements of the Securities Act of 1933, all applicable listing
requirements of any national securities exchange on which the Common Stock is
then listed, and all other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery, shall have been complied
with. In particular, the Committee may require certain investment (or other)
representations and undertakings in connection with the issuance of securities
in connection with the Plan in order to comply with applicable law.
8. Assignability. Except as may be effected by will or by the laws of
-------------
descent and distribution, any attempt to assign this Option shall be of no
effect.
9. Certain Corporate Transactions. In the event of any change in the
------------------------------
Common Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event the
Committee may adjust proportionately the number of shares and the stock price of
the Common Stock subject to this Option. In the event of any other change
affecting the Common Stock or any distribution (other than normal cash
dividends) to holders of Common Stock, the Committee may make such adjustments
as it may deem equitable (including adjustments to avoid fractional shares) in
order to give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, spin-off, reorganization or
liquidation, the Committee may substitute a new option for this Option or
provide for the assumption of this Option by the other corporation that is a
party to the transaction.
10. No Additional Rights. Neither the granting of this Option nor its
--------------------
exercise shall (a) confer upon the Option Holder any right to continue in the
employ of the Company (b) interfere in any way with the rights of the Company or
a Subsidiary to terminate such employment at any time for any reason, with or
without cause, or (c) interfere with the right of the Company or a Subsidiary to
undertake any lawful corporate action. Option Holder acknowledges that he or
she is an "employee at will." The provisions of this Section 10 are subject to
the terms of any employment agreement between the Option Holder and the Company
(or a Subsidiary).
11. Rights as a Stockholder. Neither the Option Holder nor any other
-----------------------
person legally entitled to exercise this Option shall be entitled to any of the
rights or privileges of a stockholder of the Company in respect of any shares
issuable upon any exercises of this Option unless and until a certificate or
certificates representing such shares shall have been actually issued and
delivered to the Option Holder.
3
<PAGE>
12. Compliance with Plan. This Option is subject to, and the Company
--------------------
and Option Holder agree to be bound by, all of the terms and conditions of the
Plan as it shall be amended from time-to-time. No amendment to the plan shall
adversely affect this Option without the consent of the Option Holder. In the
case of a conflict between the terms of the Plan and this Option, the terms of
the Plan shall govern.
13. Governing Law. This Option has been granted, executed and delivered
-------------
with effect from the date of Notice, at El Segundo, California, and
interpretation, performance and enforcement of this Option shall be governed by
the laws of the State of Delaware.
4
<PAGE>
EXHIBIT 11
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For The Year Ended(a)(b)
-------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997 1996 1995
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BASIC
Income (loss) before
extraordinary item......... $(82,373) $206,053 $(178,111) $ 21,962 $308,997
Deduct: Dividends on
convertible preferred
stock..................... (3,980) (7,960) (10,505) (7,391) (3,200)
Dividends on convertible
preference stock........ -- -- -- -- (3,342)
-------- -------- --------- -------- --------
Income (loss) before
extraordinary item for
computation of income per
share...................... (86,353) 198,093 (188,616) 14,571 302,455
Extraordinary item.......... -- -- (4,610) -- --
-------- -------- --------- -------- --------
Net income (loss) applicable
to common shares........... $(86,353) $198,093 $(193,226) $ 14,571 $302,455
======== ======== ========= ======== ========
Applicable Shares for
Computation of Income
(Loss) per Share:
Weighted average common
shares outstanding........ 414,186 390,210 369,870 359,209 342,363
======== ======== ========= ======== ========
Basic Income (Loss) Per
Common Share:
Net income (loss) per
common share before
extraordinary item........ $ (0.21) $ 0.51 $ (0.51) $ 0.04 $ 0.88
Extraordinary item......... -- -- (0.01) -- --
-------- -------- --------- -------- --------
Net income (loss) per
common share.............. $ (0.21) $ 0.51 $ (0.52) $ 0.04 $ 0.88
======== ======== ========= ======== ========
</TABLE>
- --------
(a) Consolidated financial information for all periods presented has been
restated retroactively for the effects of the May 1999 merger with The
Learning Company, Inc. ("Learning Company"), accounted for as a pooling of
interests. Consolidated financial information for 1995-1997 has been
restated retroactively for the effects of the March 1997 merger with Tyco
Toys, Inc. ("Tyco"), accounted for as a pooling of interests.
(b) Per share data reflect the retroactive effect of stock splits distributed
to stockholders in March 1996 and January 1995, and the mergers with
Learning Company and Tyco in 1999 and 1997, respectively.
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For The Year Ended(a)(b)
-------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997 1996 1995
-------- -------- --------- -------- --------
DILUTED
<S> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary item......... $(82,373) $206,053 $(178,111) $ 21,962 $308,997
Deduct:
Dividends on convertible
preferred stock........... (3,980) (7,960) (10,505) (7,391) (3,200)
Impact of required ESOP
dividends or contributions
upon conversion........... -- -- -- -- (3,342)
-------- -------- --------- -------- --------
Income (loss) before
extraordinary item for
computation of income per
share...................... (86,353) 198,093 (188,616) 14,571 302,455
Extraordinary item.......... -- -- (4,610) -- --
-------- -------- --------- -------- --------
Net income (loss) applicable
to common shares........... $(86,353) $198,093 $(193,226) $ 14,571 $302,455
======== ======== ========= ======== ========
Applicable Shares for
Computation of Income
(Loss) Per Share:
Weighted average common
shares outstanding........ 414,186 390,210 369,870 359,209 342,363
Weighted average common
equivalent shares arising
from:
Dilutive stock options..... -- 8,501 -- 7,292 5,924
Assumed conversion of
convertible preferred
stock..................... -- 18,000 -- -- --
Assumed conversion of
notes..................... -- -- -- 64 --
Stock subscription and
other warrants............ -- 4,812 -- 1,029 1,046
Nonvested stock............ -- 184 -- 603 507
-------- -------- --------- -------- --------
Weighted average number of
common and common
equivalent shares......... 414,186 421,707 369,870 368,197 349,840
======== ======== ========= ======== ========
Diluted Income (Loss) Per
Common Share:
Net income (loss) per
common share before
extraordinary item........ $ (0.21) $ 0.47 $ (0.51) $ 0.04 $ 0.86
Extraordinary item......... -- -- (0.01) -- --
-------- -------- --------- -------- --------
Net income (loss) per
common share.............. $ (0.21) $ 0.47 $ (0.52) $ 0.04 $ 0.86
======== ======== ========= ======== ========
</TABLE>
- --------
(a) Consolidated financial information for all periods presented has been
restated retroactively for the effects of the May 1999 merger with Learning
Company, accounted for as a pooling of interests.
Consolidated financial information for 1995-1997 has been restated
retroactively for the effects of the March 1997 merger with Tyco, accounted
for as a pooling of interests.
(b) Per share data reflect the retroactive effect of stock splits distributed
to stockholders in March 1996 and January 1995, and the mergers with
Learning Company and Tyco in 1999 and 1997, respectively.
<PAGE>
EXHIBIT 12
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands, except ratios)
<TABLE>
<CAPTION>
For The Years Ended December 31, (a)(b)
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
<S> <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.... $(110,743) $391,632 $ 1,216 $188,898 $506,243
Less (plus) minority
interest and
undistributed income
(loss) of less-than-
majority-owned
affiliates, net........ 145 (165) (144) 303 (36)
Add:
Interest expense....... 151,609 128,468 112,612 126,929 108,298
Appropriate portion of
rents (c)............. 17,070 18,994 21,007 21,814 21,155
--------- -------- -------- -------- --------
Earnings available for
fixed charges.......... $ 58,081 $538,929 $134,691 $337,944 $635,660
========= ======== ======== ======== ========
FIXED CHARGES:
Interest expense........ $ 151,609 $128,468 $112,612 $126,929 $108,298
Capitalized interest.... 527 993 991 1,789 693
Appropriate portion of
rents (c).............. 17,070 18,994 21,007 21,814 21,155
--------- -------- -------- -------- --------
Fixed charges........... $ 169,206 $148,455 $134,610 $150,532 $130,146
========= ======== ======== ======== ========
Ratio of earnings to
fixed charges.......... 0.34 X 3.63 X 1.00 X 2.24 X 4.88 X
========= ======== ======== ======== ========
</TABLE>
- --------
(a) The ratio of earnings to fixed charges for all periods presented has been
restated for the effects of the May 1999 merger of The Learning Company,
Inc. ("Learning Company") into Mattel, which was accounted for as a pooling
of interests.
(b) The ratio of earnings to fixed charges for 1995 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.
(c) Portion of rental expenses which is deemed representative of an interest
factor, not to exceed one-third of total rental expense.
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Amounts in thousands, except ratios)
<TABLE>
<CAPTION>
For The Years Ended December 31, (a)(b)
----------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
<S> <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.... $(110,743) $391,632 $ 1,216 $188,898 $506,243
Less (plus) minority
interest and
undistributed income
(loss) of less-than-
majority-owned
affiliates, net........ 145 (165) (144) 303 (36)
Add:
Interest expense....... 151,609 128,468 112,612 126,929 108,298
Appropriate portion of
rents (c)............. 17,070 18,994 21,007 21,814 21,155
--------- -------- -------- -------- --------
Earnings available for
fixed charges.......... $ 58,081 $538,929 $134,691 $337,944 $635,660
========= ======== ======== ======== ========
FIXED CHARGES:
Interest expense........ $ 151,609 $128,468 $112,612 $126,929 $108,298
Capitalized interest.... 527 993 991 1,789 693
Dividends--Series B
preferred stock........ -- -- 2,537 3,406 3,200
Dividends--Series C
preferred stock........ 3,980 7,960 7,968 3,985 --
Dividends--Series F
preference stock....... -- -- -- -- 3,342
Appropriate portion of
rents (c).............. 17,070 18,994 21,007 21,814 21,155
--------- -------- -------- -------- --------
Fixed charges........... $ 173,186 $156,415 $145,115 $157,923 $136,688
========= ======== ======== ======== ========
Ratio of earnings to
fixed charges.......... 0.34 X 3.45 X 0.93 X 2.14 X 4.65 X
========= ======== ======== ======== ========
</TABLE>
- --------
(a) The ratio of earnings to combined fixed charges and preferred stock
dividends for all periods presented has been restated for the effects of
the May 1999 merger of Learning Company into Mattel, which was accounted
for as a pooling of interests.
(b) The ratio of earnings to combined fixed charges and preferred stock
dividends for 1995 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.
(c) Portion of rental expenses which is deemed representative of an interest
factor, not to exceed one-third of total rental expense.
<PAGE>
Exhibit 21.0
SUBSIDIARIES OF MATTEL, INC.
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Owned Directly or
Jurisdiction in Indirectly
Subsidiaries/1/ Which Organized By Parent/2/
--------------- --------------- -----------------
<S> <C> <C>
American Girl Music Incorporated.............. Wisconsin 100%
American Girl Place Incorporated.............. Wisconsin 100%
American Girls Productions Incorporated....... Wisconsin 100%
ARCOTOYS, Inc................................. Delaware 100%
Broderbund Software, Inc...................... Delaware 100%
Parsons Technology, Inc...................... California 100%
Far West Insurance Company, Limited........... Bermuda 100%
Fisher-Price, Inc............................. Delaware 100%
Mabamex, S.A. de C.V.......................... Mexico 100%
Mattel Argentina S.A.......................... Argentina 100%
Mattel Bangkok Limited........................ Thailand 80%
Mattel Belgium N.V............................ Belgium 100%
Mattel do Brasil Ltda......................... Brazil 100%
Mattel Chile S.A.............................. Chile 100%
Mattel Colombia S.A........................... Colombia 100%
Mattel Design Services, Inc................... Delaware 100%
Mattel Direct, Inc............................ Delaware 100%
Mattel Distribution, Inc...................... Delaware 100%
Mattel East Asia Limited...................... Hong Kong 100%
Mattel Toys (India) Private Limited.......... India 100%
Mattel Espana, S.A............................ Spain 100%
Mattel Factoring, Inc......................... Delaware 100%
Mattel (HK) Limited........................... Hong Kong 100%
Mattel Holding, Inc........................... Delaware 100%
Mattel U.K. Limited.......................... U.K. 100%
Mattel Tyco (UK) Ltd........................ U.K. 100%
Mattel Acquisitions plc..................... U.K. 100%
Bluebird Toys plc.......................... U.K. 100%
Bluebird Toys (UK) Limited................ U.K. 100%
Matchbox Collectibles (Europe) Ltd.......... U.K. 100%
Mattel Group PLC............................ U.K. 100%
J.W. Spear & Sons PLC...................... U.K. 100%
Mattel Holdings Limited....................... Canada 100%
Mattel Canada Inc............................ Canada 100%
Mattel I., Inc................................ Delaware 100%
Mattel S.r.l................................. Italy 100%
Mattel A.E.B.E.............................. Greece 100%
Mattel A.G.................................. Switzerland 100%
Mattel Manufacturing Europe, S.r.l.......... Italy 100%
Mattel International Holdings B.V............. The Netherlands 100%
Mattel Europe Holdings B.V................... The Netherlands 100%
Mattel G.m.b.H.............................. Germany 100%
Mattel Manufacturing East Europe S.R.O...... Czech Republic 100%
Mattel Europa B.V........................... The Netherlands 100%
</TABLE>
<PAGE>
SUBSIDIARIES OF MATTEL, INC.
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Owned Directly or
Jurisdiction in Indirectly
Subsidiaries/1/ Which Organized By Parent/2/
--------------- --------------- -----------------
<S> <C> <C>
Nanhai City Mattel Diecast Ltd........... China 100%
Mattel B.V............................... The Netherlands 100%
P.T. Mattel Indonesia.................... Indonesia 100%
Mattel France S.A......................... France 100%
Corolle S.A.............................. France 100%
Mattel Portugal Limitada................ Portugal 100%
Mattel Gesellschaft m.b.H................. Austria 100%
Mattel Northern Europe.................... Denmark 100%
Mattel Japan Limited........................ Japan 100%
Mattel (K.L.) Sdn.Bhd....................... Malaysia 100%
Mattel (Malaysia) Sdn.Bhd................... Malaysia 100%
Mattel Manufacturas de Monterrey, S.A. de
C.V........................................ Mexico 100%
Mattel Media, Inc........................... Delaware 100%
Mattel de Mexico, S.A. de C.V............... Mexico 100%
Mattel Servicios, S.A. de C.V.............. Mexico 100%
Mattel (NZ) Limited......................... New Zealand 100%
Mattel Operations, Inc...................... Delaware 100%
Mattel Overseas, Inc........................ California 100%
Mattel Asia Pacific Sourcing Limited....... Hong Kong 100%
Mattel Vendor Operations Asia Limited...... Hong Kong 100%
Tyco Hong Kong Ltd......................... Hong Kong 100%
Mattel Peru, S.A............................ Peru 100%
Mattel Pty. Limited......................... Australia 100%
Mattel Realty Corporation................... Delaware 100%
Mattel Sales Corp........................... California 100%
Mattel Southeast Asia Pte. Ltd.............. Singapore 100%
Mattel Specialty, Inc....................... Delaware 100%
Mattel Tools Sdn.Bhd........................ Malaysia 100%
Mattel Taiwan Corporation................... Taiwan 100%
Mattel de Venezuela, C.A.................... Venezuela 100%
Mattel.com, Inc............................. Delaware 100%
Mindscape Holdings, Inc..................... Delaware 100%
Mindscape, Inc............................. Delaware 100%
Mindscape International Pty. Ltd........... Australia 100%
Montoi S.A. de C.V.......................... Mexico 100%
Pleasant Company............................ Wisconsin 100%
Pleasant Company Publications............... Wisconsin 100%
Pleasant Company Productions................ Wisconsin 100%
Precision Moulds Limited.................... Hong Kong 100%
Softkey Holding GmbH........................ Germany 100%
TLC The Learning Company Deutschland GmbH.. Germany 100%
Softkey Holdings Corporation................ Canada 100%
Softkey Software Products Inc.............. Canada 100%
Softkey Holdings SARL....................... France 100%
TLC Edusoft SA............................. France 100%
The Learning Company Asia Pacific Pty.
Limited.................................... Australia 100%
</TABLE>
<PAGE>
SUBSIDIARIES OF MATTEL, INC.
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Owned Directly or
Jurisdiction in Indirectly
Subsidiaries/1/ Which Organized By Parent/2/
--------------- --------------- -----------------
<S> <C> <C>
The Learning Company Holland B.V............. The Netherlands 100%
The Learning Company (Ireland) Limited....... Ireland 100%
The Learning Company, K.K.................... Japan 100%
The Learning Company (UK) Limited............ U.K. 100%
TLC Multimedia Inc........................... Minnesota 100%
Tyco Toys (Europe) N.V....................... Belgium 100%
</TABLE>
- --------
1 All of the subsidiaries listed above are included in the consolidated
financial statements. Inactive subsidiaries and subsidiaries that, when
considered in the aggregate, do not constitute a significant subsidiary have
not been included in the above list.
2 Parent refers to Mattel, Inc. (a Delaware corporation) and excludes
Directors' qualifying shares.
<PAGE>
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the twelve
Registration Statements on Form S-8 (No. 33-14717, No. 33-51454, No. 33-34920,
No. 33-57082, No. 33-62185, No. 333-01061, No. 333-03385, No. 333-47459, No.
333-47461, No. 333-67493, No. 333-75145 and No. 333-79099), and in the
Prospectuses constituting part of the Registration Statements on Form S-3 (No.
333-68017 and No. 333-73177), and in the Prospectus constituting part of the
Registration Statement on Form S-4 (No. 333-71587) of Mattel, Inc. and its
subsidiaries of our report dated February 2, 2000 relating to the financial
statements and financial statement schedule which appears in this Annual Report
on Form 10-K.
/s/ PricewaterhouseCoopers LLP
- -------------------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM MATTEL, INC.'S
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 275,024
<SECURITIES> 0
<RECEIVABLES> 1,499,240
<ALLOWANCES> 229,235
<INVENTORY> 544,296
<CURRENT-ASSETS> 2,420,027
<PP&E> 1,223,520
<DEPRECIATION> 474,026
<TOTAL-ASSETS> 5,127,022
<CURRENT-LIABILITIES> 1,817,524
<BONDS> 1,183,835
0
0
<COMMON> 433,563
<OTHER-SE> 1,529,124
<TOTAL-LIABILITY-AND-EQUITY> 5,127,022
<SALES> 5,514,950
<TOTAL-REVENUES> 5,514,950
<CGS> 2,913,910
<TOTAL-COSTS> 2,913,910
<OTHER-EXPENSES> 2,560,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,609
<INCOME-PRETAX> (110,743)
<INCOME-TAX> (28,370)
<INCOME-CONTINUING> (82,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82,373)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
